February 14, 2008
SETTING RATES FOR AN INDIVIDUAL HEALTH INSURANCE POLICY
By: Janet L. Kaminski Leduc, Associate Legislative Attorney
You asked how an insurance company sets rates for an individual high deductible health plan, a federally tax qualified plan compatible with a health savings account. Specifically, you wanted to know if (1) an individual is considered part of a group for rating purposes and (2) an insurer must disclose the group characteristics to the individual.
For rate setting purposes, an individual high deductible health plan is treated the same as any other individual health insurance policy, according to the Connecticut Insurance Department.
By law, rates cannot be (1) excessive, inadequate, or unfairly discriminatory or (2) used before being filed with and approved by the department. If an insurer files a loss ratio guarantee with the rates (to guarantee a certain percentage of premiums earned will be spent on claims incurred), then by law the rates are deemed approved. (The statute, CGS § 38a-481, and related regulation are enclosed for your reference.)
An insurer typically places a person covered by an individual health insurance policy in a particular classification, or group of similar individuals, for underwriting and rate setting purposes. However, insurers are not required to file underwriting guidelines with the department or to disclose to an insured person the characteristics of the group in which the insurer places him or her. But state law prohibits insurers from moving an individual from a standard underwriting classification to a substandard classification after a policy has been issued. The law also prohibits insurers from increasing rates based on a particular person's health status or claim history under an individual policy, but permits insurers to increase rates based on the experience of the underwriting class as a whole.
If an insured under an individual health insurance policy has concerns that an insurer has applied rates contrary to those filed with and approved by the department or not complied with state law, he or she may file a complaint with the Insurance Department's Consumer Affairs Unit. Instructions for doing so are found on the department's web site at www.ct.gov/cid.
RATE SETTING FOR INDIVIDUAL HEALTH INSURANCE
Connecticut law prohibits individual health insurance policy rates that are excessive, inadequate, or unfairly discriminatory. Insurance companies must file rates with the insurance commissioner before using them. Unless the commissioner disapproves them, the rates may become effective 30 days from filing them (sooner if approved within the 30 days) (CGS § 38a-481(b)).
If the rates contain a loss ratio guarantee signed by a company officer, the rates are deemed (1) not excessive and (2) approved (CGS § 38a-481(d) and (e)). A loss ratio is the ratio of incurred claims to earned premiums. The guarantee must include the criteria contained in the statute. Among other things, it must list the anticipated lifetime and durational target loss ratios that were contained in the original actuarial memorandum that accompanied the filing that the department originally approved.
State law is silent with respect to the underwriting factors an insurer may use to determine a person's insurability and particular rates for an individual health insurance policy, except for certain Medicare supplement plans. (Underwriting is the insurer's process of determining which risks are acceptable to insure and at what terms.) In other words, state law does not require insurers to file underwriting guidelines for
health insurance products and the Insurance Department lacks the authority to review and approve them. Thus, the department reviews rates, but not underwriting guidelines.
Rate Classification and Disclosure
An insurer will typically place an individual in a classification, or a grouping of similar individuals, for underwriting and rate setting purposes. State law is silent regarding an insurer disclosing to an insured person the characteristics of the group in which the insurer places him or her. Therefore, the law does not require such disclosure.
However, state law prohibits an insurer from (1) moving an insured individual from a standard underwriting classification to a substandard underwriting classification after the policy is issued and (2) increasing rates due to the claim experience or health status of a particular individual who is insured under the policy, except the insurer may increase rates for all individuals in an underwriting classification due to the claim experience or health status of the underwriting classification as a whole (CGS § 38a-481(h)).
Additionally, state law prohibits discrimination between individuals in the same classification with respect to rates charged for an individual health insurance policy; the policy benefits, terms, or conditions; or in any other manner (CGS § 38a-488).