(Part 8 of ?): Statement at 2017 Revised Rate Request Public Hearing

August 15, 2016. As indicated in Part 7, the Maryland Insurance Administration (MIA) held a public hearing on CareFirst’s revised 2017 ACA rate requests. That hearing took place on August 15, 2016 and was open to all interested parties. As was the case at a July hearing on CareFirst’s original rate request, the MIA was very accommodating. They allowed me to speak freely and without interruption. What follows is the statement I prepared for the hearing. Unfortunately, I have a tendency to speak from the heart rather than from “the paper” so I certainly did not read the statement verbatim. I did, however, follow the basic structure of the written statement and discuss the included points. In many respects, the statement constitutes a synopsis of the more detailed information included in Part 7.

Hearing Statement as Written. Since I was last here only one month ago, I debated long and hard as to whether I had anything additional and worthwhile to say at this hearing. Ultimately I decided that the audacity of the CareFirst rate request revision merits some input, whether anyone wants to hear it or not. It is not my intent to go over the same criticisms I offered in July during the original rate request hearing, although I stand by each and every one and hope that they will continue to be considered as part of the rate review process.

Briefly, for those who do not remember me from July, I am an ACA casualty. I went to work for myself on January 1, 2003 and purchased health insurance on the open market every year for 12 years until my pre-ACA plan was cancelled at the end of 2014. I paid (for my family of three) $4,889 in premiums for a $5,000 deductible (down from $10,000 due to a decreasing deductible feature) health plan in 2014. If CareFirst’s requested rates are approved, the premiums for the cheapest individual marketplace plan available in 2016 (which includes a $13,100 deductible) will increase to $15,647, more than triple those of my 2014 plan. In three short years, the ACA would require a minimum additional annual expenditure of nearly $11,000 while increasing maximum annual outlays from $10,000 to $29,000. In effect, the ACA will charge nearly $16,000 annually for what is effectively the right to self-insure with a catastrophic backstop.

I would also note that much of the talk about premiums focuses on average costs. Average costs only matter to an average person, which generally, for the ACA, means a 40 year old. Such talk does great disservice to those of us who are not average. The unsubsidized rates for a 60 year old are more than double those of an average person. When one talks of average rates representing 10 percent of income, the corresponding rates for a 60 year old represent over 21 percent of that identical income. For my family, the additional rates that CareFirst is requesting, just between their original and revised 2017 rate requests, would demand an additional annual outlay of over $1,700 for their cheapest plan. That’s not the difference between 2014 and 2017 ($11K), or 2016 and 2017 ($6K), but the difference between 2017 as of May and 2017 as of July.

The cause of this difference? A purported 7 percent increase in allowed claim morbidity between 2016 and 2015 for existing plan holders and a purported 15 percent increase in allowed claim morbidity for new 2016 versus existing 2015 plan holders. Not one shred of evidence to support these claims is provided in the data made available to consumers. All historic data is for 2015 and is exactly the same as that included in the May CareFirst rate request. So, one can only speculate on issues such as:

• Are the trends accurate? It is certainly hard to rationalize why existing plan members would suddenly self inflict additional economic pain and why new members would have waited to enroll if they had significant morbidity issues, but without data it is impossible to provide informed comments.
• Are incurred claims affected proportionally? CareFirst does not pay for allowed claims.
• Are the trends consistent on a plan specific basis? I presented substantial data in my June 25, 2016 comment letter (on CareFirst’s original 2017 rate request) showing that the subsidy effects of the ACA affect consumer behavior. Are we witnessing more of this behavioral influence here? If the effect is due to the lack of any cost containment for low premium, low deductible plan holders or for a medical community that is only too willing to support such runaway behavior (for obvious profit reasons), why should such effects be passed to all consumers?
• Have the trends been adjusted for age? Since all 2015 members will be one year older in 2016 and CareFirst’s approved rates include an automatic age based increase of nearly 5 percent, has this 5 percent been factored out of the 7 percent morbidity estimate? In other words, is there a net 2 percent morbidity increase, or a gross increase of 12 percent? Similarly, has age correction been performed for new 2016 consumers relative to the 2015 consumers to which they are being compared?

With regard to the data presented in the single morbidity table included in CareFirst’s rate request (Actuarial Memorandum page 10 of 58), I note the following inconsistencies which are sufficient to withhold any rate approval.

• The tabulated net morbidity factors are not consistent with the tabulated plan specific data. The net factors for the presented data are $391 and $447, representing an increase (ignoring all other issues) of 14.2 percent, not 16.8 percent.
• Using plan specific mapping data and 2017 membership forecasts presented elsewhere in CareFirst’s request, it is possible to estimate the constant morbidity plan specific claim activity. Such an analysis results in estimates of $201, $196, $459, and $473 for Catastrophic, Bronze, Silver, and Gold plans respectively. The associated net all plan estimate is $371, reflecting a net constant morbidity decrease of 5.1 percent between 2015 and 2017. Is this “cushion” reflected in CareFirst’s morbidity calculations?
• CareFirst applies different morbidity factors for existing and new members, yet provides no data to estimate the fraction of each. Since there is a net decrease of nearly 300,000 member months between observed 2015 data and forecasted 2017 data, it is not even possible to guestimate a new member fraction as there are more members leaving than joining.
• CareFirst includes differing assumptions with regard to member movement. In their increased morbidity filing CareFirst claims that 80 percent of Platinum members will switch to the Gold plan level, 15 percent will switch to the Silver level, and 5 percent will switch to the Bronze level plan. In a separate calculation in that same filing, CareFirst’s own plan mapping data (Actuarial Memorandum page 51 of 58) assumes that all Platinum members transfer to the 2017 Silver PPO plan (via their 2016 Gold level PPO plan). Which assumption is correct?
• The tabulated morbidity data show a 50 percent increase in Catastrophic plan morbidity (much higher than either the 7 or 15 percent factors could induce). As with Bronze, Silver, and Gold plans, it is possible that member movement between plans is a contributor, but nothing in CareFirst’s filing indicates what kind of member movement (if any) CareFirst is forecasting for the Catastrophic plan?
• How can a mix of members showing either a 7 or 15 percent morbidity effect combine to generate a net effect of 16.8 percent that is higher than either individual effect? Not only is this not explained, but it is not possible. Under these conditions, the maximum possible morbidity increase is 15 percent and that can only be achieved if every existing member leaves CareFirst before 2017 and is replaced with a new member. If I conjure up a tortured assumption that CareFirst really means factors of 1.07 for existing members and 1.2305 (1.07 times 1.15) for new members, it still would require a new member fraction of over 61 percent to generate a 16.8 percent net morbidity increase. CareFirst provides no data or statement to rationalize this apparent miscalculation.

These and any other questions that might come to light upon a review of actual data must be answered before any associated rate increase should be approved.

The revised rate request essentially amounts to an additional 11 to 17 percent rate increase layered on top of the rates for which a hearing was held only one month ago. As with the original request, the highest requested revised rate increase is for one of only two plans that exhibit a payout ratio below 90 percent. CareFirst’s own data show that the Bronze level plan slated for a 63 percent premium increase (68 percent with aging), exhibits a staggeringly healthy payout ratio of 59 percent. Morbidity for Bronze plan members could increase by more than 35 percent and payout would still be under 80 percent. If CareFirst’s morbidity assumptions are flawed and their requested rates are nevertheless approved, the Bronze plan payout ratio would drop to 33 percent. If rates were set appropriately to produce a full slate of 80 percent payout ratio plans, Bronze plan rates merit a 30+ percent rate decrease. Under such an approach, the plan specific return on investment (as defined as claim dollar of benefit per dollar of premium and out of pocket treatment payments) for all plans is entirely consistent with the differing design actuarial values of the plans, as opposed to seriously skewed as under the current premium structure.

The requested 2017 Bronze plan premiums alone would represent 19.5 percent of annual gross income for a family of three (with an age profile like mine) making four times the 2016 Federal Poverty Level income. The maximum annual out of pocket expenses for the plan would constitute 35.8 percent of that same income.

Since insurer administrative costs are constrained under the ACA only as a fraction of premiums, every rate request submitted by CareFirst (or any other provider) includes an inherent administrative budget increase. In effect, 20 percent of every dollar of rate increase is allocated to the insurer’s operational costs regardless of whether those costs are rising, falling, or unchanged. Clearly there is no incentive for the insurer to control such costs. The 2016 CareFirst rate approval put approximately an additional $27 million into the company’s administrative budget, which represents a budget increase of about 25 percent over 2015. If the 2017 rate increase is approved as requested, the company should reap an administrative budget increase of $37 million over 2016 and $64 million over 2015, net increases of 28 percent over 2016 and 60 percent over 2015. The revised 2017 rate request (relative to the original 2017 rate request) would result in an additional $21 million allocation to CareFirst’s administrative budget even though the only effective change between the two requests is increased morbidity. Clearly every rate increase is a windfall for CareFirst (and other insurers) and a perverse penalty passed to consumers for which they receive no benefit. There is absolutely no reason that administrative costs should scale with premiums. At a minimum, these increases should be factored out of any rate change approval.

How are double (and approaching triple) digit premium increases consistent with declining health care costs? I can certainly speculate with regard to the reasons, and to the extent possible given available rate request data have provided partial insights into potential causes in my comments, but clearly there is a large problem here that must be addressed – and which can only be addressed by those with access to the underlying data. Unfortunately, those with such access either have no incentive to provide an explanation or simply don’t care. This is precisely why average Americans are losing faith in their representatives and even the overwhelming public evidence of this loss is not sufficiently obvious to generate concern among those parties.

The ACA includes no premium (or deductible) cost containment provisions. Where are the protections for those of us who do not run to the doctor for every ache and pain, who do not demand or expect to undergo a battery of tests for the transient symptoms of aging, and who do not believe that we are missing out if we’re not taking the latest medication. Who is going to undertake the effort to introduce critically needed cost and behavioral constraints? If ACA designers actually believe the individual ACA market is healthy, then I propose a simple experiment; namely, require all Americans regardless of employment to obtain coverage through that market, without any employer or government subsidies other than those routinely offered to self-employed individuals. This will never happen since those of us forced to pay full fare in this market constitute an insignificant power base, but those that have the responsibility to develop and administer this program should make every decision as if they were subject to the same market requirements that many hold up as fair and effective. Anything less is unacceptable.

Thank you for the opportunity to comment.

What’s Next. In the short interlude between the original and revised CareFirst rate requests for 2017, I actually received a notice that a hearing date for my 2016 ACA exemption had been scheduled for August 19, 2016. A summary of that event is the topic of my Part 9 post. It’s a good thing that the ACA is transparent and demands no time or effort.

Posted July 12, 2016Questions or comments can be sent to aca@meszler.com