Group & Individual  Insurance Premiums – ACA Rating Areas Factors   ^{AB 1083}

Premium Rating Criteria under ACA/ObamaCare

Employer Group Plans Rating – Premium Computation – #Criteria – Factors 
under Health Care Reform

2018 Update for Child Rates

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19 Geographic Regions 

What justification is there for Insurance Companies to charge different rates in different Counties or to even have 19 different rating area’s in CA?

The ACA Health Reform allows insurers to use geographic rating factors to adjust premiums to reflect variations in medical costs across rating areas attributable to such factors as differences in labor and other operating costs, the relative strength of their network/provider agreements in a given area, and/or cost shifts associated with high Medicare or Medicaid enrollment and lower payments from these sources. The benefit of geographic rating is that it provides insurers with marketing flexibility and can help ensure that insurance purchasers in low cost areas benefit from the efficiencies of their local health care system. It may also encourage more insurers to offer plans in high cost areas that they would otherwise avoid if these costs could only be recouped across their entire coverage area. On the other hand, geographic rating may also undermine the incentives for health plans to encourage efficiency among health care providers in high-cost areas.

The cost of delivering care varies dramatically from one area to another, and insurers often vary their rates by county or by ZIP code using the employer’s business address in the small group market, or the applicant’s home address in the individual market.  Safe harbors for geography have been set for each state, depending on the variation in medical costs within the state, and range from no variation in the District of Columbia to 1.9:1 in Florida

Insurers must submit data that demonstrates a correlation between case characteristics (e.g., geographic area) and
increased medical claims costs

  ^NIH.gov * ^NAIC.org *

risk screening –  insurers could avoid entering counties that have a higher share of unhealthy consumers.

market segmentation – segment a market and avoid competition

entry cost hypothesis – meeting network adequacy standards and establishing a competitive network could be significant for insurers. This will be especially true if an insurer does not have legacy provider networks.

risk selection  ^wpmucdn.com *

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.

“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.” ^CMS.org *

Bibliography, Links & Resources

• Why Do Insurers Selectively Enter Counties within a Rating Area on the ACA Marketplaces?
• wikipedia.org/Risk
• Our Webpage on Medical Loss Ratio
  • Rate Regulation
• Location, Location, Location:   Geographic Spending Issues and Medicare Policy