Small Employer Health Benefit Plan Rate Guide

(Revised July 2007)

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Introduction

Shopping for the right health care plan at the right price can be time consuming for busy employers and managers. The Texas Department of Insurance (TDI) has developed this region-specific small employer health benefit plan rate guide to help small employers shop for coverage.

Understanding Rates

To improve the affordability and availability of health coverage for small employers, Texas law requires all fully insured small employer health benefit plans to comply with specific rating requirements. These requirements do not apply to "self-insured" or "self-funded" health plans. Although TDI does not set or approve health coverage rates, the law establishes certain limits and guidelines that carriers must use when calculating rates for small employers. The following is a simplified explanation of how rates are calculated.

Calculating the Premium Rate for a Group

The rating process can be described as a two-step process. First, a premium rate is determined based on the group's case characteristics (age and gender of employees, size and geographic location of the group, and industry classification) and plan design factors (copays, deductibles, out of pocket maximums, etc.) but without regard to other risk characteristics.

Second, the rate may be adjusted by a "risk load" to reflect risk characteristics of the group. Risk characteristics include health status-related factors, the duration of coverage, and any other characteristics related to the health status or experience of a small employer group or of any member of a small employer group. The risk load adjustment must apply uniformly to all members of the group.

When an employer is first issued a policy, the risk load may be as high as 67 percent. The risk load may be increased at renewal by no more than 15 percent per 12-month period (pro-rata for periods less than 12 months). This 15 percent maximum applies to the risk load portion only, but other factors, such as changes in plan design and changes in case characteristics, can also lead to rate increases.

Rate Increases

Rates may change at renewal because of the following reasons:

• a change in the rate corresponding to a particular plan of benefits
• a change in the case characteristics of the small employer
• any adjustment, not to exceed 15 percent annually and adjusted pro rata for rating period of less than one year, due to the claims experience, health status, or duration of coverage of the employees or dependents of the small employer.

Case Characteristics

Case characteristics are objective criteria that serve as good predictors of a group's expected claims experience. Texas law allows carriers to use the following five case characteristics in determining a group's rate:

• age of employees
• gender of employees
• size of the small employer group
• industry classification
• geographic area

Carriers may use all or some of the five criteria. For example, a carrier might base its rates on age, gender, group size, and area but choose not to use the employer's industry classification. The carrier, however, must use the same criteria for all small employer groups. In other words, the carrier cannot use industry classification as a basis to set rates for one small employer but not use it for another. A carrier may use additional criteria only with the prior approval of the Commissioner of Insurance. Currently, no carrier has requested approval to use any additional case characteristics and there are no additional approved rate-setting criteria for small employer carriers.

Below is a brief discussion of each case characteristic:

Age

Statistics show that, in general, an individual is more likely to use health care services as he or she ages. Therefore, older employees can reasonably be expected to have more frequent and more expensive health-related claims. The older your employees, the more you can expect to pay for health insurance.

Gender

Females generally incur greater medical costs than males at younger ages, particularly during childbearing years. The variances in costs diminish with age until medical costs for males begin to exceed those for females in their late 50s or early 60s. This difference can be seen by comparing the female employee-only rate at 25 to the male employee-only rate at 25.

Group Size

Carriers often base rates on group size. Group size discounts or surcharges are appropriate for two reasons:

• As the group size increases, the per-insured expenses required to issue and service the business decrease. This allows for a lower rate.
• When purchasing medical coverage, individuals and small groups tend to select insurers based on the insurance needs of each employee in a small group. As group size increases, this selection becomes more difficult and, to the extent it occurs, is spread over a larger base.

Industry

People working in certain industries incur higher medical claim costs than those in other industries. This can, in part, be attributed to working conditions, prevalence of accidents, and employee turnover. Higher employee turnover, for example, can result in higher administrative costs for the insurer.

The highest factor associated with an industry classification may not exceed the lowest factor associated with an industry classification by more than 15 percent.

Geographic Area

The cost of medical care varies from one area to another. This is due to the general cost of medical care in the area, the differences in medical practices by region, the types and number of specialists, and the amount of competition in the area. Most small group plans use either the county or ZIP code of an employer's business address to determine rates.

Types of Health Benefit Plans

Health plans are classified as either "state-mandated health benefit plans" or "consumer choice health benefit plans." A state-mandated plan provides certain required minimum features and coverages. Some state-mandated benefits continue to be required for consumer choice health benefit plans, including coverages for

• phenylketonuria treatment, if prescription drugs are covered
• complications of pregnancy
• minimum hospital stay after childbirth (federally mandated)
• reconstructive surgery following a mastectomy (federally mandated).

A consumer choice health benefit plan is any plan developed by a carrier that is required by law to include only a very few state-required benefits.

Although consumer choice health benefit plans also may be called "standard plans," the term should not be interpreted to mean that the coverages provided are "standardized." Each carrier's consumer choice health benefit plan may be different, and a carrier may offer several different consumer choice health benefit plans.

Consumer choice health benefit plans may vary depending on the type of carrier offering the plan. For example, HMO consumer choice health benefit plans must pay for 20 outpatient mental health visits per enrollee per year, but that's not a requirement in indemnity plans. In addition, unlike insurance companies, HMO consumer choice health benefit plans must include basic health care services, such as inpatient, outpatient, and preventative services. Carriers may offer optional benefits that vary widely from plan to plan.

This rate guide contains rate information on the following types of plans:

• a carrier's most popular indemnity state-mandated health benefit plan
• a carrier's most popular indemnity consumer choice health benefit plan
• a carrier's most popular preferred provider organization (PPO) state-mandated health benefit plan
• a carrier's most popular PPO consumer choice health benefit plan
• an HMO's most popular state-mandated health benefit plan
• an HMO's most popular consumer choice health benefit plan

Indemnity plans give employees the freedom of choice to use any provider. When services are received, the employee usually pays the provider and then submits a properly-completed claim form to the carrier. The plan will require that the employee satisfy the deductible before it will reimburse at the stated level.

PPO plans have two levels of benefits. The plan will reimburse at a higher level of benefits when the employee uses a network provider. The plan will reimburse at a lower level of benefits when an out-of-network provider is used.

Carriers may offer both PPO and indemnity plans but are not required to offer both.

Generally, HMOs require employees to receive services from providers in the HMO's network. Although HMOs must pay for out-of-network services when those services are not available from network providers, they might not pay for treatment employees obtain from out-of-network providers without prior authorization.

How to Use the Rate Guide

For this rate guide, carriers were asked to provide monthly premium rates for several hypothetical companies. Each company has four employees, all of the same age and gender.

• Rates are shown for male and female employees aged 25, 40, and 55
• In each of the rate tables, rates are shown for employees who elect employee-only coverage and for employees who elect to also cover their families.
• Carriers were asked to provide sample rates for two preferred provider organization (PPO) plans, two indemnity plans, and two health maintenance organization (HMO) plans. The plans labeled "state-mandated plans" have all the features and benefits required by law. Plans labeled "consumer choice" are developed independently by carriers and do not include all the state-mandated benefits.
• Since most carriers base rates on the geographic location of an employer, rates are listed for small employers in 11 different Texas cities. To learn the rates you might expect to pay for health care coverage for your employees, use the table for your city or the city nearest you.
• If a particular carrier uses industry classification as a case characteristic, the rates shown reflect the lowest industry factor the carrier uses.
• Rates are shown per-employee per month.

NOTE: The rates shown are estimates given to TDI by the companies listed and are not the exact amounts you will be quoted. Your premium will vary according to your company´s individual circumstances. You can expect to pay more or less than the rates listed depending on the size of your company and the ages and gender of your employees. Carriers were asked to base their sample rates prior to the application of any risk load. The health status and claims experience of your employees will affect your actual rates.

Although your situation will likely be different, the rate guide provides a useful way for you to compare rates in general terms among companies. The rate guide also serves to illustrate that rates often vary widely from one company to another for the same coverage. It pays to shop around.

Purchasing Coverage

Texas law requires small employer carriers to provide premium quotes to small employers (directly or through an authorized agent) within 10 working days of receiving a request for a quote and the information necessary to calculate the premium. If a carrier needs more information to develop the quote, it must request it within five working days after receiving the request for a quote. A small employer carrier may not decline to provide a quote to a small employer directly or through an authorized agent. There are no exceptions to this requirement.

For More Information or Assistance

For answers to general insurance questions or for information on filing an insurance-related complaint, visit our website or call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday

www.tdi.state.tx.us
1-800-252-3439
463-6515 in Austin

For printed copies of consumer publications, call the 24-hour Publications Order Line

1-800-599-SHOP (7467)
305-7211 in Austin

Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line

1-888-327-8818

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1-877-4FIRE45 (434-7345)

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

For more information contact: ConsumerProtection@tdi.state.tx.us