Health Research Institute Regulatory Spotlight pwc.com/hri January 2015 States use rate approval authority to manage individual health insurance premium prices for 2015 The individual health insurance market has received much attention as consumers enroll in plans for 2015. In the months leading up to the 2015 open enrollment period, PwC’s Health Research Institute (HRI) analyzed insurers’ rate filings and found that premium increases over 2014 varied widely from state to state. Although the ACA helped standardize states’ programs to review rate filings, not all state insurance commissioners have the same authority to modify proposed rate increases. HRI analysis indicates that insurers in states with approval authority saw a greater reduction between proposed and final rate increases for 2015 compared to insurers in states without this authority. Impact of rate regulation on 2015 premiums HRI analyzed proposed and approved rate filings from 25 states and the District of Columbia for on- and off-exchange products offered in 2014 that were re-filed for 2015. States with prior approval authority saw a median drop of 2.9 percentage points between the proposed and approved rates, whereas carriers’ rates in file and use states dropped less than half as much, with a median 1.3 percentage point decrease. Of the 223 rate filings included in this analysis, almost half were modified prior to approval. Carriers’ proposed rates in states with prior approval authority were more likely to be modified (51%) than those in states that do not have this authority (23%). In addition, the median approved rate increase for 2015 in states with prior approval authority (6.0%) was lower than that in states without it (6.6%). Factors influencing proposed premium changes Many factors influence premium prices, and with only one year of comparative data for the ACA’s individual plans, it is too early to determine a “trend.” Nonetheless, early data suggest prior approval authority does exert downward pressure on insurance costs for several reasons.  State regulation of rate filings: States with approval authority often rejected large premium increases. For example, carriers re-filing 2014 products in one mid-Atlantic state saw an average decrease of 10.6% between their proposed average premium increases and those approved by the state insurance commissioner.  Disclosure and transparency standards: As part of the ACA, insurers seeking rate increases of 10% or more for non-grandfathered policies are required to publicly disclose the proposed increases and the justification for them on their websites. Such increases are then reviewed by independent experts to determine whether they are unreasonable. The goal of these requirements is to help consumers understand why they face higher rates.  Competitive pressures: In some states, health insurance companies may review one another’s rate filings, enabling them to adjust for competitive reasons before finalizing. Conclusion HRI’s analysis continues to support findings that overall median percentage premium increases for the 2015 individual health insurance market hover around 5.5%, contrary to initial fears about rate hikes in the double-digits. While future years’ data are needed to confirm the effect of rate approval authority on year-over-year premium changes, it is likely that premium prices will stabilize as health insurers gain more experience with the new exchange market, its regulatory requirements, and the demographics of its consumers. At a glance States that have the power to approve and deny health insurance carriers’ proposed premiums are using their authority to hold down premium increases in the 2015 individual health insurance market. Types of rate approval authority:  Prior approval (33 states + DC) - A rate or rate change must be approved by the insurance department before an insurer can implement it.  File & use (12 states) - New and proposed rate changes must be filed with the department of insurance, but insurers do not need formal approval before implementing them.  Both (3 states) - Some states have prior approval authority only for certain types of insurers, such as HMOs, and rely on file & use for all other insurers.  Not required (2 states) - Missouri and Montana do not require rate filings. Contacts Benjamin Isgur (Director) [email protected] (214) 754-5091 Bobby Clark (Pharma/Life Sciences) [email protected] (202) 312-7947 Matthew DoBias (Provider) [email protected] (202) 312-7946 Laura McLaughlin (Payer) [email protected] (203) 233-6041 Katy Lewandowski (Analyst) [email protected] (202) 412-1013 © 2015 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.