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“There are many ways a state can improve its own individual marketplace. Some are effective at lowering premiums and increasing enrollment and others merely are full of sound and fury and contain no real money flows. We need to differentiate these actions as some states do a bit of both but have rules and cultural/political norms that hobble the markets more than anything that they have done since January 20, 2017.”

– David Anderson, Performative instead of performing marketplace protection, June 5, 2019

What do you want to accomplish through rate review? It’s a question that state regulators should ask themselves. The question is threatening, because the answer may expose that what is accomplished through current processes does not line up with what is expressly desired.

I have asked the question and heard similar answers: Rate review is about protecting consumers and ensuring compliance. Rate review is about eliminating discriminatory pricing. Rate review eliminates the worst abuses in insurance markets.

Rate review is about protecting consumers and ensuring compliance. Rate review is about eliminating discriminatory pricing. Rate review eliminates the worst abuses in insurance markets.

With a broad view of market rates and an intricate understanding of premium dynamics and issuer incentives, I have analyzed the results of rate review efforts across the country. Rate review is not accomplishing any of these stated goals.

To understand this, it is important to appreciate the Affordable Care Act (ACA) individual market population and premium dynamics. 75% (almost 90% of exchange enrollees) of market enrollees receive premium subsidies. Their premiums are dependent not only on the gross premium charged but the amount of the premium subsidy that they receive. After a nationwide review last year, I reached an unfortunate conclusion. While almost every state would claim that silver premiums are appropriately loaded, “the overwhelming nationwide evidence is that Silver plans are inexplicably priced more aggressively than other levels, unnecessarily compressing federal subsidies and resulting in higher net premium costs for low-income individuals.”

How does this occur? Issuers are hypercompetitive at the silver level and sanguine at other metal levels. To achieve targeted silver premiums and support for premium spreads relative to other plans, they often rely on disparate data sources, assumptions and methods to develop directionally misaligned Induced Demand factors, resulting in skewed premium relativities and compressed silver premiums. In rare cases, Induced Demand factors for bronze plans have inexplicably exceeded silver.

If silver premiums are priced too low, there are two negative implications. First, it reduces premium subsidies. Second, it requires premiums at other metal levels to be higher to compensate for artificially low silver premiums. The reality is that low silver premiums (compared to other metal tiers) are restricting market effectiveness across the country and rate review efforts have generally not been focused on abatement.

The State of Rate Review

Some states have retained pre-ACA methods of reviewing rates with a focus on gross premium changes. Others have been largely cognizant of maintaining calmness and minimizing controversy in markets perceived to be volatile. Defensive efforts to maintain current dynamics rather than optimize markets were somewhat justifiable as issuers left markets through 2018. Some regulators have recently expressed contentment to simply maintain the same issuers in the marketplace each successive year with the same dynamics; they are reluctant to cause disruption, even with action that would improve markets, benefit consumers, and attract new issuers.

As the ACA has put all issuers on the same calendar timeline, there is generally one major announcement each year that receives attention. That announcement invariably focuses on one number, the average rate increase across all issuers in a state. That is often extrapolated to incorrectly indicate the impact on consumers in the ACA individual insurance market. Even worse, the average change is sometimes reported as the average benchmark premium as it is easier to determine; this is usually inversely related to premiums that consumers pay.

If a state’s priorities are to review items that matter, protect consumers, and ensure compliance with ACA rules, shouldn’t rate review be focused on items that matter, items that protect consumers, and items that ensure compliance? If compliance violations harm consumers, shouldn’t rate review focus on those violations rather than traditional measures which are less relevant and less subject to abuse?

I have certified individual and small group rate filings since 1997 and reviewed premium rates on behalf of states. The classic script of “higher rates protect issuer solvency, lower rates protect consumers” is flipped with the ACA. Rate review that appropriately aligns premiums is mutually beneficial.

With the rare exception of 2018, premiums have not been excessive. The consistent compliance violation that has harmed consumers is the misalignment of premium rates across metal levels. This misalignment was notable in 2017 but has magnified as the unsubsidized population has diminished, the proportion of enrollees eligible for CSR benefits has increased, and there is more perceived flexibility with silver premium development. While there are market incentives to violate ACA fidelity, enforced compliance benefits both issuers and consumers.

Stakeholder Impact

It lacks vanity, but the most effective focus of rate review is the premium relationship of metal levels. This is also the area that has been subject to the most abuse. Reducing average rate increases from 12% to 7% may draw more applause than correcting metal level relationships, but it will be less effective in benefitting consumers and improving markets.

Some states have directly addressed metal level dynamics through prescriptive rules, and more are doing so in 2021. As a point of reference, while not absolute, gold premiums below silver is an effective indicator of market optimization.

Rarely are markets uniquely designed such that all local stakeholders benefit from state action. There are usually difficult tradeoffs. That is what is so unique about current state opportunities. ACA rate review focused on the right measures is mutually beneficial. Better compliance benefits all stakeholders.

Consumers – Lower-income enrollees are the primary beneficiaries of appropriate metal level alignment. Lower net premiums provide free coverage options to more enrollees, attract more healthy enrollees into the market, and effectively reduce gross premium levels, ultimately attracting more unsubsidized enrollees.

Issuers – The ACA’s temporary risk mitigators were implemented to attract issuers who were initially concerned with the risk pool that would enroll. An appropriate level of premium subsidies will attract a larger, healthier enrollment base.

Providers – The ACA rules require fixed pricing relationships which provide incentives for consumers to select lower-cost bronze plans. Increased premium subsidies will lead to free bronze and minimal cost gold plans for some enrollees. Higher enrollment in gold plans strongly correlates with appropriate pricing relationships. The selection of higher benefit plans with lower deductibles and increased insurance value reduces medical debt. This will please medical providers, who are often willing to accept lower negotiated reimbursement rates when insurance benefits are richer.

Regulators – Without appropriate enforcement of metal level relationships, states have issuer with dramatically different premium slopes. Administrative efforts to understand dynamics are more difficult as premiums are skewed.  Ensuring compliance will make the regulators’ job more effective and allow appropriate focus on relevant measures.

Taxpayers – Right now, federal taxpayers are underpaying as silver premium compression has artificially reduced premium subsidies in state marketplaces and reduced money flows to states. Appropriate metal level alignment would increase silver premiums and place premium subsidies at an appropriate level.

Rate Review Resources

ACA individual market dynamics and the mutual benefit of focused rate review are further discussed in these articles, with “Metalball” being directly relevant to addressing pricing relationships.


Metalball: Gold

The Elusive Paradoxes of the ACA

A Hard Pill to Swallow



The Lionfish in ACA Markets

Making Rate Review Great Again

Fields of Gold

About the Author

Greg Fann, FSA, FCA, MAAA, is a Consulting Actuary with Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.