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March 2009

States Tighten Insurance Market Regulations

As health care costs continue to rise and as there is greater emphasis on quality improvement within the health care system, states are increasingly involved in regulating their private insurance markets.  They are interested in examining how these markets are functioning and whether changes could lower premiums, promote the financial solvency of insurers, protect or enhance consumer accessibility, and improve quality of care. This article highlights a few examples of measures taken in Colorado, Maine, and Vermont to increase oversight in their insurance markets. 

Recently, Colorado passed the Fair Accountable Insurance Rates (FAIR) Act of 2008 which requires greater transparency from carriers about rating and renewal practices, along with premium rate increases.  Under the FAIR Act—as it relates to health insurance— Colorado health insurance carriers must:

  • Publicly file with the commissioner of insurance a detailed description of its rating and renewal practices.
  • Submit requested rate filing increases to the commissioner at least 60 days prior to the proposed implementation date.  If the commissioner does not approve the rates within 60 days, the rates may be implemented but are still eligible for disapproval upon later review.
  • Report to the division of insurance any specific reasons that apply to an increase in premium rates.  The division is required to track and make this information publicly available.
  • Refrain from willfully withholding information that will affect rates or premiums charged, or from giving false or misleading information.
  • Make public the use of credit information for underwriting purposes.
  • Produce annual statements and reports to the legislature about areas in particular need of transparency, such as:
    • Medical trend (e.g. drug prices, cost shifting, new technology, etc.)
    • Number of lives covered
    • Benefits ratio (aka medical loss ratio)
    • Administrative ratio
    • Executive salaries
    • Dividends paid
    • Disease and case management expenses
    • Reserves on hand
    • Taxes

The Colorado Insurance Commissioner may consider the expected medical loss ratio (what the FAIR Act refers to as the “benefits ratio”) for a health benefit plan when determining whether to approve or disapprove a rate filing.  The approval process may be expedited for a carrier that achieves a medical loss ratio of 85 percent for large group insurance, 80 percent for small group insurance, and 65 percent for individual insurance.  However, the medical loss ratio cannot be the sole consideration for approving or disapproving a rate filing.[1]  According to the Colorado Consumer Health Initiative, the preliminary results from rate filings between July 2008 and January 2009 show that out of 155 total filings, 80 were approved, 62 were disapproved, and 13 were withdrawn.[2]

As part of the Dirigo Health Reform Act in 2003, Maine implemented a 78 percent medical loss ratio in the small group market (which applies to rolling three year periods).  Of particular interest lately among the states, the Dirigo Act also requires that every health insurance carrier file an annual report supplement that provides the public with “general, understandable and comparable financial information relative to the in-state operations and results of authorized insurers and health maintenance organizations.”  Maine’s Bureau of Insurance (BOI) devised a form to collect this standardized information, including data such as member months and covered lives, medical claims and administrative expenses, and underwriting gain for each line segment of the market in which the insurer participates.  Carriers’ filings are posted at the BOI web site, and BOI prepares and posts annual data summaries.[3]   This form is a valuable tool for states considering what information they should expect carriers to report in efforts to achieve greater financial transparency in their health insurance markets.

In 2008, as part of a bill that changed the funding source for Maine’s subsidized DirigoChoice insurance plan, Maine enacted a number of changes to regulation in the individual market, which has had guaranteed issue and modified community rating since the 1990s.  Specifically, the bill changed individual market regulation by implementing a reinsurance plan to cover high cost claims, slightly expanding community rating bands, and creating a young adult plan.  However, following a campaign by the beverage industry to overturn the law’s use of a beer and soda tax to fund DirigoChoice, those changes were repealed by a citizens veto last November. [4]

In Vermont, Rule 10 is a comprehensive regulation that addresses quality assurance standards and consumer protections for managed care organizations in the state.  Under this regulation, the state's largest managed care organizations must conduct several quality improvement (QI) initiatives per year, and provide progress reports on a regular basis to the regulatory agency.  As an example, the Medicaid program and several of the largest managed care organizations have been voluntarily collaborating on an initiative (the Vermont Youth Health Improvement Initiative) to improve youths' clinical outcomes by working with their medical home practitioners.  The emphasis is on assessing adolescent patients for substance abuse and other risk factors, as well as for protective factors and strengths.  Initial chart audits have demonstrated increases in screening rates for all of the risk and protective factors. Fifty five practices, identified by the managed care organizations and Medicaid as having the largest number of adolescent patients, have participated in this effort.  Vermont is in the process of rewriting Rule 10, with an updated provision that would require managed care organizations to collaborate with at least one other managed care organization on a minimum of two QI initiatives per year on an ongoing basis by January 1, 2010.[5]

[1] Colorado House Bill 08-1389.
[2] Shanahan, K.  “Insurance Watchdog Measures:  The Colorado Experience,” Families USA:  Health Action 2009, January 2009.
[3] Relevant documents can be found at and
[4] Direct information from the Maine Governor’s Office of Health Policy & Finance
[5] Direct Information from the Vermont Division of Health Care Administration.