Uncertainties underlie insurance cost calculations under Obamacare

A key question about federal health care reform is what it will cost to buy health insurance next year, when the key provisions of the law kick in.

And for insurers and regulators, figuring that out requires grappling with more uncertainty than usual.

“There’s a lot of moving parts, and everybody has all of that to struggle with,” said Kenneth Lalime, CEO of HealthyCT, a new nonprofit insurer. “It’s the first time in a long time that the rate process has been so dramatically changed.”

Regulators got a second set of filings this week, detailing the rates that ConnectiCare Benefits is seeking to charge people buying insurance through Access Health CT, the state’s health insurance exchange. The exchange is a marketplace for buying coverage created by the health reform law.

The monthly premiums for plans sold through the exchange would vary, but the carrier’s proposed base rates — which would be adjusted up or down based on customers’ age, location or the specific plan they buy — would be $397 for individuals buying their own coverage, and $716 for small groups.

By contrast, HealthyCT’s proposed starting points for calculating monthly premiums are $264 for individuals and $276 for small groups. HealthyCT projected that the average monthly premiums for its customers would be $427 for individuals and $445 for small groups. ConnectiCare didn’t submit an average cost to regulators.

A word of caution: Neither company’s proposals have been approved by the Connecticut Insurance Department, so they’re not final and could change substantially based on what the regulator requires.

In the proposals, ConnectiCare’s vice president for actuarial services, Neil S. Kelsey, pointed to the uncertainties surrounding the Affordable Care Act, the federal health care reform law.

“The federal and state regulatory environment since the passage of the ACA has been unclear, confusing and fluid,” he wrote, noting that federal agencies have and are continuing to publish thousands of pages of regulation. “Many of these regulations are complex, vague, incomplete and even contradictory.”

Because of the uncertainties of “such an uncharted, untested regulatory environment,” the company reserves the right to withdraw or change its filings, Kelsey wrote.

Typically, insurers determine rates based on the claims history of the people covered and the extent to which prices and utilization of health care services are expected to increase.

But figuring out pricing for the new plans is more complicated, in part because it’s not entirely clear who the customers will be.

An estimated 80,000 to 100,000 currently uninsured people are expected to buy coverage through the state’s exchange, which is called Access Health CT. Among the questions insurers must address: How much of that customer base will be people in poor health, who haven’t been able to afford coverage in the past and who will likely use a lot of costly medical services? How many of the newly insured customers will require significant medical services to address health problems that lingered while they went without insurance?

And how many of the customers will be healthy young people who have previously never been motivated to buy — or able to afford — coverage, people who probably won’t cost much to cover?

On top of that, the health reform law changes what benefits the plans must include, requiring that all plans cover “essential health benefits” and pay at least 60 percent of the customers’ medical costs. Currently, many plans cover far less than that.

In addition, the law restricts some of the tools insurers have used to set prices in the past. It limits how much premiums can vary based on a person’s age, prohibits insurers from charging different rates to men and women, and won’t let the companies charge people in poor health more.

HealthyCT has an additional unknown: It’s new to the market, so it doesn’t have any claims history to rely on in setting rates. It based its proposals on projections prepared by the actuarial firm Milliman.

ConnectiCare Benefits is also a new company, although its parent insurer has experience in the state’s insurance market.

The rates it proposed would just hit the federal minimum for the amount of premium dollars that must be spent on medical costs or quality improvement activities, rather than on administrative costs and profits. Under the health reform law, all individual and small-group plans must spend at least 80 percent of premium dollars on medical care or quality improvement, a percentage known as a medical loss ratio.

According to ConnectiCare Benefits’ proposals, the small group plans would have a medical loss ratio of 80.5, while the individual plans’ medical loss ratio would be 80.3 percent.

The exchange will be available to people who purchase their own health insurance, and to small businesses, although insurance plans will still be available outside the exchange, too. People who get coverage through large employers won’t be getting coverage through the exchange.

Those earning below 400 percent of the federal poverty level will be eligible for federal subsidies — in the form of income tax credits — to buy their coverage through the exchange.

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