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Comments on Blue Cross of Kansas City Rate Filing HIOS Issue ID #34762
I. Overview of proposed rate increase
BCKC proposes to raise its rates for its exchange plans by 11.9%. BCKC is substantially
more forthcoming in its rate filing than Coventry, Cox and United. Nevertheless, while it
discloses its 2015 rate and 2016 rate and resulting rate increase, it redacts how the specific
elements it discusses in the rate filing -- trend, administrative expenses, risk adjustment and
reinsurance, change in morbidity and change in benefits -- affect the rate. This is inconsistent
with the general practice of most Blue plans across the country and with BCKC's practice last
year: BCKCs 2015 Actuarial Memorandum, which HHS disclosed to CCM in response to
CCMs FOIA lawsuit, was unredacted and disclosed how the elements of the rate filing
contribute to the rate increase.
II. Reinsurance
BC admits that it has understated the reinsurance payment it received in 2015. That is
because HHS originally announced and BC assumed that the reinsurance threshold would be
$70,000 -- i.e., the program would start paying when an individual claim hit $70,000. But HHS
ultimately implemented a $45,000 threshold, so that the program started paying as soon as a
claim hit $45,000 and thus paid more to BC than BC projected it would receive. Thus, while BC
certainly cant be blamed for calculating its reinsurance recoveries based on HHSs original
announcement, in setting its rates for 2016 it should take into account the windfall it received
from its larger-than-projected reinsurance payment. In the alternative, it could refund money to
its 2015 policyholders.
III. Morbidity
BCs discussion of the expected morbidity of its insureds in 2016 is confusing. It appears
to say that its 2016 morbidity will be 24% more favorable than its 2014 morbidity but also that
its 2016 enrollment equates to an approximate morbidity improvement of 38%. (11) It is
difficult to see how both these statements can be true. In addition, notwithstanding the
significantly more favorable morbidity it predicts for 2016 as compared to 2015, it says that it
must increase its rates by 4.9% in order to account for the slightly worse morbidity that it
projects for its 2016 business as compared to its 2015 business. (12) It is possible for 2016
morbidity to be 4.9% worse than 2015 morbidity and also either 24% or 38% better than 2014
morbidity if BC assumed that 2015 experience would be much, much better than it turned out to
be. But BC includes no data demonstrating that that is the case. In addition, BC had very
limited 2015 experience to rely on when it submitted its rates for 2016, so a definitive conclusion
regarding ultimate 2015 morbidity would seem to be premature.
IV. Transitional policies
In projecting morbidity for 2016 BC excludes the experience of its insureds in
transitional policies. This makes sense, because those in transitional policies -- who will be
predominantly healthy because the policies were written before the guarantee-issue requirement
of the ACA took effect -- are likely to renew those policies because they will be cheaper than
ACA policies as they were sold only to healthy people. Nevertheless, some percentage of those
currently in transitional policies will renew. BC has not considered this.
V. Trend
Like Humana, and unlike all the other carriers, BC both discloses the trend it is using and
explains the methodology it used to arrive at that trend, thus enabling third parties to critique its
analysis. BCs methodology is to take the geometric mean of the last 8 quarters with
adjustments to reflect anticipated changes over the projection period. (12) While BC does not
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disclose its adjustments, it does disclose the trend factor it uses: 4.5%. That is only slightly
above the average increase in national health expenditures for the past five years, so that trend is
clearly reasonable. It is also substantially below the trends used by the other Missouri carriers
seeking increases of 10% or more.
VI. Risk adjustment
BCs explanation of the effect of the risk-adjustment program on its rate makes sense: It
projects that it will have worse than the state average and that therefore it will receive a riskadjustment payment. Accordingly, it says it will reduce its rate to take account of its receipt of
that payment and that the net effect of that payment is a premium decrease of $53.08, which is
substantial.
Interestingly, however, in its previous years filing BC assumed that the business it would
receive would have better health status than average and that therefore it must make rather than
receive a risk-adjustment payment. It set its rate at the average risk level -- i.e., at a higher rate
than the health status of its enrollees would justify -- because it projected that it would pay part
of that rate as a risk-adjustment payment to carriers with higher risk levels. (See BC Actuarial
Memorandum, Individual Rate Filing Effective January 1, 2015, at 16.) BC does not offer an
explanation as to why its assumption as to the relative riskiness of its insureds changed so
dramatically in one year. HHS may wish to ascertain whether the difference between the
projected and actual health status of BC's 2015 insureds, and the difference between the riskadjustment payment it projected it would make and the risk-adjustment payment it actually
received, produced excessive rates in 2015 or, indirectly, in 2016.
VII. Reinsurance
BC explains that it receives a net total of $120.54 PMPM from the reinsurance program
and that results in a net premium decrease of $11.69. BC does not explain how it gets from the
first number to the second.
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unjustified. Allowing such a contribution when the risk-corridor program guarantees that any
Blue Cross losses will be substantially subsidized strengthens this argument.