Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA

By Eugene Wang and Grace Gee
Technology Science (Harvard University), August 11, 2015

Abstract

The Patient Protection and Affordable Care Act (ACA) has substantially reformed the health insurance industry in the United States by establishing health insurance marketplaces, also called health exchanges, to facilitate the purchase of health insurance. The ACA has increased transparency in insurance pricing and in issuer pricing behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study examines changes in health insurance premiums made by individual health insurance issuers in 34 federally facilitated and state-partnership health insurance exchanges.

Results summary: Our study shows that the largest issuer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. Moreover, the largest issuers’ premium increase affects a larger proportion of plans and do not seem justified from the standpoint of incurred claims-to-premium ratio. Projected Index Rate from the rate review process is used as a summary of an issuer’s premiums across different plans and Projected Member Months as a proxy for on-exchange market share. Our findings suggest that even after the Affordable Care Act, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts.

From the Results

But can the largest issuers justify their higher premium increases in 2015 by claiming that they had higher incurred claims relative to collected premiums in 2014, compared to other issuers? To test this hypothesis… (technical details available at link)…

Note that this is very similar to the Medical Loss Ratio (MLR) as formulated in 45 CFR §158.221, which is used to calculate the MLR rebates issuers have to give to consumers if the MLR falls below 0.80 (i.e. they spent too little on medical expenses) in the experience period. But the MLR calculation would require the denominator to include only premiums collected in the experience period net of taxes, licensing and regulatory fees, which data is unavailable in the URR (Unified Rate Review public use files).

To test if the largest issuers in each state have higher incurred claims relative to premiums in 2014, the following null hypothesis was tested… (technical details available at link)…

After omitting states where data on the largest issuer was not available (the largest issuers having only joined the exchange in 2015) and omitting issuers without experience data (issuers can choose not to input experience period claims and premiums data if they deem that the data they have collected is not substantially representative, the test statistic is eventually calculated… (technical details available at link)…

… with a mean of 0.02, which means that the largest issuer has a higher claims ratio of only 0.02. Figure 9 shows that the claims-to-premium ratio for the largest issuers is 0.85 while that for the other issuers is 0.83. Since the test statistic is 0.50139 with a one-tailed p value of 0.31092, we conclude at 5% significance level that there is insufficient evidence to reject the null hypothesis in states where this ratio could be calculated. The claims-to-premium ratio of the largest issuer is not statistically significantly higher than other same-state issuers. Even if it were significant, a 2.5% higher claims-to-premium ratio is unlikely to be sufficient to justify the 75% higher premiums increase that the largest issuer incurred.

From the Discussion

Overall, this study is important in light of recent market consolidation efforts in the health insurance industry. This paper provides evidence that even after ACA, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts. This evidence should be prudently considered in any antitrust debate.

http://techscience.org/a/2015081104/

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CMS seeks emergency review of request for more insurance information

AMA Morning Rounds, August 31, 2015

Congressional Quarterly (8/29, Subscription Publication) reported that the Centers for Medicare and Medicaid Services “is seeking an emergency review of its request to collect more information from health insurance companies in connection with the medical-loss-ratio data and risk corridor regulations, which both are part of the agency’s effort to fully implement the 2010 health law.” The agency said it found a “number of significant discrepancies in the 2014 benefit year submissions that insurers made.” CMS officials said in a filing with the Federal Register “that they are concerned that the agency ‘will be unable to verify the accuracy of the submission and validate the data needed to operate the MLR or risk corridors programs’ if it doesn’t get additional information.”

http://www.ama-assn.org/ama/pub/news/newsletters-journals.page

This is scandalous. The co-authors of this article, Eugene Wang and Grace Gee (with Harvard degrees in Applied Mathematics), have shown that the largest insurance issuer in each federally-facilitated and state-partnered ACA insurance exchange had a 75% higher premium increase this past year than did other insurers in the same states. But what is really shocking is that they have shown that, based on claims-to-premium ratios, these excess premium increases are in no way warranted.

This should not have happened since the Affordable Care Act requires that at least 80% of the premiums be spent on health benefits (the medical-loss ratio). Now we learn that the Centers for Medicare and Medicaid Services found a “number of significant discrepancies in the 2014 benefit year submissions that insurers made” regarding medical-loss-ratio data. CMS is seeking an emergency review of its request to collect more information from the health insurers.

With the current merger activity of the nation’s largest insurers, we should be very concerned about their too-big-to-follow-the-rules attitude. The insurers contend that they need higher premiums because of their claims experience, yet they have failed to provide CMS with adequate, accurate data to show that they are spending at least 80% of the premiums on health care. This study strongly suggests that they are not.

It’s time to throw out the crooks and establish our own single payer national health program – one owned by the people. We aren’t going to cheat ourselves.