1. Prior Approval Rate Review and the Cost Curve SCI Summer Meeting Approaches to Slowing Cost Growth in Private Health Plans August 5, 2010 Minneapolis, MN Larry Kirsch IMR Health Economics Larry@IMRHealth.com

2. Prior Approval Between 25-33 States Are Reported to Require Prior Rate Approval for at Least Some of Their Health Insurance Business 25 States--National Conference of State Legislators, June 2010 (http://www.ncsl.org/?TabId=19787http://www.ncsl.org/?TabId=19787 33 States– Families USA, April 2010 http://www.familiesusa.org/assets/pdfs/prior-approval.pdf http://www.familiesusa.org/assets/pdfs/prior-approval.pdf 33 States– NAIC, May 2010 http://www.naic.org/documents/committees_e_hrsi_hhs_resp onse_rr_adopted.pdf http://www.naic.org/documents/committees_e_hrsi_hhs_resp onse_rr_adopted.pdf

3. Rate Review Models Rate Review comes in different sizes and shapes Does Prior Approval Constrain Rates? Evidence is Sparse No– California Association of Health Plans http://www.calhealthplans.org/documents/FSRate-Reg- StatebyStateComparison022010.pdf http://www.calhealthplans.org/documents/FSRate-Reg- StatebyStateComparison022010.pdf Yes- New York State Insurance Department http://www.ins.state.ny.us/acrobat/File&Use090608.pdf http://www.ins.state.ny.us/acrobat/File&Use090608.pdf Some Variables That May Constrain Rates Standards of Approval Filing Requirements and Extent of Data Transparency  Formal Rate Hearing vs. Desk Review

4. Prior Approval and Rate Constraints Rate Approval Standards: conventional actuarial standards (“rates are not excessive, inadequate or unfairly discriminatory”) focus on accuracy of cost prediction and compliance with statutory rating methods without explicitly attempting to incentivize delivery system; modified standards tend to use rates to leverage system performance (e.g. provider payment differentials are based on quality.) Filing Requirements, Transparency and Full Discovery: detailed data with full written justifications facilitate meaningful analysis and “what if” scenarios. State policy varies in terms of disclosure (and trade secret exemption) and ease of public access. Review Method: on-the-record, trial-type hearings place burden of proof on insurer filing rate increase; create opportunity for intervention by policyholders and state agencies (e.g. attorney general, office of rate counsel) as well as participation in informal settlements; create incentives for stakeholders to develop expertise and provide accountability. Desk reviews are a “black box” that are hard or impossible to review critically.

5. Prior Approval Rate Review: Four Current Models Model I— Indiana Regulatory Desk Review — Conventional Actuarial Approval Standards—Limited or No Data Disclosure (Trade Secret Exemption) Model II —Oregon Regulatory Desk Review– Modified Approval Standards (Rates “Prejudicial” to Policyholders)—Data Fully Transparent Model III— Michigan Trial-Type Hearing—Conventional Approval Standards--Data Disclosure– Full Discovery— Statutory and Permissive Interveners Model IV— Rhode Island Trial-Type Hearing—Modified Approval Standards (Affordability& Accessibility)--Data Disclosure– Full Discovery—Statutory and Permissive Interveners

6. Some Examples of Issues Raised in Rate Review Model I– Indiana—Conventional-- Desk Review  Do Minimum Loss Ratios (MLR) meet legal standards?  Is there a sufficient actuarial basis for projected claim and expense trends? Model II– Oregon– Modified-- Desk Review  Do Minimum Loss Ratios (MLR) meet legal standards?  Is there a sufficient actuarial basis for projected claim and expense trends?  Is rate hike “prejudicial” to policyholders? Example: likely to cause death spiral? Unaffordable? Model III– Michigan– Conventional -- Hearing  Do MLR’s meet legal standards?  Are claim trends (unit cost and utilization) and administrative expenses actuarially reasonable considering changes in Plan design and mix, aging, new legal requirements and other foreseeable factors?  Is rate hike excessive if cost reductions from projected (foreseeable??) quality- improvements (e.g. lower hospital readmission rates) are not passed on to policyholders? Model IV– Rhode Island— Modified-- Hearing  Are claim trends (unit cost and utilization) and administrative expenses actuarially reasonable considering changes in Plan design and mix, aging, new legal requirements and other foreseeable factors?  Do premiums reflect specified provider payment and reimbursement contract reforms and do they achieve outcomes consistent with long-term affordability? Examples: contractual quality incentives; efficiency-based provider payments (e.g. DRG’s and bundled payments.)

7. HHS Rate Review Grants: Round One Sample of 8 States What are States Currently Seeking in RFP? Expand scope and type of review e.g. to large group market (2 states) Add resources: Actuaries, IT (8 states) Refine data collection, public reporting and data audit (8 states) Upgrade analytic capacity (2 states) Modify review process, enhance consumer participation (3 states) Technology upgrades (4 states) What Are States Leaving for Later? Evaluation of alternative models of rate review Strategic planning for using rate review to impact system cost drivers Authority to adopt or alter current rate review models Transparency and trade secrets exemption Information is based on a sample of responses to the HHS Rate Review RFP. States in the sample are: Maine, Florida, Illinois, Maryland, New Mexico, Oregon, Pennsylvania and Rhode Island