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April 2013 St@teside

NAIC's Guidance on Rate Increase Mitigation Strategies

Many of the Affordable Care Act’s (ACA) major provisions will go into effect on January 1, 2014, including single risk pool rating, guaranteed issue, actuarial value metal tiers, and essential health benefits. Very recently a number of analyses and media reports have focused on the impact of these market reforms on health insurance rates and their distribution across various populations. To help state regulators tackle these issues, the National Association of Insurance Commissioners (NAIC) released a paper, “Rate Increase Mitigation Strategies,” at its Spring 2013 National Meeting detailing the options that states have to help minimize rate increases. 
Under the ACA’s market reform measures, individuals covered through high risk pools and portability plans will be able to easily access the traditional commercial market, potentially leading to increased claims costs. NAIC proposes the following strategies to address the anticipated increases in aggregate rate levels:
  • State supplemental reinsurance programs; 
  • Alternative state-based reinsurance programs; 
  • Phase-out period for state high risk pools; 
  • Caps on aggregate rate changes; 
  • Limitation of down-side risk for health insurance issuers; and 
  • Consumer outreach and communication strategies.

The ACA will also introduce new rating rules, such as the 3:1 age rating band, which may cause rate increases for specific populations. In order to address rate distribution issues, NAIC highlights several strategies, including:
  • State-specific age curves; 
  • State subsidy programs; and
  • Definition of geographic rating areas. 

The paper provides suggestions for the prioritization of these mitigation strategies while acknowledging that “some may be more feasible than others, depending on existing legislative authority, political climates, and current market dynamics.” It further stresses the need for states to take immediate action to implement these strategies if they are to successfully minimize rate increases in 2014.
In the meantime, Vermont became one of the first states to announce the premium rates being proposed by the health plans (these rates must still undergo review). Vermont officials are pleased that filed premiums are generally similar to those found in the current market, and they will be much more affordable when the advance premium tax credit (APTC) subsidizes lower income families. On the other hand, advocates are expressing concern about cost sharing, arguing that while premiums remain similar, the exposure to health costs will increase over the existing market. Vermont’s health exchange has many unique features, so it remains to be seen how premiums will be impacted in other states. For further analysis of the Vermont news, see “Vermont Preliminary Rate Filing Offers First Look at Exchange Pricing,” by the Georgetown University Health Policy Institute.