Something Curious in Insurers’ Rate Increase Requests

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Maybe it’s too cynical to suggest that they’re doing their part to promote the state’s budget, but health insurers operating in Rhode Island certainly aren’t hurting that cause when they say that they’ll accept smaller increases if it passes:

Health insurers have requested rate increases for next year with Rhode Island’s Health Insurance Commissioner that show significantly lower premiums if lawmakers approve an individual health insurance mandate included in the proposed state budget.

In the individual market, Blue Cross Blue Shield of Rhode Island requested an average 6.9% rate increase, which would fall to a 0.1% rate cut if “market stability” policies including the mandate are signed into law.

The reference is to the House budget’s Article 11, which makes several changes to the laws around the state’s health benefits exchange.  This issue is difficult for the public to follow, because there are a lot of moving parts and a lot of jargon gets mixed around, so it’s easy for those who have a vested interest in an outcome to muddy the public debate. Researching the relevant issues, it isn’t frankly clear that even experts know which policies are in effect federally and locally and which aren’t.

In the quote above, Providence Journal reporter Patrick Anderson attributes the difference in rates to the individual mandate, but I’m not so sure.  Technically, the federal mandate is still in effect, although insurers may have been making their requests based on the expectation that it would not be next year.

Still, my eye goes to Section 2 of Article 11, which adds to state law an “assessment” to fund the health benefits exchange.  This tax will be 3.5% of all monthly premiums charged by insurers for “each policy under the plan where enrollment is through the exchange.”  The difference from the current law is that the exchange currently charges an assessment within the limits of what the federal government charges for its exchange.

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Under federal law, insurers are required to spread the 3.5% assessment across all customers with the same plans.  So, right now, HealthSource sends invoices to insurance carriers for 3.5% of the premiums on plans sold through the exchange, and the carriers are required to divide that total cost — $5,284,818 in 2018 according to exchange’s revenue report — among all members who have the same plans whether they bought them on the exchange or not.  Given Rhode Island’s restrictive health insurance regulations, however, that probably doesn’t spread the cost out very much

One interesting consequence of taking out the reference to federal law and making the assessment an explicit charge in state law is that it might allow the insurers to spread out the cost more broadly across all customers. It’s simply an invoice to the company.  Notice that the insurers only say they’ll change their rates for their individual plans if Article 11 passes.  The individual mandate may play a role, but part of the difference may also be that insurers are able to spread out this $5 million tax more broadly, across all of their customers.

This will be an area to watch going forward, both in terms of the regulations that the exchange implements and any future changes to the statute from the General Assembly.  On the first count, the exchange will have to implement regulations that are more specific than the statute.  On the second count, if the insurance companies can spread out the cost of funding the exchange to all customers, then legislators might think they can increase the rate without voters’ noticing.

Indeed, if my suspicions about Anderson’s article are correct, the government may be able to spin increases in taxes for most residents as decreases.



  • D. S. Crockett

    Can anyone say if the so-called Rhode Island Obama Exchange is still in operation? The start-up cost I believe was $25 million? If the so-called exchange remains in operation, why is that so?

  • ShannonEntropy

    WOW that is a pretty darn astute analysis of that bill, Justin

    Donut forget the so-called “80-20 Rule”

    The 80/20 Rule generally requires insurance companies to spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.

    The 80/20 rule is sometimes known as Medical Loss Ratio, or MLR. If an insurance company uses 80 cents out of every premium dollar to pay for your medical claims and activities that improve the quality of care, the company has a Medical Loss Ratio of 80%.

    Insurance companies selling to large groups (usually more than 50 employees) must spend at least 85% of premiums on care and quality improvement.

    If your insurance company doesn’t meet these requirements, you’ll get a rebate on part of the premium that you paid.

    https://www.healthcare.gov/health-care-law-protections/rate-review/

    This is not just a hypothetical… the last year Mrs Entropy had private health insurance she ended up getting a rebate check that paid her entire annual subsidized costs for basically free

    So by spreading a rate increase across the entire customer base a health insco can mitigate / eliminate this “risk” to them

    These darn Capitalists… where can WE sign up to become one ??

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