Week 7: Rate Development

Rate Development (10 minutes)

  1. Identify who is responsible for developing your companies' base rate and the premiums that will apply to individuals and employers. Identify the number of staff and proportion of administration expenses devoted to managing the day-to-day development of rates and premiums.

    1. Identify the number of staff, training and experience of key staff and proportion of administration expenses devoted to developing rates and premiums.
    2. Identify the separate staff, resources and expenses that may be associated with developing rates and premiums (or for the self-funded plans, the administrative fees) for each of the following markets:
    1. Medicare/Medicaid;
    2. Individual/small employer (50 or fewer eligible employees) insured plans;
    3. Large employer (over 50 eligible employees) insured plans; and
    4. Administration of self-funded plans.

  2. Explain how the health plan's senior management and staff in other departments, including for example, marketing or sales have any involvement in the following:

  3. the base rates that are charged in a market;

  4. actuarial rating factors used to develop health plan premiums; and

  5. the final premium that is charged to an employer group.

  6. During the 2008 calendar year, provide the number of rates your health plan developed for small groups and large groups (including prospective groups) within Massachusetts.

History

  1. For each calendar year from 1998 to 2008 - and on an estimated basis for 2009 - list annual premiums and PMPM premiums for your small group insured business (including the individual business added beginning July 1, 2007 under the health market reforms). Also, for this business, please list for each year from 1998 to 2008 and please estimate for 2009 and 2010 the following on both a dollar basis and on a percentage of premium basis:


    1. Annual profit margin
    2. Annual medical claims payments (including capitation arrangements)
    3. Annual expenditures on cost containment programs and efforts
    4. Annual administrative expenses (less cost containment and marketing expenses)
    5. Annual costs of health plan administration, commissions and other payments made to brokers, agents, and intermediaries.

  2. For each calendar year from 1998 to 2008 - and on an estimated basis for 2009 - please list annual premiums and PMPM premiums for your large group insured business. Also, for this business, please list for each year from 1998 to 2008 and please estimate for 2009 and 2010 the following on both a dollar basis and on a percentage of premium basis:


    1. Annual profit margin;
    2. Annual medical claims payments (including capitation arrangements);
    3. Annual expenditures on cost containment programs and efforts;
    4. Annual administrative expenses (less cost containment and marketing expenses); and
    5. Annual costs of health plan administration, commissions and other payments made to brokers, agents, and intermediaries.

  3. For each year from 1998 to 2008 - and on an estimated basis for 2009 - list the per member average annual rate increase for your small group insured business. (In calculating the per member average annual rate increase, please determine the increase on a constant exposure basis - i.e., what the increase would be if average benefits remained constant from year to year.)

  4. For each year from 1998 to 2008 - and on an estimated basis for 2009 - list the per member average annual rate increase for your large group insured business. (In calculating the per member average annual rate increase, please determine the increase on a constant exposure basis - i.e., what the increase would be if average benefits remained constant from year to year.)

  5. Identify the loss ratios (incurred claims divided by earned premiums) for the calendar years 2004 through 2008 and for the first 9 months of 2009 in total and separately for individuals, small groups and large.
Developing Base Rates
  1. Explain the timeline your health plan uses to calculate base rates, assuming that your plan is developing rates effective January 1. Please provide details about the timing of needed information and staff input in order to complete each stage of the calculation.

  2. Explain whether your company develops base rates on a monthly, quarterly, semi-annual or annual schedule and the reasons (administrative or otherwise) that you have decided to develop the base rates according to that schedule. If your health plan develops base rates other than on a monthly schedules, explain if your plan:


    1. applies the same base rates in each month until the next base rate is calculated; or
    2. applies monthly trend factors to the base rates until the next base rate is calculated. (If your plan applies periodic trend factors, explain how these are calculated and applied).

  3. When examining historic claims for use in estimating future claims trends, identify the historical period that your health plan uses, the reasons that you concentrate on this period and the relative weight that you apply to different periods when estimating future claims trends. Explain any difference for small group vs. large group.

  4. Explain the methodology that your health plan uses to estimate future claims trend factors:


    1. Explain if the methodology is different for the large employer line of business and the small employer and individual line of business along with the rationale for using different methodologies.
    2. Explain how your health plan examines trends by service types (e.g., inpatient hospital, outpatient hospital, professional services, and miscellaneous services) in developing an aggregate claims trend for the entire line of business.
    3. Explain how your projected trend is adjusted to account for the impact of planned cost containment initiatives.

  5. Describe the method that your health plan uses to factor in the costs of capitation payments made to providers or other organizations (e.g., mental health management companies) when developing claim costs trends. Identify and describe any differences in quantifying these costs between small and large employee groups.

  6. Is the contribution to surplus identical for both small and large groups? If they are not identical, explain the justification for the charge differential.

  7. Explain any adjustments your health plan may make to the normal pricing methodology to account for your health plan's position in relation to that of competing health plans. Describe all special adjustments made in the product development process and the rationale for making them.

  8. Describe what your health plan would do if it were not allowed to change any base rates for 6 months, 12 months and 24 months.

Rates for Large Employers (over 50 employees)

  1. Explain how your company develops the rates for large employers. Explain whether all large employer groups are purely experience rated or whether your health plan develops a large employer base rate to which you apply different experience factors. If your company blends company-specific and large group base rates in the development of rates, explain the process your health plan uses to blend rates for differing size groups.

  2. When developing large employer rates, explain whether you factor the following into the development of any final base rates:


    1. Historical Claim Costs
    2. Administrative Expenses
    3. General Administration
    4. Financial Reporting
    5. Regulatory Affairs
    6. Cost Containment
    7. Health Plan Administration
    8. Provider Contracting and Network Management
    9. Rate Development
    10. Contribution to Surplus or Profits
    For each of the above-noted items, identify which items are based on figures directly tied to large employers. For each of the other items, identify which lines of business are included in total costs and the basis you use to allocate a share of the total costs to large employers.

  3. When estimating future costs, explain whether the projected costs of each of the following items is based strictly on the projected change to the costs of large employers or whether it represents the health plan's overall projected changes to the items.


    1. Historical Claim Costs
    2. Administrative Expenses
    3. Contribution to Surplus/Profits

Rates for Small Employers (1-50 eligible employees) and Individuals

  1. When developing rates for small employers and individuals, explain whether you factor the following into the development of the final base rates:


    1. Historical Claim Costs
    2. Administrative Expenses
      1. General Administration
      2. Financial Reporting
      3. Regulatory Affairs
      4. Cost Containment
      5. Health Plan Administration
      6. Provider Contracting and Network Management
      7. Rate Development
    3. Contribution to Surplus or Profits

    For each of the above-noted items, identify which items are based on figures directly tied to the small employers and individual market. For each of the other items, identify which lines of business are included in total costs and the basis you use to allocate a share of the total costs to the base rates of the small employer and individual market. Explain whether one base rate is used for all small group products or whether a different base rate is used for separate plan types (HMO, PPO, etc) or different products. Within a base rate, how great may the difference in premiums or rate increases be?

  2. When estimating future costs, explain whether the projected costs of each of the following items is based strictly on the projected change to the costs of small employers or individuals or whether it represents the health plan's overall projected changes to the items.


    1. Historical Claim Costs
    2. Administrative Expenses
    3. Contribution to Surplus/Profits

  3. Identify which of the following small group rating factors that are permissible under 211 CMR 66.00 athat your health plan uses in the developing of small group premiums: Age Industry Participation rate Wellness Program Tobacco usage Benefit level Area Group size For each factor that you use, describe the method that you use in developing the rating factor.

  4. Have your companies' small group rates increased at a greater rate than the average large group rates? If so, identify the contributing factors to the greater increase.

Self-Funded Plan Fees

  1. When developing base fees, identify which of the following items is based directly on self-funded groups' costs and which include aggregate health plan cost that are allocated to the self-funded line of business:


    1. Administrative Expenses
      1. General Administration
      2. Financial Reporting
      3. Regulatory Affairs
      4. Cost Containment
      5. Health Plan Administration
      6. Provider Contracting and Network Management
      7. Rate Development
    2. Contribution to Surplus/Profits
    For each of the above-noted items, identify which items are based on figures directly tied to self-funded accounts. For each of the other items, identify which lines of business are included in total costs and the basis you use to allocate a share of the total costs to self-funded accounts.

  2. When estimating future costs, explain whether the projected costs of each of the following items is based strictly on the projected change to the costs of administering self-funded accounts or whether it represents the health plan's overall projected changes to the items.
    1. Administrative Expenses
    2. Contribution to Surplus/Profits
For any item where the projected change is different from that for small employer or large employer projected changes, explain the reasons for the differences.

Calculating Premiums

  1. Identify the rate basis types (e.g., single, double, family, etc.) that your health plan offers to large and small employer by your health plan and the methodology used by your health plan to calculate the relative premium cost of each rate basis type when calculating final premiums. (For example, some plans may apply a 1:2:2.4 rating tier when comparing the relative premium cost of single:dual:family tiers) Explain how these relativities differ for the large employer line of business and the small employer and individual line of business. Explain how frequently you examine and modify these values.

  2. Explain who is responsible to ensure that premiums are correctly calculated using all approved base rates and rating factors. What process does your health plan use to regularly test calculated rates?

  3. Explain how company-specific premiums are presented to employers along with explanations of the reasons that they have changed from one period to the next. Explain how your health plan explains base rate changes, as well as premium changes tied to the use of different rating factors due to demographic changes within groups.