Approved insurance premiums rise an average of 6.1 percent; state denies two rate changes

Anya Rader Wallack. Photo by Josh Larkin

The Green Mountain Care Board has approved rate changes for about 52,000 Vermonters since it began tracking and approving health insurance premiums at the beginning of 2012.

The combined rates of the 25 plans the board has OK’d result in an average premium increase of 6.1 percent from last year. If the board had approved all of those plans as commercial insurers initially proposed, the increase would have been 7.3 percent. These averages are based on a weighted calculation that the board plans to improve in the future.

Additionally, the board also denied rate changes for two MVP Health Care plans, including the company’s state-subsidized Catamount plan, which appears to be in an “assessment spiral,” which occurs when subscribers move to plans with cheaper rates and the policy holders who don’t leave experience higher costs.

The Green Mountain Care Board is responsible for regulating the commercial health insurance premiums of roughly 235,000 Vermonters. The board began to record shifts in these premiums to better track and evaluate the success of said cost-cutting measures.

“This is a reflection of health care costs paid by a large percentage of Vermonters who are insured through commercial insurers,” said Anya Rader Wallack, chair of the board. “In terms of our responsibilities for cost control, it is really important for us to see what’s happening with underlying costs that are driving insurer rates and what is effective in terms of the rates we approve because those show up as bills to people and employers.”

The premium adjustments the board has thus far approved have gone into effect or will go into effect at the beginning of 2013.

MVP premiums are set to increase at a rate higher than Blue Cross Blue Shield’s, which does not necessarily mean that they will be priced higher. The highest approved rate increase is a 13.7 percent rise in the MVP large group market, which will affect 1,195 Vermonters.

In the small group market, a different MVP plan, which covers 2,000-plus Vermonters, is slated to rise 13.4 percent. Large groups are defined by insurance pools of 51-plus people and small groups are 50 or fewer.

Of the 13 MVP rates that have been approved, nine of them reflect an increase in premiums of 8 percent or higher. By contrast, the biggest Blue Cross Blue Shield increases are 7 percent for a large group plan and 6.9 percent for a small group plan, which affect less than a combined 2,000 Vermonters between the two plans.

MVP executives who were contacted for this story were not prepared to comment on the rate increases by the time of publication.

The only two rates that the board has turned down this year have also belonged to MVP.

Disapproval

When MVP submitted numbers in spring to the Department of Financial Regulation, which views the applications before the board, the department found a number of mathematical errors.

“The six MVP filings that we reviewed,” reads a board decision, “contained errors numerous enough for us to question the reliability of the data.”

Department Commissioner Steve Kimbell did not recommend one of the six proposed rate changes because the rates appeared to be deficient as they didn’t “include appropriate medical and pharmaceutical trends to provide for expenses associated with federal- and state-mandated benefits in developing the rate,” as the decision states.

The proposed rate change was a reduction of 4.7 percent and would have only affected 24 people. The board heeded Kimbell’s recommendation and turned down the proposal in July. MVP can resubmit the filing at a later date.

The other rate change the board denied was a 12.8 percent increase for MVP’s Catamount plan in the third quarter of 2012. This proposed change came after MVP raised rates by 21.1 percent in 2011. While Kimbell recommended the board accept the rate change, the board did not.

The board concluded that the rate increase did meet statute for three main reasons.

First, the state’s contracted actuary determined the rate was “not sufficient to cover anticipated claims and expenses,” as the decision reads.

Second, the actuary found that the Catamount group “is likely in an assessment spiral,” as subscribers change to cheaper plans, forcing costs up for those who remain.

MVP’s Catamount plan lost almost 75 percent of its policies after the 2011 rate increase, when the plan’s numbers dropped from 2,262 policies in October 2010 to 622 in September 2011. To provide sufficient funds to run this plan, the board concluded, “calls into question the affordability of (MVP’s) Catamount rates.”

Lastly, the board found that MVP’s “assumptions and data quality contain(ed) a number of flaws, calling the requested rate into question.”

How the board calculates rate changes

The board looks at three cost areas when it evaluates changes to health insurance premiums: administrative costs, medical costs and contributions to reserves. The board permits insurers to submit new rates for medical costs and reserve contributions on a quarterly basis, but only once a year can companies set their rates for administrative costs.

The board has approved at least one of these three cost areas for 32 plans, which affect roughly 177,000 Vermonters. But the board has only approved the aforementioned 25 plans in full.

Moving ahead, Wallack says, the board needs to improve how it calculates the combined fluctuations to health insurance premiums. Right now, the weighted average of 6.1 percent for the approved plans doesn’t tell the whole story.

“It’s the increase in the rate weighted by the number of people affected by that increase, which is a fairly crude way of doing it,” she said about the current calculation.

A better way of calculating the effect of changes to premium dollars, she said, would be to weight the number of premium dollars that is affected by that increase.

But the best way, she said, would be to calculate the average by the rate change, weighted by the premium dollars and adjusted year to year by differences in the value of the benefits. Right now, the board is looking for someone who can run such calculations for the department.

“That’s wicked complicated,” said Wallack about the math. “But it would be the most legitimate comparison because you’d be doing apples to apples, the benefit value is the same and here’s how much more you’re paying in premium dollars for that benefit in year two over year one. Then, you could do really wild stuff like adjust for inflation.”