July 30, 2015

Comments on Coventry Rate Filing HIOS Issue ID #44527

I. Introduction
This Coventry affiliate, which does business in the St. Louis region, proposes to raises its
rates by 28.9% for its exchange PPO plans, 18.6% for its exchange Carelink and Focused Care
HPN plans (which have narrower networks) and 27.7% for its off-exchange plans. While
heavily redacted, this filing is not redacted to quite the extent as Coventry filing 44240.
Nevertheless, the bulk of its redactions are unreasonable and, like the other Coventry filing, it
explains the increase only in generalities. At the same time, its summary of the rate filing states
that Coventry is dedicated to increasing transparency within the health care system.
II. Morbidity
The section entitled Change in the Morbidity of the Population Insured appears to
explain Coventrys 2014 rates but not its 2016 rates. For example, it states that the change in
the morbidity of the future insured population relative to the current population in the experience
period is based on changes in underwriting and rating factors, as well as expected sources of
market expansion. (F-4) That is a valid reason for an expected change in morbidity for 2014,
since underwriting and rating factors changed between 2013 and 2014. But it is not a valid
reason for an expected change in morbidity between 2014 and 2016, since underwriting and
rating factors have remained constant since January 1, 2014. Notably, in its description of its
expected change in morbidity, Coventry fails to discuss or cite any of the research regarding the
industrys assumption that the least healthy were most likely to sign up in 2014 (thus leaving
healthier people to sign up in future years), the effect of the dramatically increased penalty on
2016 enrollees and likely 2016 claims costs, or the effect of the fulfillment of pent-up demand.
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Unless Coventry can compellingly explain its apparent disregard of these factors, HHS should
deem the proposed rate unreasonable.
III. Changes in benefits
The section entitled Changes in Benefits also appears to describe 2014 business rather
than 2016 business. For example, it lists all the benefits that are included in the ACA-mandated
Essential Health Benefits package that Coventry has not traditionally covered and states that the
inclusion of those benefits will raise its costs. That argument makes sense with respect to the
difference between the likely claims costs of 2013 enrollees and those of 2014 enrollees, since its
2013 enrollees did not receive the ACA Essential Health Benefits package while its 2014
enrollees did. But it does not make sense with respect to the difference between the claims costs
of 2014 enrollees and those of 2016 enrollees, since Coventry must provide the ACA Essential
Health Benefits for both sets of enrollees.
In addition, Coventry has redacted the estimated impact of the Essential Health Benefits
package it has not traditionally covered on its costs and does not appear to explain how it arrived
at the impact it has redacted. Notably, HHS, other insurers, foundations and other organizations
have made their own estimates of the extent to which the inclusion of all Essential Health
Benefits will raise costs. The department may wish to compare those estimates with Coventrys
in evaluating the reasonableness of Coventrys estimate.
IV. Trend
Trend is made up of two components -- the increase in the cost of the service or product
(unit cost), and the extent to which people use more or fewer services or products
(utilization). In its summary of the rate filing Coventry states that it is using a 9.4% trend
factor. Nevertheless, in its actuarial memorandum it redacts the trend factor it uses, and it fails to
provide any data -- redacted or unredacted -- to support any of its trend assumptions. It states
only that its trend estimates are based on known and anticipated changes in provider contract
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rates, severity and medical technology impacts, and expected changes in utilization. (F-5)
HHS should require Coventry to justify its 9.4% assumed trend with hard data rather than the
generalizations it has provided. Coventrys 9.4% trend far exceeds not just BCKC's 4.5% and
Humana's 6.4%, but also the 7.6% Coventry itself is using in Kansas City. Unless Coventry can
compellingly justify its use of a 9.4% trend, HHS should find its proposed increase unreasonable
based on that factor alone.
V. Reinsurance and risk adjustment
Whereas in its filing for its Kansas City region Coventry redacts all explanation regarding
risk adjustment and reinsurance, here it explains generally how it calculates the reinsurance
payment it will receive But it discloses neither the amount of its estimated payment nor the
underlying data supporting that amount.
Similarly, although unlike its Kansas City region filing it doesn't redact entirely the
explanation of its risk adjustment payment made or received, it discloses neither the amount of
that payment nor whether it is making or receiving it. Its only explanation of that made or
received payment is that it "includes the anticipated morbidity of Coventrys block compared to
that of the Missouri individual market," and is "based on analysis of market data and anticipated
CMS diagnosis-based risk scores." (F-6-F-7)
There would seem to be no legitimate justification for redacting the data underlying the
company's estimated reinsurance payments received and risk-adjust payments made or received.
The reinsurance program is intended to subsidize all insurers, and the risk adjustment program is
intended to prevent insurers from profiting by attracting the healthy and driving away the sick.
Because the risk-adjusted program requires insurers who do attract healthier risks to pay insurers
who attract less healthy risks, it should eliminate the incentive insurers otherwise would have to
risk select. Allowing insurers to not make public information about risk adjustment is especially

inappropriate since such information could show how an insurer is gaming the system, i.e.,
managing to attract risks for which it gets paid more than their health status would justify.
VI. Risk corridors
As with its Kansas City region filing, Coventry says that because the risk corridor
program is intended to protect carriers from significant deviation between actual results and
carriers projections, it does not impact the required premium on a prospective basis. (F-7)
That is not correct because insurers typically include in their rate filings a provision for profit
and risk margin, or contribution to surplus and risk margin, or some similar provision.
Regardless of how its labeled, the purpose of such a provision is to ensure that the company
earns a profit even if it ends up paying out more than it projects. The risk corridor program,
however, along with the reinsurance and risk adjustment programs, ensures that other insurers
and taxpayers will subsidize the insurer if it ends up paying out more than it projects. Those
three provisions therefore substantially eliminate the justification for any additional risk
margin provision.
VII. Non-benefit expenses and profit and risk
In its Kansas City region filing Coventry redacts both the categories of expenses and the
amounts of those expenses. In this filing it does not redact the categories of expenses but redacts
all amounts, including the amounts of taxes and fees, which are standard for all insurers and are
public knowledge, and general administrative expenses and commissions, which are available in
the insurers annual statement.
VIII. Identity of person who prepared the filing
Coventry redacts the name of the actuary who prepared the rate filing. This is
unreasonable because a major way in which an actuary's analysis can be challenged, just as any
witness's statement can be challenged, is by showing prior inconsistent statements. For example,
if an actuary uses a 7% trend factor in one rate filing but a 5% trend based on the same data and
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for the same experience period in another filing, her use of the 5% can call into question the
validity of the 7%. By preventing the public from knowing the identity of the actuary who
prepared the filing the company prevents the public from challenging inconsistent statements that
actuary has made. Such secrecy would also seem to violate concepts of basic fairness: When an
insurer is seeking to raise its rates, those who would pay those rates should be able to determine
who concluded that rates should be raised.