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Is that health insurer a daredevil?

By Allison Bell

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State insurance regulators want to keep a tool it uses to identify health insurers with poor control over growth from making new health insurers look bad.

The Capital Adequacy Task Force, an arm of the National Association of Insurance Commissioners (NAIC), is asking for comments on a proposed change to the health risk-based capital (RBC) reporting blanks.

Regulators use RBC levels to estimate whether insurers have enough capital to support the business they have written. The proposed health RBC blank change would affect calculations that show whether RBC seems to be growing quickly enough to support growth in the amount of business written.

The blanks include those calculations because of a concern that, in some cases, insurers may price coverage too cheaply and take on more risk than they can handle. The companies that take on too much risk may have to increase prices substantially or go out of business.

Regulators now suggest that, at a typical health insurer, growth in RBC levels should be about 10 percentage points higher than growth in underwriting risk revenue. If revenue increases 30 percent between the prior year and the current year, for example, the “safe harbor” growth rate for the RBC supporting that business might be about 40 percent, officials say.

Start-up health insurers have had to enter zero, or a figure close to zero, for the prior year, and that has led to new health insurers reporting infinite or nearly infinite first-year growth rates. District of Columbia insurance regulators asked the Health RBC Blanks Working Group to address the problem, Capital Adequacy Task Force officials say in a revision drafting note.

The growth rate computation issue has become a headache this year because the Patient Protection and Affordable Care Act (PPACA) has led to the creation of many new health insurance entities, such as the new nonprofit, member-owned CO-OP plans.

Originally, task force officials say, Health RBC Working Group members had thought about solving the problem by assuming the hypothetical prior-year revenue for a start-up should be about 20 percent lower than the projected revenue for the current year. That approach had problems, because it failed to produce an RBC charge for a new company that did poorly and failed to meet its growth target, officials say.

In the new draft, officials say start-up managers can use the first year’s projected underwriting risk revenue and the first year’s net underwriting risk RBC that were approved by the start-up’s official home state regulators in place of the prior-year revenue and net underwriting risk RBC figures. The measure of risk would then be the gap between the projected figures and the actual current-year figures, rather than the gap between current-year figures and the prior-year figures.