Session 91 PD, Pricing Issues in Health Care...

Session 91 PD, Pricing Issues in Health Care

Reform

Moderator: Daniel S. Pribe, FSA, MAAA

Presenters:

Paul Harmon, FSA, MAAA Douglas T. Norris, FSA, MAAA

Daniel S. Pribe, FSA, MAAA

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Pricing Issues in Health Care ReformReform

Pricing under the Affordable Care ActIssues and Strategies (3Rs and MLR Requirement)

Doug NorrisConsulting Actuary, FSA, MAAA, PhD

October 22, 2013

2

isk Adjustment

einsurance

isk Corridorsisk Corridors(And the Minimum Loss Ratio Requirement)

Contributors / ReceiversContribute:

Non-Grandfathered

Individual/Small G Pl O /Off

Risk Adjustment

Receive:

Non-Grandfathered

Individual/Small G Pl O /Off

Contribute:

Everyone, including self-insured group

plans

Transitional Reinsurance

Receive:

Individual Market Insurers

Group Plans On/Off Exchange

Group Plans On/Off Exchange

Contribute:

Individual and Small Group QHPs

Risk CorridorsReceive:

Individual and Small Group QHPs

3

Risk AdjustmentRisk Adjustment

Risk Adjustment

4

Risk Adjustment

Risk Adjustment

5

Risk Adjustment

Risk Adjustment

6

Transitional Reinsurance

Transitional Reinsurance

$10b

$12b

Transitional Reinsurance Amount per Year

$10b

$6b

$4b$4b

$6b

$8b

$10b

$0b

$2b

2014 2015 2016

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Transitional Reinsurance

Jan 2014 Mar 2014 Dec 2014 Feb 2015 Jun 2015

Claim Incurred$230k

Claim Paid$230k

Year-End Annual Statements Due

Reinsurance Payment of ($230k-$60k)*80% = $136k

Transitional Reinsurance

90%

100%

Claim Responsibility (Assuming Commercial Reinsurance covering 100% above $250k)

Transitional Reinsurance Payment Commercial Reinsurance Payment

20%20%

30%

40%

50%

60%

70%

80%

90%

Insurer Claim Payment

ay e t

0%

10%

$0k $50k $100k $150k $200k $250k $300k $350k $400k

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Transitional Reinsurance

Effect of Transitional Reinsurance Payments on Booking Amounts for a $250k Paid Claim

Carrier Responsibility: $128.4k

$60.0k

$60.0k

$38.0k

$38.0k $30.4k

$152.0k

$121.6k

TR

Pa

id8

0%

TR

Pa

id

Claim Amount Below $60k

20% Payor Responsibility

Extra Payment

TR Payment

Carrier Responsibility: $98.0k

$0.0k $50.0k $100.0k $150.0k $200.0k $250.0k

All

Transitional Reinsurance

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Commercial Reinsurance

Risk Corridors

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Risk Corridors

Risk Corridors

Premium $458

After-Tax Premium $433

Allowable Costs $350

Non-Claims Costs $85

Taxes and Fees $25

Profits: $458 - $350 - $85 = $23

(5.31% of After-Tax Premium - Floored at 3%)

Admin Costs: $85 - $25 = $60

(Admin Costs + Profits = 19.17% of After-Tax Premium - Capped at 20%)

Allowable Admin Costs: $25 + $60 + $23 = $108

Target Amount: $458 - $108 = $350

Risk Corridor Ratio: $350 / $350 = 1.00

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Risk Corridors

Risk Corridors

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Risk Corridors

Minimum Loss Ratio Requirement

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MLR Requirement

Where are each of the following included in the MLR formula? Numerator or Denominator?

– Premiums

– Taxes

– Quality Improvement Expenses

– Licensing & Fees

– 3Rs Adjustments

– Denominator

– Denominator

– Numerator

– Denominator

– Numerator

– Claims – Numerator

MLR Requirement

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MLR Requirement

Jan 2014

Mar 2014

Dec 2014

Feb 2015

Jun 2015

Claim Incurred

Claim Paid

Year-End

Annual Statements Due

Reinsurance PaymentMLR Report Due

Sept2015

MLR Rebates Due

PLAN YEAR

MLR Requirement

90%90%

MLR: Example Effect of 3Rs and Premium Holidays

75%

82%83%

MLR Requirement, 80%

75%

80%

85%

%

70%Original MLR MLR after

Premium Holiday

MLR after Premium

Holiday and 3Rs Payments

MLR after 3Rs Payments with NO Premium

Holiday

15

MLR Requirement

Interaction Action

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Pricing Issues in Health Care ReformSession 91Paul Harmon, FSA, MAAA

October 22, 2013

© 2013, Cambia Health Solutions, Inc. 31October 22, 2013

All HCR Impact is Local

© 2013, Cambia Health Solutions, Inc. October 22, 2013 32

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All HCR Impact is Local

Other Health Dep Public Rate Pre-ACA Rating Rate Review

AgeOther Demo

Health Status

Dep Count

Public Filings

Rate Hearings

Idaho No Bound Yes +/- 50% Up to 3 No NoUtah No Bound Yes +/- 30% Up to 3 No No

Oregon No Bound No No Up to 2 Yes YesWashington 3.75:1 No No All Yes No

© 2013, Cambia Health Solutions, Inc. October 22, 2013 33

• New population

• New pool morbidity

Today’s Focus

• Bonus Topics• Risk vs Market

• Deviating from AV Calculator

• Silver Cost Sharing Reduction plans

© 2013, Cambia Health Solutions, Inc. October 22, 2013 34

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• Macro vs Micro population buildup

New Insureds with new Morbidity

• Individual Pool Morbidity

• Small Group Pool Morbidity• Identify “moving” populations

• How many?

• What health status?

© 2013, Cambia Health Solutions, Inc. October 22, 2013 35

• Macro• Pool averages

Create a Population

Age Area TobaccoHealth Status

Current Pool 1.352 1.061 1.011 0.987Proj. Changes 2.2% 0.1% -0.4% 13.7%2014 Pool 1.382 1.062 1.007 1.122

© 2013, Cambia Health Solutions, Inc. October 22, 2013 36

2014 Pool 1.382 1.062 1.007 1.122

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• Micro• “Create” people

Create a Population

Member Age Area TobaccoCurrent

Member? Stay?Age

FactorArea

FactorTobacco Factor

Health Status

1 33 1 No Yes Yes 1.198 1.032 1.000 0.8832 44 2 No Yes Yes 1.397 0.912 1.000 1.2323 12 1 No Yes Yes 0.635 1.032 1.000 1.0554 27 2 Yes Yes No 1.048 0.912 1.050 0.993

© 2013, Cambia Health Solutions, Inc. October 22, 2013 37

31566 64 3 No No N/A 3.000 1.022 1.000 2.44331567 31 1 Yes No N/A 1.159 1.032 1.050 1.652

Current Pool 1.352 1.061 1.011 0.9872014 Pool 1.382 1.062 1.007 1.122

• Pros• More tangible interdependence on assumptions

Micro Population Approach

• Moves assumptions from abstract to concrete

• Supports other filing exhibits (Part I)

• Cons• Interdependence means one change = many

changeschanges

© 2013, Cambia Health Solutions, Inc. October 22, 2013 38

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• For each affected sub-market• Develop assumptions regarding

Building the population

• How many move?

• What’s the “risk” of movers vs stayers

• Focus on morbidity in example• What is the health status of those that moveWhat is the health status of those that move

vs stay?

© 2013, Cambia Health Solutions, Inc. October 22, 2013 39

Pool Morbidity - Individual

Current Pool

Conversion/ PortabilityHigh Risk Pool PortabilityHigh Risk Pool

Group Uninsured

© 2013, Cambia Health Solutions, Inc. October 22, 2013 40

Medicaid

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• Process: • Elasticity model (who moves)

Individual – Current Pool

• Current pool data (how risky)

• Considerations:• Rating factor changes

• Covered benefit changes

• Availability of premium subsidies• Availability of premium subsidies

© 2013, Cambia Health Solutions, Inc. October 22, 2013 41

Current Pool Uninsured

• Process:• Actuarial judgment (who moves and how risky)

Individual – Uninsured

• Considerations:• Your guess

• Other’s guesses

V l d i k hi hl i t d d t• Volume and risk are highly interdependent

© 2013, Cambia Health Solutions, Inc. October 22, 2013 42

Uninsured Current Pool

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• Process:• Market data (who moves and how risky)

Individual – High Risk Pool

• Considerations:• Legislation

• SOA study (and others)

© 2013, Cambia Health Solutions, Inc. October 22, 2013 43

High Risk Pool Current Pool

• Process:• Current pool data (who moves and how risky)

Individual – Conversion/Portability

• Considerations:• Legislation

• SOA study (and others)

© 2013, Cambia Health Solutions, Inc. October 22, 2013 44

Port./Conv. Current Pool

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• Process:• Population income data (who moves)

Individual – Medicaid

• External studies (how risky)

• Considerations:• State expansion legislation

• SOA study• SOA study

© 2013, Cambia Health Solutions, Inc. October 22, 2013 45

Current Pool Medicaid

• Process:• Elasticity model (who moves)

Individual – Group

• Current pool data (how risky)

• Considerations:• Rating factor changes

C d b fit h• Covered benefit changes

© 2013, Cambia Health Solutions, Inc. October 22, 2013 46

Group Current Pool

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Pool Morbidity – Small Group

Current Pool

Uninsured

Individual

Associations

© 2013, Cambia Health Solutions, Inc. October 22, 2013 47

Individual

• Process:• Elasticity model (who moves)

Small Group – Current Pool

• Current pool data (how risky)

• Considerations:• Rating factor changes

• Covered benefit changes

• Owner vs employee elasticity• Owner vs employee elasticity

© 2013, Cambia Health Solutions, Inc. October 22, 2013 48

Current Pool Individual/Uninsured

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• Process:• Actuarial judgment (who moves and how risky)

Small Group – Uninsured

• Considerations:• New incentives to offer coverage

© 2013, Cambia Health Solutions, Inc. October 22, 2013 49

Uninsured Current Pool

• Process:• Association structure (who moves)

Small Group – Associations

• Current pool data (how risky)

• Considerations:• Bonafide status

St t l ti• State regulation

© 2013, Cambia Health Solutions, Inc. October 22, 2013 50

Associations Current Pool

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• Estimating Risk vs Market Risk

• Pricing from AV Calculator

Bonus (Random) Topics

• Determining Silver CSR plans

© 2013, Cambia Health Solutions, Inc. October 22, 2013 51

• Purpose: • Set rates at market average risk

My Risk vs Market Risk

• Considerations:• State or consultant market analysis

• Competitive dynamics

© 2013, Cambia Health Solutions, Inc. October 22, 2013 52

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• Purpose:• Defending benefit relativities different than AV

l l t

Pricing from AV Calculator

calculator

• Considerations• Network differences

• Out-of-network benefits

• AV calculator methodologyAV calculator methodology

• No “induced utilization”

© 2013, Cambia Health Solutions, Inc. October 22, 2013 53

• Purpose:• Design benefits for 73%, 87%, and 94% AV

Silver Cost Sharing Reduction Plans

• Considerations• AV tolerance +/- 1% instead of 2%

• 73% must be 2% richer than base silver

B fit t ’t b• Benefit components can’t be

leaner at any step

© 2013, Cambia Health Solutions, Inc. October 22, 2013 54

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SOA – 2013 Annual Meeting

Pricing Issues in Health Care ReformDaniel S. Pribe, FSA, MAAASession 091 – October 22, 2013

Challenges under the ACA(plus a few extra ones)

2014 – The Perfect Storm– The 3R’s

– ACA Shifts Business & Markets

– Federal Premium and Cost Sharing Subsidies

– Additional Fees

P L U S

• Trends• Trends

• Shifts in Provider Risk-taking

• Surplus and Solvency Issues

• Increased Regulatory Pressures and Earnings Scrutiny

• ICD10 Implementation

56

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Navigation

Premium Construction (really, margin development)

• Pre-ACAPremiumCl i- Claims

- Admin . Margin

• Post- ACAPremium

- Claims- Admin

+/ 3Rs+/- 3Rs- ACA fees- Rebates .

. Margin

57

Navigation: Traditional Framework

• Claims Estimation Base Period claims costs (including run-out) Trend to the projection period Adjust for

Ch i d l i bidit Changes in underlying morbidity Large claims / Reinsurance Provider reimbursement Cost sharing Seasonality

• Admin Operational expenses Company initiatives

58

Taxes and fees

• Margins State regulatory requirements Surplus/RBC requirements Company objectives

30

Navigation: Base Period Claims and Trend

PMPM

2013 2014 2015

59

• Several new pain points• Lack of data• New portfolio of products• Estimating trend• Changing risk profiles

Navigation: Risk Estimation

• Possible Methods• Historical claims data (?)

• MIB data

• Consumer data

• PRG

• Issues• Availability of data

60

• Completeness of data

• Select to ultimate

• Cost

http://celebrating200years.noaa.gov/historymakers/Smagorinsky/hurricane_emily650.html

Three dimensional view of Hurricane Emily

31

Navigation: Federal SubsidiesFigure 3: Demographic Characteristics of the Insurance

Market under ACA for USA for All Members

With Med + RxCoverage Percent Paid(in 000's) Distribution PMPM

Family Income in Month as a Percent of the Federal Poverty Level (FPL)Less than FPL 3 033 11 9% $411

Individual All Market under ACA

Premium Subsidies

• Choice of plan

SilverClaim Range Members Claims PMPM$0-$25k 25,509,373 60,400,199,586 $197$25k-$50k 21,366 8,810,936,506 $34,365$50k-$60k 4,833 3,240,663,968 $55,880$60k $75k 3 627 2 965 164 492 $68 135

Less than FPL 3,033 11.9% $411100%-138% FPL 928 3.6% $305138%-200% FPL 5,664 22.2% $230200%-300% FPL 5,934 23.2% $294300%-400% FPL 3,461 13.5% $253400%-500% FPL 1,709 6.7% $405500% or More FPL 4,820 18.9% $418

• On vs. Off exchange

Cost Sharing Subsidies$60k-$75k 3,627 2,965,164,492 $68,135$75k-$100k 4,995 5,144,461,432 $85,833$100k-$150k 2,415 3,261,951,727 $112,559$150k-$200k 831 1,819,279,215 $182,457$200k-$250k 493 1,283,596,885 $216,824$250k+ 2,086 10,965,003,917 $438,092Total 25,550,018 97,891,257,728 $319

• Estimation of subsidy

• Cash Flow

* Variation by plan will also affect reinsurance

Navigation: Other Fees• Health Insurance Provider Fee

• Patient Centered Outcomes Research Institute (PCORI)• $2 PMPY in 2012 - 2019

• Risk Adjustment User Fee• $0.96 PMPY in 2014

• Exchange Fees• Pooled across on and off exchange

62

NASA GSFC's Remote Sensing Data website

Three views of Andrew on 23, 24 and 25 August 1992 as the hurricane moves East to West

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Provider Risk-Taking

Navigation: Provider Considerations

Provider Risk Taking

• Providers seeking direct risk

• Risk sharing arrangements

• Changes in cost and structures

• Additional considerations

63

Navigation: Other Considerations

• Surplus

• Cash Flow

• Materiality of adjustments

64

33

Navigation: Other Considerations (cont.)

Product Portfolio Strategy

• Second Lowest Silver Plan

• Metallic Plans offered• Metallic Plans offered

• Bronze vs. Silver w Subsidy

65

Navigation: Other Considerations (cont.)

Existing Liabilities

• Claim Reserves

• Premium Deficiency Reserves

66

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Navigation: Other Considerations (cont.)

Admin Expenses

• Second Lowest Silver Plan

• Metallic Plans offered• Metallic Plans offered

• Bronze vs. Silver w Subsidy

67

Thank you

Daniel S. Pribe, FSA, MAAAOptumInsightDan.pribe@optum.com