A health plan’s stated reason or explanation as to why a proposed rate increase
is needed. The certification includes information such as (1) a statement of
the qualifications of the actuary issuing the certification, (2) a statement of
opinion that the proposed rates are actuarially sound in aggregate for the
particular market segment (i.e. individual or small group), (3) a complete
description of the data, assumptions, rate factors and methods used to
determine the premium, and (4) a statement of opinion on whether the rate
increase is reasonable or unreasonable
The percentage of total average costs for covered health care services that are
paid by the health plan. For example, if a plan has an actuarial value of 70
percent, on average, an individual would be responsible for 30 percent of the
costs of all covered health care services.
Adjusted Community Rating
Beginning in 2014, the Affordable Care Act (ACA) limits the factors that health
plans offering non-grandfathered coverage can use to determine premiums in the individual
and small group markets. This is known as Adjusted Community Rating. Specific
allowed factors are: age, family size, geographic rating area, and tobacco use.
Expenses (per 45 CFR 158.160)
Business expenses associated with general administration,
agents and brokers fees and commissions, direct sales salaries, workforce salaries
and benefits, loss adjustment expenses, cost containment expenses, and
community benefit expenditures.
Care Act (ACA)
The Affordable Care Act (ACA) is a comprehensive federal
health care reform law enacted in March 2010. The law was enacted in two parts:
The Patient Protection and Affordable Care Act (PPACA) and the Health Care and
Education Reconciliation Act. The name Affordable Care Act is used to refer to
the combined version of the law.
A financial performance ratio used to determine
profitability. It is calculated by dividing net profit after taxes by revenue.
Net profit after tax is defined as total revenue less total costs (claims,
administrative, selling, and taxes).
Effective January 1, 2014, the Affordable Care Act (ACA or
health care reform) imposes a new annual fee on health insurance providers
based on their market share of net premiums written, or the sum of premiums
earned from all policies, during the previous year.
The tendency for sicker people to purchase health coverage
and healthier people to opt-out. When adverse selection occurs, health plans
charge higher premiums to cover the health care costs of the entire insured
Capitation is also referred to as population based payment
models, where a provider is paid a fixed amount to care for a population over a
specified time period. Capitation based models often include fixed per member
per month payment or percentage of premium payment. Under this arrangement,
the provider assumes the full risk for the cost of contracted services without
regard to the type, value or frequency of services provided. For purposes of
this definition, capitated basis includes the cost associated with operating
staff model facilities.
Historical claim and capitation payments from the 12-month
(usually) base experience period used to develop future premium rates.
Covered California is the state marketplace established
under the Affordable Care Act that connects Californians to accessible, quality
California for Small Business
Covered California operates a specific program that offers
new health insurance choices to small businesses and their employees. The
program is designed specifically for employers with 100 and fewer eligible
employees to give them unprecedented opportunities to offer a variety of health
insurance plans to their employees. Through Covered California, employers and
their employees can choose the plans that fit their needs and their budgets.
Essential Health Benefits (EHB)
The comprehensive set of benefits that the ACA requires all health plans to
include for products sold on or after January 1, 2014.
EHBs include, but are not limited to:
Ambulatory patient services (such as doctor visits or
- Emergency services
- Maternity and newborn care
Mental health and substance use disorder services,
including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
Preventive and wellness services and chronic disease
- Pediatric services, including dental and vision care
A new health coverage marketplace in which individuals and small businesses
will be able to shop for and purchase competitively priced qualified health
plans. California’s Exchange market place is known as Covered California.
Exchange User Fee
This fee is
to cover the administrative costs of running California’s Exchange, Covered
California. This fee is paid to Covered California by qualified health plans
(QHP) participating in the Exchange.
issuers will recover their exchange user fee from policyholders in the form of
Exclusive Provider Organization (EPO)
An exclusive provider organization (EPO) plan is a network of individual
medical care providers, or groups of medical care providers, who have entered
into written agreements with an insurer to provide health insurance to enrollees.
As a member of an EPO, you can use the doctors and hospitals within the EPO
network, but cannot go outside the network for care.
Fee for Services Claims is a method in which doctors and
other health care providers are paid for each service performed.
Geographic Rating Areas
The geographic regions across which health plans can vary premiums. Beginning
in 2014, the ACA allowed non-grandfathered health plans to vary the premiums
they charge based only on the following factors: age, geographic rating area
and whether it is coverage for an individual or a family. State law has created
19 geographic rating areas California.
Grandfathered Health Plan
A health plan that an individual was enrolled in prior to March 23, 2010.
Grandfathered plans are exempt from most of the changes required by the ACA as
long as there are no significant changes made to the plan. New employees may be
added to grandfathered group plans and new family members may be added to all
Health Maintenance Organization (HMO)
An HMO is a kind of health insurance that has a list of providers, such as
doctors, medical groups, hospitals, and labs. You must get all of your health
care from the providers on this list. This list is called a network.
Incurred But Not Paid –refers to an unpaid claim liability
or claim reserve established by the health plan for healthcare services that
have been rendered by the provider but not yet paid by the plan.
Tax imposed on individuals or corporations (taxpayers) that may
vary with the income or profits (taxable income) of the taxpayer. Details vary
widely by jurisdiction (e.g. federal, state).
Health coverage offered to individuals who purchase it on their own rather than
as part of a group (i.e., through an employer). In the individual market,
health plans update premium rates annually, usually on January 1st of each
year. Health plans must notify consumers of any change in what they will be
charged at least 60 days before the change takes place.
Large Group Market
Health coverage offered to businesses with more than 100 employees. In the
large group market, health plans generally update premium rates annually. Large
group employers that purchase coverage are charged a consistent rate for a
period of at least 12 months. Health plans must notify businesses of any
change in what they will be charged at least 60 days before the change takes
place. Health plans are also required to notify businesses of how their average
rate increases compares to both Covered California and CalPERS products.
The federal government approved the state’s specialized tax
on Managed Care Organizations (MCO) in an effort to help California fund
Medi-Cal, a government health insurance program which provides needed health
care services for low-income individuals and families.
Medical Loss Ratio (MLR)
Medical Loss Ratio (MLR) is the percentage of premiums that a health plan
spends on medical services and care quality improvement. Health plans in the
individual and small group market must spend at least 80 percent of premiums on
medical services and care quality improvement. Health plans in the large group
market must spend at least 85 percent of premiums on medical services and care
quality improvement. Plans may use the remaining 15-20 percent of premiums to
pay administrative costs to keep the plan running and to generate a profit, or
contribution to surplus if the health plan is not-for-profit. Administrative
costs may include the cost of employees, such as salaries and benefits, as well
as office and marketing expenses, taxes, and other fees.
Medi-Cal offers free or low-cost health coverage for
California residents who meet eligibility requirements. Most applicants who
apply through Covered California and enroll in Medi-Cal will receive care
through managed health plans.
The growth or change in medical costs per member measured over
a defined period of time. Medical claim cost trends are generally considered to
be composed of two major components – a trend in price (unit cost) and a trend
in utilization. Medical trends may be analyzed by aggregate benefit category
such as inpatient hospital, outpatient hospital, and professional services.
Refers to the four coverage tiers available through Covered California. A
health plan's metal category indicates the percentage of total costs for
covered health care services that are paid by the health plan. Covered
California’s metal levels are: Bronze, Silver, Gold or Platinum. As the metal
category increases in value, so does the percent of medical expenses that a
health plan covers. This means the Platinum plans cover the highest percentage
of health care expenses. These expenses are usually incurred at the time of
health care services — when you visit the doctor or the emergency room, for
example. The health insurance plans that cover the greatest percentage of
health care expenses also usually have higher premium payments.
Any adjustment made to the experience period claims to
account for anticipated changes in the average health status (i.e. frequency or
severity of disease or illness) of the issuer’s covered population from the
experience period to the projection period.
Non-Grandfathered Health Plan
Any new health plan sold after March 23, 2010. All non-grandfathered health
plans must comply with all provisions of the ACA.
The Patient-Centered Outcomes Research Trust Fund fee is a
fee on issuers of specified health insurance policies and plan sponsors that
help to fund the Patient-Centered Outcomes Research Institute (PCORI). The
institute will help, through research, patients, clinicians, purchasers and
policy-makers, in making informed health decisions by improving the quality and
relevance of evidence-based medicine.
Under a group plan, the policyholder is typically the employer that purchases
the coverage. Under an individual or family plan, the policyholder is the
person who purchases the coverage.
Preferred Provider Organization (PPO)
A PPO is a preferred provider organization. A PPO contracts with participating
doctors and hospitals to create a network. You pay less if you use doctors and
hospitals that belong to the plan's network. You can use doctors, hospitals and
others outside the network for an additional cost.
A premium is the monthly payment you or your employer pays for health
coverage. The premium rate is the term for a health plan’s base rate from
which a specific premium is calculated. The base rate is adjusted by age,
whether it is coverage for an individual or a family and geographic location to
determine the unique premium you would pay for health care coverage.
Per member per month. A calculation used by health plans to
determine the average amount (e.g. premium, claim cost) for each member per
month. For example, the average monthly premium can be determined by dividing
total premiums received by a plan over a specified period of time (e.g. year)
by the total member months during the year.
Qualified Health Plan (QHP)
A health plan that is sold through an Exchange such as Covered California. The
ACA requires Exchanges to certify that Qualified Health Plans meet certain
The DMHC reviews proposed health plan rate changes and asks
health plans questions about their changes to make sure health plans are
providing detailed information to the public to support any rate increases.
While the Department does not have the authority to deny rate increases, its
rate review efforts hold health plans accountable, ensure consumers get value
for their premium dollar, and saves Californians money.
The Department’s premium rate review program has saved
Californians millions of dollars by negotiating lower premium increases or no
premium increases when increased rates aren't supported.
Certain characteristics that health plans are allowed to use to vary the
premium rates charged for coverage. Beginning in 2014, non-grandfathered health
plans sold in California may consider only age, geographic area, and whether it
is coverage for an individual or a family as rating factors. While tobacco use
is an allowable rating factor under the ACA, this factor is not used as one of
the rating factors in California.
An amount paid by a health plan to a policyholder when the health plan does not
spend at least 80-85% (percentage depends on whether the health plan is in the
individual, small group, or large group market) of the premiums it collects on
medical services or activities that improve quality. If a health plan spends
less than 80-85% of premiums on these areas, the health plan must return the
portion of premium dollars that are below the minimum threshold to its
policyholders. This is commonly known as the Medical Loss Ratio (MLR) rule.
(See Medical Loss Ratio)
The Affordable Care Act (ACA) requires all health insurance
issuers and third-party administrators on behalf of self-insured group health
plans to make contributions under the Transitional Reinsurance Program to
support payments to individual market issuers that cover high-cost individuals
(payment-eligible issuers). The Transitional Reinsurance Program is a temporary
program that operates for benefit years 2014 through 2016.
This fee is intended to cover the administration of the ACA’s
risk adjustment program.
is intended to transfer funds from insurers with a relatively low-risk enrollee
population to insurers with a relatively high-risk enrollee population, with a
goal of reducing incentives for insurers to avoid high-risk enrollees.
Adjustment Payment (Receipt)
The ACA’s risk adjustment program is intended to reinforce
market rules that prohibit risk selection by insurers. The program accomplishes
this by transferring funds from plans with lower-risk enrollees to plans with
higher-risk enrollees. The goal of the risk adjustment program is to encourage
insurers to compete based on the value and efficiency of their plans rather
than by attracting healthier enrollees.
Groups of individuals whose medical costs are combined and averaged and used by
health plans to calculate health coverage premiums.
The growth or change in prescription drug costs per member measured
over a defined period of time. Pharmacy claim cost trends are generally
considered to be composed of two major components – a trend in price (unit
cost) and a trend in utilization (prescriptions). Pharmacy trends may be
analyzed by drug tier – generic, preferred brand, non-preferred brand, and
Costs incurred by the sales department within health plan
organization. These costs typically include the following: sales commissions,
sales administrative staff salaries and wages.
To determine the members of a single risk pool, a health
insurance issuer must consider the claims experience of all enrollees in all
health plans (other than grandfathered health plans), subject to section 2701
of the Public Health Service Act and offered by such issuer in the individual
or small group market, including those enrollees who do not enroll in such
plans through the Exchange.
Small Group Market
Health coverage offered to small businesses that have 1 to 100 employees. In
the small group market, health plans generally update premium rates quarterly.
Small businesses that purchase coverage are charged a consistent rate for a
period of at least 12 months. Health plans must notify small businesses of any
change in what they will be charged at least 60 days before the change takes
The Unified Rate Review Template is a federal form that is
required for any rate increase in a single risk pool compliant plan. This
template may also be used for compliance with applicable state requirements.
Additionally, it is intended to capture information needed to review rate
increases of health insurance coverage offered through and outside an Exchange,
and ensure compliance with the single risk pool methodology, including allowable
market level index rate adjustments to reflect risk adjustment payments and
charges, and other Federal rating requirements.