The health insurance industry thinks the Department of Health and Human Services has greatly underestimated IT and labor costs for compliance with pending rate filing and data submission rules.
A survey by the insurance industry’s main trade group, America’s Health Insurance Plans (AHIP), has found companies pegging compliance costs as much as 70 percent higher than HHS’s estimates.
AHIP conducted the survey as HHS finalizes regulations and takes stakeholder comment for expanded federal rate review and data collection for risk adjustment and reinsurance, which is sort of the insurance for insurance companies.
Currently, health plans have to submit rate filings to the federal government for small group and individual plans only if they’re increasing annual premiums by 10 percent or more. Under HHS’s proposed rules, insurers have to file their rates for all small group and individual products.
The agency estimates those requirements will lead to an additional 6,450 rate filings with the federal government a year, at an average cost of $2,475 per submissions. The insurers surveyed by AHIP, though, pegged the per-filing cost at about $4,300 on average.
In addition to labor costs, insurers may have to make new IT investments to comply with new rate filing rules. Insurers surveyed by AHIP generally “agreed that revising the current rate filing process would consume many resources and could be viewed as inefficient, compared with other uses of IT department time and resources, because it duplicates other processes already in place.”
Moreover, as AHIP and several insurers in the survey pointed out, HHS’s proposed rate filing rules are coming with a built-in layer of duplication. HHS uses a data submission system called the Health Insurance Oversight System, or HIOS, whereas the common rate filing system used by the states is the System for Electronic Rate and Form Filing, or SERFF, maintained by the National Association of Insurance Commissioners.
That, one insurer said in the survey, “requires carriers to report the same information in 2 different places. And given that the federal templates are completely different from state reporting requirements, it requires carriers to report the same information in a different format.”
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The backdrop to the debate over rate filing is the medical loss ratio, a key provision in the Affordable Care Act requiring insurers to spend at least 80 percent of premium revenue on claims (85 percent in the large group market), or otherwise send consumers rebates, with the remaining 20 or 15 percent left for administration, operations and profits.
Much lauded by HHS and consumer activists, the medical loss ratio, or MLR, is going to be one potential driver of increased premiums and could have unintended consequences, according to insurers, potentially stifling innovation by effectively capping profits.
One insurance company surveyed said the IT and labor burdens associated with rate filings are going to be “a source of additional administrative costs and [appear] to be a serious contradiction to proposed goals of increasing efficiency as seen in the MLR requirements.”
HHS estimates that risk adjustment and reinsurance data collection will cost insurers about $327,000 in the first year, with one data server alone costing about $15,000. Sum total for the entire industry, HHS projects to be about $600 million. For comparison, two of the largest and most profitable insurers, Aetna and Cigna, had net earnings in 2011 of $1.9 billion and $1.3 billion respectively. The health insurance industry as a whole does some $700 billion in annual revenue, according to the research firm IBISWorld.
Insurers surveyed by AHIP peg the data submission costs for risk adjustment and reinsurance way higher than HHS — ranging from $390,000 to $25 million per health plan during the start up year, depending on the firm’s size, with the average cost estimate being about $5.6 million. System-wide, the cost could be more than $1 billion by AHIP’s estimates.
One insurance company representative rattled off the costs associated with risk adjustment and reinsurance data collection: “Ongoing license fees for software to manage the system, job scheduler, and back up. Ongoing resources to review the files, work errors, and resubmit files. Possible development costs to change claims processing, premium billing, rating, and other up streams to meet HHS file submission requirements.”
Among other recommendations, AHIP’s comments on the proposed regulations urge HHS to amend MLR rules to exclude risk adjustment and reinsurance data collection from the premium side of the ratio. “Since these costs are essentially mandated by regulation, they are not discretionary, and therefore should be considered to be more like a regulatory fee rather than the sort of administrative cost that would typically be subject to the MLR regulation.”
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