July 30, 2015

Comments on Cox Rate Filing HIOS Issue ID #96384

I. Introduction
Cox, which offers plans only off the exchange, proposes to increase its rates by 12.9%.
Cox says that increase is based on, among other things, emerging claim experience But it does
not disclose that experience.
II. Changes in morbidity
Cox says it applied a factor to its individual non-ACA experience in order to account for
the health status of the people it projects it will enroll in 2016. It says that factor is largely a
function of five things: (1) health plans being required to accept all applicants regardless of
health status; (2) the number of uninsured in Missouri relative to the individual insurance market;
(3) assumed entry of Missouri high-risk pool members; (4) the proportion of currently insured
individuals that will change to ACA coverage in 2016; and (5) Coxs desire to sell only off the
exchange. All these factors are relevant to the likely morbidity of those Cox will enroll in 2016.
However, Cox disregards three additional factors that can reasonably be expected to have
a substantial effect on the morbidity of those it will enroll in 2016. Each factor will have the
effect of improving the morbidity of its 2016 enrollees and thus reduce the rate Cox would need
to charge for 2016: (1) the fact that the least healthy people can reasonably be expected to have
signed up first -- i.e., in 2014 -- thus leaving a comparatively healthier group of people who will
sign up in 2016; (2) the substantially increased penalty for not having insurance that will make it
even more likely that healthier people will enroll in 2016; (3) the fact that the pent-up demand of
the less healthy people enrolling in 2014 can reasonably be expected to have been fulfilled.

Cox does not disclose the factor it applies, but because it is based only on the five factors
Cox listed above and is not based on the three other factors just described, it can reasonably be
expected to be unreasonably high.
III. Underwriting wear-off
Coxs rate is likely to be particularly excessive because it also increased its proposed rate
to account for underwriting wear-off of the existing non-ACA block. (5) Before the ACAs
mandated guarantee issue and community rating took effect in 2014, increasing the rate to
account for underwriting wear-off made sense. Pre-ACA, insurers were allowed to underwrite
-- i.e., refuse to insure people based on health status -- and thus to enroll only healthy people.
Even some of these healthy people, however, would get sick as time went on -- i.e., the effect of
underwriting would wear-off. Under the ACA, because insurers can no longer reject people
based on health status, underwriting wear-off no longer occurs. It makes no sense to raise rates
due to underwriting wear-off for business that is subject to the new ACA rules.
Cox proposes to raise its rates based on underwriting wear-off of the existing non-ACA
bloc, i.e., of the people who Cox insured prior to 2014 who were presumably healthy because
they bought where insurers were could reject people based on health status. That would be
defensible if Cox hadnt already accounted for the fact that some of these people would
inevitably get sick. But it has accounted for that: It says it has already applied a factor of
[redacted] to Coxs individual non-ACA experience to account for the anticipated health status
change. This adjustment is largely a function of health plans being required to accept all
applicants regardless of health status. (5) In other words, Cox is projecting that its 2016
business will be worse than its 2014 business -- a projection which, as we have explained above,
is not credible to begin with. To quantify that change it raises its rates by a factor based on its
pre-2014 business being healthy. Underwriting wear-off does the same thing. By both

apply[ing] a factor to Coxs individual non-ACA experience and raising the rate because of
the underwriting wear-off of the existing non-ACA block, Cox is double counting.
IV. Trend
Cox both redacts the trend factor it uses and offers an unhelpful explanation of how it
determined that trend. It says, We developed the trend assumptions using general industry
knowledge regarding recent trends in medical and prescription drug inflation, Milliman research,
and judgment. (5) That vague description tells the reader nothing about what Cox actually did
to determine its trend factor.
V. Contribution to Surplus and Risk Margin
Cox was similarly unhelpful in describing its contribution to surplus and risk margin.
But the little it did say raises serious questions about the validity of either. For example,
regarding how it arrived at its contribution to surplus Cox states only that it set that amount to
align Coxs 2016 rates with the current competitive situation in the Missouri individual market,
(7) and that the contribution to surplus it included in the rate varied by plan. Regardless of the
competitive situation in the Missouri individual market, to the extent that contribution would
produce an excessive return on surplus, it would be disallowed under most state statutes. It cant
be disallowed under Missouri law -- since Missouri has no such law -- but it would still violate
actuarial principles. In addition, varying contribution to surplus by plan produces unfair
discrimination -- i.e., similarly situated risks paying different rates. Even in Missouri's
unregulated health insurance market, the Missouri Unfair Practices Act at least arguably
prohibits such discrimination. See RSMo 375.936 (11).
Cox also says that it included a risk load -- which it redacted -- to account for the
insufficiencies caused in the rates for the catastrophic plan adjustment and the inability to legally
offset this decrease in the metallic plans alone. (7) But the way Cox defines risk load is not in
fact a risk load. Its an extra profit factor that Cox says that it needs but that the ACA prohibits.
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In addition, to the extent Cox really was including a factor for risk load, the risk corridor
program -- which HHS re-emphasized in its July 21, 2015, letter to commissioners "requires the
Secretary to make full payments to issuers" -- makes such a factor redundant.