Session 84 TS, Payment Transfer Formula - The Mystery Revealed
Moderator/Presenter:
Julia S. Lambert, FSA, MAAA
Presenter:
Kelsey Leigh Stevens, FSA, MAAA
SOA Health Meeting 2015
Tuesday June 16, 2015
Session 84: Payment Transfer Formula –
The Mystery Revealed
Julia Lambert, FSA, MAAA
Kelsey Stevens, FSA, MAAA
2
Agenda
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•
•
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Audience Response System
Overview
The pieces
EXCEL example
Audience Response System Keypad
• Enter your response when you see
the answer now button
• A light on the keypad will indicate
your response was recorded
• You may change your answer
while polling is open
• No need to press go
Answer Now
4
Interactive Question
Did you participate in the SOA fun run this
morning?
99%
1. Yes
2. No
1%
1
2
5
Interactive Question
What lines of business do you work in? (You
can select all that apply)
1. Individual
2. Small Group
(<50)
3. Mid-size (50-100)
4. Large (>100)
5. Other
61%
66%
48%
38%
24%
1
2
3
4
5
6
ACA Risk Adjustment Overview
• Designed to transfer funds from health plan issuers that enroll
lower risk enrollees to those issuers that enroll higher risk
enrollees.
• Intended to mitigate risks resulting from significant market
changes like:
o guarantee issue,
o prohibiting the use of pre-existing conditions, and
o rating restrictions.
• Aimed at protecting insurers financially and bringing premium
stability to consumers.
• Starting with rates in 2014, issuers must effectively set premiums
based on the average (1.0) risks of the state.
7
ACA Risk Adjustment Overview, cont’d
• Uses medical diagnosis codes from medical records to assess
member-level health risks
• Model estimates the Plan Liability Risk Scores (“PLRS” or simply
“risk scores”).
o
PLRS includes the impact of the value of the benefit plan
• Concurrent model - uses current year claims and membership
data to determine risk adjustment transfers for the same year
• Based on coefficients on Hierarchical Condition Categories
(“HCC”)
• Separate models for each ACA-defined metallic tier
• Applies to all non-grandfathered and non-transitional health
benefit plans offered in the small group and non-group market,
both inside and outside the Exchange.
8
Interactive Question
How familiar are you with the formula?
1.
2.
3.
4.
5.
This is my first time
looking at it
Seen it, that’s it
Seen it, and tried to
understand it, but gave up
Have a loose
understanding
Have a thorough
understanding
39%
21%
1
17%
2
12%
3
11%
4
5
9
Payment Transfer Formula
Where:
𝑻𝑻𝒊𝒊 = Transfer for issuer 𝑖𝑖
���
𝑷𝑷𝒔𝒔 = State Average Premium
𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝒊𝒊 = Issuer 𝑖𝑖 ′ s plan liability risk score
𝑰𝑰𝑰𝑰𝑰𝑰𝒊𝒊 = Issuer 𝑖𝑖 ′ s induced demand factor
𝑨𝑨𝑨𝑨𝑨𝑨𝒊𝒊 = Issuer 𝑖𝑖 ′ s allowable rating factor
𝑨𝑨𝑨𝑨𝒊𝒊 = Issuer 𝑖𝑖 ′ s metal level actuarial value
𝑮𝑮𝑮𝑮𝑮𝑮𝒊𝒊 = Issuer 𝑖𝑖 ′ s geographic cost factor
𝒔𝒔𝒊𝒊 = Issuer 𝑖𝑖 ′ s share of State enrollment, and the denominator is summed
across all issuers in the risk pool in the market + state
Transfers = Premium with risk selection – Premium without risk selection
10
State Average Premium
• Average premium for entire state
• Calculated using total billable member months
11
Plan Liability Risk Score, PLRS
• Plan average risk score including risk of all members on the policy
• Only component in the transfer calculation that has the
adjustment by total member months and by total billable months.
o
All other components are averaged using total billable months
12
Plan Liability Risk Score, PLRS, cont’d
• Risk scores by age and metal level displayed below
13
Induced Demand Factors, IDF
• Accounts for greater utilization of health care services induced by
lower enrollee cost sharing in higher metal level plans
• Varies by metal level only
Metal level
Induced demand
adjustment
Catastrophic
1.00
Bronze
1.00
Silver
1.03
Gold
1.08
Platinum
1.15
14
Plan Actuarial Value, AV
• Accounts for relative differences in plan liability due to differences
in AV
• Varies by metal level only
Metal level
AV adjustment
Catastrophic
0.57
Bronze
0.60
Silver
0.70
Gold
0.80
Platinum
0.90
15
Interactive Question
ARF stands for:
A. Age Rating Factor
B. Administrative
Retention Factor
C. Allowable Rating
Factor
D. Acute Renal Failure
76%
20%
3%
1%
A.
B.
C.
D.
16
Allowable Rating Factor, ARF
•
•
•
•
Standard age curve ranges from 1.0 at age 21 to 3.0 for ages 64+
Child factor = 0.635
Accounts only for age rating
Tobacco use, wellness discounts, and family rating requirements
not be included in payment transfer formula
• Weighted by billable member months
17
Geographic Cost Factor, GCF
• Some plans costs (i.e. input prices or utilization) vary by region
• GCF calculated based on the observed average silver plan
premium for risk pool in a geographic area relative to the
Statewide average silver plan premium
• Three step calculation
o
o
o
Step 1: Compute average premium for each silver plan in each rating area
Step 2: Generate a set of age-standardized plan average premiums for each
silver plan by dividing by the ARF
Step 3: Compute GCF for each area and assign to all plans in that area
(divide the billable enrollment-weighted average of standardized silver level
plan premiums in a geographic area by the average of those premiums
Statewide)
18
EXCEL MODEL
19
So what does this mean?
Aha’s?
Takeaways?
20
Transfers Based on Statewide Premiums
• Low cost and low risk score regions have higher payment
transfers as a percent of collected premiums than those in high
cost regions.
• Health plans are not more or less likely to pay into the risk
adjustment system solely as a result of offering lower average
premiums.
21
Transfers Based on Statewide Premiums, cont’d
• Risk adjustment transfers are based on statewide premiums, not
claims, which results in a payment transfer of premiums related to
administrative fees, not just claims.
• In addition to the transfer of administrative expenses, lower cost
health plans with risk transfer payables actually end up
subsidizing higher cost plans.
Transfer Attributable to:
Premium Relativity
5% lower
10% lower
15% lower
30% lower
Statewide Average
Carrier Premium
$414.20
$392.40
$370.60
$305.20
$436.00
Transfer PMPM
(assume 3%
lower risk)
$13.08
$13.08
$13.08
$13.08
lower risk/
lower claims
$10.56
$10.01
$9.45
$7.78
administrative
subsidizing
costs higher cost plans
$1.86
$0.65
$1.77
$1.31
$1.67
$1.96
$1.37
$3.92
22
Transfers Based on Statewide Premiums, cont’d
• Regional differences in coding, risk, and demographics may result
in payment transfers that create subsidies between regions.
23
Zero CC Members
• After risk adjustment, issuers are losing money on those members
who are not assigned any HCCs.
• To the extent that an issuer has a larger proportion of zero
condition category members than the market as a whole, the
issuer is being penalized by the risk adjustment transfer formula.
#CC
0
1
2
3
4
5
6
7
8
9
10+
Total
Member
Months
43,207,036
7,447,839
1,950,935
573,430
214,260
92,498
46,222
26,066
15,657
9,217
16,435
53,599,596
Portion
of MM
81%
14%
4%
1%
0%
0%
0%
0%
0%
0%
0%
100%
Risk
Score
0.357
2.517
5.510
10.247
17.295
25.730
35.738
45.203
54.248
63.640
88.565
1.168
Risk
Paid Adjusted
Claims Premium
PMPM
PMPM
168
133
686
940
1,451
2,057
2,637
3,826
4,447
6,458
6,670
9,607
9,600
13,344
12,049
16,878
14,506
20,255
17,590
23,762
27,367
33,069
371
436
Loss
Ratio
126%
73%
71%
69%
69%
69%
72%
71%
72%
74%
68%
85%
24
Interactive Question
What do you anticipate your
payables/receivables on risk adjustment
transfer will be?
A. Receive Significant
(>10% of Premium)
B. Receive Some
(0-10% of Premium)
C. Pay Some
(0-10% of Premium
D. Pay Significant
(>10%)
30%
30%
16%
A.
B.
C.
25%
D.
2014 WNRAR Results Overview –
Relative Risk by Market Share
Individual Entity Relative Risk to Market by % of Market Share
3.5
3
2.5
2
1.5
1
0.5
0
0.00%
5.00%
10.00%
15.00%
-0.5
25
www.WakelyRiskReporting.com
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%