Health Insurance Regulation: Pricing

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Health Insurance RegulationPricing

• Presentation for the
• Alliance for Health Care Reform
• By
• Thomas F. Wildsmith, FSA, MAAA, CLU, ChFC
• Hay Group, Inc.
• October 17, 2008

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Premiums must be

• Adequate (solvency)
• Reasonable in relation to benefits (consumer
  protection often measured by loss ratio)

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Standards governing pricing

• State rules
• Rate regulations (directly)
• Solvency regulations (indirectly)
• Federal rules
• HIPAA
• COBRA
• Actuarial Standards of Practice (ASOPs)
• Other regulations, such as benefit mandates, also
  affect the cost of coverage.

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Actuarial Standards for Rating Factors

• Objective
• Clearly related to the likely cost of providing
  coverage
• Practical to administer
• Consistent with applicable law
• Designed to protect the long-term viability of
  the insurance program

"Risk Classification (for All Practice Areas),"
Actuarial Standard of Practice No. 12, Actuarial
Standards Board, December 2005
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Health insurance is a buffet, not an iPod
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Individual Market Premiums
2007 Data
Source Income, Individual Health Insurance
2006-2007 A Comprehensive Survey of Premiums,
Availability and Benefits, AHIP, December 2007
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What Makes Large Employer Sponsored Coverage Work?

• Natural Groups
• Large Employer Contributions
• High Participation Rates
• Tax Preferences

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How do you make guaranteed issue and community
rating work together?
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Wheres the real problem?
2007 Data
Age Avg. Single Premium Uninsured Rate
18 - 24 1,359 28.1
25 - 29 1,534 25.7
30 - 34 1,877 25.7
35 - 39 2,185 18.3
40 - 44 2,593 18.3
45 - 49 3,051 15.4
50 - 54 3,628 15.4
55 - 59 4,317 12.0
60 - 64 5,090 12.0
Source Income, Individual Health Insurance
2006-2007 A Comprehensive Survey of Premiums,
Availability and Benefits, AHIP, December 2007
Income, Poverty, and Health Insurance Coverage in
the United States 2007, U.S. Census Bureau,
August 2008
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How do we keep the healthy?

• Bribe them?
• Twist their arms?
• Take them off the hook?

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Why Are People Uninsured?
Most Important Reason
Source Uninsured in America A Chart Book,
Kaiser Family Foundation, May 2000
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Premiums must be adequate

• To ensure solvency
• For insurers to be willing to offer coverage