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Premium Regulations

How are insurance rates regulated for HMOs and Blue Cross Blue Shield of Michigan?
Health Maintenance Organizations (HMOs) selling group or individual health care coverage in Michigan must file base rates and their rating methodology for approval by OFIR. Blue Cross Blue Shield of Michigan (BCBSM) must file their rate methodology and quarterly/monthly trend factors for group business for OFIR approval. BCBSM also files its group base rates. While the methodology for group rates is submitted for prior approval, any proposed actual rates to be charged by BCBSM to individuals must be prior approved by OFIR. Multiple Employer Welfare Arrangements (MEWAs) must also file their rates for OFIR approval. In order for OFIR to grant rate approval, the rates must be compliant with the applicable statutory standards.

What about commercial health carriers?
Companies must file all individual health insurance rates with OFIR. A company must show what it is paying out in claims compared to what it is receiving in premium. If the company’s losses exceed a predetermined “loss ratio”, then the rate action is considered to be justified. Commercial group health rates are not required to be filed with OFIR.

Does OFIR set the rates and tell companies how much they can charge?
No. (See response above for more detail on OFIR’ rate-approval process).

I know my health carrier made a profit last year. Now it says it needs a rate increase because it has been losing money. Can both things be true?
Yes. Carriers offer coverage through various lines of business – e.g. group, individual, Medicare Supplemental. It is possible that some lines of business make money some years while other lines may not. Also, even if a company is making a profit today, due to ever-increasing medical costs, it may be necessary to raise rates to cover claims and expenses over the coming rating period, usually one year.

How does a health carrier get a rate increase approved?
By submitting its request to OFIR for review. Documentation regarding costs and utilization during the experience period (usually the prior 1-2 year period) is provided. The health carrier must then estimate future costs/utilization, based on the changes in claims costs over a period of time, called a ‘trend’. OFIR has 30-120 days (depending on the statutes laws under which the health carrier is governed) to determine whether the proposed rates meet applicable Michigan law and can be approved for health carriers which OFIR has rate approval authority.

What are Michigan’s legal requirements for health carrier premium rates?
BCBSM – rates for all lines of business (group, non-group, group conversion, Medicare supplemental) must be self-sustaining and equitable, adequate, and not excessive. HMO/MEWA – rates must be fair, sound, and reasonable in relation to the services provided. Rates offered by commercial carriers must be reasonable in relation to the benefits provided.

What do actuaries consider?
Actuaries consider past claims experience, trends in costs and utilization of various services – both on a national basis as well as for the particular health carrier, or particular employer group if the employer group is experienced rated. Also considered are administrative expenses, and for companies doing business through contracted provider networks, changes in the contracted amounts or changes in the rating methodology used in determining what providers are paid must be considered. Actuaries must also consider the appropriate capital and surplus levels the health carrier must maintain.

What happens to the part of the company’s income that isn’t spent on claims and administrative expenses?
Any monies not used for claims and administrative expenses may be kept in the company’s reserves to strengthen the financial position of the company, to ensure that there are adequate funds to cover future costs as no one can predict future claims costs with 100% accuracy. Companies also use extra reserves to cover the costs of very expensive improvements for such things as updated information technology (IT) systems. For-profit health carriers also have to consider their stockholders when making financial decisions.

Does OFIR hold hearings to give the public a chance to comment on a company’s rate request?
The statute under which BCBSM is regulated requires that OFIR has a 120-day period to review the filings for individual rates and group rating systems. BCBSM is required to put notices in Michigan’s major newspapers announcing the filing, and OFIR notifies individuals and organizations that in the past have identified themselves as “interested parties”. Anyone who may be affected by a filing may comment, and may even “intervene” which requires that a hearing may be held with regards to the statutory compliance of the proposed rates. The individual or organization choosing to intervene has the burden of proof with regards to how a proposed rate violates Michigan law.

OFIR has 60 days to review HMO rate filings. There is no requirement for public notification of an HMOs rate request, but groups and individuals are required by law to be given no less than a 30 days notice before the new rate will go into effect. If someone wants to challenge the rate, a hearing may be scheduled, but the person requesting the hearing has the burden to prove how the rate violates the applicable Michigan law.

OFIR has 30 days to review long-term care, Medicare Supplement, and commercial health insurance rate filings. MEWA rate filings are also subject to a 30 day review, however, since MEWAs are a group of employers who operate through an association, rates are usually approved by a board of directors of the association or related trust before they are filed for OFIR approval.

How often is a company allowed to request a rate increase?
As often as deemed necessary given the health carrier’s developing claims experience. BCBSM must file its two rating methodologies (ERS & ARS) once every three years. HMO and MEWA rates are approved for a one-year period. Therefore, they file rates at least annually, but may request changes to their filed rates or rating methodology more frequently. Most groups and individuals have a contract with the health carrier guaranteeing the rate for a one-year period, so any changes to rates made throughout the rating year would only impact new business or groups that renew on or after the date of the approval for the new rate.

What can I do if the new rates are more than I can afford?
If you are purchasing individual coverage, shop around with other health carriers, and consider purchasing benefit plans with higher copay amounts or deductible requirements. If you are covered under a group plan, encourage your employer to do the same.

How are small employer groups regulated?
PA 88 of 2003 is Michigan’s Small Employer Group Reform Act. This Act defines what characteristics may be considered when determining rates for a small group. BCBSM can consider only age and industry. HMOs can consider age, industry, and group size. Commercial health carriers may adjust rates according to age, industry, group size, and health status. The Small Employer Group Reform Act also places overall restrictions on the relationship between the lowest and highest rates that may be charged (called rate bands). Additionally, the Act allows a health carrier to require a certain participation requirement of those employees “seeking coverage through the employer” when determining whether or not the health carrier will insure a group.

How are other groups and self-insured employer groups regulated?
HMO’s and BCBSM are required by statute to charge only rates and use methodology that have been filed with and approved by OFIR for both small and large group customers.

OFIR does not have authority over the rates charged under a self-funded health care plan. Regulatory authority for such plans come under the jurisdiction of the United States Department of Labor. Further information on self-funded health care plans is available at http://www.michigan.gov/cis/0,1607,7-154-10555_12902_35510_35695—,00.html.

Loss Ratios
The policy or rate filings shall include an actuarial certification that the benefits provided are reasonable in relation to the premium charged and shall show the anticipated loss ratio. The benefits provided are presumed unreasonable in relation to the premiums charged if the anticipated loss ratio does not equal or exceed the following standards:

* Sixty-five percent for rated by age insurance.
* Sixty percent for collectively renewable insurance or optionally renewable insurance.
* Fifty-five percent for guaranteed renewable insurance or nonrenewable for stated reasons only insurance.
* Fifty percent for noncancellable insurance, noncancellable and guaranteed renewable insurance or individual accident insurance.
* Fifty-five percent for all other insurance.