CALPIRG Education Fund
Nearly 70,000 Californians in small group insurance plans will see rate hikes averaging 8%, with some as high as 22%, if the premium rate hike proposed by Aetna Life Insurance Company goes forward.
If Aetna moves forward with this increase, it would go into effect on January 1, 2013. The main reason given for this increase is Aetna’s adjustments to health cost trends and rating factors. The rating factors are used to adjust base rates for differences in geographic area health care costs and changes in these relativities result in rate changes for policyholders. Aetna is requesting an average incremental change in rates of 2.2% for January 2013, an additional 1.3% incremental increase for February 2013 and a 1.9% incremental increase for April 2013. In addition, Aetna is filing increases for the HHS Taxes and Fees that will be paid for effective dates beginning January 2014.
The California Public Interest Research Group (CALPIRG) Education Fund worked with the actuarial firm NovaRest Actuarial Consulting to analyze the rate filing. Our staff and consulting actuary reviewed both the Initial Review and Subsequent Submission (11-08-2012) submitted by Aetna to the California Department of Insurance.
After careful analysis of Aetna’s filing and additional information provided, we are concerned that Aetna has not provided sufficient information to justify this rate increase. This is particularly troubling given the impact this rate increase would have on tens of thousands of enrollees if Aetna moves forward with this increase.
1. Aetna’s plan to raise rates 22.3% for small businesses appears unreasonable
Aetna plans to raise rates sharply for small businesses in the MC 2,500 75/50 plan due to a history of past losses, without expanding benefits or reducing administrative costs. While Aetna cites the high medical costs for enrollees in that plan, we question the appropriateness of allowing rating based on experience for plans with small enrollment rather than on actuarial value differences.
2. Aetna’s projected medical trend is not adequately justified and may be inflated
Based on historic trends cited in the rate filing, it appears that a lower trend should have been used by Aetna. The filing shows a medical trend of 1.8% for the last 12 months, which is significantly lower than the projected trend of 7.0%. Aetna has not adequately justified this high trend projection. A more reasonable medical trend figure could result in lower increases for consumers or a lower medical loss ratio for Aetna.
In addition, Aetna submitted a traditional Medical Loss Ratio (MLR) of 78.1% for 2013 and then appeared to re-calculate as 81.4% with the adjustments for the ACA rebate formula. Combined with the above mentioned risk that Aetna is currently over estimating its trend rate, CALPIRG has strong reason to believe that Aetna will fail the MLR rebate formula for 2013 set out by the ACA, to the detriment of policyholders.
3. Aetna may be overcharging for fees
Aetna is intending to charge members enrolled in 2013 a portion of the Health Insurer Fee and the Reinsurance Contribution fee the company will owe in 2014. Rather than risk having underpriced policies in 2014, Aetna is proposing having overpriced policies in 2013. Since Aetna is intending to collect this fee early and hold the funds, it seems appropriate to provide some interest offset to the prepaid funds.
4. Aetna Reinsurance Contribution
In addition, we are concerned the Reinsurance Contribution figures may not be appropriate. This is because at the same time Aetna pays these fees from its small employer plans, it is likely to be a recipient of reinsurance fees from other insurers for its individual insurance plans. Before Aetna collects these fees from its customers, it is important to confirm customers will only be charged for the net costs, with fees offset by any received reinsurance payments.
5. Aetna Rate Increase Percentage Calculation
CALPIRG found that many of Aetna’s exhibits contained rate increases for the second half of 2013, which result in a 2013 rate increase that is higher than reported by Aetna. Using the rate increases for all of 2013 shown in the exhibits, the 2013 rate increase is closer to 11% with the increases for policyholders in later months exceeding 15%. As far as CALPIRG can tell from the documents submitted by Aetna, approval has not been requested for rates for the second half of 2013 in this filing. CALPIRG would like clarification whether this rate filing is for the first two quarters of 2013 only and that Aetna would be required to file for any additional rate increases for 2013 before they could be implemented.
After careful analysis of Aetna’s filing, we are concerned that this rate increase may not be reasonable in its current form. The company has not adequately justified its medical trend projection, plans to raise rates sharply for small businesses in a way that may not be appropriate according to California small group rating requirements, and may be overcharging consumers for 2014 fees.
We respectfully urge the California Department of Insurance to request Aetna amend the rate change or make an official determination that the proposed rate change is unreasonable.