Actuarial Science In A
Post Reform World
Number 10: YOU MIGHT BE AN
ACTUARY IF
You hear a joke on Monday and start
laughing about on Tuesday!
2
HIPAA ‘97
Key Portability Provisions
Category
Key Provisions
General Provisions
Provides consumer rights to coverage when transitioning from:
Consumers in Group
Market
• Guarantees availability of coverage for small employers
• Guarantees renewability for both small and large employers
• Limits preexisting condition exclusions
• Prohibits discrimination in enrollment/premiums based on health status
• Requires special enrollment opportunities (e.g., child’s birth)
Consumers In
Individual Market
For HIPAA-eligible consumers seeking to buy individual policy:
States’ Role
• Preserves states’ authority in regulating health insurance
• Allows HIPAA-eligible individuals with no access to group plans and considered
medically uninsurable to buy coverage through state high risk pools (if available)
3
• One group health plan to another group health plan
• A group health plan to an individual policy
• An individual policy to a new group health plan
• Guarantees right to purchase individual coverage
• Prohibits preexisting conditions exclusions
• Guarantees renewal of individual coverage from same issuer (most cases)
Utah Group Rate Bands
2.5
2.0
1.5
1.0
0.5
0.0
1
2
3
Average
4
5
6
Lower Band
4
7
8
Upper Band
9
10
Individual Selection Curve
$400
$350
$300
$250
$200
$150
$100
$50
$0
1
2
3
4
5
Relativity
6
7
Average
5
8
9
10
Number 9: YOU MIGHT BE AN ACTUARY
IF
After taking a course in
heredity you write a paper
providing conclusive proof
that if your parents didn’t
have children, you
probably won’t either!
6
Understanding Health Care
Claims Cost
7
If Food Were Health Care
trended from 1930
$122.48
$107.90
$110
$90
$102.07
$80.20
$70
$64.17
$50
$30
$43.57
$24.20
$10
8
Source: American Institute for Preventive Medicine
Where the Spending Goes
Prescription,
14.0%
Inpatient,
30.0%
Other, 4.0%
Physician,
36.0%
Outpatient,
16.0%
9
Source: PricewaterhouseCoopers Health Care Trend 2008
Average Medical Expense by Age
400%
350%
Relationship to Average Cost
300%
250%
200%
150%
100%
50%
0%
Under 25
25
30
35
40
45
50
55
60
65+
Age
10
How are claims distributed through the population?
Proportion of Population with Claims less than a given threshold
100.0%
90.0%
Proportion of the Population
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
0.0%
5.0%
10.0%
20.0%
25.0%
50.0%
75.0%
100.0%
125.0%
175.0%
200.0%
300.0%
500.0%1000.0%
Over 1000%
Threshold as Percentage of Average Claims
11
How are claims distributed through the population?
Proportion of Population vs. Proportion of Claims
100%
94.0%
90%
99.1%
88.7%
81.3%
80%
66.2%
70%
% of total claims
97.0%
60%
52.7%
50%
40%
30%
20%
10%
0%0.0%
0%
5%
10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
% of Population
12
Number 8: YOU MIGHT BE AN ACTUARY
IF
You would rather be
completely wrong
than approximately
right!
1
3
Congress and the Administration Had Three Major Goals for
Health Reform
1
Coverage & Insurance Market Reform
Make insurance more accessible and affordable for all individuals
2
Delivery & Payment System Reform
Pay for quality instead of volume of care
3
Financing Strategies for Health Reform
Find sustainable funding to pay for reform provisions
© Avalere Health LLC
Page 14
Health Reform Implementation Timeline
Health Insurer Annual Fee
New High Risk Pools
Medicaid Expansion Mandatory
Expanded
Coverage of
Preventive Services
Individual and Employer
Mandates/Penalties
Rescission
Limitations
Rating Limits and Benefit
Requirements
No Pre-existing
Condition Exclusions
for Children under 19
Prohibition of
Lifetime Limits
Extend Dependent
Coverage
Grandfathering
Requirements
2010
•MLR = Medical Loss Ratio
•MA = Medicare Advantage
Prohibition of Annual Limits
Guaranteed Issue and
Renewability
MLR
Requirement
MA Quality
Payments Begin
MLR Requirements for MA
Plans
MA Payments
Frozen
MA RegionallyAdjusted
Benchmarks PhaseIn Begins
Exchanges Begin Operations
2011
2012
2013
Excise Tax on High
Cost Plans
Premium and Cost Sharing
Subsidies
2014
2015
2016
2017
2018
Rating Limits and Benefit
Requirements 2014
Exchanges Begin Operation
Adjusted Community Rates
3-1 Age Bands
Bronze-Silver-Gold-Platinum Plans
16
Consumer Experience In the New
World
Gov’t.
Economy
ACA Implementation
Technology
Coverage/Eligibility
Employer
New Rules
Better Info
Exchange
Consumers
Expanded Programs Level Playing
Field
Medicare
Medicaid
Credits
17
Choices
Other (e.g., TANF)
Health
Plan
Choice
CBO Projects Law Will Increase Insured
Population by 31M in 2016
Expected Sources of Coverage, in Millions of Persons
Non-group/
Exchanges
Employersponsored
insurance
Medicare
Medicaid/
CHIP
Uninsured
Source: CBO March 20, 2010 Cost Estimate of the combined effect of H.R. 4872, the Reconciliation Act of 2010, and H.R. 3590,
the Patient Protection and Affordable Care Act, as passed by the House March 21, 2010; Medicare Data: CBO’s March 2009
Baseline, March 24, 2009. CHIP=Children’s Health Insurance Program.
Predicted 2016 Market Shifts
Today
2014
0
56.6
Medicaid
47.8
63.2
Medicare
43.4
55.0
Individual
17.1
0
Small Group
33.6
13
Large Group
121.8
118.1
Military
12.4
12.4
Uninsured
50.6
20
326.7
338.3
HC Reform Exchanges
Total
19
Number 7: YOU MIGHT BE AN ACTUARY
IF
You like to have fun…
only when nobody is
watching!
2
0
Standards for Exchanges
Issue
Details
Enrollment
 ACA requires fixed annual enrollment periods: 2014: Oct 1, 2013 – Feb 28, 2014; 2015+:
October 15 – December 7
Conditional State
Approval
 States granted additional flexibility to meet the Jan 1, 2013 deadline for certification to
avoid federal intervention in creating an exchange
Geography / Rating
Areas
 States allowed to establish subsidiary exchanges that cover “geographically” distinct
areas with at least one rating area
Funding
 States may assess user fees on participating health plans
Navigators versus
Agents / Brokers
 Exchanges must create navigator programs to provide “fair and impartial” information
and facilitate enrollment
 States may decide whether to permit brokers /agents to enroll individuals
Plan Participation
 States decide whether to allow participation by any qualified plan or to use more
selective contracting / competitive bidding
Rate Increases
 Exchanges must receive justification of rate increases from plans prior to
implementation and post reasons for increase prominently on website
Network Adequacy
 All qualified plans must have adequate provider networks but states will decide on
the criteria for measuring network adequacy.
Individual Exchanges: Open Issues
Issue
Open Issue
Enrollment
• Should coverage begin only at the start of a month or should it occur 2x
monthly?
Autoassignment
• Should HHS require an auto-enrollment process when plans are no longer
offered or plans are involved in M&A?
SEPs
• What triggering event, if any, should enable an individual to change the
metallic level of coverage during the year?
Rate Changes
• How often should plans be allowed to change rates? Annually, quarterly,
monthly?
Accreditation
• How long should issuers have to receive accreditation from the time their QHPs
are certified?
Network
Adequacy
• What standards/metrics should Exchanges use evaluate whether QHPs offer
provider networks with sufficient access?
• Should Exchanges broadly define the types of providers that furnish primary
care services (e.g., NPs)?
22
Proposed Governance for Exchanges
Federal Requirements
 Exchange governing bodies may be housed within government agencies or as freestanding nonprofit entities (or a combination of both)
 At least half of all voting board members must represent consumer interests
WV
•10-person board in the Department of the
Insurance Commissioner
• Includes consumer and employer
WV
representation, plus one plan rep
State Government Runs
Independent
• 5-person independent, quasigovernmental board
• Includes appointed members that may not
represent health plans or providers
CA
Number 6: YOU MIGHT BE AN ACTUARY
IF
You are so dull,
the accountants
notice!
2
4
SHOP Exchange Standards
Issue
Details
Plan Choice
 Employers select a benefit tier; employees choose a plan within
tier
Rate Changes
 Participating plans can only make changes in a uniform
timeframe
 Must hold rates constant within a plan year
Application
Process
 States must accept a single application form from employers
 Must also accept single employee applications
Enrollment
 States must establish a uniform enrollment timeline and
process for all plans and employers
 Exchanges must allow rolling enrollment for small groups
SHOP Exchanges: Open Issues
Issue
Open Issue
Employee Choice • Should employers be allowed to limit employee choice to one plan or to select
from multiple tiers?
Employer Size &
Min.
Participation
• Should HHS institute standards for calculating employer size?
• Should there be minimum standards for employee participation?
Premium
Aggregation
• Should SHOP Exchanges be required to provide employers with a single monthly
bill and send premiums to issuers or allow more Exchange flexibility?
Subsidiary
Exchanges
• Should subsidiary exchanges for the individual and group market be
geographically identical?
26
SHOP Exchange Options
Federal Requirements
 States integrate SHOP with individual exchange or administer them separately
 Includes groups up to 100 employees—states may include larger employers or limit to <50
 Exchanges must offer employee choice—states and employers may limit plan options or offer extra
flexibility to choose between tiers
• Separate exchanges; SHOP limited to
groups <50
WVrequirements for employee
• Minimum
choice
Limited Market, Less Flexibility
Large Market, Broad Flexibility
• Integrated exchanges; SHOP eligibility
expanded to large groups
• Broad employee choice options for
employers
Number 5: YOU MIGHT BE AN ACTUARY
IF
When asked by a
beautiful woman for
your phone number
you give her the
number, plus or
minus 10%!
2
8
Changes Resulting From
Adjusted Community Rating
29
Impact of Reform on Rating
Post-Reform Allowable Rating Relationship vs. Actual Cost
Relationship
400%
Relationship to Average Cost
350%
300%
250%
Actual Cost Relationship
200%
150%
100%
Post Reform Allowable
Rating Relationship
50%
0%
Under 25
25
30
35
40
45
50
55
60
65+
Age
30
Impact of Underwriting
Post-Reform Allowable Rating Relationship vs. Actual
Cost Relationship
400%
Relationship to Average Cost
350%
300%
Actual Cost Relationship
250%
200%
Post reform Allowable
Rating Relationship
150%
100%
50%
0%
Under
25
25
30
35
40
45
Age
50
55
60
65+
31
Number 4: YOU MIGHT BE AN
ACTUARY IF
• You concluded you’re
popular because…
…you talked
to someone.
The Risk and Cost of Adverse
Risk
33
In the face of new health reform restrictions, expect
more small employers to opt for self-funded health
benefits—so concludes a report this week from
Indianapolis-based United Benefit Advisors LLC.
J.K. Wall March 23, 2011
UBA, which links a network of employer-benefits
agencies across the country, found in 2010 surveys
that roughly 12 percent of employers with fewer
than 200 workers have self-funded plans, but more
are showing interest in them since the passage of
the health reform law a year ago.
34
Analysis from Aetna’s earnings call:
Aetna has been tacking on acquisitions this
year as it diversifies its operations, including its
deal to acquire Prodigy Health Group, an
administrator of self-funded health care plans.
Providing self-funded options for mid-sized and
small businesses is an area where health
insurers have been seeking growth.
By Tess Stynes
Published July
35
Self-Funding Employee Benefits: No Longer
Just for Big Companies
Posted by J.P. Farley Corporation on Wed, Dec
08, 2010
Whether it’s the fact that a few healthcare
reform measures will not apply to self-funded
group health plans on January 1st or the recent
availability of new, user-friendly stop loss
products in the marketplace, the fact is we are
experiencing renewed interest in self-funding
of group employee benefits, especially by
smaller groups.
36
Utah Group Rate Bands
2.5
2.0
1.5
1.0
0.5
0.0
1
2
3
Average
4
5
6
Lower Band
37
7
8
Upper Band
9
10
Pre vs Post Reform Fully-Insured vs ASO
33 Subscribers, Teaser Rate, PMPM
Current
Post Reform
ASO
Claims
Medical Claims
$135.08
$135.08
Spec+Agg ($0 Margin)
$102.05
ASO Claims
Total Claims
$33.03
$135.08
$135.08
$135.08
$17.04
$17.04
$17.04
SG&A
Admin
MRM Fee
$5.00
Premium Tax
$0.85
$1.12
Commissions
$8.52
$8.52
$8.52
$26.41
$26.68
$30.56
$8.91
$62.45
$0.00
SG&A Total
Profit
Medical
Stop Loss
$11.34
ASO Fee
$2.50
Total Profit
38
$8.91
$62.45
$13.84
Exp. Employer Cost
$170.40
$224.21
$179.48
Min Employer Cost
$170.40
$224.21
$146.45
Max Employer Cost
$170.40
$224.21
$213.25
What happens when the healthiest proportion of the
population leaves?
Population
Reduction
0%
5%
10%
20%
25%
50%
Average
Claims
Increase
$250
$263
$278
$313
$333
$485
39
What happens when you attract the sickest proportion
of the population?
Sickest
Proportion
5%
6%
7%
8%
9%
10%
Average
Claims
Change
$250
$274
$299
$324
$348
$373
40
Number 3: YOU MIGHT BE AN
ACTUARY IF
• Your wife has insomnia,
so she rolls over and says:
…“tell me again, darling.
What do you do for a living?”
Minimum Loss Ratio
Large Group – 85%
Small Group – 80%
Individual – 80%
42
Massachusetts Exchange Case Study
2004
MLR%
2009
Change
BCBS MA
BCBS MA (HMO)
Aetna
Neighborhood Health Plan
United
Health New England
Tufts
86%
78%
86%
85%
78%
79%
89%
92%
88%
90%
95%
87%
85%
92%
6%
10%
4%
10%
9%
6%
3%
Average(1)
83%
90%
7%
Source: Pioneer Institute Public Policy Research (March 2010)
(1) Straight average
43
Margin by Market (excluding Credibility)
10%
8%
8%
8%
8%
6%
6%
6%
5%
4%
4%
4%
3%
2%
3%
2%
2%
1%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-4%
-4%
-5%
-6%
No Waiver
Waiver
44
Individual Expenses & Margin:
Today vs. 2014
100%
1%, or $2 PMPM
4%, or $10 PMPM
3%
1%
10%
90%
5%
80%
9%
70%
60%
50%
92%
40%
75%
30%
20%
10%
0%
Today
Medical Costs
2014
Brokers
U/W & Other Variable
45
All Other SG&A
Profit
Individual Expenses & Margin:
Today vs. 2014
$300
$250
$10.00
$7.50
$2.50
$200
$150
$1.60
$16.00
$8.00
$14.40
$230.00
$100
$120.00
$50
$0
Today
Medical Costs
2014
Brokers
U/W & Other Variable
46
All Other SG&A
Profit
Number 2: YOU MIGHT BE AN
ACTUARY IF
• Your personality is the
only contraceptive you
need.
Drivers of Adverse Risk
Number/Type of Specialist
Number/Type of Hospitals
Marketing Materials
Travel Distance
Product Design
Age Rating Slope
Level of Medical Management
Service Levels
Disease Management Programs
48
3Rs: Reinsurance, Risk Corridors,
Risk Adjustment
Transitional
Reinsurance
Program
• Reduce the uncertainty of risk in
individual market by making payments for
high cost cases
Risk Corridor
Program
• Protect against uncertainty in setting
rates in the Exchange by limited insurer
gains and losses
Risk Adjustment
Program
49
• Provide payments to insurers that attract
high-risk populations and recoup
payments from those attracting lower risk
Product Selection Cost
by metal category
$450
$390
$400
$350
$325
$303
$300
$275
$250
$225
$203
$200
$150
$175
$140
$100
$50
$0
Bronze
Silver
Gold
Pricing
Actual
50
Platinum
Program Overview
Program
Reinsurance
Risk Corridors
Risk Adjustment
Objective
Provide funding to plans
that enroll highest cost
individuals
Limit insurer loss and gains
Transfer funds from lowestrisk plans to highest-risk
plans
Oversight
State or State-option if no
State-run Exchange
HHS
State Option in a State-Run
Exchange
Participants
All Insurers/TPAs contribute
funding; non-grandfathered
individual market plans
(in/out of Exchange) are
eligible
All individual and SHOP
Exchange Qualified Health
Plans
Non-grandfathered individual
and small group market plans
inside and outside the
Exchange
Timing
Throughout the year
After reinsurance and risk
adjustment
After end of benefit year
Duration
2014-2016
2014-2016
Permanent
51
3Rs: Big Open Issues
Issue
Open Issue
Reinsurance
Program
• Should HHS develop a national contribution rate or a state-level allocation?
• Should assessments be based on a percent of premium or a per capita fee?
• What is the right timing for reinsurance payments?
• How long should carriers have to submit reinsurance claims?
• How much flexibility should states have to design their reinsurance program?
Risk Adjustment
Program
• What standards should HHS adopt to certify state-based programs?
• How long after the close of the year should risk adjustment be completed?
• When should states make payments to high-risk plans or seek payments from low-risk
plans?
• What factors/content should be included in risk adjustment model notices?
• What standards should be used to validate risk adjustment data?
Risk Corridors
• How should risk corridor payments interact with the MLR process?
• Should activities that improve health care quality for MLR purposes count toward
allowable costs for risk corridor calculations?
• How often should QHPs make risk corridor payments to HHS?
52
Number 1: YOU MIGHT BE AN ACTUARY
IF
Instead of getting
slapped in the face for
getting fresh with
your date, she slaps
you because she’s
afraid you’re dead!
5
3
Questions?