Geographic rating for health insurance

1. www.pwc.com Geographic rating for health insurance • February 20, 2013 • Sandi Hunt, Principal sandra.s.hunt@us.pwc.com

2. Geographic rating for health insurance •    1. What are geographic regions • 2.How they are different from a health plan service area • 3.Why geographic regions matter • 4.The proposed Federal rules regarding geographic regions • 5.Current California rules on rating regions • 6.Approaches being used in other states

3. What are geographic regions • Geographic regions are used to establish common premium rates for the same product • The Affordable Care Act requires that premiums for a common product be the same for everyone in the region (provided the plan is licensed to serve the entire region) • The only other allowable rating differences relate to age, family size and possibly tobacco use • Different provider networks for different products may also result in different premium rates for plans that are otherwise similar • A plan with a narrow network will have a lower premium rate than one with a broader network, all else being equal

4. The difference between geographic regions and health plan service areas • Health plans can only offer coverage in the areas in which they are licensed, which may not encompass an entire defined geographic region • Health plans may offer coverage in multiple geographic regions, or portions of one or more geographic regions • Within each region for which a plan is licensed, the premium rates for a given product must be the same for the entire region • Some California plans cover only a portion of certain geographic areas, which could present a competitive disadvantage to other plans that cover the broader region unless these coverage areas are taken into consideration

5. Why geographic regions matter • Since premium rates for a given product must be the same for the entire region (other than allowed rating factors) the • cost of health care delivery system, • the health status of the population and • the utilization patterns of the population will determine the premium rates • There are existing patterns of health plan premiums based on historical cost and utilization patterns, including variation in health status

6. Why geographic regions matter • Changes to how these costs are aggregated can have an effect on premium rates, with the chance that lower cost areas may be required to subsidize the costs of others • When a geographic area includes low and high cost areas, the average is by definition higher for the low cost area and lower for the high cost area • Patterns can change over time depending on provider supply and demand, contracting arrangements and other factors

7. Proposed federal rules regarding geographic regions • Draft federal regulations call for each state to have 7 regions, but can request a different number based on state circumstances • States can define regions based on zip code, county, or FIPS code, and they don’t have to be contiguous

8. Current rules for geographic regions in California • Individual market – health plans define their own regions • Small group market – 19 regions, based on legislation passed in 2012 • Before 2012 each health plan could define up to 9 regions for their small group products, which resulted in significant variation across the state in how regions were defined

9. Approaches being taken in other states • Some states are using a single geographic region and pure community rating • Few have filed their plans with the federal government • Some are considering defining the region at the county level, to provide the greatest level of flexibility • It is likely that states participating in the federally facilitated exchange will have approximately 7 regions, but information has not been released

10. Discussion