Health insurance costs

Tuesday, July 01, 2014 12:17 PM

Kate Alfano, CMS contributing writer

DOI recommends new geographic rating areas for 2015

The Department of Regulatory Agencies Division of Insurance is moving forward on a new structure for dividing the state to influence the cost of health insurance. Geographic rating areas are units made up of metropolitan statistical areas (MSAs), counties or three-digit zip codes, which are used by insurance carriers to price premiums. An MSA is a geographical region with a relatively high population center and close economic ties throughout the area.

Under the Affordable Care Act, states have the option to default the rating areas to their MSAs plus one non-MSA region or to expand upon those areas if the regions are actuarially justified, not discriminatory, lead to stability in rates over time, and apply uniformly, among other requirements.

For 2014, Colorado chose to implement a structure of seven MSAs and four non-MSAs. The seven MSAs are Grand Junction (Mesa County), Fort Collins (Larimer County), Greeley (Weld County), Boulder (Boulder County), Denver (metro Denver and the surrounding areas), Colorado Springs (Teller and El Paso counties), and Pueblo (Pueblo County). The non-MSAs are West, Southeast and Northeast, which comprise mostly rural counties in those areas of the state, and the Colorado Mountain Resort region, which comprises the counties of Garfield, Eagle, Summit and Pitkin.

A Kaiser Family Foundation report revealed that the Resort region had the highest health insurance premiums in the country at $483, which sparked an outcry from citizens and the threat of a lawsuit from Garfield County as county commissioners contested being grouped with the resorts.

“Variations in health insurance premiums across regions arise due to variations in the cost of health care across regions,” said Insurance Commissioner Marguerite Salazar in a news release. “These variations are not new, but the transparency brought by the Affordable Care Act is new.”

At the beginning of the year, Gov. John Hickenlooper asked Salazar to convene a Healthcare Cost Study Group to learn more about the cost of health care and health insurance across the state. The group brought together representatives of hospitals, health care providers, consumer groups, insurance carriers and residents of the mountain communities.

The group engaged Miller and Newberg Consulting Actuaries to broadly review health cost trends in Colorado and evaluate geographic rating area options for 2015. The actuaries analyzed five options for the rating areas, including the current structure, and identified three that they said would minimize uncertainty and promote stability in the cost of health insurance premiums. Each option was scored based on four factors: credible membership, stability in utilization patterns, standard deviation of total cost, and cost per unit.

Challenges in the analysis
CIVHC provided Miller and Newberg with claims data from the All-Payer Claims Database (APCD). Physicians understand all too well the inherent challenges with claims data due to the lag time between when services are rendered and when claims are paid. Some claims are paid one to three months after services are rendered, but some are paid four to 24 months after. To determine insurance premiums, the actuaries adjusted the claims driving the premiums for lag payments, which is referred to as “actuarial completion.” The APCD data included paid dates through March 2013; this allowed for sufficient data for the year 2012 but not for 2013.

For a region or county to establish credibility to stand on its own, the actuaries determined that it must have a large membership base. Credibility is a qualitative score that assisted in the comparison of regions. In health care it is often defined through member months; that is, the total cost in that region or county must remain stable over the three year period to have high credibility.

Twenty-eight counties were determined to have low credibility and 15 were determined to have low-medium credibility. The vast majority of these counties were located in the non-MSAs: the northeast, southeast and west areas, with two in the Resort region. Of the five options evaluated by the actuaries, only the current structure of seven MSAs and four non-MSAs had medium credibility. All others were determined to have high credibility overall.

The actuaries reported that credibility for future studies would improve as CIVHC works to enhance the number of complete carriers and adds small group data.

Another challenge arises from utilization and migration patterns, which drive stability in rates. Provider contracts have the potential to be very different in various regions due to the natural occurrence of different providers in the region.

For this reason, the actuaries concluded that grouping regions that cover large geographic areas could lead to instability in current costs and/or future costs as contracts change in those regions.

Utilization patterns have the potential to be very different as well because patients in various regions typically utilize health care services within their current region. The actuaries found that the non-MSA regions have varied utilization patterns and any combination of non-MSA regions lessens the stability in utilization.

When considering variability of total cost within a region, the actuaries measured standard deviation between the highest-cost county and the lowest-cost county. Regions with lower standard deviation scores have less variability and less potential for discrimination.

According to Miller and Newberg, the highest standard deviation scores for total cost are found in the West, Northeast, Southeast, Denver and Resort regions, in that order.

Vincent Plymell, DOI communications manager, said, “We were very pleased with their work, being able to tease out information and delineate it by services and by geography to look at things and then given that data to analyze options that were under consideration for the geographic rating areas.”

The decision
The DOI recommended pursuing the option that would create seven MSAs plus two non-MSAs. The MSA regions will remain the same. One non-MSA will now comprise the West region and the four counties of the Resort region (still excluding Mesa County), and the other non-MSA will comprise counties in the southeast and northeast. They received 306 comments during the comment period, of which 138 addressed the rating area options; 117 comments were supportive of the new structure.

Salazar said in a release that the new non-MSA combinations will spread the cost risks more broadly. “We believe this option will lead to the fairest distribution of costs across these regions.” The U.S. Department of Health and Human Services approved the structure on May 15 and it will take effect in January 2015.

Some have speculated that premiums on the individual market will go down slightly in Garfield, Eagle, Pitkin and Summit counties, but will slightly increase in other areas of western Colorado. Plymell said it’s certainly the hope that variations will be equalized but reductions in cost cannot be guaranteed. The DOI doesn’t set health insurance rates; they review and approve submitted rates from insurers as long as they are actuarially justified.

Overall, Plymell said the whole process has been a positive learning experience. They gained sound data on health care costs that the commissioner will share with the new Colorado Commission on Affordable Health Care Costs to aid in their discussions. “Anytime you can get people talking about their health care and their health insurance and engaged in that and asking reasonable questions, that will only be a good thing. Sometimes you deal with questions that are tough to answer but it’s worthwhile to get to the bottom of them.”