Overview Medical Loss Ratio (MLR) Rate Review

John Alden Life Insurance Company Rate Review in Alaska

John Alden Life Insurance Company has asked for a rate increase* for the following products in Alaska: REAL CHOICES-Indemnity-Small Group-62637AK006 and REAL CHOICES-PPO-Small Group-62637AK007.

Review Status: Not Unreasonable Rate Increase

If the increase happens:

The average rate increase will be 16.00%
The proposed rate increase is an average rate increase for all covered groups or individuals. The premiums may be higher or lower than this average based on factors such as age, family structure, and health experience of the covered groups and individuals.
The effective date of the rate increase is 06/01/2013. The actual date of your rate increase may vary based on the anniversary date of your policy and other factors.
This increase will affect 3241 people

More Information about this Rate Increase:

Why does my insurance company want to raise my premium?
What kinds of Medical Services are causing this rate increase?
How would my insurance company use my premium?
Last three rate increases for this product
Who is reviewing this rate increase?
Insurer's explanation of the rate increase
Results of the Rate Review

Why does my insurance company want to raise my premium?

Your insurer says that costs are going up:

Type of Cost:	Per Member Increase Per Month Increase**	Portion of Increase
Medical Services* - Cost of providing healthcare services to policyholders	$45.75	77.00%
Administrative Expenses - Marketing, claims processing, and other costs to the company	$19.11	32.16%
Underwriting Gain/Loss - Amount the company keeps after paying claims and administrative expenses	-$5.44	-9.16%

* 42.68% of the Medical Services cost increases are due to how many people use the services and how often they use them and 33.38% is due to the cost of services.

** These increases won't add up to the average rate increase if everyone doesn't get the rate increase at the same time.

What kinds of Medical Services are causing this rate increase?

Medical Service	Per Member Per Month Increase	Portion of Increase
Hospital Inpatient - Care in a Hospital	$17.94	39.21%
Outpatient - Care in a hospital or other facility that doesn't require an overnight stay	$15.00	32.79%
Professional Services - Payments to doctors and other healthcare professionals	$5.56	12.16%
Prescription Drugs - Medicines you need a prescription to buy	$4.60	10.06%
Ancillary Services - Medical supplies, ambulance fees, etc.	$3.84	8.39%
Capitation - A fixed per person payment the insurer pays to a provider to cover a person's medical costs	$0.00	0.00%
Cost Sharing - Changes in deductibles, copayments, benefits, etc.	-$4.06	-8.88%
Current Medical Cost Adjustment - The difference between what your insurer thought it was going to pay for medical services and what it actually paid during the current year	$2.87	6.26%
Total Medical Service Cost Changes	$45.75	100.00%

How would my insurance company use my premium?

Type of Cost	How Premium Dollars Will be Spent if the Requested Rate is used
Type of Cost	Per Member Per Month	Portion of Rate
Medical Services - Cost of providing healthcare services to policyholders	$399.05	77.00%
Administrative Expenses - Marketing, claims processing, and other costs to the company	$125.77	24.27%
Underwriting Gain/Loss - Amount the company keeps after paying claims and administrative expenses	-$6.57	-1.27%
Total Request Rate	$518.25	100.00%

Last three rate increases for this product:

Year	Requested	Got
2011	11.12%	11.12%
2010	13.05%	13.05%
2009	18.07%	18.07%

Who is reviewing this rate increase?

The rate increase request is being reviewed by the State.

State laws either:

Allow the insurance regulator to review rate filings, but do not allow the regulator to stop a rate from being used, or
Allow the insurance regulator to both review rate filings and stop an unreasonable rate from being used.

If a state's laws do not allow the insurance regulator to perform effective rate reviews, the federal government* will review any rate increases at or above 10% in the individual or small group market.

*If the federal government is reviewing, click here to see the filing.

Insurer's explanation of the rate increase

John Alden Life Insurance Company has prepared the following written explanation of this rate increase.

The requested average rate increase for our Alaska Small Group business is 16%. There are 3,241 covered lives who will be impacted by this rate increase. Depending on the group's network and deductible, the increase will range from -7% to 33%.

Below is the 2011 experience for this product.
Premium Revenue	15,251,540	 
Claims Expense	10,716,691	70.3%
General & Administrative Expense	3,456,904	22.7%
Gain/Loss	1,077,946	7.1%


This rate increase is needed to keep up with the increasing costs of major medical insurance.
Medical trend is assumed to continue at an annual rate of 13%, driven by increases in unit cost, utilization, and benefit leveraging. 

We use a target loss ratio approach to determine the needed rate change.  The loss ratio is the ratio of incurred claims to earned premium. In Alaska, the target loss ratio is 77%, which we believe equates to the 80% Medical Loss Ratio under the Patient Protection and Affordable Care Act.

In 2011 we were in an underwriting gain position in Alaska.  Experience in the state of Alaska is not credible on its own.  With the 16% rate increase, we are expecting to be in an underwriting loss position for 2012 in the state of Alaska when credibility weighted with nationwide premium.

The main drivers of our administrative expenses are employee salaries and benefits, agent commissions, and premium taxes, licenses and fees.  We are working to lower our administrative expenses to improve our profitability.

Results of the Rate Review

The State has reviewed this rate increase and has provided the following information about its findings:

Alaska reviewed the rate filing request for compliance with AS 21.54.015 and 3 AAC 31.235. Alaska's general standard of review is that rates may not be excessive, inadequate or unfairly discriminatory. John Alden Life Insurance provided the information and analysis specified under 3 AAC 31.235.  The Division received no comments from the public on the filing.
The Division reviewed all the supporting data and information provided by John Alden Life Insurance including historical and projected claims and premium, each component of John Alden Life Insurance expense assumptions including administrative expenses, health care cost and utilization experience and method for determining and calculating the rate increase.  Based on this review, the Division determined that John Alden Life Insurance's assumptions were reasonable, historical data was valid, and that the average 16.4% rate increase was justified.  
John Alden Life Insurance projects that their loss ratio for their small group business will exceed the federal minimum loss ratio and therefore anticipates no rebates will be paid. 
The rate changes will become effective on 8/1/2013.

Comment on this rate increase

You may submit your comments about this rate increase to Alaska on its website at http://www.dced.state.ak.us/insurance/Insurance/programs/Consumers/fileAConsumerComplaint.html; by email at insurance@alaska.gov; by telephone at 1-800-467-8725; and by U.S. mail to the Alaska Division of Insurance, P.O. Box 110805, Juneau, Alaska 99811-0805.