Column: Accountability – Rates

This series titled “Column: Healthcare Accountability” is sponsored content from our partners at Axene Health Partners.  AHP offers highly specialized health care actuarial and consulting services across a number of states.  We have curated this content because we think it adds value to the work our readers are engaged in.  As always, we welcome your feedback on this series.




One of the primary responsibilities of health plans, like Aetna, Cigna and UnitedHealth Group, is to remain financially viable in order to meet its financial and legal obligations to members, plan sponsors, providers and employees. In many cases the reason a health plan suffers financial losses is that the premium rates charged for its insured business are simply too low.

This may happen if the actuary underestimated costs during the rate-making process, but it may also happen if management made a business decision to lower rates in an attempt to sell more business. Of course, there is also a possibility that state regulators will deny a requested rate increase.

In addition to its financial and legal obligations, a health plan has a moral obligation to make sure that members have reasonable access to quality health care by keeping costs as low as possible, providing a reasonable level of benefits and providing quality customer service. Failure to meet these moral obligations may have financial implications. Member dissatisfaction may result in many members leaving the health plan, leaving the health plan without enough members to support the infrastructure.

Although health plans generally maintain several blocks of business, in this article, we will focus on the commercial insured block of business sold to individuals and groups since this block generally has the most financial impact. Also, health plans generally follow similar business practices for each block of business it manages.

Manual Rates

Health plans use manual rates to determine premium rates for individual health plans and small employer groups. Manual rates represent the health plan’s expected overall experience for the effective period, adjusted for policy-specific rating factors like benefit plan, area, and age-gender. Manual rates are developed in three phases: an analytical phase, a business decision phase, and a regulatory oversight phase.

During the analytical phase, the actuary starts by projecti ng past claims experience for the health plan to the future rating period. The projection usually reflects adjustments for:

• External factors like changes in clinical practice and in the economy
• Benefit, care management and other structural changes
• New legislation
• Price increases
• Fluctuations in experience due to large claims
• Changes in the disease burden for the risk pool that will not be reflected through other rating adjustments

Continue reading the column here