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Summary of California large group health insurance filings 2021-2024

18 January 2024

Introduction

California enacted Assembly Bill 731 (AB 731)1 to regulate large employer group health insurance premiums in California. AB 731 requires large group issuers to submit annual rate filings to the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI). The first rate filing was for large group plans with effective dates in calendar year 2021. The bill is in line with the DMHC’s mission to protect healthcare consumers and ensure a stable healthcare delivery system, and it aims to help the DMHC determine whether a large group rate filing is reasonable.2

The associated filing requires large group issuers to disclose experience period claims, methodologies, factors, and assumptions that were used to set projected premium rates, which DMHC accomplishes annually through a standard rate filing template and supplemental filing documents.

Methodology

Given the non-standardized nature of the supplemental rate filing documents, we limited our analysis to values reported in the standard rate filing template. Issuers are required to submit two filings: one for “Blended or 100% Experience” and one for “100% Community.” Given the significant overlap between the two filings, we limited the analysis to the “Blended or 100% Experience” filings, except for issuers that only filed a “100% Community” filing.

The totals across all issuers, as presented below, are aggregated based on total costs and membership by issuer. In other words, issuers with higher costs and membership have a larger impact on the overall values reported below. See Appendix A for a list of all issuers included and the total reported membership for 2022, the most recent experience year.

For each metric, we only included issuers that submitted complete information, meaning no redacted or erroneous data.

California large group rate filing results

2024 premiums by product3

Figures 1 and 2 summarize 2024 premium information for the three product types with the highest enrollment, health maintenance organization (HMO), preferred provider organization (PPO), and high-deductible health plan (HDHP), which collectively account for over 98% of enrollee months. Both figures are weighted by total premiums and membership across all issuers that submitted complete information. Figure 1 shows the most recently filed premium levels before and after the rate change, which may include the impact of benefit changes in addition to cost and utilization changes. Figure 2 shows the 2024 distribution of premiums by product among the components of premium requested in the AB 731 filing. Note that, even with the magnitude of the aggregate 2024 rate increases shown in Figure 1, the after-tax profit margin is projected to be negative for HMO plans overall, although there is material variation across issuers.

Figure 1: Premiums in 2024 rate filing

PRODUCT % OF TOTAL ENROLLEE MONTHS PREMIUM PRIOR TO RATE CHANGE PREMIUM AFTER RATE CHANGE RATE CHANGE
HMO 80% $572.51 $640.69 11.9%
PPO 15% $669.61 $709.80 6.0%
HDHP 3% $505.93 $569.48 12.6%

Figure 2: 2024 components of premium

PRODUCT MEDICAL COSTS ADMINISTRATIVE COSTS TAXES AND FEES AFTER-TAX PROFIT/MARGIN PREMIUM (TOTAL)
HMO 94.3% 4.3% 1.6% -0.2% 100.00%
PPO 84.4% 8.1% 2.1% 5.3% 100.00%
HDHP 91.2% 5.4% 1.6% 1.9% 100.00%

The data also suggests it is rare for an issuer to offer a new product. Only three issuers newly offered an HMO, one issuer newly offered a PPO, and two issuers newly offered a point-of-service (POS) product over the past four years. The AB 731 filing does not track the introduction of new plans, just new products.

Experience period costs

Figure 3 shows the claims distribution for the 2019-2022 experience periods which correspond to the 2021-2024 filings. The distribution is weighted by total paid claims across all issuers that submitted complete information. The distribution of aggregate paid claims among capitation cost, FFS, and pharmacy has been steady over the four years. The consistency of pharmacy paid claims (net of rebates) at 12% of the total suggests overall drug costs have trended at about the same rate as medical costs, which could be driven by unit cost trends, utilization trends, drug mix, rebates, etc. Reported experience loss ratios have been below 90%, except for the 2024 filing (2022 experience year), which was 93%. This higher loss ratio likely contributed to the high 2024 rate increases in Figure 1.

Note that there is no indicator of whether each plan provides pharmacy coverage or not. Therefore, the distribution below should be interpreted as a distribution across all plans, and not for the average medical plan with pharmacy coverage. In addition, AB 731 reporting does not collect pharmacy rebates or gross pharmacy costs from issuers.

Figure 3: Claims distribution and loss ratios by experience year

Claims Category 2019 2020 2021 2022
Capitation 31% 34% 33% 34%
Medical - Incurred Claims 58% 54% 56% 54%
Pharmacy - Incurred Claims 12% 12% 12% 12%
Total 100% 100% 100% 100%
Loss Ratio 87% 86% 89% 93%

The allowed costs as a percentage of Medicare fee-for-service (FFS) reimbursement across all California issuers are approximately 250% for hospital inpatient, 280% for hospital outpatient, and 130% for professional services, including laboratory and radiology. These percentages remained generally consistent over the four reporting years, with a dip in 2020 (possibly driven by a different mix of services during the COVID-19 pandemic) and increases in 2021 and 2022 for some professional services. Please see Figure 4 for the aggregate allowed costs as a percentage of Medicare by experience year for the 2021-2024 rate filings, weighted by issuers’ allowed claims volumes for issuers that submitted complete information.

Figure 4: Allowed costs as a percentage of Medicare by experience year

SERVICE CATEGORY 2019 2020 2021 2022
Hospital Inpatient 251% 224% 254% 254%
Hospital Outpatient (including ER) 291% 278% 282% 284%
Physician/Other Professional Services 116% 114% 133% 140%
Laboratory (other than inpatient) 181% 180% 176% 151%
Radiology (other than inpatient) 177% 164% 214% 224%

Projected allowed costs and trends

Figure 5 shows the reported projected 2024 allowed per member per month (PMPM) by region, weighted by total allowed costs and enrollment across all issuers that submitted complete information. See Appendix B for DMHC’s geographic region definitions. All rating areas have at least 14 issuers based on the 2024 rate filing. Rating area A has the most, at 21 issuers. Overall, costs in Northern/Central CA tend to be higher than in Southern CA.

Compared to other service categories, a substantial proportion of the professional service costs are capitated across all regions, with 87% of professional services capitated statewide. Regions B and C, both in Northern/Central CA, have the two highest reported allowed PMPM. Region C also has the lowest percent of professional claims that are capitated and the lowest reported member months.

Figure 5: 2024 projected allowed PMPM by region4

Northern/Central CA Southern CA
SERVICE CATEGORY A B C D E F G STATEWIDE
Hospital Inpatient $150.62 $147.64 $136.55 $138.61 $110.84 $116.54 $111.85 $132.15
Hospital Outpatient
(including ER)
$122.57 $129.10 $134.34 $119.23 $90.78 $94.77 $94.91 $110.25
Physician/Other
Professional Services
$19.71 $14.84 $75.65 $30.81 $19.86 $26.15 $29.58 $23.93
Laboratory
(other than inpatient)
$1.66 $0.93 $5.88 $1.54 $2.01 $3.32 $2.38 $2.18
Radiology
(other than inpatient)
$1.67 $1.08 $4.37 $1.22 $1.15 $1.73 $1.63 $1.59
Capitation
(professional)
$176.65 $181.09 $105.00 $153.91 $134.83 $156.45 $150.15 $162.24
Capitation
(institutional)
$6.11 $9.51 $17.65 $13.76 $21.95 $18.28 $28.69 $14.76
Capitation
(other)
$4.03 $25.23 $9.50 $3.84 $11.00 $7.47 $9.78 $9.25
Other $14.68 $15.77 $12.35 $16.21 $8.00 $7.52 $9.15 $11.81
Medical Subtotal $497.70 $525.20 $501.29 $479.13 $400.41 $432.22 $438.11 $468.15
Prescription Drug $57.07 $58.20 $84.20 $62.35 $62.93 $62.67 $70.94 $61.95
Total $554.76 $583.40 $585.49 $541.48 $463.35 $494.89 $509.05 $530.10
Percent of
professional
claims capitated5
90% 92% 58% 83% 87% 86% 84% 87%
Member months
(millions)
29.7 12.9 2.0 5.8 7.6 22.8 13.6 94.4

See Figure 6 for the 2024 statewide trends by service category. Statewide trends are a claims-weighted average across all issuers that submitted complete information.

Price inflation trends are mostly between 2% and 5% across all service categories. Higher pharmacy trend than medical trend (weighted average across all medical trend categories) was reported in every region. Note that this is inconsistent with the reported distribution of claims in the experience, which show comparable pharmacy and medical trends, although this difference could be driven by changes in drug mix, rebates, or other factors. The overall 2024 price inflation trend (medical and pharmacy combined) was 6%.

Use of service trends does not show many clear patterns over time or over service categories. It is not uncommon for an issuer to report negative trends. Overall, the 2024 use of service trend was 3%.

Figure 6: 2024 statewide allowed trends

Service Category Use of Services Price Inflation
Hospital Inpatient 1.7% 6.8%
Hospital Outpatient (including ER) 4.0% 6.6%
Physician/Other Professional Services 5.1% 3.3%
Laboratory (other than inpatient) 5.5% 3.3%
Radiology (other than inpatient) 5.0% 3.2%
Capitation (professional) 2.5% 3.6%
Capitation (institutional) 0.3% 5.1%
Capitation (other) 0.5% 4.8%
Other 1.1% 6.0%
Medical Subtotal 2.6% 5.3%
Prescription Drug 2.4% 7.3%
Total 2.6% 5.5%

Conclusion

AB 731 has significantly enhanced transparency and accountability within the California large group health insurance market. The data analysis presented in this paper, covering the first four years of AB 731 filings, provides valuable insights into the California large group health insurance market.

The findings reveal allowed costs as a percentage of Medicare, premium levels across major product types, premium components, and the distribution of claims between claims category and service category. The report also highlights regional variations in allowed costs, showing the variation within the state of California. Finally, the report summarizes 2024 trend levels and rate increases. The information presented in this report will assist issuers as they continue to monitor and improve their large group lines of business.

The values presented in this report are kept at a high level. If more detail is needed for any of the values, contact the authors or your Milliman consultant.


Appendix A: Issuers included*

Carrier 2021 2022 2023 2024 CY 2022
Member
Months
Aetna Health of California Inc. X X X X 1,867,867
Aetna Life Insurance Company X X X X 3,007,735
Alameda Alliance for Health X X X X 69,695
Anthem Blue Cross X X X X 11,049,202
Anthem Blue Cross Life and
Health Insurance Company
X X X X 711,467
Blue Shield of California Life
& Health Insurance Company
X X X X 6,959
California Physicians' Service X X X X 4,935,897
Chinese Community Health Plan X X X X 23,600
Cigna Health & Life Insurance Company X X X 0
Cigna HealthCare of California, Inc. X X X X 1,289,515
Community Care Health Plan X X X X 123,072
Contra Costa Health Plan X X X X 60,014
County of Santa Clara dba Valley Health Plan X X X X 290,560
Health Net Life Insurance Company X X X 0
Health Net of California, Inc. X X X X 3,394,099
Kaiser Foundation Health Plan, Inc. X X X X 64,181,024
Kaiser Permanente Insurance Company X X X X 59,246
Local Initiative Health Authority
for Los Angeles County
X X X X 601,479
MemorialCare Select Health Plan X X X X 3,106
National Health Insurance Company X 0
Nippon Life Insurance Company of America X X X X 173,777
San Francisco Health Authority X X X X 139,678
San Mateo Health Commission
dba Health Plan of San Mateo
X X X X 14,403
Santa Cruz - Monterey - Merced -
Managed Medical Care Commission
X X X X 7,478
Scripps Health Plan Services, Inc X X X X 192,167
Sharp Health Plan X X X X 689,684
Sutter Health Plus X X X X 783,053
United Healthcare of California X X X X 2,207,098
UnitedHealthcare Benefits Plan of California X X X X 3,051,840
UnitedHealthcare Insurance Company X X X X 35,134
Ventura County Health Care Plan X X X X 134,042
Western Health Advantage X X X X 788,542

* This table includes all issuers who submitted a filing to CDI or DMHC, including issuers that had incomplete or redacted information.

Appendix B: Geographic region definition

Large Group Area ACA Rating Area
(for reference)
County Name
Group A
Northern/Central CA
2 Marin
Napa
Solano
Sonoma
4 San Francisco
5 Contra Costa
6 Alameda
7 Santa Clara
8 San Mateo
Group B
Northern/Central CA
1 Alpine
Amador
Butte
Calaveras
Colusa
Del Norte
Glenn
Humboldt
Lake
Lassen
Mendocino
Modoc
Nevada
Plumas
Shasta
Sierra
Siskiyou
Sutter
Tehama
Trinity
Tuolumne
Yuba
3 El Dorado
Placer
Sacramento
Yolo
Group C
Northern/Central CA
9 Monterey
San Benito
Santa Cruz
12 San Luis Obispo
Santa Barbara
Ventura
Group D
Northern/Central CA
10 Mariposa
Merced
San Joaquin
Stanislaus
Tulare
11 Fresno
Kings
Madera
14 Kern
Group E
Southern CA
13 Imperial
Inyo
Mono
17 Riverside
San Bernardino
Group F
Southern CA
15 and 16 Los Angeles
Group G
Southern CA
18 Orange
19 San Diego

1 The full text of the bill is available at https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB731.

2 See https://esd.dof.ca.gov/Documents/bcp/2021/FY2021_ORG4150_BCP3729.pdf.

3 Product options in the AB 731 large group template are Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), Point of Service (POS), Fee For Service (FFS), High Deductible Health Plan (HDHP), and Other.

4 Northern/Central versus Southern determination was made by the authors and not by the DMHC or another source.

5 Calculated from “Capitation (professional)” allowed costs divided by the sum of “Physician/Other Professional Services” and “Capitation (professional)” allowed costs.


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