Director of Alaska Division of Insurance Explains 2012 Rate Review and Effects of PPACA
Recently, Alaska Division of Insurance Director Linda Hall presented an overview of the 2012 Rate Review and the effects the Patient Protection and Affordable Care Act (PPACA) to the Alaska Health Care Commission.
To understand the 2012 rate review it is important to understand the affect PPACA had on rate regulations. Rather than discussing the generalities of PPACA, Hall addressed the specifics of the act as it pertains to Alaska statute and regulations and how it would affect Alaska’s rate review process. In order for a state to make the determination under PPACA that a rate is reasonable or not, the state must have an effective rate review program.
According to Hall, United States Department of Health and Human Services (HSS) deemed Alaska to have an effective rate review process starting January 1, 2012. The necessary changes required for this approval were created by HB 164 during the 2011 legislative session.
For example, an effective rate review program requires that a state:
1. Receive sufficient data and documentation to examine reasonableness of rate increases.
One substantive change was that the department was given the ability for prior approval of rate changes for all insurance rates AS 21.51.405.Prior to this change, the state was only able to apply prior approval to Hospital Medical Service Corporations, a unique class of insurers. Premera Blue Cross was the only entity in the state that was required to participate in this process prior to the changes set forth in HB 164.
2. Consider changes in medical cost trend, utilization, cost-sharing of major service categories, benefits, enrollee risk profile, previous estimation of trend, and medical loss ratio.
The most important and sometimes contentious part of this requirement is the Medical Loss Ratio. 80% of premium money must be paid towards claims as defined in PPACA. Under PPACA, if an insurer’s Medical Loss Ratio (80% for Small Group / Individual and 85% for Large Group) is not met in a particular year, then the insurer must pay a rebate. In addition to any rebate paid, the company is required to pay the costs associated with determining the rebate amount and administration (notice, fulfilling rebate, etc.) of the rebate.
The Medical Loss Ratio is defined as:
*Quality Improvement includes costs associated with follow-up care, programs put in place to boost efficacy of treatment such as a program to ensure patients are using the full cycle the total of their prescription, etc. Does not include cost for insures to convert to new database, insurance agent commissions, etc.
Many states have applied for a waiver for this mandate between now and Jan 1, 2014 so companies will have time to transition to the new Medical Loss Ratio requirement. Previously, many states had a Medical Loss Ratio requirement of approximately 65%.
3. Determine reasonableness under standard set by state
Currently the rate threshold of 10% is set by HHS and requires that the insurer submit justification to HHS which will be posted on www.healthcare.gov. This threshold will be state specific in the future.
4. Post a link to the HHS website which shows preliminary rate justifications
Rate increase justifications will be posted on www.healthcare.gov and presented in plain English (not a rate filing).
5. Establish a mechanism for receiving public comment
The state has a system for public comments regarding rate filings in place and also links tohealthcare.gov.
6. Report results of rate reviews to HHS
The state will report reviews to HHS as well as link to health.gov so consumers will have easy access to that information.
Future posts will cover the Rate Review Process, and Risk and Reinsurance.