Report: Making Health Care Work

Review of Anthem's Rate Increase on Individual Policies

340,000 Californians to see premiums increase by 20% average
Released by: CALPIRG

Executive Summary

Nearly 340,000 Californians in individual insurance plans will see average rate hikes of 20%, with some as high as 24.9%, if the rate hike proposed by Anthem Blue Cross Life and Health Insurance Company goes forward as planned on February 1st 2013. These increases are in addition to rate increases that went into effect beginning in May of 2012, bringing the cumulative average annual rate increase to 24.2% for closed non-grandfathered plans and 22.7% for open plans.

This rate increase is among the largest by any insurance company in the last year, both in terms of its percent increase and the number of people affected. It also comes at a time when Californians are just beginning to recover from the economic downturn, and the median income for Californians has declined every year for the last 5 years when adjusted for inflation.  Yet if this rate increase goes forward, policy holders will see rates increase $459.36  per year on average, on top of the previous increase. Given the magnitude of this rate hike and its impact on policyholders, the insurer should be held to a high standard of scrutiny in justifying the need for such a significant increase.

The California Public Interest Research Group (CALPIRG) Education Fund worked with the actuarial firm NovaRest Actuarial Consulting to analyze the rate filing, and the analysis was reviewed by policy staff at Health Access. As part of this process, we reviewed both the Initial Review and Subsequent Submission submitted by Anthem to the California Department of Insurance and referenced the previous rate filing that went into effect in May.

After careful analysis, we are concerned that Anthem has not provided sufficient information to justify this rate increase. This is particularly troubling given the impact this rate increase will have on hundreds of thousands of enrollees if Anthem moves forward with this increaseit.

Key Findings

1.    Anthem’s medical trend may be overstated.
The cost trend Anthem proposes significantly outpaces other estimates of average national cost increases. In addition, Anthem does not support the leveraging factor used in the development of the projected medical trend. This leveraging factor increases the medical trend by 22% for closed plans – from a trend of 10.9% to a trend of 13.3%, and increases the trend by 24% for open plans – from 10.9% to 13.5%. Given the sizable impact on the trend, it is imperative that Anthem thoroughly explain the leveraging factor used.

2.    Anthem uses unsupported loss ratios to develop the required rate increases.
In the filing, Anthem states that the requested rate increases are the result of a specific set of assumptions combined with their associated specific loss ratios. However the target loss ratios specified do not correlate with the data provided, and they are far below both the federal medical loss ratio rebate threshold and Anthem’s projected loss ratio listed elsewhere in the filing. Determining a rate increase based on a low loss ratio results in an artificially high rate increase.

3.    It is not clear how Anthem arrives at the proposed rate increase.
Anthem’s filing fails to provide sufficient clarity and detail to enable an assessment of the reasonableness of the rate increase. It seems that the rate increases ultimately requested by Anthem are different than the ones that would have been required based on Anthem’s stated assumptions and selected loss ratios. Anthem does not explain the reasoning behind these differences.

4.    It is likely Anthem will have to issue premium rebates if this rate increase goes forward
Because the rate is based on low target loss ratios and high medical trend projections, it is likely Anthem’s actual ACA-defined medical loss ratio will slip below their stated projection of 83%. If it goes below 80%, the company will have to issue premium rebates to policyholders. It would be preferable for Anthem to reduce the rate hike at the outset, leaving those extra funds in policyholders’ pockets.

5.    The cumulative impact of this proposed increase combined with the rate hike implemented in May 2012 may be unreasonable.
In May 2012, Anthem raised rates on the same plans for which it is now filing an additional rate increase request (PF-2011-02237). The cumulative impact of the two rate increases is not made clear in the filing information authored by Anthem but was mentioned in the independent actuary’s report included with the filing. According to subsequent information filed by Anthem, the average annualized impact of the increases is 24.2% for the closed non-grandfathered plans and 22.7% for the open plans.

6.    Anthem may be double-charging for maternity benefits.
The insurer appears to be adding an impact to claims of between 1.3% and 5% to account for California’s maternity benefits required as of July 2012. Anthem appears to have already charged these policyholders for the maternity benefit in the previous rate increase that went into effect in May of 2012.

After careful analysis of Anthem’s filing, we do not believe this increase is reasonable in its current form. The company has not adequately shown that the rate proposal is based on reasonable assumptions supported with evidence. We are concerned the rate is based on unsupported medical loss ratios and overstated medical trend projections. We therefore believe it is likely Anthem will need to issue premium rebates if this rate increase goes forward.

Given the magnitude of the increase, the fact that it comes less than a year after the last increase, and the fact that it will have a significant impact on roughly 340,000 Californians, we respectfully urge the California Department of Insurance to request Anthem amend the rate change or make an official determination that the proposed rate change is unreasonable. 

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