Health insurance companies develop rates using estimates of future claim costs, administrative expenses, and profits.

• Claim costs: The amount a health insurance company expects to pay for health care services and goods, such as physician services, hospital fees, and prescription drugs, on behalf of all policyholders with similar policies. This amount does not include any deductible or copayment paid by the policyholders.

• Administrative expenses: The cost of administering a health plan. These costs can include:

    -salaries of health plan employees;
    -costs to maintain computer systems to pay claims;
    -costs to manage the provider network (signing up doctors, setting payment rates, etc.);
    -commissions for agents and brokers (called “producers”);
    -rent;
    -premium taxes (a percentage of premium that health plans pay to the State of Maryland);
    -certain federal taxes and fees (for example, federal income taxes); and
    -other costs to administer the policy (for example, fraud detection activities).

• Profit: Money that the insurance company has left after paying for claims and administrative expenses. Some of this money is saved to pay for claims and administrative expenses in years when the plans do not collect enough premiums to cover those costs.

¹As used in this document, the term “health insurance company” includes insurers, HMOs and nonprofit health service plans that offer a health benefit plan in Maryland.

Health insurance companies estimate total claim costs for all policyholders with similar policies based on the following:

• which types of services will be used (for example, X-ray or MRI);
• how many services policyholders will use;
• where policyholders will go for services (for example, a doctor’s office or an emergency room);
• the average amount paid to medical providers for each service across all Maryland policyholders with similar policies; and
• the portion of the cost of services that the health plan will pay(total cost minus any deductibles, copayments, or coinsurance amounts for which the member is responsible).

Each item in the list above typically is estimated using past history of the policies, adjusted to reflect expected increases or decreases in total claim costs (“trend”), and any changes in covered services.

Rates are determined in large part by medical spending. Medical costs can change for many reasons, including increases in physician or laboratory charges, more use of health care services, new technologies, prescription drugs, an aging population, and unhealthy lifestyles. A health insurance company also may change its rates because of its financial situation. Premiums must be high enough to cover the company’s projected claims and administrative costs.

Your premium will not go up solely because you have claims, just as it will not go down solely because you do not have claims. People buy insurance to protect themselves from the full financial burden of future events. Insurance is a pooling of risks, so individuals pay a share of the pooled experience in exchange for getting the coverage they purchased. If you have an individual or small employer policy, your premium is based on the claims of everyone with your type of policy. If you have coverage under a large employer health plan, your premium will be based in part on the claims of everyone in the group.

If you buy your own health insurance or have coverage through your employer, your premium may change because:

• of your age; or
• you added another family member to the policy.

In addition, if you have coverage through your employer, your premium may change from year to year because your employer is paying more or less of the total premium.
If your rate increased, and you buy your own health insurance, check with your insurance producer to find out the exact cause. If you have coverage through your employer, your human resources benefits office may be able to provide this information.

If you are covered under an individual or small group health benefit plan, generally your premium will not change more often than once every 12 months. Health plans are permitted to raise or lower premiums more frequently than once every 12 months if the change is due solely to the enrollment of new family members or the removal of one or more family members from coverage under the policy.

Yes. Maryland state law requires insurers, HMOs, and nonprofit health service plans (such as CareFirst BlueCross BlueShield) that offer health benefit plans in the state to file rates and have them approved by the MIA before using them.

Yes. The MIA does not have the authority to review rates for:

• health benefit plans that are offered through the federal government, including the federal employee health plans and TRICARE;
• Medicare, Medicaid, or other federal health plans;
• employee plans that are self-funded by an employer (for example, the State of Maryland, Verizon, Montgomery County Public Schools, and General Motors); and
• some plans issued in other states.

The MIA has actuaries on staff who review rate change requests. Actuaries are insurance professionals trained to analyze risks and develop premium rates.

Health insurance companies must show that a requested premium rate follows Maryland law. Also, the requested premium rate must meet or exceed the federal and state loss ratio requirements. The loss ratio is the percentage of premium used to pay claims. The MIA does not approve a requested rate change if it is:

• Excessive: (A rate that is unreasonably high in relation to the benefits provided and the underlying risks);

• Inadequate: (A rate that is unreasonably low in relation to the benefits provided and the underlying risks. If a rate is inadequate, the health plan may not be able to pay future claims.); or

• Unfairly Discriminatory:(A rate that is not applied consistently within a rating category, such as age, geographic area, family tier, or plan of benefits.)

When reviewing a rate filing, MIA actuaries also examine the data, methods, and assumptions used by the health insurance company to support that requested rate.

• the proposed rates and benefits to make sure they comply with Maryland law;
• the future estimated loss ratio using the requested premium rate to make sure it meets the minimum requirements;
• changes in the number of members covered under the policies;
• changes in medical and pharmacy costs;
• past and future administrative expenses;
• changes in cost sharing;
• changes in benefits;
• profit history, future profit goals, and any changes to profit goals from previous rate filings;
• history of loss ratios;
• history of rate changes;
• the company’s financial strength;
• the accuracy of the calculations supporting the rate change; and
• any other factors that contribute to the requested rate change.

No. A health insurance company must show that the change is justified. If the company does not provide sufficient support for the requested rate, the MIA asks the company to send more information. If the company does not send the information, or the information does not show the change is justified, the requested rate will not be approved.

Yes. The MIA reviews the rates for each health insurance product. If the rates for some products are not supported, the requested rates for those products are not approved.

The company has the right to request a rate hearing if it disagrees with the MIA’s decision.