Health Coverage Rate Reviews FAQ
- How are insurance rates regulated for HMOs?
Health Maintenance Organizations (HMOs) selling group or individual health care coverage in Michigan must file base rates and their rating methodology for approval by DIFS. Rates for the individual and small group (employer group sizes up to 50) markets must comply with both Michigan law and the Affordable Care Act (ACA) rating requirements. Large group rates must comply with Michigan law. In order for DIFS to grant rate approval, the rates must be compliant with the applicable statutory standards.
- What about commercial health carriers, including Blue Cross Blue Shield of Michigan?
Commercial health insurance, including Blue Cross Blue Shield of Michigan (BCBSM), must file all individual and small group (employer group sizes up to 50) health insurance rates with DIFS. Rates must comply with both Michigan law and, in the individual and small group markets, the rating requirements of the Affordable Care Act (ACA). A company must show its premiums are reasonable in relation to the benefit provided for the specific product or plan. Additionally, companies must show that their expected losses relative to their proposed premiums exceed a statutorily determined percentage ("loss ratio"). Commercial large group (group size over 50 employees) health rates are not required to be filed with DIFS.
- Does DIFS set the rates and tell companies how much they can charge?
No. (See response above for more detail on DIFS' rate-approval process).
- I know my health carrier made a profit last year. Now it says it needs a rate increase because it has been losing money. Can both things be true?
Yes. Carriers offer coverage through various lines of business - e.g. group, individual, Medicare Supplemental. It is possible that some lines of business make money some years while other lines may not. Also, even if a company is making a profit today, due to ever-increasing medical costs, it may be necessary to raise rates to cover claims and expenses over the coming rating period, usually one year.
- How does a health carrier get a rate increase approved?
By submitting its request to DIFS for review, this is referred to as a "filing." The carrier must provide documentation regarding the costs of services they have reimbursed and how often health services are being used and then being reimbursed by the carrier (utilization) during the experience period (usually the prior 1-2 year period) . The health carrier must then estimate future costs/utilization, based on the changes in costs over a period of time, called a ‘trend'. DIFS has 60 days to make a determination regarding HMO rates and 30 days with the option to request an additional 30 days (for a total of 60 days) to make a determination regarding commercial insurance rates, including BCBSM.
- What are Michigan's legal requirements for health carrier premium rates?
- For commercial insurer's, including BCBSM, rates must be reasonable in relation to the benefits provided. HMO rates must be fair, sound, and reasonable in relation to the services provided.
- What do actuaries consider?
Actuaries consider past claims experience, trends in costs and utilization of various services that are considered on a national basis as well as for the particular health carrier, or particular employer group if the employer group is rated based on their own claims experience. Carriers also consider administrative expenses (how much it costs to produce and sell the coverage), and for companies doing business through contracted provider networks, changes in the contract amounts or changes in the rating methods used in determining how much providers are paid must be considered. Actuaries must also consider the appropriate operating costs of the health carrier.
- What happens to the part of the company's income that isn't spent on claims and administrative expenses?
Any monies not used for claims and administrative expenses may be kept in the company's reserves to strengthen the financial position of the company, to ensure there are adequate funds to cover future costs as no one can predict future claims costs with 100% accuracy. Companies also use extra reserves to cover the costs of very expensive improvements for such things as updated information technology (IT) systems. For-profit health carriers must consider their stockholders when making financial decisions.
- How often is a company allowed to request a rate increase?
Rates for commercial insurers, including BCBSM, and HMOs in the individual and small group markets are filed once per year. HMO large group rates are also filed once per year.
- What can I do if the new rates are more than I can afford?
If you are purchasing individual coverage, shop around with other health carriers, and consider purchasing benefit plans with higher copay amounts or deductible requirements. With the introduction of the Marketplace, or Exchange, you may be eligible for a subsidy depending on your income. If you are covered under a group plan, encourage your employer to do the same.
- How are small employer groups regulated?
PA 88 of 2003 is Michigan's Small Employer Group Reform Act. This Act defines what characteristics may be considered when determining rates for a small group. Additionally, the ACA has introduced the SHOP which is the Marketplace, or Exchange, for small employer groups to purchase coverage.
- How are other groups and self-insured employer groups regulated?
Large group covered by HMOs are regulated by Michigan statute. Rates must be filed annually and approved. Large groups covered by commercial insurers are not required to file their rates for approval. DIFS does not have authority over the rates charged under a self-funded health care plan. Self funded health plans, are regulated by the United States Department of Labor. Further information on self-funded health care plans is available at http://www.michigan.gov/difs/0,5269,7-303--263297--,00.html
- What is a loss ratio?
The loss ratio is a mathematical calculation that takes the total claims that have been reported to the carrier, plus the carrier's costs to administer the claim handling, divided by the total premiums earned (This refers to a portion of policy premium that has been used up during the term of the policy). For example, if an insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is 60% with a profit ratio/margin of 40% or $40.The rate filings must include an actuarial certification that the benefits provided are reasonable in relation to the premium charged and must show the anticipated loss ratio.
The answers provided are not meant to be a substitute for legal advice.