Summary of Colorado’s Draft Emergency Regulation for 2023 Premium Rate Methodology
On January 12, 2022, the Colorado Division of Insurance (DOI) released a Draft Proposed Emergency Regulation 22-E-XX on the Methodology for Calculation Premium Rate Reductions for the Colorado Option Standardized Health Benefits Plan. To accompany the regulation, Wakely Consulting Group released an analysis of the Colorado Option rate target methodology
The regulation is intended to provide all carriers offering individual and small group health benefit plans the allowable adjustments for the calculation of the premium rate reduction methodology as required for the Colorado Option. The DOI asserts that the immediate adoption of the regulation is necessary to allow carriers adequate time to implement their standardized plans and notify the DOI if they cannot offer premiums at the premium rate target by May 1, 2022.
Comments on the draft regulation were due January 20. With the May 1 deadline for plans to submit their bids, we can expect the DOI to finalize the emergency regulation as soon as possible.
Background
Insurance carriers offering the standardized health plan at the bronze, silver, and gold metal levels are required to offer a premium that is reduced by the following amounts relative to their 2021 premiums:
Five percent premium reduction for the benefit year beginning 2023;
10 percent premium reduction for the benefit year beginning 2024; and
15 percent premium reduction for the benefit year beginning 2025;
For benefit years beginning in 2026 and subsequent years, plans are required to limit any premium rate increase to the rate that is no more than medical inflation, relative to the previous year.
Methodology
Under the draft regulation, target rates will be developed separately for each issuer, county, metal level, and market, and be based on 2021 filed premiums (unadjusted benchmark premium), with certain adjustments. The DOI outlines the following methodology and adjustments it will use to determine if a carrier meets the specific premium reduction:
1. Determine 2021 benchmark plan premiums
Bronze and Expanded Bronze health benefit plans will be combined to determine the lowest cost premium rate for the Bronze Colorado Option Standardized Plan
For the individual market, the 2021 baseline plan adjusted premium is the product of the following:
Minimum 2021 Calibrated Plan Adjusted Index Rate offered in the county for the metal level;
1.0 age factor; and
2021 Geographic Rating Factor for the applicable county
For the small group market, the 2021 baseline plan adjusted premium is the product of the following:
Minimum annual filing 2021 Calibrated Plan Adjusted Index Rate offered in the county for the metal level;
Fourth quarter rate of 2021 Baseline Plan / first quarter rate of 2021 Baseline Plan
1.0 age factor; and
2021 Geographic Rating Factor for the applicable county
2. Adjust 2021 benchmark plan premiums to benefit year – The 2021 benchmark plan premium with be adjusted by the following factors:
Changes in member cost sharing – This will be based on the issuer actuarial value submitted in the plan and benefits template for 2021 plan design and the Colorado Option in the applicable year.
Induced demand – This will reflect the changes in the induced demand factor applied in 2021 and the applicable Colorado option plan design.
Cost sharing reduction (CSR) plan loading – For silver plans only, the 2021 benchmark premium will be adjusted for changes in CSR load between 2021 and applicable plan year.
Benefit change – This adjustment will be based on the cost impact of the benefit changes in the actuarial analysis submitted to CMS for approval of these essential health benefits (EHB)-benchmark plan changes.
Trend – This will be calculated based on the latest CPI-U published prior to the publication of the bulletin with maximum allowable premium rates in February or March of each year.
Rate reduction – The 2021 premium will be reduced by five percent in 2023, 10 percent in 2024, and 15 percent in 2025.
The Wakely report provides examples of premium rate reductions for the individual and small group plans in Appendix B on p. 12.
Filing Requirements
The draft regulation states that carriers must submit the notification of whether Colorado Option Standardized Plans will meet the required premium rate reductions through the “Colorado Option Standardized Plan Premium Rate Reduction” template supplied by the DOI through an “Colorado Option Rate Reduction Notice” filing.