Division of Insurance completes geographic rating area study

Recommendation:  Work to address rising healthcare costs


DENVER (Aug. 1, 2016) – Today, the Colorado Division of Insurance (DOI), part of the Department of Regulatory Agencies (DORA), released to the Colorado State Legislature its study on the feasibility of using one geographic rating area for the state’s individual and small group health insurance. House Bill 16-1336 had directed the DOI to “determine the impacts and viability of establishing a single geographic area” for setting health insurance premiums, and to deliver the report on August 1.

While not recommending that the State change to a single geographic rating area, the Colorado Insurance Commissioner Marguerite Salazar is recommending that the State focus on ways to control the underlying healthcare costs in order to address rising insurance premiums.  To that end, the Governor’s office has directed the DOI to assemble a small group of key stakeholders to meet and develop a set of recommendations to take this study to the next step. The DOI will be doing this immediately and plans to have recommendations established before the end of the calendar year.

The study showed that areas with high average premiums have had high health costs. For example, in 2014 the West area (Area 9) had an annual total healthcare cost per member of $5,532, the highest in the state, and 36 percent higher than Boulder’s per member cost of $4,073, the lowest in the state. In looking at four areas of healthcare costs - inpatient admissions, outpatient visits, professional visits and prescriptions - the West area had the highest cost per service in three of the four, landing in the middle of the pack only in prescriptions.

Moving to a single geographic rating area will have no impact on healthcare costs, and without tackling these costs, there is little hope of bringing down health insurance premiums. The concern in changing to a single geographic area is how the insurance carriers would respond.  While the DOI cannot predict exactly how the health insurance market will react, carriers may do one or more of the following.

  • Create separate plans for only the high-cost areas, with higher premiums
  • Include a provider network factor in their rates in order to charge higher premiums in high-cost areas
  • Raise premiums in the low-cost areas of the state
  • Stop offering plans in high-cost areas
  • Withdraw from Colorado completely

“My concern is that moving to a single geographic rating area could end up harming the very citizens it is trying to help,” said Insurance Commissioner Marguerite Salazar. “People in the mountain areas could be facing even higher premiums, or could be left without any insurance options. A move to a single geographic rating area would be an attempt to treat a symptom rather than finding a cure.”


The Purpose of Geographic Areas

The state is divided into nine geographic areas for individual and small group health insurance.  Health insurance companies can differentiate their premiums between the geographic areas. The Affordable Care Act (ACA) required states to create geographic areas, recognizing that different areas had different providers, healthcare costs and patterns.  Each area must have similar healthcare costs within its region.   

About the Study

The study was the result of House Bill 1336, passed in the most recent session of the Colorado Legislature.  The study was conducted by the actuarial firm Lewis & Ellis, Inc.  Data from the Colorado All Payer Claims Database for all of 2014 and part of 2015 was used, as well as data from the rate filings from carriers, as given to the Division of Insurance, for 2014, 2015, 2016 and 2017.   

The study can be found at dora.colorado.gov/insurance under the section “More from DOI.” 

The Colorado Division of Insurance (DOI), part of the Department of Regulatory Agencies (DORA) regulates the insurance industry and assists consumers and other stakeholders with insurance issues.  Visit dora.colorado.gov/insurance for more information or call 303-894-7499 / toll free 800-930-3745
DORA is dedicated to preserving the integrity of the marketplace and is committed to promoting a fair and competitive business environment in Colorado. Consumer protection is our mission. Visit dora.colorado.gov for more information or call 303-894-7855 / toll free 1-800-886-7675

Media Contact:
Vincent Plymell
Division of Insurance
p: 303-894-2261