The large employer group health insurance market lacks a standardized source for nationwide premium development information. California regulations require issuers of these health insurance products to submit rate filings to their regulator(s). This whitepaper summarizes key statistics from the first four years of these filings.

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.

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.

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.

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.

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%.

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.