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Health Net: Early 2014 claims look ugly

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Health Net Inc. (NYSE:HNT) says individual claim costs per enrollee are about twice as high as they used to be.

Health Net gives an early look at the effects of the Patient Protection and Affordable Care Act (PPACA) on individual major medical experience in documents filed with the California Department of Insurance.

PPACA now requires health insurers to sell individual major medical coverage without considering personal health status in decisions about whether to issue coverage, and without using health information other than age and tobacco use when pricing the coverage. In the past, California let individual health insurers use medical underwriting when issuing and pricing coverage.

Health Net asked California regulators in June for permission to raise prices on some individual medical policies sold on and off the public exchange system an average of 7.9 percent.

The company provided claims comparison data from the past for small-group coverage, but not for individual coverage. Regulators asked for historical data for the individual market. Health Net said Aug. 6, in a response, that it believes the small-group market information is more relevant, because guaranteed-issue rules took effect in the small-group market earlier.

Extracting and adjusting historical individual market data in a way that would allow for apples-to-apples comparisons with the new, PPACA-compliant products would be difficult, Health Net said. ”Also,” Health Net said, “our individual claims costs for the first four months under PPACA are more than double what they were prior to PPACA.”

In a new 2015 individual coverage rate filing, which was submitted Oct. 2 and seeks an average rate increase of 10.8 percent, Health Net said it expects the extra health risk, or morbidity risk, resulting from the PPACA underwriting changes to increase costs greatly. The company said it once had a risk level below the state average, and will end up with a risk level above the state average. The morbidity shift will be enough to justify increasing individual costs 78.9 percent, the company said.

The company itself and state officials have noted that other factors, such as the new PPACA reinsurance program and the PPACA risk corridors program, should help offset much of the effects of the increase in morbidity. Insurance company have noted, however, that the PPACA risk programs are new, and that they’re not entirely certain how the programs will work.

Meanwhile, in Iowa, Time Insurance Company — a unit of Assurant Inc. (NYSE:AIX) — has given an estimate of the impact of state and federal PPACA “grandmothering” rules in a 2015 rate filing for individual off-exchange products.

“Grandfathering rules” have let consumers and small employers keep medical coverage that was in place in March 2010, when PPACA was signed into law, even if the coverage does not comply with most PPACA provisions.

The newer “grandmothering” rules have let consumers and small employers keep some coverage that was in place before Jan. 1, 2014, even if the coverage does not comply with all of the many major PPACA provisions that took effect Jan. 1, 2014.

Time estimates its individual policy morbidity would have increased 13.4 percent by 2015 if grandmothering had not occurred. The company is estimating that, because grandmothering affected when people with older individual coverage will start buying PPACA-compliant plans, the extensions of the old, grandmothered policies will increase 2015 morbidity levels by 23.5 percent over pre-PPACA levels.


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