July 30, 2015

Comments on Coventry Rate Filing HIOS Issue ID #44240

I. Introduction
This Coventry affiliate, which does business in the Kansas City region, proposes to raise
its rates by 27.1% for its exchange plans and 22.4% for its plans sold only off the exchange.
While the Missouri carriers redact an unnecessary amount of information, including a great deal
of information that could not even arguably be considered trade secret, this filing appears to be
the most extreme. Among the information Coventry redacts, which many of the carriers dont
redact, and the redaction of which is particularly unreasonable because it is publicly available in
other documents, are the reasons for the increase, the companys MLR, and the identity of the
actuary who prepared the rate filing. Moreover, Coventry redacts more from its 2016 filing than
it did from its 2015 filing. Further, even the completely unredacted rate filing includes only
generalizations. It does not disclose even to the regulator the companys assumptions,
calculations and reasoning.
For example, the rate filing states that the company is raising rates for different plans by
different rates, but it provides no data supporting any increase. Rather, it says that rate changes
differ by plan because provider cost estimates have been updated; because our internal
pricing models have been updated to reflect more current information on levels of induced
demand associated with different benefit designs in the large group market; and because of the
expected migration between plans we expect for 2016. (2) It also says that the base period data
includes Transitional and ACA-compliant policies. However, it provides no data -- e.g., it
discloses neither its provider cost estimates, nor its pricing models, nor its assumptions regarding

migration between plans. Nor does it disclose either the number of transitional policies included
in its base period data or the experience of those plans.
Notwithstanding all the above, Coventry says in its summary of the rate filing posted on
ratereview.healthcare.gov that "Coventry is dedicated to increasing transparency within the
health care system." Based on the amount of information Coventry redacts in its rate filing, that
is not a true statement.
II. Morbidity
Coventry estimates the morbidity of those it expects to enroll in 2016 by dividing those
people into two groups -- those it currently enrolls and those it expects to enroll for the first time
in 2016 -- and projecting the 2016 morbidity for each. That is a perfectly defensible
methodology, but the company includes no explanation of how it estimates the 2016 morbidity
of each group. In determining whether the proposed increase is unreasonable, HHS should
determine whether Coventry takes into consideration the effect of the fulfillment of the pent-up
demand of its current members in estimating their 2016 morbidity. HHS should also determine
whether Coventry takes into consideration both that the least healthy disproportionately enrolled
in 2014 -- thus leaving a more healthy group to enroll in 2016 -- and that the dramatically
increased penalty -- the greater of $695 or 2.5% of adjusted gross income, compared with $95 or
1% in 2014 -- substantially increases the incentive for healthy people to enroll in 2016. If HHS
finds that Coventry has disregarded any of those factors in estimating its 2016 morbidity, it
should deem the proposed increase unreasonable.
III. 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 posted at ratereview.healthcare.gov, Coventry
states that it is using a 7.6% trend factor. Nevertheless, in its actuarial memorandum it redacts
2

the trend factor it uses, and it fails to provide any data -- redacted or unredacted t o support any
of its trend assumptions. It states only that its trend estimates are based on known and
anticipated changes in provider contract rates, severity and medical technology impacts, and
expected changes in utilization. (4) HHS should require Coventry to justify its 7.6% assumed
trend with hard data rather than the generalizations it has provided. While lower than the 9.4%
trend Coventry uses for its St. Louis area business, Coventrys 7.6% trend for its Kansas City
area business exceeds BCKC's 4.5% and Humana's 6.4%. As an established carrier with almost
70,000 lives in Missouri, Coventry would appear to have the sophistication and leverage with
providers to refuse to accept annual increases that substantially exceed those experienced by
BCKC and Humana. To the extent that Coventry appears to be merely passing through costs
rather than managing them, HHS should deem its proposed increase unreasonable.
IV. Reinsurance and risk adjustment
Coventry redacts entirely whatever calculation or explanation it provides regarding its
estimate of the reinsurance payment it is receiving and the risk-adjustment payment it is either
making or receiving. Redacting risk-adjustment information seems particularly inappropriate,
since the risk-adjustment program seeks to eliminate any incentive to attract the healthy and
avoid the sick by requiring insurers who do attract healthier risks to pay insurers who attract less
healthy risks. Allowing insurers to keep information about -non-public could allow an insurer to
prevent the public from seeing whether and how an insurer is gaming the system, i.e., managing
to attract risks for which it gets paid more than it should and driving away risks for whom it is
penalized less than it should.
Redacting information regarding reinsurance payments is also improper, since those
payments depend only on the number of high-cost insureds an insurer has and the amount of its
claims payments on their behalf. It discloses nothing about an insurers strategy.
V. Risk corridors
3

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. (5) 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, ensure that other insurers and taxpayers will subsidize the insurer if it ends up paying
out more than it projects. Those three provisions therefore serve the same purpose as and take
the place of a risk margin provision. Moreover, Coventry does not just redact the amount of
its profit and/or risk margin provision; it redacts the names of the components of the section it
labels Non-Benefit Expenses and Profit & Risk. It is therefore impossible to tell how much
Coventry has allocated to profit and risk and how it characterizes what it has allocated to profit
and risk. To the extent HHS determines that a portion of Coventrys Non-Benefit Expenses and
Profit & Risk includes a risk margin, such a provision is redundant and therefore unreasonable.
VI. Expenses in general
Coventry not only redacts its expenses but appears to include no data -- redacted or
unreadacted -- justifying its redacted expenses. It states that its expenses are based on historical
expense levels, current-year projections, and projected changes in expenses, inflation, and
membership, (6) but it doesnt explain -- even, apparently, in the unredacted version -- what
these projections are or the bases for them. Unless Coventry does so, HHS should deem its
proposed rate unreasonable.
VII. 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
4

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 factor based on the same
data and 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.