Filing at a Glance · titled Cost of the Future Newly Insured under the Affordable Care Act (ACA). 5. To adjust the experience period claims to reflect this assumption, risk adjustment

Filing at a Glance

Company: Celtic Insurance Company

Product Name: ACA Major Medical Form – Filing

State: Connecticut

TOI: H16I Individual Health - Major Medical

Sub-TOI: H16I.005A Individual - Preferred Provider (PPO)

Filing Type: Rate

Date Submitted: 06/20/2013

SERFF Tr Num: CELT-129081810

SERFF Status: Closed-Reduced - Approved

State Tr Num: 201397149

State Status:

Co Tr Num: 6004.1

ImplementationDate Requested:

On Approval

Author(s): Juan Guerra, Daniel Martinez, Exselsa Cartwright, Marilyn Odell, Exselsa Cartwright, MichelleFitzpatrick

Reviewer(s): Paul Lombardo (primary)

Disposition Date: 09/18/2013

Disposition Status: Reduced - Approved

Implementation Date: 01/01/2014

State Filing Description:

SERFF Tracking #: CELT-129081810 State Tracking #: 201397149 Company Tracking #: 6004.1

State: Connecticut Filing Company: Celtic Insurance Company

TOI/Sub-TOI: H16I Individual Health - Major Medical/H16I.005A Individual - Preferred Provider (PPO)

Product Name: ACA Major Medical Form Filing

Project Name/Number: CELINSCO/61.1/61.1

PDF Pipeline for SERFF Tracking Number CELT-129081810 Generated 09/18/2013 10:16 AM

General Information

Company and Contact

Filing Fees

Project Name: CELINSCO/61.1 Status of Filing in Domicile: Pending

Project Number: 61.1 Date Approved in Domicile:

Requested Filing Mode: Review & Approval Domicile Status Comments: Submitted recently in domicilestate; pending review.

Explanation for Combination/Other: Market Type: Individual

Submission Type: New Submission Individual Market Type: Individual

Overall Rate Impact: Filing Status Changed: 09/18/2013

State Status Changed:

Deemer Date: Created By: Marilyn Odell

Submitted By: Marilyn Odell Corresponding Filing Tracking Number: CELT-129081809

PPACA: Non-Grandfathered Immed Mkt Reforms

PPACA Notes: null

Exchange Intentions: Will be used outside the Exchange.

Filing Description:

First Consulting & Administration, Inc. has been requested to file the above-referenced rates on behalf of Celtic InsuranceCompany. We have provided a letter of authorization for your files.

Forms relating to these rates have been submitted this same date under separate cover, SERF # CELT-129081809.

To the best of our knowledge, this filing is complete and intended to comply with the insurance laws of your jurisdiction.

If you have any questions or require additional information regarding this submission, please feel free to contact me.

Filing Contact InformationJuan Guerra, Senior Contract Analyst [email protected]

Sears Tower

233 South Wacker Drive, Suite700

Chicago, IL 60606

312-332-8331 [Phone]

312-441-0822 [FAX]

Filing Company InformationCeltic Insurance Company

Sears Tower

233 South Wacker Drive, Suite700

Chicago, IL 60606

(312) 332-5401 ext. [Phone]

CoCode: 80799

Group Code: 1295

Group Name:

FEIN Number: 06-0641618

State of Domicile: Illinois

Company Type: LAH

State ID Number:







Fee Required? No

Retaliatory? No

Fee Explanation:







Correspondence Summary DispositionsStatus Created By Created On Date Submitted

Reduced -

Approved

Paul Lombardo 09/18/2013 09/18/2013

Objection Letters and Response LettersObjection Letters Response Letters

Status Created By Created On Date Submitted Responded By Created On Date Submitted

Change

Request

Paul Lombardo 09/10/2013 09/10/2013 Exselsa Cartwright 09/17/2013 09/17/2013

Requesting

Additional

Information

Paul Lombardo 08/21/2013 08/21/2013 Michelle Fitzpatrick 09/04/2013 09/04/2013







Disposition

Disposition Date: 09/18/2013

Implementation Date: 01/01/2014

Status: Reduced - Approved

HHS Status: HHS Approved

State Review: Reviewed by Actuary

Comment: Please review attached disposition.

Company

Name:

Company

Rate

Change:

Overall %

Indicated

Change:

Overall %

Rate

Impact:

Written

Premium

Change for

this Program:

# of Policy

Holders Affected

for this Program:

Written

Premium for

this Program:

Maximum %

Change

(where req'd):

Minimum %

Change

(where req'd):

Celtic Insurance

Company

New Product 0.000% 0.000% $0 0 $0 0.000% 0.000%

Percent Change Approved:

Minimum: %

Maximum: %

Weighted Average: %

Schedule Schedule Item Schedule Item Status Public Access

Supporting Document (revised) Actuarial Memorandum Yes

Supporting Document Actuarial Memorandum Yes

Supporting Document Actuarial Memorandum Yes

Supporting Document Consumer Disclosure Form Yes

Supporting Document (revised) Actuarial Memorandum and Certifications Yes

Supporting Document Actuarial Memorandum and Certifications Yes

Supporting Document (revised) Unified Rate Review Template Yes







Schedule Schedule Item Schedule Item Status Public Access

Supporting Document Unified Rate Review Template Yes

Supporting Document Unified Rate Review Template Yes

Supporting Document Third Party Authorization Yes

Supporting Document Response to 8-21-13 Rate objection Yes

Supporting Document Response to 9/10/13 objection Yes

Rate (revised) Rates Yes

Rate Rates Yes







STATE OF CONNECTICUT

INSURANCE DEPARTMENT

www.ct.gov/cid P.O. Box 816 Hartford, CT 06142-0816

An Equal Opportunity Employer

Celtic Insurance Company Individual 2014 Off Exchange Rate Filing

Finding of Facts

1. This filing represents a new policy form. As a result, there is no prior experience for this form.

2. The experience used as the basis for the rate development was based on Celtic’s

current individual market book of business for the period of January 1, 2012 through December 31, 2012, with payments through January 31, 2013.

3. Connecticut incurred claims for calendar year 2012 is 1,382,373 while earned premium is $2,103,490. This results in an actual loss ratio of 65.48%. On a nationwide basis incurred claims for the same time period was $123,071,386 and earned premium was $131,422,141. This resulted in a nationwide loss ratio of 93.65%.

4. In the nationwide individual market in 2014, medical underwriting will no longer be utilized resulting in what is expected to be a significant change in morbidity for the membership underlying the individual market. We have estimated that the morbidity of the membership enrolled the individual market in 2014 will be approximately 13.8% higher than that of the large group market. This estimate was developed based on a review of the nationwide 2011 incurred claim PMPM’s as provided in the CCIIO MLR Reporting Data, assumptions regarding the average nationwide actuarial value of the plans in each market, and an assumption for the projected increase in the morbidity of the nationwide individual market based on the recently released report published by the Society of Actuaries (SOA) titled Cost of the Future Newly Insured under the Affordable Care Act (ACA).

5. To adjust the experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market Connecticut population and the Connecticut membership included in the MarketScan. The MarketScan risk adjustment factor is then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans, and the two factors were compared. The difference was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. This adjustment was then increased by an additional 13.8% to reflect the assumption that the morbidity of the individual market will be 13.8% higher than that of the large group market in 2014. Finally, the impact of the expected shift in the average mix by age and gender, equal to -2.7%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section

II. Overall, an adjustment equal to 1.877 was applied to the underlying Connecticut experience period allowed claims PMPM for this change.

6. In addition, an adjustment equal to 1.033 was applied to the historical claim costs

to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is approximately 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA named: “SOA Study: Cost of the Future Newly Insured under the Affordable Care Act (ACA).” The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

7. Newly mandated coverage for 2014 relative to the coverage available during the experience period is estimated to increase the expected allowed claims by approximately 6.8%. This adjustment was developed based on a comparison of the coverage underlying Celtic’s 2012 population relative to the Connecticut EHB benchmark plan. The most impactful newly mandated covered services and the estimated cost of each which result in the estimated change of 6.8% include the following: pediatric dental (1.5%), habilitation services (0.5%), and maternity (3.0%), home health care services (0.2%), emergency transportation (0.3%), skilled nursing facility (0.2%), substance abuse parity, chiropractic care (0.5%), and hearing aids (0.1%). Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies.

8. In addition, an induced utilization adjustment factor equal to 0.993 was applied to the Connecticut specific experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated paid-to-allowed ratio (P/A) for the experience period of 61.5% to the projected P/A of 58.0% for the rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period, was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for some services will be covered in 2014 but were not covered in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period. The induced utilization adjustment factor was developed consistent the following table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.

9. An adjustment equal to approximately 0.973 was applied to reflect the shift

between the average mix of the underlying population by age and gender for the

experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the experience period. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census4, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above.

10. A geographic adjustment of 0.972 was applied to reflect the impact of differences

in geographic claim costs between the projected 2014 Connecticut enrollment and the actual 2012 Connecticut enrollment. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs PMPM were then adjusted to smooth out the impact of any large claims greater than $150K and to normalize for any age/gender differences. As a result, the adjusted average claim costs PMPM which were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average network discounts. We note that, given that Celtic will be using a broad based network in 2014, we believe it is reasonable to assume that the average discount differences by market as reflected in the MarketScan data will be representative of the average discount differences by market for Celtic in 2014. Next, the projected 2014 Connecticut population by MSA was developed based on the distribution of membership in Connecticut in MarketScan. Given that the MarketScan database is very large, it was assumed that the average membership by MSA represented within MarketScan would be a better estimate of the future membership by MSA than the underlying Celtic insured population would be. The 2012 expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for the projection period, which was based on the weighted average of the projected Celtic 2014 population and expected claim costs by MSA. The difference between these two values was applied as the geographic adjustment.

11. An adjustment was applied to the historical allowed costs to reflect a shift from

the network and corresponding discount levels in calendar year 2012 to those expected in 2014. Claims submitted in 2012 were adjusted, as necessary, to reflect the expected allowed costs that would have been incurred if the 2014 network’s discounts had been applied instead. The total network adjusted claims for the experience period were compared to the unadjusted claims for the experience

period to develop the final adjustment to be applied. For Connecticut, this adjustment is equal to 1.096.

12. Allowed claim volumes at the state level were adjusted through the use of a $250K large claim pooling point, such that claims in excess of the $250K threshold were first removed and then a pooling charge equal to $14.94 PMPM was added back into the experience. The pooling charge of $14.94 PMPM is equal to the total completed claim volume in excess of the $250K threshold divided by total member months for the experience period. For Connecticut, this adjustment was equal to approximately 1.052.

13. A trend rate used to project claims from the experience period to the rating period was developed based on a review of the following two industry reports: Oliver Wyman Carrier Trend Report – January 2013, and S&P Healthcare Economic Indices. Given the changes that have occurred in the underlying population of Celtic’s individual book of business in recent years, it was assumed that industry level studies such as these would be most reliable for developing trend estimates. The Oliver Wyman Carrier Trend Report – January 2013 edition presents the pricing trends used by participating carriers in the development of their rates for January 2013. A total of 5.7 million members with individual health policies are represented by the carriers who participated in this edition of the report. In total, the weighted average reported medical trend being used for PPO products was 8.85%. The weighted prescription drug trend among participating carriers was 8.70%.

The S&P Healthcare Economic Indices seek to reflect the monthly rate of change in the principal cost components of the U.S. healthcare market. The indices are designed to estimate the per capita change in total allowed claim costs incurred each month by patients (through their co-payments) and their healthcare benefit programs for services rendered by hospitals and physicians. In reviewing the S&P Healthcare Economic Indices reflecting data through June 2012, the 1 year change in the Commercial Index was 8.09%. We note that this result aligns closely with the results of the Oliver Wyman Carrier Trend Report – January 2013 edition provided above.

In addition to considering the results of these reports, it is our expectation that the rules and regulations related to the ACA will have the effect of lowering trends from existing levels over time. However, the magnitude and speed of this potential change is unknown. When considering this assumption in combination with the information provided by the two studies noted above, it was determined that an annual trend rate of 7.0% would be reasonable at this time. The annual trend rate of 7.0% is assumed for all major service categories and represents the combined impact of both cost and utilization changes. Medical technology trend is included in this annual trend assumption as well. Given that this is a new policy form, benefit buy downs were not considered to be impactful in the development

of the trend assumption. The impact of cost sharing leveraging on trend is included in the projected paid to allowed ratio described in section 8. The estimated annual impact of cost sharing leveraging due to the assumed 7.0% annual trend for the proposed Bronze plan design is approximately 2.0% per year.

14. Items of the federal health care reform bill which have directly impacted the 2014

claims projection include the following: • Guaranteed Issue Underwriting – The impact of this item is included in the

morbidity adjustment and pent up demand of newly insured individuals. • EHB Benchmark plan design – The impact of this item is included in the

adjustments for changes in benefits. • Restriction of available rating factors – Geography, age, and family

composition are now only used in developing rates for individuals and families.

• Market Stabilization programs – The impact of the risk transfer and transitional reinsurance programs are described in the actuarial memorandum.

15. Experience was assumed to be fully credible at 310,000 member months, or

approximately 25,800 members. This threshold was determined through the use of Limited Fluctuation Credibility Theory. Using this approach, a claim probability distribution model was first developed based on industry level claim distributions. This claim probability distribution model was then adjusted to reflect the overall Celtic allowed claim cost level from the experience period. Based on the adjusted claim probability distribution and the application of Limited Fluctuation Credibility Theory, it was determined that 310,000 member months of experience would be an appropriate credibility threshold such that the underlying experience would represent expected claims levels within +/–5%, 90% of the time. To determine the credibility of state specific experience when full credibility did not exist, the following formula was applied: (Actual Member Months / 310,000) ^ 0.5. This methodology is consistent with generally accepted actuarial practices currently being used in the industry. Based on the described methodology, the resulting credibility assigned to the Connecticut specific experience was 15.3%.

16. A projected net reinsurance recovery equal to $51.83 PMPM is being assumed in

the development of the proposed rates. This assumption was developed by first scaling a representative claim probability distribution to reflect Celtic’s 2014 expected allowed claim levels. Using the scaled claim probability distribution, estimated annual payments were then calculated based on Celtic’s proposed Bronze plan design. Next, the estimated annual payments per member per year between the thresholds of $60,000 and $250,000 were accumulated and multiplied by 80%, consistent with federal regulation regarding the transitional reinsurance program. This amount was then divided by twelve to convert it to a PMPM basis. Lastly, the temporary reinsurance fee of $5.25 PMPM, which is being assessed across all fully insured carriers for 2014, was subtracted, resulting in a projected net reinsurance recovery of $51.83 PMPM.

17. Deductible leveraging is 2.00%.

18. Overall combined annualized trend used in rate filing is7.0%.

19. Retention from most recent statutory blank is 21.9%; retention charge used in this filing is 23.9%: this includes 15% for administrative expenses, 2.3% for state premium tax, licenses and fees; ACA Insurer tax of 2.1%; $0.17 pmpm for the Comparative Effectiveness Research Fee; $0.08 pmpm for the Risk Adjustment Fee; and 5.0% of premium for pre-tax profit/contribution to surplus.

20. Celtic anticipates that the HealthCare Reform defined medical loss ratio will be

80.5% for calendar year 2014, while the traditional pricing loss ratio is 76.1%.

21. Celtic Life’s capital and surplus, as of 12/31/2012, was $43,748,507.

22. No public comments were received by the Department for this filing.

Department Summary Since this filing reflects rates that incorporate all the new rating requirements of PPACA effective 1/1/2014, the Department used criteria spelled out in the latest HHS rate regulations as a template for review along with previously issued CT Insurance Department bulletins that discuss the requirements for rate filings. Upon analyzing the trend information contained within the rate filing, the Department determined that the annual trend of 7.0% is appropriate based on the trend data provided in the filing. Based upon the federal MLR for this filing of 80.5%, before the impact of credibility adjustment, the Department believes that the proposed pricing supports the federally required 80% loss ratio for individual business. The Department analyzed the morbidity assumptions used in the development of the proposed rates and determined that both the Connecticut specific and nationwide morbidity values were excessive. According to the report, "Cost of the Future Newly Insured under the Affordable Care Act (ACA)" sponsored by the Society of Actuaries, the increase in morbidity and/or cost of the newly insured individuals in the Connecticut individual market relative to the morbidity and/or cost of the current commercially insured population in the Connecticut individual market is estimated at 28.8% and 31.5% on a nationwide basis. As Celtic is using individual experience from Connecticut and nationwide as a basis for the development of the index rate the Department reduced the morbidity assumptions to the aforementioned levels, but will continue to allow the additional 3.3% for pent-up demand.

Department Disposition Based upon the finding of fact, and the summary information described above, the rates were recalculated to reflect the change in the morbidity adjustment assumed in the filing. This change had a net result of decreasing the proposed rates by 17%. The approved recalculated rates are reasonable in relationship to the benefits being provided, and are neither excessive, inadequate nor unfairly discriminatory. Dated September 18, 2013.

Paul Lombardo, A.S.A., M.A.A.A. Insurance Actuary

Objection Letter Objection Letter Status Change Request

Objection Letter Date 09/10/2013

Submitted Date 09/10/2013

Respond By Date 09/24/2013

Dear Juan Guerra,

Introduction: According to the report, "Cost of the Future Newly Insured under the Affordable Care Act (ACA)" sponsored by the Society ofActuaries, the increase in morbidity and/or cost of the newly insured individuals in the Connecticut individual market relative to themorbidity and/or cost of the current commercially insured population in the Connecticut individual market is estimated at 28.8% and31.5% on a nationwide basis. As Celtic is using individual experience from Connecticut and nationwide as a basis for thedevelopment of the index rate the Department would expect to see a morbidity adjustment closer to the range of 28.8% to 31.5% withan additional 3.3% allowed for pent-up demand. Please revise the morbidity adjustment to better reflect what has been estimated bythe Society of Actuaries in the aforementioned study. In reviewing other carriers filings in the Connecticut individual market for a1/1/14 effective date, morbidity adjustments have not exceeded the amounts generated by the SOA report.

Thank you in advance for your cooperation.

Conclusion:

Sincerely,

Paul Lombardo







Objection Letter Objection Letter Status Requesting Additional Information

Objection Letter Date 08/21/2013


Respond By Date 09/04/2013

Dear Juan Guerra,

Introduction: Please respond to the attached CID comments/questions. Thank you in advance for your cooperation.

Conclusion:

Sincerely,

Paul Lombardo







CID Questions/Comments – Celtic Insurance Company 2014 Individual Rate Filing

August 21, 2013

1. Provide actuarial support for the tobacco user adjustment.

2. Provide Connecticut specific experience for past years, as well as, nationwide experience

from past years that was used as the basis for the rate development, include earned

premium, incurred claims and membership.

3. Does the nationwide and Connecticut specific experience include grandfathered plans or

just non-grandfathered plans?

4. Provide more detail for the morbidity adjustment of 87.7%, include all of the components

and their values.

5. Explain why there needs to be an additional 13.8% adjustment to exactly reflect the large

group market, when the pricing is already adjusting the individual experience to account

for the increased morbidity.

6. Provide the actual unit cost and utilization (based on Celtic experience) by benefit

category for 2010, 2011 and 2012, on an allowed basis, so the Department can compare

to the 7% annual trend assumed in the rate filing.

7. Please change the midpoint of the rating period to 7/1/2014.

8. Connecticut law requires mental health and substance abuse, including mental health

parity. Please explain why there is an adjustment for this benefit in order to comply with

the essential health benefits.

9. The Department has taken the position that risk adjustments will be set at a value of 1.00

for all carriers as there currently is no way of knowing which carriers will have better or

worst risk in 2014 when compared to all other carriers in the CT individual market.

Please remove the risk adjustment from the pricing.

10. The Unified RRT spreadsheet is not readable, please re-submit.

Response Letter Response Letter Status Submitted to State

Response Letter Date 09/17/2013


Dear Paul Lombardo,

Introduction: In response to your 9/10/13 objection letter, on behalf of the Company we offer the following.

Response 1

Comments: Please see the enclosed response letter.

Changed Items:







Supporting Document Schedule Item Changes

Satisfied - Item: Actuarial MemorandumComments:

Attachment(s):CT - Part III - Act Memo - Celtic 20130916.pdf

CT - Act Memo - Exhibits A - B 20130916.pdf

CT - Act Memo - Exhibits A - B 20130916.xlsx

Previous Version

Satisfied - Item: Actuarial Memorandum

Comments: Updated versions 9-04-13




Previous Version


Comments: Attached under "Actuarial Memorandum and Certifications" component under Supporting Documentation.Attachment(s):

Satisfied - Item: Actuarial Memorandum and CertificationsComments:

Attachment(s): CT - Part III - Act Memo - Celtic 20130916.pdf

Previous Version



Satisfied - Item: Unified Rate Review TemplateComments:







Attachment(s): CT - Unified RRT 20130916.xlsm

Previous Version


Attachment(s): CT-UnifiedRateReviewSubmission_2013090414610.xml

CT - Unified RRT 20130904.xlsx

Previous Version


Attachment(s): CT - Unified RRT.xlsm

Satisfied - Item: Response to 9/10/13 objectionComments:

Attachment(s): CT response letter from Company_9-10-13 objection.pdf












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No Form Schedule items changed.







Rate/Rule Schedule Item Changes

Item

No. Document Name

Affected Form

Numbers

(Separated with

commas)

Rate Action Rate Action

Information

Attachments Date Submitted

1 Rates 74684CT007 New CT - Act Memo -

Exhibits A - B

20130916.pdf, CT - Act

Memo - Exhibits A - B

20130916.xlsx,

09/17/2013

By: Exselsa Cartwright

Previous Version


Exhibits A - B.pdf,

06/20/2013

By: Marilyn Odell

Conclusion: If you have any questions or need additional information, please call toll-free 1-800-927-2730. Thank you for your assistance.

Sincerely,

Exselsa Cartwright







Response Letter Response Letter Status Submitted to State

Response Letter Date 09/04/2013


Dear Paul Lombardo,

Introduction: Please see letter attached in supporting documents.

Response 1

Comments: Response attached hereto.

Changed Items:













Previous Version






Previous Version



Satisfied - Item: Response to 8-21-13 Rate objectionComments:

Attachment(s): Rate Filing Response 9-03-13.pdf













Previous Version






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No Form Schedule items changed.

No Rate/Rule Schedule items changed.

Conclusion:







Sincerely,

Michelle Fitzpatrick







Rate Information Rate data applies to filing.

Filing Method: For approval

Rate Change Type: Neutral

Overall Percentage of Last Rate Revision: 0.000%

Effective Date of Last Rate Revision:

Filing Method of Last Filing:

Company Rate Information

Company

Name:

Company

Rate

Change:

Overall %

Indicated

Change:

Overall %

Rate

Impact:

Written

Premium

Change for

this Program:

# of Policy

Holders Affected

for this Program:

Written

Premium for

this Program:

Maximum %

Change

(where req'd):

Minimum %

Change

(where req'd):

Celtic Insurance

Company

New Product 0.000% 0.000% $0 0 $0 0.000% 0.000%

Product Type: HMO PPO EPO POS HSA HDHP FFS Other

Covered Lives:

Policy Holders:







Rate Review Detail

COMPANY:Company Name: Celtic Insurance Company

HHS Issuer Id: 74684

Product Names: Celtic Health Plan

Trend Factors:

FORMS:New Policy Forms: 74684CT007

Affected Forms:

Other Affected Forms:

REQUESTED RATE CHANGE INFORMATION:Change Period: Annual

Member Months: 600

Benefit Change: None

Percent Change Requested: Min: 0.0 Max: 0.0 Avg: 0.0

PRIOR RATE:Total Earned Premium: 365,177.00

Total Incurred Claims: 277,900.00

Annual $: Min: 609.00 Max: 609.00 Avg: 609.00

REQUESTED RATE:Projected Earned Premium: 365,177.00

Projected Incurred Claims: 277,900.00

Annual $: Min: 609.00 Max: 609.00 Avg: 609.00







Rate/Rule Schedule

Item

No.

Schedule

Item

Status

Document Name

Affected Form Numbers

(Separated with commas) Rate Action Rate Action Information Attachments


Exhibits A - B

20130916.pdf, CT - Act

Memo - Exhibits A - B

20130916.xlsx,







Attachment CT - Act Memo - Exhibits A - B 20130916.xlsx is not a PDF document and cannot bereproduced here.







Exhibit A ‐ Proposed Monthly Rates by Rating Area‐ State of Connecticut

AgeNon‐Tobacco

User Tobacco User AgeNon‐Tobacco




User Tobacco User0‐20 $226.69 $294.70 0‐20 $197.27 $256.45 0‐20 $192.30 $249.98 0‐20 $211.36 $274.77 0‐20 $199.13 $258.8721 $357.00 $464.10 21 $310.66 $403.86 21 $302.83 $393.68 21 $332.85 $432.71 21 $313.60 $407.6822 $357.00 $464.10 22 $310.66 $403.86 22 $302.83 $393.68 22 $332.85 $432.71 22 $313.60 $407.6823 $357.00 $464.10 23 $310.66 $403.86 23 $302.83 $393.68 23 $332.85 $432.71 23 $313.60 $407.6824 $357.00 $464.10 24 $310.66 $403.86 24 $302.83 $393.68 24 $332.85 $432.71 24 $313.60 $407.6825 $358.43 $465.95 25 $311.90 $405.47 25 $304.04 $395.25 25 $334.18 $434.44 25 $314.85 $409.3126 $365.57 $475.24 26 $318.12 $413.55 26 $310.10 $403.13 26 $340.84 $443.09 26 $321.12 $417.4627 $374.13 $486.37 27 $325.57 $423.24 27 $317.36 $412.57 27 $348.83 $453.48 27 $328.65 $427.2428 $388.06 $504.47 28 $337.69 $438.99 28 $329.17 $427.93 28 $361.81 $470.35 28 $340.88 $443.1429 $399.48 $519.33 29 $347.63 $451.92 29 $338.87 $440.52 29 $372.46 $484.20 29 $350.92 $456.1930 $405.19 $526.75 30 $352.60 $458.38 30 $343.71 $446.82 30 $377.79 $491.12 30 $355.93 $462.7131 $413.76 $537.89 31 $360.06 $468.07 31 $350.98 $456.27 31 $385.77 $501.51 31 $363.46 $472.5032 $422.33 $549.03 32 $367.51 $477.76 32 $358.25 $465.72 32 $393.76 $511.89 32 $370.99 $482.2833 $427.68 $555.99 33 $372.17 $483.82 33 $362.79 $471.63 33 $398.75 $518.38 33 $375.69 $488.4034 $433.40 $563.41 34 $377.14 $490.28 34 $367.63 $477.92 34 $404.08 $525.30 34 $380.71 $494.9235 $436.25 $567.13 35 $379.63 $493.51 35 $370.06 $481.07 35 $406.74 $528.77 35 $383.22 $498.1836 $439.11 $570.84 36 $382.11 $496.75 36 $372.48 $484.22 36 $409.41 $532.23 36 $385.72 $501.4437 $441.96 $574.55 37 $384.60 $499.98 37 $374.90 $487.37 37 $412.07 $535.69 37 $388.23 $504.7038 $444.82 $578.27 38 $387.08 $503.21 38 $377.32 $490.52 38 $414.73 $539.15 38 $390.74 $507.9639 $450.53 $585.69 39 $392.05 $509.67 39 $382.17 $496.82 39 $420.06 $546.07 39 $395.76 $514.4940 $456.24 $593.12 40 $397.02 $516.13 40 $387.01 $503.12 40 $425.38 $553.00 40 $400.78 $521.0141 $464.81 $604.26 41 $404.48 $525.82 41 $394.28 $512.57 41 $433.37 $563.38 41 $408.30 $530.7942 $473.02 $614.93 42 $411.62 $535.11 42 $401.25 $521.62 42 $441.03 $573.33 42 $415.52 $540.1743 $484.45 $629.78 43 $421.57 $548.04 43 $410.94 $534.22 43 $451.68 $587.18 43 $425.55 $553.2244 $498.73 $648.34 44 $433.99 $564.19 44 $423.05 $549.97 44 $464.99 $604.49 44 $438.10 $569.5245 $515.51 $670.16 45 $448.59 $583.17 45 $437.28 $568.47 45 $480.64 $624.83 45 $452.83 $588.6846 $535.50 $696.15 46 $465.99 $605.79 46 $454.24 $590.52 46 $499.28 $649.06 46 $470.40 $611.5147 $557.99 $725.38 47 $485.56 $631.23 47 $473.32 $615.32 47 $520.24 $676.32 47 $490.15 $637.2048 $583.69 $758.80 48 $507.93 $660.31 48 $495.12 $643.66 48 $544.21 $707.47 48 $512.73 $666.5549 $609.04 $791.75 49 $529.99 $688.98 49 $516.63 $671.61 49 $567.84 $738.20 49 $535.00 $695.5050 $637.60 $828.88 50 $554.84 $721.29 50 $540.85 $703.11 50 $594.47 $772.81 50 $560.08 $728.1151 $665.80 $865.54 51 $579.38 $753.20 51 $564.78 $734.21 51 $620.77 $807.00 51 $584.86 $760.3252 $696.86 $905.92 52 $606.41 $788.33 52 $591.12 $768.46 52 $649.72 $844.64 52 $612.14 $795.7853 $728.28 $946.76 53 $633.75 $823.87 53 $617.77 $803.10 53 $679.01 $882.72 53 $639.74 $831.6654 $762.19 $990.85 54 $663.26 $862.24 54 $646.54 $840.50 54 $710.64 $923.83 54 $669.53 $870.3955 $796.11 $1,034.94 55 $692.77 $900.60 55 $675.31 $877.90 55 $742.26 $964.93 55 $699.32 $909.1256 $832.88 $1,082.74 56 $724.77 $942.20 56 $706.50 $918.45 56 $776.54 $1,009.50 56 $731.62 $951.1157 $870.00 $1,131.01 57 $757.08 $984.20 57 $737.99 $959.39 57 $811.16 $1,054.50 57 $764.24 $993.5158 $909.63 $1,182.52 58 $791.56 $1,029.03 58 $771.61 $1,003.09 58 $848.10 $1,102.53 58 $799.05 $1,038.7659 $929.27 $1,208.05 59 $808.65 $1,051.24 59 $788.26 $1,024.74 59 $866.41 $1,126.33 59 $816.29 $1,061.1860 $968.89 $1,259.56 60 $843.13 $1,096.07 60 $821.88 $1,068.44 60 $903.36 $1,174.36 60 $851.10 $1,106.4361 $1,003.16 $1,304.11 61 $872.96 $1,134.84 61 $850.95 $1,106.23 61 $935.31 $1,215.90 61 $881.21 $1,145.5762 $1,025.66 $1,333.35 62 $892.53 $1,160.28 62 $870.03 $1,131.03 62 $956.28 $1,243.16 62 $900.96 $1,171.2563 $1,053.86 $1,370.02 63 $917.07 $1,192.19 63 $893.95 $1,162.13 63 $982.57 $1,277.35 63 $925.74 $1,203.4664+ $1,070.99 $1,392.29 64+ $931.98 $1,211.57 64+ $908.49 $1,181.03 64+ $998.55 $1,298.12 64+ $940.79 $1,223.03

CT Rating Area 1 CT Rating Area 2 CT Rating Area 3 CT Rating Area 4 CT Rating Area 5


AgeNon‐Tobacco



User Tobacco User0‐20 $213.85 $278.00 0‐20 $196.65 $255.64 0‐20 $210.12 $273.1521 $336.77 $437.80 21 $309.68 $402.59 21 $330.89 $430.1622 $336.77 $437.80 22 $309.68 $402.59 22 $330.89 $430.1623 $336.77 $437.80 23 $309.68 $402.59 23 $330.89 $430.1624 $336.77 $437.80 24 $309.68 $402.59 24 $330.89 $430.1625 $338.11 $439.55 25 $310.92 $404.20 25 $332.22 $431.8826 $344.85 $448.30 26 $317.11 $412.25 26 $338.83 $440.4827 $352.93 $458.81 27 $324.55 $421.91 27 $346.78 $450.8128 $366.06 $475.88 28 $336.62 $437.61 28 $359.68 $467.5829 $376.84 $489.89 29 $346.53 $450.49 29 $370.27 $481.3530 $382.23 $496.90 30 $351.49 $456.93 30 $375.56 $488.2331 $390.31 $507.41 31 $358.92 $466.60 31 $383.50 $498.5632 $398.39 $517.91 32 $366.35 $476.26 32 $391.45 $508.8833 $403.45 $524.48 33 $371.00 $482.30 33 $396.41 $515.3334 $408.83 $531.48 34 $375.95 $488.74 34 $401.70 $522.2135 $411.53 $534.99 35 $378.43 $491.96 35 $404.35 $525.6636 $414.22 $538.49 36 $380.91 $495.18 36 $407.00 $529.1037 $416.92 $541.99 37 $383.39 $498.40 37 $409.64 $532.5438 $419.61 $545.49 38 $385.86 $501.62 38 $412.29 $535.9839 $425.00 $552.50 39 $390.82 $508.06 39 $417.59 $542.8640 $430.39 $559.50 40 $395.77 $514.50 40 $422.88 $549.7441 $438.47 $570.01 41 $403.20 $524.17 41 $430.82 $560.0742 $446.22 $580.08 42 $410.33 $533.43 42 $438.43 $569.9643 $456.99 $594.09 43 $420.24 $546.31 43 $449.02 $583.7344 $470.46 $611.60 44 $432.62 $562.41 44 $462.26 $600.9345 $486.29 $632.18 45 $447.18 $581.33 45 $477.81 $621.1546 $505.15 $656.69 46 $464.52 $603.88 46 $496.34 $645.2447 $526.37 $684.28 47 $484.03 $629.24 47 $517.18 $672.3448 $550.61 $715.80 48 $506.33 $658.23 48 $541.01 $703.3149 $574.52 $746.88 49 $528.32 $686.81 49 $564.50 $733.8550 $601.46 $781.90 50 $553.09 $719.02 50 $590.97 $768.2751 $628.07 $816.49 51 $577.56 $750.82 51 $617.11 $802.2552 $657.37 $854.58 52 $604.50 $785.85 52 $645.90 $839.6753 $687.00 $893.10 53 $631.75 $821.27 53 $675.02 $877.5354 $719.00 $934.69 54 $661.17 $859.52 54 $706.46 $918.3955 $750.99 $976.28 55 $690.59 $897.77 55 $737.89 $959.2656 $785.68 $1,021.38 56 $722.49 $939.23 56 $771.97 $1,003.5657 $820.70 $1,066.91 57 $754.69 $981.10 57 $806.38 $1,048.3058 $858.08 $1,115.50 58 $789.07 $1,025.79 58 $843.11 $1,096.0559 $876.60 $1,139.58 59 $806.10 $1,047.93 59 $861.31 $1,119.7160 $913.98 $1,188.18 60 $840.47 $1,092.62 60 $898.04 $1,167.4561 $946.31 $1,230.21 61 $870.20 $1,131.27 61 $929.81 $1,208.7562 $967.53 $1,257.79 62 $889.71 $1,156.63 62 $950.65 $1,235.8563 $994.13 $1,292.37 63 $914.18 $1,188.43 63 $976.79 $1,269.8364+ $1,010.30 $1,313.39 64+ $929.04 $1,207.76 64+ $992.68 $1,290.48

CT Rating Area 7 CT Rating Area 8CT Rating Area 6

Exhibit B ‐ Adjusted Community Rating Factor Relativities

Age Curve

Age Age Factor0‐20 0.63521 1.000 Tobacco User Adjustment22 1.000 Non‐Tobacco User 1.00023 1.000 Tobacco User 1.30024 1.00025 1.00426 1.024 Rating Area Relativities27 1.048 CT Rating Area 1 1.09428 1.087 CT Rating Area 2 0.95229 1.119 CT Rating Area 3 0.92830 1.135 CT Rating Area 4 1.02031 1.159 CT Rating Area 5 0.96132 1.183 CT Rating Area 6 1.03233 1.198 CT Rating Area 7 0.94934 1.214 CT Rating Area 8 1.01435 1.22236 1.23037 1.23838 1.24639 1.26240 1.27841 1.30242 1.32543 1.35744 1.39745 1.44446 1.50047 1.56348 1.63549 1.70650 1.78651 1.86552 1.95253 2.04054 2.13555 2.23056 2.33357 2.43758 2.54859 2.60360 2.71461 2.81062 2.87363 2.95264+ 3.000

Supporting Document Schedules




CT - Act Memo - Exhibits A - B 20130916.xlsxItem Status:Status Date:

Bypassed - Item: Consumer Disclosure Form

Bypass Reason: Not applicable to this initial submission.Attachment(s):Item Status:Status Date:


Attachment(s): CT - Part III - Act Memo - Celtic 20130916.pdfItem Status:Status Date:


Attachment(s): CT - Unified RRT 20130916.xlsmItem Status:Status Date:

Satisfied - Item: Third Party AuthorizationComments:

Attachment(s): AUTH Kohler.pdfItem Status:Status Date:








Attachment(s): Rate Filing Response 9-03-13.pdfItem Status:Status Date:


Attachment(s): CT response letter from Company_9-10-13 objection.pdfItem Status:Status Date:








Attachment CT - Unified RRT 20130916.xlsm is not a PDF document and cannot be reproduced here.







Celtic Insurance Company State of Connecticut

Actuarial Memorandum

1. General Information a) Company Identifying Information

A. Company Legal Name: Celtic Insurance Company B. State: Connecticut C. HIOS issuer ID: 74684 D. Market: Individual Major Medical E. Effective Date: January 1, 2014

b) Company Contact Information A. Contact Name: Mark Freeman B. Contact Telephone Number: 312-332-8554 C. Contact Email Address: [email protected]

c) Scope and Purpose – This filing is for a new individual major medical policy. I have prepared this actuarial memorandum on behalf of Celtic Insurance Company to demonstrate compliance with the applicable laws of Connecticut and applicable requirements of the Affordable Care Act (ACA). This actuarial memorandum is not intended for any other purpose.

d) Product ID – 74684CT007 e) Brief Description of the Benefits – This policy provides major medical benefits.

There is one proposed plan design, which is at the prescribed Bronze plan tier, based on a 58.1% Actuarial Value as determined by the Actuarial Value (AV) Calculator.

f) Marketing Method – This product will be sold through various marketing channels including brokers, telesales representatives, and through an online web portal. This product will not be offered on the exchange.

g) Company Financial Information – Celtic’s net capital and surplus as of the end of Calendar Year 2012 was $43,748,507 and its RBC ratio was 557%.

2. Proposed Rates

a) Reason for Rate Increase – This is a new policy. As a result, no rate increase is being proposed.

b) Brief Description of How Proposed Rates were Determined – Rates for this product were developed based on the historical allowed claim experience of Celtic’s current individual market book of business. Connecticut specific experience was projected forward and adjusted to reflect expected cost and utilization differences, such as for medical inflation and changing morbidity of the underlying population, between the experience period and the rating period. Additional adjustments which were made to adjust to a 2014 expected claim cost include for changes in provider discounts, benefit level embedded in the experience, additional EHB covered services, and demographics. To the extent that state specific experience was determined not to be fully credible, a manual rate was developed based on nationwide experience which was adjusted to reflect expected claim levels for Connecticut enrollees in 2014. Paid claims were calculated as projected allowed claims multiplied by the estimated paid-to-allowed ratio for the proposed 2014 plan design. Finally, after making adjustments to reflect the impact of transitional reinsurance and risk transfer payments, the adjusted paid claims were converted to a premium base rate by adding the expected costs for ACA related fees/taxes, administrative expenses,

Page 2 Celtic Insurance Company 2014 Actuarial Memorandum

and a load for profit/risk margin. Rates were developed under the assumption that they would remain in effect for new sales for twelve months after the proposed effective date of 1/1/2014. The average annual premium per member is projected to be $5,351. Please see Exhibit A for the proposed monthly rates by age, geographic rating area, and tobacco use. Premiums are developed for family coverage by adding up the rate of each covered family member, with no more than the three oldest covered children under age 21 being taken into account in computing the premium.

c) Rating Factors – Below is a description of the development of the age, geographic, and tobacco use rate adjustments. Please see Exhibit B for the specific rating factor relativities being proposed.

A. Age Factors – The age curve being applied in the proposed rates is based on the 3:1 age curve prescribed by HHS. The standard curve was fitted such that the resulting average rate when weighted by the projected membership was equal to the calculated average premium PMPM after applying the factors noted above to the index rate.

B. Geographic Factors – Premiums will vary by 8 defined geographic rating areas1. The geographic rating factors do not reflect expected morbidity differences. Average expected geographic claim costs PMPM by county were developed based on data from the Truven Health Analytics 2010 MarketScan Commercial database (MarketScan)2. Risk adjustment factors were calculated for each county based on the membership underlying the MarketScan database. The average calculated claim cost for each county was then divided by the county’s corresponding risk adjustment factor to remove the impact of morbidity among the geographic regions. As a result, the adjusted average claim costs PMPM that were calculated reflect differences by geographic region in provider payment patterns and average charge levels only.

C. Tobacco Use – A factor of 1.30 is being applied for those members who utilize tobacco. This factor is based on Celtic’s historical experience which demonstrates that tobacco users relative to non–tobacco users have approximately 30% higher claims after normalizing for age differences within the population. It is being assumed that approximately 9% of total enrolled individuals will be tobacco users.

3. Experience Period Claims and Membership

a) Dates of Service for the Experience Period – Premium and claims from Celtic’s current individual market book of business for the period of January 1, 2012 through December 31, 2012 were reviewed in developing the proposed rates.

b) Paid Through Date – The date through which claims from the experience period of January 1, 2012 to December 31, 2012 were paid was January 31, 2013.

c) Premiums (net of MLR Rebate) in Experience Period A. Prior to MLR Rebates: $2,195,218

1 http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/ct-gra.html 2 The MarketScan Commercial Claims and Encounters Database consists of employer- and health plan-sourced data containing medical and drug data for several million individuals annually, encompassing employees, their spouses, and dependents who are covered by employer-sponsored private health insurance.


B. MLR Rebates: It is being estimated that total MLR rebates equal to $84,000 will be paid for calendar year 2012 in the state of Connecticut.

d) Allowed and Incurred Claims Incurred During the Experience Period A. Allowed Claims

1. Processed through claim system –$1,731,458 2. Estimate of incurred but not paid claims – $372,033

B. Incurred Claims 1. Processed through claim system –$1,148,669 2. Estimate of incurred but not paid claims – $233,704

C. Allowed claims were pulled directly from Celtic’s claim records. D. Estimates for Incurred but Not Paid Claims on both an allowed and paid

basis were developed based on a review of historical claim payment completion patterns for Celtic’s current individual market book of business, using the assumption that future claim payment completion patterns would be similar.

e) Historical Experience from Inception-to-Date – This is a new policy form. As a result, there is no prior experience for this form.

f) Consistency of Experience and Financial Statements – We note that the 2012 Supplemental Health Care Exhibit (SHCE) for Celtic for the State of Connecticut shows total incurred paid claims equal to $1,863,777 and total member months of 7,340. In the underlying 2012 experience data used for the 2014 rate development, total incurred paid claims for the State of Connecticut were estimated to be $1,382,387 with 7,285 member months. Based on our review, these totals are different for the following reasons:

A. The totals provided in the SHCE are on a reported basis whereas the values utilized in pricing are on an incurred basis. As a result, the values in the SHCE include items such as the impact of restatements from prior years, while the pricing experience does not.

B. The totals provided in the annual statement are based on an individual’s original policy issue state whereas the values utilized in pricing are based on an individual’s current resident state.

C. The totals provided in the annual statement include short term medical and conversion products, while the data utilized for pricing does not.

D. Member months utilized in the pricing analysis include partial member months whereas the annual statement member months do not. For example, if an individual were to terminate April 15, 2012, the individual would count as 0.5 member months in April in the pricing data but 0.0 in the annual statement data.

4. Benefit Categories - Medical claims were placed into appropriate service categories using

available categorical data. Inpatient claims were first bucketed using the Place of Service provided with each claim. Next, since the data were provided with the payment code (revenue, procedure, or HCPCS), remaining claims with an attached revenue code were mapped to the outpatient category. Finally, the professional and other categories were developed by mapping individual procedure/HCPCS codes. The other category contains claims from a multitude of more specific service types; including Acupuncture, Ambulance, DME, Hearing, Home Health, Medical Supplies and Vision services. Pharmaceutical claims were provided separately and were placed entirely in the prescription drug category.

Page 4 Celtic Insurance Company 2014 Actuarial Memorandum 5. Projection Factors

a) Changes in the Morbidity of the Population Insured – In the nationwide individual market in 2014, medical underwriting will no longer be utilized resulting in what is expected to be a significant change in morbidity for the membership underlying the individual market. We have estimated that the morbidity of the membership enrolled the individual market in 2014 will be approximately 13.8% higher than that of the large group market. This estimate was developed based on a review of the nationwide 2011 incurred claim PMPM’s as provided in the CCIIO MLR Reporting Data, assumptions regarding the average nationwide actuarial value of the plans in each market, and an assumption for the projected increase in the morbidity of the nationwide individual market based on the recently released report published by the Society of Actuaries (SOA) titled Cost of the Future Newly Insured under the Affordable Care Act (ACA)3. Below is a summary of our analysis:

Morbidity Relativity ‐ 2014 Non‐Group to Large GroupNon‐Group Large Group

2011 Incurred Claim PMPM1 $185.90 $303.12/ Assumed AV2,3 0.600 0.847Adjusted Allowed $309.83 $357.87x 2014 Morbidity Adj4 1.315 1.000Morbid Adj 2014 Rates $407.43 $357.87Relativity to Large Group 1.138 1.00

1Based on 2011 CCIIO M LR Reporting Data

2Non-group AV based on Health Affairs article,

http://content.healthaffairs.org/content/31/6/1339.full?keytype=ref&siteid=healthaff&ijkey=rbXCP2itIBXLU#T1

3Large group AV based on average from 2010 M arketScan, medical and Rx combined

4Based on Figure S-1 of the "Cost o f the Future Newly Insured under the Affordable Care Act (ACA)" study by the SOA

To adjust the experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market Connecticut population and the Connecticut membership included in the MarketScan. The MarketScan risk adjustment factor was then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans, and the two factors were compared. The difference was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. This adjustment was then increased by an additional 13.8% to reflect the assumption that the morbidity of the individual market will be 13.8% higher than that of the large group market in 2014. We note that the result of this approach was a morbidity adjustment factor, including the impact of age/gender changes but excluding the impact of pent-up demand,

3 Cost of the Future Newly Insured under the Affordable Care Act (ACA). March 2013. Society of Actuaries. http://cdn-files.soa.org/web/research-cost-aca-report.pdf


equal to 1.826. However, to reflect the Department’s concern that the originally proposed morbidity adjustment was higher than the amount generated by the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report sponsored by the SOA, we have changed this assumption to be equal to the 1.288. This value is equal to the projected morbidity change in the non-group market in Connecticut from Figure S-1 of the SOA sponsored report referenced earlier. We note that, although we are utilizing this adjustment due to the Department’s concern regarding the level of the originally proposed adjustment, the morbidity adjustment provided in the SOA report is reflective of the projected change to the non-group market overall in Connecticut and may not be consistent with the morbidity change which should be expected to occur relative to Celtic’s specific 2012 base period population Next, the impact of the expected shift in the average mix by age and gender, equal to -2.7%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II of the Unified Rate Review Template. Overall, an adjustment equal to 1.324 was applied to the underlying Connecticut experience period allowed claims PMPM for this change. In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is approximately 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA. The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

b) Changes in benefits – Newly mandated coverage for 2014 relative to the coverage available during the experience period is estimated to increase the expected allowed claims by approximately 6.8%. This adjustment was developed based on a comparison of the coverage underlying Celtic’s 2012 population relative to the Connecticut EHB benchmark plan. The most impactful newly mandated covered services and the estimated cost of each which result in the estimated change of 6.8% include the following: pediatric dental (1.5%), habilitation services (0.5%), and maternity (3.0%), home health care services (0.2%), emergency transportation (0.3%), skilled nursing facility (0.2%), chiropractic care (0.5%), and hearing aids (0.1%). Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies. In addition, an induced utilization adjustment factor equal to 0.993 was applied to the Connecticut specific experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated paid-to-allowed ratio (P/A) for the experience period of 61.5% to the projected P/A of 58.0% for the


rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period, was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for some services will be covered in 2014 but were not covered in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period.

The induced utilization adjustment factor was developed consistent the following table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.

Metal Level Induced Demand AdjustmentCatastrophic 1.00

Bronze 1.00Silver 1.03Gold 1.08

Platinum 1.15

c) Changes in Demographics – An adjustment equal to approximately 0.973 was applied to reflect the shift between the average mix of the underlying population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the experience period. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census4, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 0.972 was applied to reflect the impact of differences in geographic claim costs between the projected 2014 Connecticut enrollment and the actual 2012 Connecticut enrollment. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs PMPM were then adjusted to smooth out the impact of any large claims greater than $150K and to normalize for any age/gender differences. As a result, the adjusted average claim costs PMPM which were calculated reflect differences by geographic region in

4 U.S. Census Bureau, Current Population Survey, 2012 Annual Social and Economic Supplement.


provider payment patterns, morbidity (excluding age/gender), and average network discounts. We note that, given that Celtic will be using a broad based network in 2014, we believe it is reasonable to assume that the average discount differences by market as reflected in the MarketScan data will be representative of the average discount differences by market for Celtic in 2014. Next, the projected 2014 Connecticut population by MSA was developed based on the distribution of membership in Connecticut in MarketScan. Given that the MarketScan database is very large, it was assumed that the average membership by MSA represented within MarketScan would be a better estimate of the future membership by MSA than the underlying Celtic insured population would be. The 2012 expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for the projection period, which was based on the weighted average of the projected Celtic 2014 population and expected claim costs by MSA. The difference between these two values was applied as the geographic adjustment.

d) Other Adjustments – Other adjustments that have been applied to the historical claims include the following:

A. Provider Discount Change – An adjustment was applied to the

historical allowed costs to reflect a shift from the network and corresponding discount levels in calendar year 2012 to those expected in 2014. Claims submitted in 2012 were adjusted, as necessary, to reflect the expected allowed costs that would have been incurred if the 2014 network’s discounts had been applied instead. The total network adjusted claims for the experience period were compared to the unadjusted claims for the experience period to develop the final adjustment to be applied. For Connecticut, this adjustment is equal to 1.096.

B. Large Claim Adjustment – Allowed claim volumes at the state level were adjusted through the use of a $250K large claim pooling point, such that claims in excess of the $250K threshold were first removed and then a pooling charge equal to $14.94 PMPM was added back into the experience. The pooling charge of $14.94 PMPM is equal to the total completed claim volume in excess of the $250K threshold divided by total member months for the experience period. For Connecticut, this adjustment was equal to approximately 1.052.

e) Trend – A trend rate used to project claims from the experience period to the

rating period was developed based on a review of the following two industry reports: Oliver Wyman Carrier Trend Report – January 2013, and S&P Healthcare Economic Indices5. Given the changes that have occurred in the underlying population of Celtic’s individual book of business in recent years, it

5 Deceleration in Annual Growth Rates for All Nine Indices in June 2012 According to the S&P Healthcare Economic Indices. August 16, 2012. S&P Dow Jones Indices


was assumed that industry level studies such as these would be most reliable for developing trend estimates. The Oliver Wyman Carrier Trend Report – January 2013 edition presents the pricing trends used by participating carriers in the development of their rates for January 2013. A total of 5.7 million members with individual health policies are represented by the carriers who participated in this edition of the report. In total, the weighted average reported medical trend being used for PPO products was 8.85%. The weighted prescription drug trend among participating carriers was 8.70%. The S&P Healthcare Economic Indices seek to reflect the monthly rate of change in the principal cost components of the U.S. healthcare market. The indices are designed to estimate the per capita change in total allowed claim costs incurred each month by patients (through their co-payments) and their healthcare benefit programs for services rendered by hospitals and physicians. In reviewing the S&P Healthcare Economic Indices reflecting data through June 20126, the 1 year change in the Commercial Index was 8.09%. We note that this result aligns closely with the results of the Oliver Wyman Carrier Trend Report – January 2013 edition provided above. In addition to considering the results of these reports, it is our expectation that the rules and regulations related to the ACA will have the effect of lowering trends from existing levels over time. However, the magnitude and speed of this potential change is unknown. When considering this assumption in combination with the information provided by the two studies noted above, it was determined that an annual trend rate of 7.0% would be reasonable at this time. The annual trend rate of 7.0% is assumed for all major service categories and represents the combined impact of both cost and utilization changes. Medical technology trend is included in this annual trend assumption as well. Given that this is a new policy form, benefit buy downs were not considered to be impactful in the development of the trend assumption. The impact of cost sharing leveraging on trend is included in the projected paid to allowed ratio described in section 8. The estimated annual impact of cost sharing leveraging due to the assumed 7.0% annual trend for the proposed Bronze plan design is approximately 2.0% per year. Historical experience was then projected from the midpoint of the experience period, 7/1/2012, to the assumed midpoint of the rating period, 7/1/20147, for a total of 24 months. The overall trend adjustment being applied to the 2012 historical claims is 1.144. Below is the completed 2012 Connecticut experience split by utilization and average cost per service for each major service category:

6 Deceleration in Annual Growth Rates for All Nine Indices in June 2012 According to the S&P Healthcare Economic Indices. August 16, 2012. S&P Dow Jones Indices 7 We note that our best estimate assumption regarding the midpoint of the rating period is 7/22/2014, however, per the Connecticut Insurance Department’s request we have revised this assumption to be 7/1/2014.


Experience by Major Service Category

Service Type Utilization Description Util / 1,000 Avg Cost / Svc Gross PMPMInpatient Admits 11.03 15,328.17 14.10 Outpatient Services 4,683.39 308.22 120.29 Professional Services 13,462.87 83.67 93.87 Other Services 1,096.70 165.24 15.10 Prescription Drug Scripts 5,137.66 106.01 45.39

f) Impact of Federal Health Care Reform Bill – Items of the federal health care reform bill which have directly impacted the 2014 claims projection include the following:

A. Guaranteed Issue Underwriting – The impact of this item is included in the morbidity adjustment and pent up demand of newly insured individuals.

B. EHB Benchmark plan design – The impact of this item is included in the adjustments for changes in benefits.

C. Restriction of available rating factors – Geography, age, and family composition are now only used in developing rates for individuals and families.

D. Market Stabilization programs – The impact of the risk transfer and transitional reinsurance programs are described in the actuarial memorandum.

6. Credibility Manual Rate Development

a) Source and Appropriateness of Experience Data Used – Celtic nationwide experience from the experience period of January 1, 2012 through December 31, 2012, with payments through January 31, 2013, was used as the basis for the manual rates which were developed. Since this data was determined to be fully credible with 591,929 member months underlying the experience, and because it represents a population with similar characteristics (e.g. plan designs, morbidity) to the state specific Celtic population, it was determined to be the most appropriate data set to use for developing the manual rate.

b) Description of the Methodology Used to Develop the Credibility Manual Rate–The manual rate was developed, as noted above, based on nationwide historical allowed claim experience from Celtic’s current individual market book of business. This experience was projected forward and adjusted to reflect expected cost and utilization differences, such as for medical inflation and changing morbidity of the underlying population, between the experience period and the rating period. In addition, the nationwide claims costs were adjusted to reflect Connecticut specific expected claim cost and utilization differences, such as for geographic variances and covered benefit levels. Additional adjustments were made including for provider discount differences, changing benefit levels and their impact on utilization, and pent up demand of newly insured individuals.


c) Adjustments Made to the Data – The following adjustments were made to the nationwide experience to reflect appropriate Connecticut specific 2014 cost and utilization levels:

A. Changes in the Morbidity of the Insured Population– As noted in

section 5.a, we have estimated that the morbidity of the membership underlying the individual market in 2014 will be approximately 13.8% higher than that of the large group market. To adjust the nationwide experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market population by state and the membership included in the Truven Health Analytics 2010 MarketScan Commercial database (MarketScan) by state. The MarketScan risk adjustment factors were then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans. Next, the two risk adjustment factors for each state were compared and the difference between the adjustment factor based on Celtic’s population and the adjustment factor based on the MarketScan population was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. The weighted average of the risk adjustment factor differences for each state was then calculated based on the underlying Celtic 2012 membership. This weighted average was increased by an additional 13.8% to reflect the assumption for the expected morbidity between the individual and large group markets in 2014 as noted above. The result of this approach was a morbidity adjustment factor, including the impact of age/gender changes but excluding the impact of pent-up demand, equal to 1.479. However, to reflect the Department’s concern that the originally proposed morbidity adjustment was higher than the nationwide amount generated by the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report sponsored by the SOA, we have changed this assumption to be equal to the 1.315. This value is equal to the projected nationwide morbidity change in the non-group market from Figure S-1 of the SOA sponsored report referenced earlier. We note that, although we are utilizing this adjustment due to the Department’s concern regarding the level of the originally proposed adjustment, the morbidity adjustment provided in the SOA report is reflective of the projected change to the non-group market overall and may not be consistent with the morbidity change which should be expected to occur relative to Celtic’s specific 2012 base period population Next, the impact of the expected shift in the average mix by age and gender, equal to -1.2%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II of the Unified Rate Review Template. Overall, an adjustment equal to 1.331 was applied to the nationwide experience period allowed claims PMPM for this change.


In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA. The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds, and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

B. Changes in benefits – Mandated coverage levels in the state of Connecticut for 2014 relative to the coverage available during the experience period for Celtic individuals is estimated to result in approximately 8.9% higher allowed claims PMPM. This adjustment was developed based on a comparison of the coverage underlying Celtic’s nationwide 2012 population relative to the Connecticut EHB benchmark plan. The most impactful mandated covered services which result in the estimated change of 8.9% to the nationwide claims experience include the following: mental health/substance abuse parity, pediatric dental, outpatient rehabilitation services, habilitation services, and maternity. Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies.

In addition, an induced utilization adjustment factor equal to 0.994 was applied to the nationwide experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated P/A for the experience period of 61.3% to the projected P/A of 58.0% for the rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for services such as maternity will be covered in 2014 but were not covered in most states in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period. This induced utilization adjustment was developed to be consistent the table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.

C. Changes in Demographics – An adjustment equal to approximately

0.988 was applied to reflect the shift between the average mix of the underlying Celtic nationwide population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of


membership by age and gender was first pulled for the nationwide experience. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census8, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 1.056 was applied to reflect the impact of differences in geographic claim costs between Connecticut and Celtic’s nationwide enrollment by geographic region. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs were then adjusted to smooth the impact of any large claims greater than $150K and to normalize for age/gender differences. As a result, the adjusted average claim costs PMPM that were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average provider charges. The nationwide experience expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for Connecticut which was developed using the same approach. The difference between these two values was applied as the geographic adjustment to the nationwide claims cost.

D. Provider Discount Change – An adjustment was applied to the historical nationwide allowed costs to reflect a shift from the blend of various networks and corresponding discount levels in calendar year 2012 to the projected level of provider discounts which will exist in 2014. Claims submitted in 2012 were adjusted, as necessary, to reflect the expected allowed costs that would have been incurred under Celtic’s 2014 network. The adjusted claims for the experience period were compared to the unadjusted claims for the experience period to develop the final adjustment to be applied. For the nationwide data, this adjustment is equal to 1.092.

E. Trend – A description of how the trend assumption was developed is

provided in section 5.e



d) Inclusion of Capitation Payments – Capitation payments were not considered,

given that no capitation payments were made during the experience period nor are any expected to be made during the projected rating period.

7. Credibility of Experience

a) Description of the Credibility Methodology Used – Experience was assumed to be fully credible at 310,000 member months, or approximately 25,800 members. This threshold was determined through the use of Limited Fluctuation Credibility Theory. Using this approach, a claim probability distribution model was first developed based on industry level claim distributions. This claim probability distribution model was then adjusted to reflect the overall Celtic allowed claim cost level from the experience period. Based on the adjusted claim probability distribution and the application of Limited Fluctuation Credibility Theory, it was determined that 310,000 member months of experience would be an appropriate credibility threshold such that the underlying experience would represent expected claims levels within +/–5%, 90% of the time. To determine the credibility of state specific experience when full credibility did not exist, the following formula was applied: (Actual Member Months / 310,000) ^ 0.5. This methodology is consistent with generally accepted actuarial practices currently being used in the industry.

b) Resulting Credibility Level Assigned to Base Period Experience – Based on the described methodology, the resulting credibility assigned to the Connecticut specific experience was 15.3%.

8. Paid To Allowed Ratio – The projected Paid to Allowed ratio was developed by running the

proposed Bronze plan design through Oliver Wyman’s proprietary pricing model, which was adjusted to reflect the projected level of allowed claims per person per year for Celtic’s 2014 Connecticut enrollees. This analysis resulted in a projected Paid to Allowed ratio for the specified plan design of 64.1%. We note that one of the reasons for the significant difference between the calculated AV of 58.1% based on the AV calculator and projected Paid to Allowed ratio of 64.1% is the result of the significant difference between the underlying assumed cost per person per year being utilized between the two models. In the AV calculator, the average allowed cost per person per year is approximately $5,000, whereas the projected average allowed claim cost per person per year for Celtic’s projected Connecticut enrollees in 2014 is approximately $7,145. Due to the impact of leveraging, as claim costs increase, the level of claims over the fixed deductible associated with the proposed plan design becomes greater, and the Paid to Allowed ratio increases significantly.

9. Risk Adjustment and Reinsurance

a) Projected ACA Reinsurance Recoveries Net of Reinsurance Premium – A projected net reinsurance recovery equal to $42.03 PMPM is being assumed in the development of the proposed rates. This assumption was developed by first scaling a representative claim probability distribution to reflect Celtic’s 2014 expected allowed claim levels. Using the scaled claim probability distribution, estimated annual payments were then calculated based on Celtic’s proposed Bronze plan design. Next, the estimated annual payments per member per year


between the thresholds of $60,000 and $250,000 were accumulated and multiplied by 80%, consistent with federal regulation regarding the transitional reinsurance program. This amount was then divided by twelve to convert it to a PMPM basis. Lastly, the temporary reinsurance fee of $5.25 PMPM, which is being assessed across all fully insured carriers for 2014, was subtracted, resulting in a projected net reinsurance recovery of $42.03 PMPM.

b) Projected Risk Transfer Payments – A risk transfer amount equal to $0 PMPM is being projected. The Connecticut Department of Insurance has taken the position that risk adjustments will be set at a value of 1.00 for all carriers.

10. Non–Benefit Expenses and Profit & Risk– Expense assumptions were developed based

on a combination of a review of historical expense levels as well as prospective adjustments to reflect future expectations. Below are the assumptions being applied in the proposed rates:

a) Administrative Expenses – It is being assumed that total administrative expenses in 2014 will be equal to approximately 15.0% of premium. Per the Supplemental Health Care Exhibit (SHCE), Celtic’s 2012 administrative expense ratio, including claims adjustment and sales expense, was equal to 21.9% of premium. While the assumed 2014 administrative expense ratio is lower than the 2012 administrative expense ratio, there were two significant items which were considered in determining that this assumption is reasonable. First, we note that it is expected that a number of Celtic’s current members will terminate their existing coverage and purchase new coverage on the exchange in 2014 to take advantage of premium and cost sharing subsidies. If this does occur, Celtic’s overall membership and corresponding premium volume would decrease, all else being equal, which would result in administrative expenses increasing as a percentage of premium. However, we also note that total premium on a PMPM basis is expected to increase significantly in 2014 relative to 2012. As a result of this change, all else being equal, administrative expenses would be expected to decrease as a percentage of premium. Ultimately, it is being assumed that the impact of a reduction in future membership will be more than offset by the significant increase in premium PMPM, leading to a net decrease to the total administrative expense ratio relative to the level reported in the 2012 SHCE.

b) Premium Tax – It is being assumed that premium tax in 2014 will be equal to 1.75% of premium. This estimate was provided by Celtic’s financial department and reflects the department’s best estimate of total premium taxes in Connecticut for 2014. Per the SHCE, total state premium taxes, licenses, and fees in 2012 for Celtic in Connecticut were approximately 2.3%.

c) Other Taxes, Licenses, and Fees A. ACA Insurer Tax – It is being assumed that the ACA insurer tax in 2014

will be equal to approximately 2.1%. In a study conducted by Oliver Wyman9, it was estimated that the ACA Insurer Tax would be equal to approximately 1.9%-2.3% nationwide in 2014. 2.1% was chosen as the midpoint of this estimate.

B. Comparative Effectiveness Research Fee – An amount equal to $0.17 PMPM is being included in the proposed rates to reflect that a

9 Annual Tax on Insurers Allocated by State. November 2012. Chris Carlson. www.ahip.org/WymanState/


comparative effectiveness research fee equal to $2.00 per policy will be charged in 2014.

C. Risk Adjustment Fee: $0.08 PMPM – An amount equal to $0.08 PMPM is being included in the proposed rates to reflect that a fee for the administration of risk adjustment equal to $1.00 per policy will be charged in 2014.

d) Profit or Contribution to Surplus Margin: An amount equal to 5.0% of premium is being assumed in the proposed rates for pre-tax profit/contribution to surplus.

11. Projected Loss Ratio a) Projected Loss Ratio – The projected loss ratio for 2014, based on dividing

projected incurred claims by earned premium, excluding expected net reinsurance recoveries and risk transfer payments, is equal to 85.5%. If net reinsurance recoveries and risk transfer payments are subtracted from claims, the projected loss ratio is 76.1%.

b) Projected Federal MLR – The ACA minimum loss ratio (MLR) requirement for individual policies is 80.0%. The ACA permits adjustments to the MLR for quality improvement initiatives and specified fees/taxes. After applying the allowed ACA adjustments, the projected federal MLR for this policy being 80.4%. Below is a demonstration of this calculation:

Connecticut MLR CalculationCalculated Paid Claims PMPM $381.43

+ Risk Transfer Payment/Receipt $0.00+ Reinsurance Payment/Receipt ‐$47.28

‐ QI Espense $0.00Total Adjusted Medical Expense $334.15

Calculated Overall Rate PMPM $445.94‐ CER Fee $0.17

‐ Risk Adjustment Fee $0.08‐ Reinsurance Fee $5.25‐ ACA Insurer Fee $9.36

‐ State Premium Tax $7.80‐ Federal Taxes $7.80

Total Adjusted Premium $415.47

Calculated Federal MLR 80.4%

12. Index Rate – The index rate for the projection period is $595.41 PMPM. Please note that this index rate is assumed to represent the allowed claims PMPM for the proposed bronze plan design, for essential health benefits only, and has not been adjusted for payments and charges under the risk adjustment and reinsurance programs, or for Exchange user fees. In addition, we have estimated the index rate for the experience period to be $289.00. This represents the total allowed claim cost PMPM for the experience period.

13. AV Metal Values – The AV Metal Value included in Worksheet 2 of the Part I Unified Rate Review Template was entirely based on the AV Calculator.

Page 16 Celtic Insurance Company 2014 Actuarial Memorandum 14. AV Pricing Values – Given that only one plan design is being proposed, this is the fixed

reference plan being used as the basis for the AV Pricing Values. As such, while the projected paid to allowed ratio for this plan is 64.1%, the cost of providing coverage under this plan relative to itself would be 1.000.

15. Membership Projections – Significant shifts in membership levels in 2014 are expected to

occur as a result of federal subsidies and changes to both plan designs and premiums relative to current levels. Given these changes, it is difficult to anticipate the level of membership which will be enrolled in 2014. For the purposes of completing Worksheet 2 of the Part I Unified Rate Review Template, we have estimated that projected membership in 2014 will be equal to approximately 40% of total 2012 membership, or 2,914 member months.

16. Terminated Products – The following products were included in the experience period and

will be terminated prior to 1/1/2014: CelticCare 1.0, CeltiCare 2.1, CeltiCare 3.0, CeltiCare 3.1, Celtic Basic 2.1, Celtic Basic 2.2, CeltiCare 4.0, CeltiCare 5.0, CeltiCare 5.1, HSA 1.0, HSA 2.0, HSA 2.1, and HSA 3.0.

17. Plan Type – The plan type selected in the drop-down box in Worksheet 2, Section I is

representative of the proposed plan included with this filing. 18. Warning Alerts – There is a warning in Worksheet 2 for Total Allowed Claims (TAC).

However, it appears that the value for TAC in Worksheet 2 is being compared to the sum of allowed claims, reinsurance, and risk adjustment from Worksheet 1. Based on our understanding it is not clear why allowed claims would be defined as allowed claims - reinsurance – risk adjustment, especially given that the projected amounts for reinsurance and risk adjustment are later subtracted from TAC in Worksheet 2.

19. Additional Effective Rate Review Data

a) Claim Lag Triangles – This is a new policy form. As a result, there are no claim lag triangles to provide for policies in association with this form.

20. Data Reliance

In preparing this filing, I have relied on historical company data provided by staff members at Celtic. In addition, I have relied on information provided by staff members of Celtic for estimates regarding retrospective and prospective discount off of billed charge levels as well as completion factors to apply to paid claims. I have reviewed the data for reasonableness; however, I have not audited the data in detail.

21. Actuarial Certification – I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries, and I meet the Academy’s qualifications standards for preparing health rate filings. The projected index rate is in compliance with all applicable State and Federal Statutes and Regulations (45 CFR 156.80(d)(1)), was developed in compliance with the applicable Actuarial Standards of Practice, is reasonable in relation to the benefits provided and the population anticipated to be covered, and is neither excessive nor deficient. To reflect the Connecticut Insurance Department’s requests, we have revised our assumptions to reflect that the midpoint of the rating period will be 7/1/2014 and that the risk transfer amount is equal to $0.00 PMPM. In addition, we have adjusted our morbidity


change assumptions to be equal to the Connecticut and Nationwide estimates provided in the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report released by the SOA, reflecting the Department’s concern regarding the level of the originally proposed assumptions. As a result of these changes, please note that we are no longer applying our best estimate assumptions in developing the proposed rates. Plan level rates were generated using the index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2). In addition, the AV Calculator, with no further adjustments, was used to determine the AV Metal Value for the proposed plan design.

I hereby certify that, to the best of my knowledge and belief, the rate filing submitted herein is in compliance with the applicable laws and regulations of Connecticut, all applicable federal statutes and regulations, and all applicable Actuarial Standards of Practice.

Ryan Schultz, FSA, MAAA

Senior Consultant Oliver Wyman Actuarial Consulting, Inc.

9/16/2013


AgeNon‐Tobacco





User Tobacco User0‐20 $226.69 $294.70 0‐20 $197.27 $256.45 0‐20 $192.30 $249.98 0‐20 $211.36 $274.77 0‐20 $199.13 $258.8721 $357.00 $464.10 21 $310.66 $403.86 21 $302.83 $393.68 21 $332.85 $432.71 21 $313.60 $407.6822 $357.00 $464.10 22 $310.66 $403.86 22 $302.83 $393.68 22 $332.85 $432.71 22 $313.60 $407.6823 $357.00 $464.10 23 $310.66 $403.86 23 $302.83 $393.68 23 $332.85 $432.71 23 $313.60 $407.6824 $357.00 $464.10 24 $310.66 $403.86 24 $302.83 $393.68 24 $332.85 $432.71 24 $313.60 $407.6825 $358.43 $465.95 25 $311.90 $405.47 25 $304.04 $395.25 25 $334.18 $434.44 25 $314.85 $409.3126 $365.57 $475.24 26 $318.12 $413.55 26 $310.10 $403.13 26 $340.84 $443.09 26 $321.12 $417.4627 $374.13 $486.37 27 $325.57 $423.24 27 $317.36 $412.57 27 $348.83 $453.48 27 $328.65 $427.2428 $388.06 $504.47 28 $337.69 $438.99 28 $329.17 $427.93 28 $361.81 $470.35 28 $340.88 $443.1429 $399.48 $519.33 29 $347.63 $451.92 29 $338.87 $440.52 29 $372.46 $484.20 29 $350.92 $456.1930 $405.19 $526.75 30 $352.60 $458.38 30 $343.71 $446.82 30 $377.79 $491.12 30 $355.93 $462.7131 $413.76 $537.89 31 $360.06 $468.07 31 $350.98 $456.27 31 $385.77 $501.51 31 $363.46 $472.5032 $422.33 $549.03 32 $367.51 $477.76 32 $358.25 $465.72 32 $393.76 $511.89 32 $370.99 $482.2833 $427.68 $555.99 33 $372.17 $483.82 33 $362.79 $471.63 33 $398.75 $518.38 33 $375.69 $488.4034 $433.40 $563.41 34 $377.14 $490.28 34 $367.63 $477.92 34 $404.08 $525.30 34 $380.71 $494.9235 $436.25 $567.13 35 $379.63 $493.51 35 $370.06 $481.07 35 $406.74 $528.77 35 $383.22 $498.1836 $439.11 $570.84 36 $382.11 $496.75 36 $372.48 $484.22 36 $409.41 $532.23 36 $385.72 $501.4437 $441.96 $574.55 37 $384.60 $499.98 37 $374.90 $487.37 37 $412.07 $535.69 37 $388.23 $504.7038 $444.82 $578.27 38 $387.08 $503.21 38 $377.32 $490.52 38 $414.73 $539.15 38 $390.74 $507.9639 $450.53 $585.69 39 $392.05 $509.67 39 $382.17 $496.82 39 $420.06 $546.07 39 $395.76 $514.4940 $456.24 $593.12 40 $397.02 $516.13 40 $387.01 $503.12 40 $425.38 $553.00 40 $400.78 $521.0141 $464.81 $604.26 41 $404.48 $525.82 41 $394.28 $512.57 41 $433.37 $563.38 41 $408.30 $530.7942 $473.02 $614.93 42 $411.62 $535.11 42 $401.25 $521.62 42 $441.03 $573.33 42 $415.52 $540.1743 $484.45 $629.78 43 $421.57 $548.04 43 $410.94 $534.22 43 $451.68 $587.18 43 $425.55 $553.2244 $498.73 $648.34 44 $433.99 $564.19 44 $423.05 $549.97 44 $464.99 $604.49 44 $438.10 $569.5245 $515.51 $670.16 45 $448.59 $583.17 45 $437.28 $568.47 45 $480.64 $624.83 45 $452.83 $588.6846 $535.50 $696.15 46 $465.99 $605.79 46 $454.24 $590.52 46 $499.28 $649.06 46 $470.40 $611.5147 $557.99 $725.38 47 $485.56 $631.23 47 $473.32 $615.32 47 $520.24 $676.32 47 $490.15 $637.2048 $583.69 $758.80 48 $507.93 $660.31 48 $495.12 $643.66 48 $544.21 $707.47 48 $512.73 $666.5549 $609.04 $791.75 49 $529.99 $688.98 49 $516.63 $671.61 49 $567.84 $738.20 49 $535.00 $695.5050 $637.60 $828.88 50 $554.84 $721.29 50 $540.85 $703.11 50 $594.47 $772.81 50 $560.08 $728.1151 $665.80 $865.54 51 $579.38 $753.20 51 $564.78 $734.21 51 $620.77 $807.00 51 $584.86 $760.3252 $696.86 $905.92 52 $606.41 $788.33 52 $591.12 $768.46 52 $649.72 $844.64 52 $612.14 $795.7853 $728.28 $946.76 53 $633.75 $823.87 53 $617.77 $803.10 53 $679.01 $882.72 53 $639.74 $831.6654 $762.19 $990.85 54 $663.26 $862.24 54 $646.54 $840.50 54 $710.64 $923.83 54 $669.53 $870.3955 $796.11 $1,034.94 55 $692.77 $900.60 55 $675.31 $877.90 55 $742.26 $964.93 55 $699.32 $909.1256 $832.88 $1,082.74 56 $724.77 $942.20 56 $706.50 $918.45 56 $776.54 $1,009.50 56 $731.62 $951.1157 $870.00 $1,131.01 57 $757.08 $984.20 57 $737.99 $959.39 57 $811.16 $1,054.50 57 $764.24 $993.5158 $909.63 $1,182.52 58 $791.56 $1,029.03 58 $771.61 $1,003.09 58 $848.10 $1,102.53 58 $799.05 $1,038.7659 $929.27 $1,208.05 59 $808.65 $1,051.24 59 $788.26 $1,024.74 59 $866.41 $1,126.33 59 $816.29 $1,061.1860 $968.89 $1,259.56 60 $843.13 $1,096.07 60 $821.88 $1,068.44 60 $903.36 $1,174.36 60 $851.10 $1,106.4361 $1,003.16 $1,304.11 61 $872.96 $1,134.84 61 $850.95 $1,106.23 61 $935.31 $1,215.90 61 $881.21 $1,145.5762 $1,025.66 $1,333.35 62 $892.53 $1,160.28 62 $870.03 $1,131.03 62 $956.28 $1,243.16 62 $900.96 $1,171.2563 $1,053.86 $1,370.02 63 $917.07 $1,192.19 63 $893.95 $1,162.13 63 $982.57 $1,277.35 63 $925.74 $1,203.4664+ $1,070.99 $1,392.29 64+ $931.98 $1,211.57 64+ $908.49 $1,181.03 64+ $998.55 $1,298.12 64+ $940.79 $1,223.03



AgeNon‐Tobacco



User Tobacco User0‐20 $213.85 $278.00 0‐20 $196.65 $255.64 0‐20 $210.12 $273.1521 $336.77 $437.80 21 $309.68 $402.59 21 $330.89 $430.1622 $336.77 $437.80 22 $309.68 $402.59 22 $330.89 $430.1623 $336.77 $437.80 23 $309.68 $402.59 23 $330.89 $430.1624 $336.77 $437.80 24 $309.68 $402.59 24 $330.89 $430.1625 $338.11 $439.55 25 $310.92 $404.20 25 $332.22 $431.8826 $344.85 $448.30 26 $317.11 $412.25 26 $338.83 $440.4827 $352.93 $458.81 27 $324.55 $421.91 27 $346.78 $450.8128 $366.06 $475.88 28 $336.62 $437.61 28 $359.68 $467.5829 $376.84 $489.89 29 $346.53 $450.49 29 $370.27 $481.3530 $382.23 $496.90 30 $351.49 $456.93 30 $375.56 $488.2331 $390.31 $507.41 31 $358.92 $466.60 31 $383.50 $498.5632 $398.39 $517.91 32 $366.35 $476.26 32 $391.45 $508.8833 $403.45 $524.48 33 $371.00 $482.30 33 $396.41 $515.3334 $408.83 $531.48 34 $375.95 $488.74 34 $401.70 $522.2135 $411.53 $534.99 35 $378.43 $491.96 35 $404.35 $525.6636 $414.22 $538.49 36 $380.91 $495.18 36 $407.00 $529.1037 $416.92 $541.99 37 $383.39 $498.40 37 $409.64 $532.5438 $419.61 $545.49 38 $385.86 $501.62 38 $412.29 $535.9839 $425.00 $552.50 39 $390.82 $508.06 39 $417.59 $542.8640 $430.39 $559.50 40 $395.77 $514.50 40 $422.88 $549.7441 $438.47 $570.01 41 $403.20 $524.17 41 $430.82 $560.0742 $446.22 $580.08 42 $410.33 $533.43 42 $438.43 $569.9643 $456.99 $594.09 43 $420.24 $546.31 43 $449.02 $583.7344 $470.46 $611.60 44 $432.62 $562.41 44 $462.26 $600.9345 $486.29 $632.18 45 $447.18 $581.33 45 $477.81 $621.1546 $505.15 $656.69 46 $464.52 $603.88 46 $496.34 $645.2447 $526.37 $684.28 47 $484.03 $629.24 47 $517.18 $672.3448 $550.61 $715.80 48 $506.33 $658.23 48 $541.01 $703.3149 $574.52 $746.88 49 $528.32 $686.81 49 $564.50 $733.8550 $601.46 $781.90 50 $553.09 $719.02 50 $590.97 $768.2751 $628.07 $816.49 51 $577.56 $750.82 51 $617.11 $802.2552 $657.37 $854.58 52 $604.50 $785.85 52 $645.90 $839.6753 $687.00 $893.10 53 $631.75 $821.27 53 $675.02 $877.5354 $719.00 $934.69 54 $661.17 $859.52 54 $706.46 $918.3955 $750.99 $976.28 55 $690.59 $897.77 55 $737.89 $959.2656 $785.68 $1,021.38 56 $722.49 $939.23 56 $771.97 $1,003.5657 $820.70 $1,066.91 57 $754.69 $981.10 57 $806.38 $1,048.3058 $858.08 $1,115.50 58 $789.07 $1,025.79 58 $843.11 $1,096.0559 $876.60 $1,139.58 59 $806.10 $1,047.93 59 $861.31 $1,119.7160 $913.98 $1,188.18 60 $840.47 $1,092.62 60 $898.04 $1,167.4561 $946.31 $1,230.21 61 $870.20 $1,131.27 61 $929.81 $1,208.7562 $967.53 $1,257.79 62 $889.71 $1,156.63 62 $950.65 $1,235.8563 $994.13 $1,292.37 63 $914.18 $1,188.43 63 $976.79 $1,269.8364+ $1,010.30 $1,313.39 64+ $929.04 $1,207.76 64+ $992.68 $1,290.48



Age Curve












2. Proposed Rates






































To adjust the experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market Connecticut population and the Connecticut membership included in the MarketScan. The MarketScan risk adjustment factor was then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans, and the two factors were compared. The difference was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. This adjustment was then increased by an additional 13.8% to reflect the assumption that the morbidity of the individual market will be 13.8% higher than that of the large group market in 2014. We note that the result of this approach was a morbidity adjustment factor, including the impact of age/gender changes but excluding the impact of pent-up demand,



equal to 1.826. However, to reflect the Department’s concern that the originally proposed morbidity adjustment was higher than the amount generated by the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report sponsored by the SOA, we have changed this assumption to be equal to the 1.288. This value is equal to the projected morbidity change in the non-group market in Connecticut from Figure S-1 of the SOA sponsored report referenced earlier. We note that, although we are utilizing this adjustment due to the Department’s concern regarding the level of the originally proposed adjustment, the morbidity adjustment provided in the SOA report is reflective of the projected change to the non-group market overall in Connecticut and may not be consistent with the morbidity change which should be expected to occur relative to Celtic’s specific 2012 base period population Next, the impact of the expected shift in the average mix by age and gender, equal to -2.7%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II of the Unified Rate Review Template. Overall, an adjustment equal to 1.324 was applied to the underlying Connecticut experience period allowed claims PMPM for this change. In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is approximately 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA. The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

b) Changes in benefits – Newly mandated coverage for 2014 relative to the coverage available during the experience period is estimated to increase the expected allowed claims by approximately 6.8%. This adjustment was developed based on a comparison of the coverage underlying Celtic’s 2012 population relative to the Connecticut EHB benchmark plan. The most impactful newly mandated covered services and the estimated cost of each which result in the estimated change of 6.8% include the following: pediatric dental (1.5%), habilitation services (0.5%), and maternity (3.0%), home health care services (0.2%), emergency transportation (0.3%), skilled nursing facility (0.2%), chiropractic care (0.5%), and hearing aids (0.1%). Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies. In addition, an induced utilization adjustment factor equal to 0.993 was applied to the Connecticut specific experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated paid-to-allowed ratio (P/A) for the experience period of 61.5% to the projected P/A of 58.0% for the


rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period, was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for some services will be covered in 2014 but were not covered in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period.




Platinum 1.15

c) Changes in Demographics – An adjustment equal to approximately 0.973 was applied to reflect the shift between the average mix of the underlying population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the experience period. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census4, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 0.972 was applied to reflect the impact of differences in geographic claim costs between the projected 2014 Connecticut enrollment and the actual 2012 Connecticut enrollment. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs PMPM were then adjusted to smooth out the impact of any large claims greater than $150K and to normalize for any age/gender differences. As a result, the adjusted average claim costs PMPM which were calculated reflect differences by geographic region in



provider payment patterns, morbidity (excluding age/gender), and average network discounts. We note that, given that Celtic will be using a broad based network in 2014, we believe it is reasonable to assume that the average discount differences by market as reflected in the MarketScan data will be representative of the average discount differences by market for Celtic in 2014. Next, the projected 2014 Connecticut population by MSA was developed based on the distribution of membership in Connecticut in MarketScan. Given that the MarketScan database is very large, it was assumed that the average membership by MSA represented within MarketScan would be a better estimate of the future membership by MSA than the underlying Celtic insured population would be. The 2012 expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for the projection period, which was based on the weighted average of the projected Celtic 2014 population and expected claim costs by MSA. The difference between these two values was applied as the geographic adjustment.






rating period was developed based on a review of the following two industry reports: Oliver Wyman Carrier Trend Report – January 2013, and S&P Healthcare Economic Indices5. Given the changes that have occurred in the underlying population of Celtic’s individual book of business in recent years, it



was assumed that industry level studies such as these would be most reliable for developing trend estimates. The Oliver Wyman Carrier Trend Report – January 2013 edition presents the pricing trends used by participating carriers in the development of their rates for January 2013. A total of 5.7 million members with individual health policies are represented by the carriers who participated in this edition of the report. In total, the weighted average reported medical trend being used for PPO products was 8.85%. The weighted prescription drug trend among participating carriers was 8.70%. The S&P Healthcare Economic Indices seek to reflect the monthly rate of change in the principal cost components of the U.S. healthcare market. The indices are designed to estimate the per capita change in total allowed claim costs incurred each month by patients (through their co-payments) and their healthcare benefit programs for services rendered by hospitals and physicians. In reviewing the S&P Healthcare Economic Indices reflecting data through June 20126, the 1 year change in the Commercial Index was 8.09%. We note that this result aligns closely with the results of the Oliver Wyman Carrier Trend Report – January 2013 edition provided above. In addition to considering the results of these reports, it is our expectation that the rules and regulations related to the ACA will have the effect of lowering trends from existing levels over time. However, the magnitude and speed of this potential change is unknown. When considering this assumption in combination with the information provided by the two studies noted above, it was determined that an annual trend rate of 7.0% would be reasonable at this time. The annual trend rate of 7.0% is assumed for all major service categories and represents the combined impact of both cost and utilization changes. Medical technology trend is included in this annual trend assumption as well. Given that this is a new policy form, benefit buy downs were not considered to be impactful in the development of the trend assumption. The impact of cost sharing leveraging on trend is included in the projected paid to allowed ratio described in section 8. The estimated annual impact of cost sharing leveraging due to the assumed 7.0% annual trend for the proposed Bronze plan design is approximately 2.0% per year. Historical experience was then projected from the midpoint of the experience period, 7/1/2012, to the assumed midpoint of the rating period, 7/1/20147, for a total of 24 months. The overall trend adjustment being applied to the 2012 historical claims is 1.144. Below is the completed 2012 Connecticut experience split by utilization and average cost per service for each major service category:



Experience by Major Service Category











c) Adjustments Made to the Data – The following adjustments were made to the nationwide experience to reflect appropriate Connecticut specific 2014 cost and utilization levels:


section 5.a, we have estimated that the morbidity of the membership underlying the individual market in 2014 will be approximately 13.8% higher than that of the large group market. To adjust the nationwide experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market population by state and the membership included in the Truven Health Analytics 2010 MarketScan Commercial database (MarketScan) by state. The MarketScan risk adjustment factors were then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans. Next, the two risk adjustment factors for each state were compared and the difference between the adjustment factor based on Celtic’s population and the adjustment factor based on the MarketScan population was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. The weighted average of the risk adjustment factor differences for each state was then calculated based on the underlying Celtic 2012 membership. This weighted average was increased by an additional 13.8% to reflect the assumption for the expected morbidity between the individual and large group markets in 2014 as noted above. The result of this approach was a morbidity adjustment factor, including the impact of age/gender changes but excluding the impact of pent-up demand, equal to 1.479. However, to reflect the Department’s concern that the originally proposed morbidity adjustment was higher than the nationwide amount generated by the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report sponsored by the SOA, we have changed this assumption to be equal to the 1.315. This value is equal to the projected nationwide morbidity change in the non-group market from Figure S-1 of the SOA sponsored report referenced earlier. We note that, although we are utilizing this adjustment due to the Department’s concern regarding the level of the originally proposed adjustment, the morbidity adjustment provided in the SOA report is reflective of the projected change to the non-group market overall and may not be consistent with the morbidity change which should be expected to occur relative to Celtic’s specific 2012 base period population Next, the impact of the expected shift in the average mix by age and gender, equal to -1.2%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II of the Unified Rate Review Template. Overall, an adjustment equal to 1.331 was applied to the nationwide experience period allowed claims PMPM for this change.


In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA. The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds, and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.


In addition, an induced utilization adjustment factor equal to 0.994 was applied to the nationwide experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated P/A for the experience period of 61.3% to the projected P/A of 58.0% for the rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for services such as maternity will be covered in 2014 but were not covered in most states in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period. This induced utilization adjustment was developed to be consistent the table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.


0.988 was applied to reflect the shift between the average mix of the underlying Celtic nationwide population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of


membership by age and gender was first pulled for the nationwide experience. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census8, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 1.056 was applied to reflect the impact of differences in geographic claim costs between Connecticut and Celtic’s nationwide enrollment by geographic region. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs were then adjusted to smooth the impact of any large claims greater than $150K and to normalize for age/gender differences. As a result, the adjusted average claim costs PMPM that were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average provider charges. The nationwide experience expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for Connecticut which was developed using the same approach. The difference between these two values was applied as the geographic adjustment to the nationwide claims cost.






d) Inclusion of Capitation Payments – Capitation payments were not considered,

given that no capitation payments were made during the experience period nor are any expected to be made during the projected rating period.





proposed Bronze plan design through Oliver Wyman’s proprietary pricing model, which was adjusted to reflect the projected level of allowed claims per person per year for Celtic’s 2014 Connecticut enrollees. This analysis resulted in a projected Paid to Allowed ratio for the specified plan design of 64.1%. We note that one of the reasons for the significant difference between the calculated AV of 58.1% based on the AV calculator and projected Paid to Allowed ratio of 64.1% is the result of the significant difference between the underlying assumed cost per person per year being utilized between the two models. In the AV calculator, the average allowed cost per person per year is approximately $5,000, whereas the projected average allowed claim cost per person per year for Celtic’s projected Connecticut enrollees in 2014 is approximately $7,145. Due to the impact of leveraging, as claim costs increase, the level of claims over the fixed deductible associated with the proposed plan design becomes greater, and the Paid to Allowed ratio increases significantly.


a) Projected ACA Reinsurance Recoveries Net of Reinsurance Premium – A projected net reinsurance recovery equal to $42.03 PMPM is being assumed in the development of the proposed rates. This assumption was developed by first scaling a representative claim probability distribution to reflect Celtic’s 2014 expected allowed claim levels. Using the scaled claim probability distribution, estimated annual payments were then calculated based on Celtic’s proposed Bronze plan design. Next, the estimated annual payments per member per year


between the thresholds of $60,000 and $250,000 were accumulated and multiplied by 80%, consistent with federal regulation regarding the transitional reinsurance program. This amount was then divided by twelve to convert it to a PMPM basis. Lastly, the temporary reinsurance fee of $5.25 PMPM, which is being assessed across all fully insured carriers for 2014, was subtracted, resulting in a projected net reinsurance recovery of $42.03 PMPM.




a) Administrative Expenses – It is being assumed that total administrative expenses in 2014 will be equal to approximately 15.0% of premium. Per the Supplemental Health Care Exhibit (SHCE), Celtic’s 2012 administrative expense ratio, including claims adjustment and sales expense, was equal to 21.9% of premium. While the assumed 2014 administrative expense ratio is lower than the 2012 administrative expense ratio, there were two significant items which were considered in determining that this assumption is reasonable. First, we note that it is expected that a number of Celtic’s current members will terminate their existing coverage and purchase new coverage on the exchange in 2014 to take advantage of premium and cost sharing subsidies. If this does occur, Celtic’s overall membership and corresponding premium volume would decrease, all else being equal, which would result in administrative expenses increasing as a percentage of premium. However, we also note that total premium on a PMPM basis is expected to increase significantly in 2014 relative to 2012. As a result of this change, all else being equal, administrative expenses would be expected to decrease as a percentage of premium. Ultimately, it is being assumed that the impact of a reduction in future membership will be more than offset by the significant increase in premium PMPM, leading to a net decrease to the total administrative expense ratio relative to the level reported in the 2012 SHCE.




B. Comparative Effectiveness Research Fee – An amount equal to $0.17 PMPM is being included in the proposed rates to reflect that a



comparative effectiveness research fee equal to $2.00 per policy will be charged in 2014.
















Page 16 Celtic Insurance Company 2014 Actuarial Memorandum 14. AV Pricing Values – Given that only one plan design is being proposed, this is the fixed











20. Data Reliance


21. Actuarial Certification – I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries, and I meet the Academy’s qualifications standards for preparing health rate filings. The projected index rate is in compliance with all applicable State and Federal Statutes and Regulations (45 CFR 156.80(d)(1)), was developed in compliance with the applicable Actuarial Standards of Practice, is reasonable in relation to the benefits provided and the population anticipated to be covered, and is neither excessive nor deficient. To reflect the Connecticut Insurance Department’s requests, we have revised our assumptions to reflect that the midpoint of the rating period will be 7/1/2014 and that the risk transfer amount is equal to $0.00 PMPM. In addition, we have adjusted our morbidity


change assumptions to be equal to the Connecticut and Nationwide estimates provided in the “Cost of the Future Newly Insured under the Affordable Care Act (ACA)” report released by the SOA, reflecting the Department’s concern regarding the level of the originally proposed assumptions. As a result of these changes, please note that we are no longer applying our best estimate assumptions in developing the proposed rates. Plan level rates were generated using the index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2). In addition, the AV Calculator, with no further adjustments, was used to determine the AV Metal Value for the proposed plan design.




9/16/2013

September 3, 2013

Paul Lombardo

Connecticut DOI

Re: Connecticut SERFF Objections

SERFF Tracking No. CELT-129081810

Dear Mr. Lombardo:

Below is the response to the objection received on August 21, 2013, in regards to Celtic Insurance Company’s

ACA Major Medical Form Filing.

1. Provide actuarial support for the tobacco user adjustment.

To calculate a single tobacco factor to apply to adults, we analyzed Celtic’s historical experience for calendar

year 2012 and determined the allowed cost for tobacco users and non-tobacco users at each individual age. We

then grouped this information into 10-year age bands (21-30, 31-40, etc.) for credibility purposes and to

normalize for age in analyzing the underlying morbidity differences between the two groups. A PMPM cost and

corresponding cost relativity was then calculated for both the tobacco users and non-tobacco users within each

10-year age band. The relative costs of the tobacco users to the non-tobacco users were then weighted based

on the projected distribution of smoker membership by age band, which was based on Celtic’s actual nationwide

distribution of primary insured smokers by age in 2012, to determine a uniform tobacco user adjustment factor

to apply to all adult individuals.

A summary of the analysis which was performed is shown below:

2. Provide Connecticut specific experience for past years, as well as, nationwide experience from past years that was

used as the basis for the rate development, include earned premium, incurred claims and membership.

Smoker Smoker

Non-Tobacco Tobacco Relativity Membership1 Distribution

21 30 $169.63 $231.81 1.4 1.4% 14%

31 40 $212.32 $231.40 1.1 2.2% 24%

41 50 $387.79 $479.41 1.2 2.8% 30%

51 60 $510.88 $669.51 1.3 2.5% 27%

61 + $631.04 $1,090.13 1.7 0.5% 6%

1.3

1As a percent of the overall population, including dependents

Tobacco Factor AnalysisAllowed PMPM

Age Range

Overall Relativity

Celtic Insurance Company

Willis Tower 233 South Wacker Drive, Suite 700 Chicago, Illinois 60606-6393 312-332-5401

2

2

The experience used as the basis for the rate development was based on Celtic’s current individual market book

of business for the period of January 1, 2012 through December 31, 2012, with payments through January 31,

2013. The requested information can be found below:

3. Does the nationwide and Connecticut specific experience include grandfathered plans or just non-grandfathered

plans?

The nationwide and Connecticut specific experience includes only non-grandfathered plans.

4. Provide more detail for the morbidity adjustment of 87.7%, include all of the components and their values.

The morbidity adjustment of 1.877 being referred to in this question represents the projected change in the

morbidity of Celtic’s 2012 insured population, excluding age/gender differences, and prior to the application of

the adjustment for pent-up demand. A quantitative summary of the calculation of the morbidity factor found in

the URRT can be found in the table below, with the factor of 1.877 which was referred to in the question above

in row H of the CT column:

In calculating this adjustment, risk adjustment factors were first developed using the HHS risk adjustment model

for both the Celtic 2012 non-group market population and the membership included in the MarketScan

database.

CT Nationwide

Incurred Claims $1,382,373 $123,071,386

Allowed Claims $2,103,490 $185,687,228

Member Months 7,285 591,929

Earned Premium $2,111,218 $131,422,141

Base Period Experience Information

CT Nationwide

A Risk Adjustment Factor - Celtic 0.641 0.756

B Risk Adjustment Factor - MarketScan 1.083 1.048

C MarketScan to Celtic Relativity (B/A) 1.690 1.387

D Large Group Benefit Normalization 1.053 1.067

E Non-Group to Large Group Relativity 1.138 1.138

F Total (C/DxE) 1.826 1.479

G Expected Demographic Change 0.973 0.988

H Total - Remove Demograhpic (F/G) 1.877 1.498

I Pent Up Demand 1.033 1.033

J Final Morbidity Factor (HxI) 1.940 1.548

Morbidity Factor Calculation

3

3

During the course of our analysis we found that part of the difference between the two risk adjustment factors

(MarketScan versus Celtic) when doing this comparison was due to the fact that the large group benefit plans

underlying the MarketScan claims experience covered additional services (e.g. essential health benefits) that

were not covered for Celtic’s non-group 2012 population. For example, maternity services are typically covered

in the large group market but were not covered for Celtic’s 2012 non-group population. Therefore, diagnosis

codes related to covered maternity services would have been included in the underlying MarketScan claims

experience but not in the Celtic non-group experience. As a result, the risk adjustment factor for the MarketScan

population was being calculated to be greater that of the Celtic population, all else being equal. To adjust for

this given that this portion of the risk adjustment factor difference does not reflect true morbidity differences,

and because the cost of additional essential health benefits is later added in a separate step, a downward

adjustment factor representing the estimated increase to the base period Celtic allowed costs to cover all 2014

essential health benefits, excluding pediatric dental coverage, was applied. This factor is shown in the table

above in the row titled “Large Group Benefit Normalization.”

The resulting difference was assumed to be the factor necessary to adjust the underlying Celtic non-group

market morbidity such that it would reflect the morbidity of the large group market, with all benefits being

equal. This adjustment was then increased by an additional 13.8% to reflect the assumption described in

question 5 that, due to the ACA rules and regulations, the morbidity of the non-group market will be 13.8%

higher than that of the large group market in 2014.

Finally, because the difference in risk adjustment factors calculated above includes the morbidity impact due to

differences in the population mix by age and gender, the impact of the expected shift in the average population

mix by age and gender had to be removed so that it could be included in the “Other” adjustment column of

Worksheet 1, Section II of the Federal Unified Rate Review Template. An adjustment was applied to reflect the

shift between the average mix of the underlying population by age and gender for the experience period and the

average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of

membership by age and gender was first pulled for the experience period. Expected claim costs were then

applied to the distribution to develop a weighted average expected claim cost. The claims costs by age and

gender were developed based on data from MarketScan. Next, the anticipated distribution of membership by

age and gender was developed. This anticipated distribution was based on the 2011 US Census1, excluding

individuals covered by government health plans, reflecting that we are expecting the individual market to look

more similarly to the overall population now that medical underwriting will no longer be applied and subsidies

will be available. The same expected claim costs by age and gender, as were applied to the experience period

distribution of membership, were then applied to the anticipated distribution of membership to develop a

weighted average expected claim cost. The calculated expected claim costs for both the experience period and

rating period were then compared, resulting in an adjustment of 0.973 for Connecticut and 0.988 for the manual

rate. The calculation of these factors can be found in the “Demographic Change” tab of the attached excel file.

These adjustments reflect that the average age for Connecticut membership in the base period was

approximately 36.0 years old while the average age for nationwide membership in the base period was

approximately 34.4. The average projected age for 2014 is estimated to be approximately 33.6.


4

4

5. Explain why there needs to be an additional 13.8% adjustment to exactly reflect the large group market, when the

pricing is already adjusting the individual experience to account for the increased morbidity.

The assumed 2014 non-group to large group morbidity relativity factor was calculated to be 1.138. As

demonstrated in question 4, this relativity was utilized in developing our overall morbidity adjustment necessary

to apply to the 2012 Celtic non-group experience to reflect projected 2014 non-group morbidity levels. Please

note that the 13.8% estimate represents the overall expected 2014 non-group market morbidity relative to large

group, and that this estimate was utilized after the Celtic specific population morbidity was first normalized to

that of the large group market. Below is a summary of the calculation that was performed to develop the 13.8%

estimate:

The first step in the morbidity relativity calculation involves calculating the average incurred claims PMPM level

for both the non-group and large group markets. To develop these estimates, total incurred claims and member

months from the 2011 CCIIO MLR Reporting Data2 were pulled. Within the 2011 CCIIO MLR Reporting Data the

“ADJUSTED_INCURRED_CLAIMS” field was utilized for incurred claims while the “MEMBER_MONTHS” field was

pulled to get member months. Non-group was identified based on the “CMM_INDIVIDUAL_TOTAL” field and

large group was identified based on the “CMM_LARGE_GROUP_TOTAL” fields. Only the claims and membership

data for the 50 states and the District of Columbia were pulled (i.e. data for American Samoa, Guam, Northern

Mariana Islands, Puerto Rico, and the United States Virgin Islands was excluded).

The next step in the morbidity relativity calculation was to estimate the allowed claims for each market. In order

to do this, we needed to determine an appropriate actuarial value, or paid-to-allowed ratio, to assume. The

non-group value of 0.600 was based on a Health Affairs article3 in which the estimated nationwide non-group

actuarial value was provided. For large group, we utilized the Truven Health Analytics 2010 MarketScan

Commercial database (MarketScan) 4 information by comparing fully insured nationwide incurred and allowed

costs for medical and Rx combined. This comparison produced a paid-to-allowed ratio of 0.847, which was

subsequently utilized as a proxy for the nationwide fully insured large group market. Please note that the

2 http://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html Public Use File of Submissions of 2011 Medical Loss Ratio Annual

Reporting Data (as of November 26, 2012); MR_Submission_Template_Part1_2.csv 3 http://content.healthaffairs.org/content/31/6/1339.full?keytype=ref&siteid=healthaff&ijkey=rbXCP2itIBXLU#T1

4 The MarketScan Commercial Claims and Encounters Database consists of employer- and health plan-sourced data containing

medical and drug data for several million individuals annually, encompassing employees, their spouses, and dependents who are

covered by employer-sponsored private health insurance.

Non-Group Large Group

A 2011 CCIIO MLR Reporting Data Incurred Claims $24,388,538,576 $179,871,784,176

B 2011 CCIIO MLR Reporting Data Member Months 131,191,599 593,407,379

C 2011 Incurred Claims PMPM (A/B) $185.90 $303.12

D Assumed Actuarial Value 0.600 0.847

E 2011 Allowed Claims PMPM (C/D) $309.83 $357.87

F 2014 Morbidity Adjustment 1.315 1.000

G Morbidity Adjusted 2014 Allowed Claims PMPM (E*F) $407.43 $357.87

E Relativity to Large Group 1.138 1.000

Morbidity Relativity Calculation

5

5

resulting allowed claim cost amounts following the application of this step were $309.83 for non-group and

$357.87 for large group. Given that individuals were underwritten in the non-group market in 2011, this

resulting morbidity relativity where non-group is less than large group is consistent with our expectations.

The third step in the morbidity relativity calculation was to estimate the projected increase in the morbidity of

the non-group market due to the new underwriting and rating regulations related to the ACA. For this

adjustment, we relied on a recently released report prepared by OptumInsight and sponsored by the Society of

Actuaries (SOA) entitled “Cost of the Future Newly Insured under the Affordable Care Act (ACA) 5.” The SOA’s

stated objective associated with this report was to provide guidance to actuaries and other parties assisting

states and health plans in preparing for reforms under the ACA. This study estimated that the non-group cost

associated with morbidity will increase nationwide by approximately 31.5% compared to pre-ACA levels. For

large group, we have assumed that the average morbidity of the market would not change in 2014 relative to

current levels and believe that this is a reasonable assumption given the lack of significant changes occurring in

the large group market due to the ACA.

Based on the assumptions described above, it is being estimated that the morbidity of the membership enrolled

in the non-group market in 2014 will be approximately 13.8% higher than that of the large group market. In

general, we find this result to be reasonable. Below are two reasons which describe why this is the case:

While medical underwriting will no longer exist in the non-group market, employment in itself has long

been considered to be a form of underwriting, wherein it would be expected that a population made up

of 100% of employed individuals would be expected to have lower claim costs on average than a

population where less than 100% of the individuals were employed.

Due to the nature of individual selection in the non-group market, where an individual can purchase a

plan or set of benefits which best fits their personal medical needs (including not purchasing coverage),

it can reasonably be expected that average claim costs PMPM in the non-group market will be greater

than those which exist in the large group market.

6. Provide the actual unit cost and utilization (based on Celtic experience) by benefit category for 2010, 2011 and

2012, on an allowed basis, so the Department can compare to the 7% annual trend assumed in the rate filing.

5 Cost of the Future Newly Insured under the Affordable Care Act (ACA). March 2013. Society of Actuaries. http://cdn-

files.soa.org/web/research-cost-aca-report.pdf

6

6

7. Please change the midpoint of the rating period to 7/1/2014.

The midpoint of the rating period has been changed to 7/1/2014 per the Department’s request, resulting in a

reduction to the index rate of approximately 0.4%.

8. Connecticut law requires mental health and substance abuse, including mental health parity. Please explain why

there is an adjustment for this benefit in order to comply with the essential health benefits.

We have removed the substance abuse adjustment of 0.6% which was being applied to the Connecticut specific

experience from the rate calculation. We note that the Connecticut specific experience has been assigned a

credibility factor of only 15.3%. As a result, removing the 0.6% adjustment for substance abuse decreased the

index rate by less than 0.1% (i.e. 0.6% x 15.3%).

In adjusting the Manual Rate, it is important to note that an adjustment is necessary to reflect coverage for both

mental health and substance abuse parity. This is because this adjustment is being applied to Celtic’s nationwide

experience in which a large percentage of the underlying states do not already require coverage of mental

health and substance abuse parity prior to 2014.

9. The Department has taken the position that risk adjustments will be set at a value of 1.00 for all carriers as there

currently is no way of knowing which carriers will have better or worst risk in 2014 when compared to all other

carriers in the CT individual market. Please remove the risk adjustment from the pricing.

Category Year Paid Eligible Claim Count MemberMonths

Inpatient 2010 14,854,845 18,454,615 14,346 369,201

Inpatient 2011 21,832,200 37,335,549 20,246 444,543

Inpatient 2012 33,938,334 50,187,939 29,986 580,771

Outpatient 2010 13,453,094 23,339,013 52,037 369,201

Outpatient 2011 21,565,006 44,253,066 84,212 444,543

Outpatient 2012 39,204,735 73,234,606 126,027 580,771

Physician 2010 8,904,653 16,297,791 158,775 369,201

Physician 2011 13,293,745 28,271,838 219,495 444,543

Physician 2012 20,468,460 42,912,096 354,901 580,771

Lab 2010 849,870 2,447,309 92,306 369,201

Lab 2011 1,839,813 5,115,536 130,858 444,543

Lab 2012 2,650,765 7,050,093 215,976 580,771

Radiology 2010 1,650,128 3,123,650 22,588 369,201

Radiology 2011 2,010,215 4,990,800 28,524 444,543

Radiology 2012 3,930,276 8,360,037 45,554 580,771

Pharmacy 2010 4,380,176 6,977,056 109,722 369,201

Pharmacy 2011 6,068,895 9,932,750 158,066 444,543

Pharmacy 2012 15,678,144 24,738,855 309,825 580,771

Other 2010 1,034,507 1,830,494 16,532 369,201

Other 2011 1,366,903 2,959,327 20,229 444,543

Other 2012 3,199,777 6,118,050 39,649 580,771

7

7

The risk adjustment factor has been set to 1.0 in the pricing.

As a result of this adjustment, the adjustment made to the midpoint of the rating period per item 7, and the

substance abuse adjustment removal per item 8, net rates increased by approximately 1.9%. The necessary rate

filing documents have been updated to reflect these changes.

10. The Unified RRT spreadsheet is not readable, please re-submit.

The Unified RRT has been updated to reflect the changes outlined in items 7, 8, and 9 and has been re-

submitted as an excel file.

Should you have any questions, do not hesitate to contact our office.

Very Truly Yours,

Michelle C. Fitzpatrick

Michelle C. Fitzpatrick

1

According to the report, "Cost of the Future Newly Insured under the Affordable Care Act (ACA)" sponsored by the Society of Actuaries, the increase in morbidity and/or cost of the newly insured individuals in the Connecticut individual market relative to the morbidity and/or cost of the current commercially insured population in the Connecticut individual market is estimated at 28.8% and 31.5% on a nationwide basis. As Celtic is using individual experience from Connecticut and nationwide as a basis for the development of the index rate the Department would expect to see a morbidity adjustment closer to the range of 28.8% to 31.5% with an additional 3.3% allowed for pent-up demand. Please revise the morbidity adjustment to better reflect what has been estimated by the Society of Actuaries in the aforementioned study. In reviewing other carriers filings in the Connecticut individual market for a 1/1/14 effective date, morbidity adjustments have not exceeded the amounts generated by the SOA report.

The rates which had been proposed were developed based on our best estimate assumptions for each of the adjustments to the Celtic specific 2012 base experience which have been described in the actuarial memorandum and in response to earlier questions. We believe the assumptions which were applied are reasonable and, to the extent that the originally proposed morbidity adjustments were significantly higher than those of other carriers in the market, that the difference is reflective of actual differences in the morbidity between Celtic’s underlying 2012 enrolled population compared to the underlying populations of other carriers. We note that the SOA sponsored report referenced in the objection above is not intended to be reflective of the estimated 2014 morbidity change for each individual carrier, but rather the projected morbidity change of the non-group market in total. As a result, if some carriers’ morbidity adjustments were below the projected adjustment in the SOA report, it would be expected that other carriers’ morbidity adjustments would be above that level. Nevertheless, we understand that there is a significant range of potential scenarios which could occur in 2014 with respect to assumptions such as morbidity. To reflect the Department’s concern that the morbidity adjustments which were originally applied are higher than the amounts generated by the SOA report, we are providing a revised rate filing in which the Connecticut specific and Nationwide morbidity adjustments have been set equal to the projected estimates from Figure S-1 of the SOA report (i.e. 28.8% and 31.5%, respectively), resulting in revised rates that are approximately 17% below those that were originally proposed.

Please note that the overall change of 17% is a result of adjusting the Connecticut specific and nationwide morbidity factors, as well as the projected paid-to-allowed ratio and transitional reinsurance values since those two assumptions are dependent on the level of projected allowed claims. We have provided a revised actuarial memorandum, exhibits A-B, and Part I Unified Rate Review Template (URRT) which reflect these changes.

In addition, below we have provided the calculation of the revised morbidity factor being used in the updated URRT. Please note that the morbidity adjustments from the SOA sponsored report are shown in row A of the table below and that the morbidity change factor utilized in the URRT also includes the removal of expected demographic changes as well as the inclusion of the impact of pent up demand.

CT NationwideA 2014 SOA Study Morbidity Adjustment 1.288 1.315B Expected Demograhpic Change 0.973 0.988C Total - Remove Demograhpic (A/B) 1.324 1.331D Pent Up Demand 1.033 1.033E Final Morbidity Factor (CxD) 1.368 1.376

Part I URRT Morbidity Factor Calculation

Superseded Schedule Items Please note that all items on the following pages are items, which have been replaced by a newer version. The newest version is located with the appropriate scheduleon previous pages. These items are in date order with most recent first.

Creation Date

Schedule Item

Status Schedule Schedule Item Name

Replacement

Creation Date Attached Document(s)

09/04/2013 Supporting

Document

Actuarial Memorandum 09/17/2013 CT - Part III - Act Memo - Celtic

20130904.pdf (Superceded)

CT - Act Memo - Exhibits A - B


CT - Act Memo - Exhibits A - B

20130904.xlsx (Superceded)


Document

Unified Rate Review Template 09/17/2013 CT-

UnifiedRateReviewSubmission_201

3090414610.xml (Superceded)


(Superceded)

06/19/2013 Rate Rates 09/17/2013 CT - Act Memo - Exhibits A - B.pdf

(Superceded)


Document

Actuarial Memorandum 09/04/2013


Document

Actuarial Memorandum and Certifications 09/17/2013 CT - Part III - Act Memo - Celtic



Document

Unified Rate Review Template 09/04/2013 CT - Unified RRT.xlsm (Superceded)








Attachment CT-UnifiedRateReviewSubmission_2013090414610.xml is not a PDF document and cannotbe reproduced here.

Attachment CT - Unified RRT 20130904.xlsx is not a PDF document and cannot be reproduced here.

Attachment CT - Unified RRT.xlsm is not a PDF document and cannot be reproduced here.

















2. Proposed Rates






































To adjust the experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market Connecticut population and the Connecticut membership included in the MarketScan. The MarketScan risk adjustment factor was then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans, and the two factors were compared. The difference was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. This adjustment was then increased by an additional 13.8% to reflect the assumption that the morbidity of the individual market will be 13.8% higher than that of the large group market in 2014. Finally, the impact of the expected shift in the average mix by age and gender, equal to -2.7%, was removed from the adjustment so that it could be included with the



demographic changes in the “Other” adjustment column of Worksheet 1, Section II. Overall, an adjustment equal to 1.877 was applied to the underlying Connecticut experience period allowed claims PMPM for this change. In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is approximately 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA named: “SOA Study: Cost of the Future Newly Insured under the Affordable Care Act (ACA).” The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

b) Changes in benefits – Newly mandated coverage for 2014 relative to the coverage available during the experience period is estimated to increase the expected allowed claims by approximately 6.8%. This adjustment was developed based on a comparison of the coverage underlying Celtic’s 2012 population relative to the Connecticut EHB benchmark plan. The most impactful newly mandated covered services and the estimated cost of each which result in the estimated change of 6.8% include the following: pediatric dental (1.5%), habilitation services (0.5%), and maternity (3.0%), home health care services (0.2%), emergency transportation (0.3%), skilled nursing facility (0.2%), chiropractic care (0.5%), and hearing aids (0.1%). Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies. In addition, an induced utilization adjustment factor equal to 0.993 was applied to the Connecticut specific experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated paid-to-allowed ratio (P/A) for the experience period of 61.5% to the projected P/A of 58.0% for the rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period, was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for some services will be covered in 2014 but were not covered in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period.





Platinum 1.15

c) Changes in Demographics – An adjustment equal to approximately 0.973 was applied to reflect the shift between the average mix of the underlying population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the experience period. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census4, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 0.972 was applied to reflect the impact of differences in geographic claim costs between the projected 2014 Connecticut enrollment and the actual 2012 Connecticut enrollment. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs PMPM were then adjusted to smooth out the impact of any large claims greater than $150K and to normalize for any age/gender differences. As a result, the adjusted average claim costs PMPM which were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average network discounts. We note that, given that Celtic will be using a broad based network in 2014, we believe it is reasonable to assume that the average discount differences by market as reflected in the MarketScan data will be representative of the average discount differences by market for Celtic in 2014. Next, the projected 2014 Connecticut population by MSA was developed based on the distribution of membership in Connecticut in MarketScan. Given that the MarketScan database is very large, it was assumed that the average membership by MSA represented within MarketScan would be a better estimate of the future membership by MSA than the underlying Celtic insured population would be. The 2012 expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was



compared to the expected claim cost for the projection period, which was based on the weighted average of the projected Celtic 2014 population and expected claim costs by MSA. The difference between these two values was applied as the geographic adjustment.






rating period was developed based on a review of the following two industry reports: Oliver Wyman Carrier Trend Report – January 2013, and S&P Healthcare Economic Indices5. Given the changes that have occurred in the underlying population of Celtic’s individual book of business in recent years, it was assumed that industry level studies such as these would be most reliable for developing trend estimates. The Oliver Wyman Carrier Trend Report – January 2013 edition presents the pricing trends used by participating carriers in the development of their rates for January 2013. A total of 5.7 million members with individual health policies are represented by the carriers who participated in this edition of the report. In total, the weighted average reported medical trend being used for PPO products was 8.85%. The weighted prescription drug trend among participating carriers was 8.70%. The S&P Healthcare Economic Indices seek to reflect the monthly rate of change in the principal cost components of the U.S. healthcare market. The indices are



designed to estimate the per capita change in total allowed claim costs incurred each month by patients (through their co-payments) and their healthcare benefit programs for services rendered by hospitals and physicians. In reviewing the S&P Healthcare Economic Indices reflecting data through June 20126, the 1 year change in the Commercial Index was 8.09%. We note that this result aligns closely with the results of the Oliver Wyman Carrier Trend Report – January 2013 edition provided above. In addition to considering the results of these reports, it is our expectation that the rules and regulations related to the ACA will have the effect of lowering trends from existing levels over time. However, the magnitude and speed of this potential change is unknown. When considering this assumption in combination with the information provided by the two studies noted above, it was determined that an annual trend rate of 7.0% would be reasonable at this time. The annual trend rate of 7.0% is assumed for all major service categories and represents the combined impact of both cost and utilization changes. Medical technology trend is included in this annual trend assumption as well. Given that this is a new policy form, benefit buy downs were not considered to be impactful in the development of the trend assumption. The impact of cost sharing leveraging on trend is included in the projected paid to allowed ratio described in section 8. The estimated annual impact of cost sharing leveraging due to the assumed 7.0% annual trend for the proposed Bronze plan design is approximately 2.0% per year. Historical experience was then projected from the midpoint of the experience period, 7/1/2012, to the assumed midpoint of the rating period, 7/1/20147, for a total of 24 months. The overall trend adjustment being applied to the 2012 historical claims is 1.144. Below is the completed 2012 Connecticut experience split by utilization and average cost per service for each major service category: Experience by Major Service Category












c) Adjustments Made to the Data – The following adjustments were made to the

nationwide experience to reflect appropriate Connecticut specific 2014 cost and utilization levels:


section 5.a, we have estimated that the morbidity of the membership underlying the individual market in 2014 will be approximately 13.8% higher than that of the large group market. To adjust the nationwide experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market population by state and the membership included in the Truven Health Analytics 2010 MarketScan Commercial database (MarketScan) by state. The MarketScan risk adjustment factors were then adjusted to normalize for the difference due to the large group plans covering more services than the non-group


plans. Next, the two risk adjustment factors for each state were compared and the difference between the adjustment factor based on Celtic’s population and the adjustment factor based on the MarketScan population was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. The weighted average of the risk adjustment factor differences for each state was then calculated based on the underlying Celtic 2012 membership. This weighted average was increased by an additional 13.8% to reflect the assumption for the expected morbidity between the individual and large group markets in 2014 as noted above. Finally, the impact of the expected shift in the average mix by age and gender, equal to -1.2%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II. Overall, an adjustment equal to 1.498 was applied to the nationwide experience period allowed claims PMPM for this change.

In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA named: “SOA Study: Cost of the Future Newly Insured under the Affordable Care Act (ACA).” The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds, and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.


In addition, an induced utilization adjustment factor equal to 0.994 was applied to the nationwide experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated P/A for the experience period of 61.3% to the projected P/A of 58.0% for the


rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for services such as maternity will be covered in 2014 but were not covered in most states in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period. This induced utilization adjustment was developed to be consistent the table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.


0.988 was applied to reflect the shift between the average mix of the underlying Celtic nationwide population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the nationwide experience. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census8, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 1.056 was applied to reflect the impact of differences in geographic claim costs between Connecticut and Celtic’s nationwide enrollment by geographic region. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs were then adjusted to smooth the impact of any large claims greater than $150K and to normalize for age/gender differences. As a result, the adjusted average claim costs PMPM that were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average provider charges. The nationwide experience expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the



expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for Connecticut which was developed using the same approach. The difference between these two values was applied as the geographic adjustment to the nationwide claims cost.




d) Inclusion of Capitation Payments – Capitation payments were not considered, given that no capitation payments were made during the experience period nor are any expected to be made during the projected rating period.





proposed Bronze plan design through Oliver Wyman’s proprietary pricing model, which was adjusted to reflect the projected level of allowed claims per person per year for Celtic’s 2014 Connecticut enrollees. This analysis resulted in a projected Paid to Allowed ratio for the specified plan design of 66.5%.


We note that one of the reasons for the significant difference between the calculated AV of 58.1% based on the AV calculator and projected Paid to Allowed ratio of 66.5% is the result of the significant difference between the underlying assumed cost per person per year being utilized between the two models. In the AV calculator, the average allowed cost per person per year is approximately $5,000, whereas the projected average allowed claim cost per person per year for Celtic’s projected Connecticut enrollees in 2014 is approximately $8,358. Due to the impact of leveraging, as claim costs increase, the level of claims over the fixed deductible associated with the proposed plan design becomes greater, and the Paid to Allowed ratio increases significantly.


a) Projected ACA Reinsurance Recoveries Net of Reinsurance Premium – A projected net reinsurance recovery equal to $51.83 PMPM is being assumed in the development of the proposed rates. This assumption was developed by first scaling a representative claim probability distribution to reflect Celtic’s 2014 expected allowed claim levels. Using the scaled claim probability distribution, estimated annual payments were then calculated based on Celtic’s proposed Bronze plan design. Next, the estimated annual payments per member per year between the thresholds of $60,000 and $250,000 were accumulated and multiplied by 80%, consistent with federal regulation regarding the transitional reinsurance program. This amount was then divided by twelve to convert it to a PMPM basis. Lastly, the temporary reinsurance fee of $5.25 PMPM, which is being assessed across all fully insured carriers for 2014, was subtracted, resulting in a projected net reinsurance recovery of $51.83 PMPM.




a) Administrative Expenses – It is being assumed that total administrative expenses in 2014 will be equal to approximately 15.0% of premium. Per the Supplemental Health Care Exhibit (SHCE), Celtic’s 2012 administrative expense ratio, including claims adjustment and sales expense, was equal to 21.9% of premium. While the assumed 2014 administrative expense ratio is lower than the 2012 administrative expense ratio, there were two significant items which were considered in determining that this assumption is reasonable. First, we note that it is expected that a number of Celtic’s current members will terminate their existing coverage and purchase new coverage on the exchange in 2014 to take advantage of premium and cost sharing subsidies. If this does occur, Celtic’s overall membership and corresponding premium volume would decrease, all else being equal, which would result in administrative expenses increasing as a percentage of premium. However, we also note that total premium on a PMPM basis is expected to increase significantly in 2014 relative to 2012. As a result of this change, all else being equal, administrative expenses would be expected to


decrease as a percentage of premium. Ultimately, it is being assumed that the impact of a reduction in future membership will be more than offset by the significant increase in premium PMPM, leading to a net decrease to the total administrative expense ratio relative to the level reported in the 2012 SHCE.




B. Comparative Effectiveness Research Fee – An amount equal to $0.17 PMPM is being included in the proposed rates to reflect that a comparative effectiveness research fee equal to $2.00 per policy will be charged in 2014.


















14. AV Pricing Values – Given that only one plan design is being proposed, this is the fixed







representative of the proposed plan included with this filing.

Page 16 Celtic Insurance Company 2014 Actuarial Memorandum 18. Warning Alerts – There is a warning in Worksheet 2 for Total Allowed Claims (TAC).




20. Data Reliance


21. Actuarial Certification – I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries, and I meet the Academy’s qualifications standards for preparing health rate filings. The projected index rate is in compliance with all applicable State and Federal Statutes and Regulations (45 CFR 156.80(d)(1)), was developed in compliance with the applicable Actuarial Standards of Practice, is reasonable in relation to the benefits provided and the population anticipated to be covered, and is neither excessive nor deficient. To reflect the Connecticut Insurance Department’s requests, we have revised our assumptions to reflect that the midpoint of the rating period will be 7/1/2014 and that the risk transfer amount is equal to $0.00 PMPM. As a result, please note that we are no longer applying our best estimate assumptions in developing the proposed rates. Plan level rates were generated using the index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2). In addition, the AV Calculator, with no further adjustments, was used to determine the AV Metal Value for the proposed plan design.




9/4/2013


AgeNon‐Tobacco





User Tobacco User0‐20 $273.26 $355.24 0‐20 $237.79 $309.13 0‐20 $231.80 $301.33 0‐20 $254.77 $331.21 0‐20 $240.04 $312.0521 $430.33 $559.43 21 $374.47 $486.81 21 $365.03 $474.54 21 $401.22 $521.59 21 $378.01 $491.4222 $430.33 $559.43 22 $374.47 $486.81 22 $365.03 $474.54 22 $401.22 $521.59 22 $378.01 $491.4223 $430.33 $559.43 23 $374.47 $486.81 23 $365.03 $474.54 23 $401.22 $521.59 23 $378.01 $491.4224 $430.33 $559.43 24 $374.47 $486.81 24 $365.03 $474.54 24 $401.22 $521.59 24 $378.01 $491.4225 $432.05 $561.66 25 $375.97 $488.76 25 $366.49 $476.44 25 $402.83 $523.67 25 $379.52 $493.3826 $440.66 $572.85 26 $383.46 $498.50 26 $373.79 $485.93 26 $410.85 $534.10 26 $387.08 $503.2127 $450.98 $586.28 27 $392.45 $510.18 27 $382.55 $497.32 27 $420.48 $546.62 27 $396.16 $515.0028 $467.77 $608.10 28 $407.05 $529.17 28 $396.79 $515.83 28 $436.13 $566.96 28 $410.90 $534.1729 $481.54 $626.00 29 $419.03 $544.75 29 $408.47 $531.01 29 $448.97 $583.66 29 $423.00 $549.8930 $488.42 $634.95 30 $425.03 $552.53 30 $414.31 $538.60 30 $455.39 $592.00 30 $429.04 $557.7631 $498.75 $648.38 31 $434.01 $564.22 31 $423.07 $549.99 31 $465.01 $604.52 31 $438.12 $569.5532 $509.08 $661.80 32 $443.00 $575.90 32 $431.83 $561.38 32 $474.64 $617.04 32 $447.19 $581.3533 $515.53 $670.19 33 $448.62 $583.20 33 $437.31 $568.50 33 $480.66 $624.86 33 $452.86 $588.7234 $522.42 $679.14 34 $454.61 $590.99 34 $443.15 $576.09 34 $487.08 $633.21 34 $458.91 $596.5835 $525.86 $683.62 35 $457.61 $594.89 35 $446.07 $579.89 35 $490.29 $637.38 35 $461.93 $600.5136 $529.30 $688.10 36 $460.60 $598.78 36 $448.99 $583.69 36 $493.50 $641.55 36 $464.96 $604.4437 $532.75 $692.57 37 $463.60 $602.68 37 $451.91 $587.48 37 $496.71 $645.72 37 $467.98 $608.3738 $536.19 $697.05 38 $466.59 $606.57 38 $454.83 $591.28 38 $499.92 $649.90 38 $471.00 $612.3039 $543.07 $706.00 39 $472.58 $614.36 39 $460.67 $598.87 39 $506.34 $658.24 39 $477.05 $620.1740 $549.96 $714.95 40 $478.58 $622.15 40 $466.51 $606.46 40 $512.76 $666.59 40 $483.10 $628.0341 $560.29 $728.37 41 $487.56 $633.83 41 $475.27 $617.85 41 $522.39 $679.11 41 $492.17 $639.8242 $570.19 $741.24 42 $496.18 $645.03 42 $483.67 $628.77 42 $531.62 $691.10 42 $500.87 $651.1343 $583.96 $759.14 43 $508.16 $660.61 43 $495.35 $643.95 43 $544.46 $707.79 43 $512.96 $666.8544 $601.17 $781.52 44 $523.14 $680.08 44 $509.95 $662.93 44 $560.50 $728.66 44 $528.08 $686.5145 $621.39 $807.81 45 $540.74 $702.96 45 $527.11 $685.24 45 $579.36 $753.17 45 $545.85 $709.6146 $645.49 $839.14 46 $561.71 $730.22 46 $547.55 $711.81 46 $601.83 $782.38 46 $567.02 $737.1247 $672.60 $874.38 47 $585.30 $760.89 47 $570.54 $741.71 47 $627.11 $815.24 47 $590.83 $768.0848 $703.59 $914.66 48 $612.26 $795.94 48 $596.83 $775.88 48 $656.00 $852.79 48 $618.05 $803.4749 $734.14 $954.38 49 $638.85 $830.50 49 $622.74 $809.57 49 $684.48 $889.83 49 $644.89 $838.3650 $768.57 $999.14 50 $668.81 $869.45 50 $651.95 $847.53 50 $716.58 $931.55 50 $675.13 $877.6751 $802.56 $1,043.33 51 $698.39 $907.91 51 $680.78 $885.02 51 $748.28 $972.76 51 $704.99 $916.4952 $840.00 $1,092.00 52 $730.97 $950.26 52 $712.54 $926.31 52 $783.18 $1,018.14 52 $737.88 $959.2453 $877.87 $1,141.23 53 $763.92 $993.10 53 $744.67 $968.06 53 $818.49 $1,064.04 53 $771.15 $1,002.4954 $918.75 $1,194.38 54 $799.50 $1,039.35 54 $779.34 $1,013.15 54 $856.61 $1,113.59 54 $807.06 $1,049.1755 $959.63 $1,247.52 55 $835.07 $1,085.60 55 $814.02 $1,058.23 55 $894.72 $1,163.14 55 $842.97 $1,095.8656 $1,003.96 $1,305.14 56 $873.64 $1,135.74 56 $851.62 $1,107.11 56 $936.05 $1,216.86 56 $881.90 $1,146.4757 $1,048.71 $1,363.32 57 $912.59 $1,186.37 57 $889.58 $1,156.46 57 $977.77 $1,271.11 57 $921.22 $1,197.5858 $1,096.48 $1,425.42 58 $954.16 $1,240.40 58 $930.10 $1,209.13 58 $1,022.31 $1,329.00 58 $963.18 $1,252.1359 $1,120.15 $1,456.19 59 $974.75 $1,267.18 59 $950.18 $1,235.23 59 $1,044.38 $1,357.69 59 $983.97 $1,279.1660 $1,167.91 $1,518.29 60 $1,016.32 $1,321.21 60 $990.70 $1,287.91 60 $1,088.91 $1,415.59 60 $1,025.93 $1,333.7061 $1,209.22 $1,571.99 61 $1,052.27 $1,367.95 61 $1,025.74 $1,333.46 61 $1,127.43 $1,465.66 61 $1,062.22 $1,380.8862 $1,236.33 $1,607.23 62 $1,075.86 $1,398.62 62 $1,048.74 $1,363.36 62 $1,152.71 $1,498.52 62 $1,086.03 $1,411.8463 $1,270.33 $1,651.43 63 $1,105.44 $1,437.08 63 $1,077.57 $1,400.85 63 $1,184.40 $1,539.72 63 $1,115.89 $1,450.6664+ $1,290.99 $1,678.28 64+ $1,123.42 $1,460.44 64+ $1,095.10 $1,423.62 64+ $1,203.66 $1,564.76 64+ $1,134.04 $1,474.25



AgeNon‐Tobacco



User Tobacco User0‐20 $257.77 $335.10 0‐20 $237.04 $308.15 0‐20 $253.28 $329.2621 $405.94 $527.72 21 $373.29 $485.28 21 $398.86 $518.5222 $405.94 $527.72 22 $373.29 $485.28 22 $398.86 $518.5223 $405.94 $527.72 23 $373.29 $485.28 23 $398.86 $518.5224 $405.94 $527.72 24 $373.29 $485.28 24 $398.86 $518.5225 $407.56 $529.83 25 $374.79 $487.22 25 $400.46 $520.5926 $415.68 $540.39 26 $382.25 $496.93 26 $408.43 $530.9627 $425.43 $553.05 27 $391.21 $508.57 27 $418.01 $543.4128 $441.26 $573.63 28 $405.77 $527.50 28 $433.56 $563.6329 $454.25 $590.52 29 $417.71 $543.03 29 $446.32 $580.2230 $460.74 $598.97 30 $423.69 $550.79 30 $452.71 $588.5231 $470.49 $611.63 31 $432.65 $562.44 31 $462.28 $600.9632 $480.23 $624.30 32 $441.60 $574.09 32 $471.85 $613.4133 $486.32 $632.21 33 $447.20 $581.37 33 $477.83 $621.1934 $492.81 $640.66 34 $453.18 $589.13 34 $484.22 $629.4835 $496.06 $644.88 35 $456.16 $593.01 35 $487.41 $633.6336 $499.31 $649.10 36 $459.15 $596.89 36 $490.60 $637.7837 $502.55 $653.32 37 $462.14 $600.78 37 $493.79 $641.9338 $505.80 $657.54 38 $465.12 $604.66 38 $496.98 $646.0739 $512.30 $665.99 39 $471.09 $612.42 39 $503.36 $654.3740 $518.79 $674.43 40 $477.07 $620.19 40 $509.74 $662.6741 $528.53 $687.10 41 $486.03 $631.83 41 $519.32 $675.1142 $537.87 $699.23 42 $494.61 $643.00 42 $528.49 $687.0443 $550.86 $716.12 43 $506.56 $658.53 43 $541.25 $703.6344 $567.10 $737.23 44 $521.49 $677.94 44 $557.21 $724.3745 $586.18 $762.03 45 $539.03 $700.74 45 $575.95 $748.7446 $608.91 $791.58 46 $559.94 $727.92 46 $598.29 $777.7847 $634.49 $824.83 47 $583.46 $758.49 47 $623.42 $810.4448 $663.71 $862.83 48 $610.33 $793.43 48 $652.14 $847.7849 $692.53 $900.30 49 $636.84 $827.89 49 $680.46 $884.5950 $725.01 $942.51 50 $666.70 $866.71 50 $712.36 $926.0751 $757.08 $984.20 51 $696.19 $905.05 51 $743.87 $967.0452 $792.40 $1,030.12 52 $728.67 $947.27 52 $778.58 $1,012.1553 $828.12 $1,076.55 53 $761.52 $989.97 53 $813.68 $1,057.7854 $866.68 $1,126.69 54 $796.98 $1,036.07 54 $851.57 $1,107.0455 $905.25 $1,176.82 55 $832.44 $1,082.17 55 $889.46 $1,156.3056 $947.06 $1,231.18 56 $870.89 $1,132.16 56 $930.54 $1,209.7057 $989.28 $1,286.06 57 $909.71 $1,182.63 57 $972.02 $1,263.6358 $1,034.34 $1,344.64 58 $951.15 $1,236.49 58 $1,016.30 $1,321.1859 $1,056.66 $1,373.66 59 $971.68 $1,263.18 59 $1,038.23 $1,349.7060 $1,101.72 $1,432.24 60 $1,013.12 $1,317.05 60 $1,082.51 $1,407.2661 $1,140.69 $1,482.90 61 $1,048.95 $1,363.64 61 $1,120.80 $1,457.0462 $1,166.27 $1,516.15 62 $1,072.47 $1,394.21 62 $1,145.93 $1,489.7063 $1,198.34 $1,557.84 63 $1,101.96 $1,432.55 63 $1,177.44 $1,530.6764+ $1,217.82 $1,583.17 64+ $1,119.88 $1,455.84 64+ $1,196.58 $1,555.56



Age Curve


Exhibit A - Proposed Monthly Rates by Rating Area- State of Connecticut

AgeNon-Tobacco

User Tobacco User AgeNon-Tobacco




User Tobacco User0-20 $268.10 $348.53 0-20 $233.30 $303.30 0-20 $227.42 $295.65 0-20 $249.97 $324.96 0-20 $235.51 $306.1621 $422.21 $548.87 21 $367.41 $477.63 21 $358.15 $465.59 21 $393.65 $511.75 21 $370.88 $482.1522 $422.21 $548.87 22 $367.41 $477.63 22 $358.15 $465.59 22 $393.65 $511.75 22 $370.88 $482.1523 $422.21 $548.87 23 $367.41 $477.63 23 $358.15 $465.59 23 $393.65 $511.75 23 $370.88 $482.1524 $422.21 $548.87 24 $367.41 $477.63 24 $358.15 $465.59 24 $393.65 $511.75 24 $370.88 $482.1525 $423.90 $551.07 25 $368.88 $479.54 25 $359.58 $467.45 25 $395.23 $513.79 25 $372.36 $484.0726 $432.34 $562.05 26 $376.23 $489.09 26 $366.74 $476.76 26 $403.10 $524.03 26 $379.78 $493.7227 $442.48 $575.22 27 $385.04 $500.56 27 $375.34 $487.94 27 $412.55 $536.31 27 $388.68 $505.2928 $458.94 $596.63 28 $399.37 $519.18 28 $389.30 $506.10 28 $427.90 $556.27 28 $403.15 $524.0929 $472.45 $614.19 29 $411.13 $534.47 29 $400.76 $520.99 29 $440.50 $572.64 29 $415.02 $539.5230 $479.21 $622.97 30 $417.01 $542.11 30 $406.50 $528.44 30 $446.79 $580.83 30 $420.95 $547.2431 $489.34 $636.14 31 $425.83 $553.57 31 $415.09 $539.62 31 $456.24 $593.11 31 $429.85 $558.8132 $499.47 $649.32 32 $434.64 $565.04 32 $423.69 $550.79 32 $465.69 $605.40 32 $438.75 $570.3833 $505.81 $657.55 33 $440.15 $572.20 33 $429.06 $557.78 33 $471.59 $613.07 33 $444.32 $577.6134 $512.56 $666.33 34 $446.03 $579.84 34 $434.79 $565.23 34 $477.89 $621.26 34 $450.25 $585.3235 $515.94 $670.72 35 $448.97 $583.66 35 $437.65 $568.95 35 $481.04 $625.35 35 $453.22 $589.1836 $519.32 $675.11 36 $451.91 $587.49 36 $440.52 $572.67 36 $484.19 $629.45 36 $456.18 $593.0437 $522.70 $679.51 37 $454.85 $591.31 37 $443.38 $576.40 37 $487.34 $633.54 37 $459.15 $596.9038 $526.07 $683.90 38 $457.79 $595.13 38 $446.25 $580.12 38 $490.49 $637.64 38 $462.12 $600.7539 $532.83 $692.68 39 $463.67 $602.77 39 $451.98 $587.57 39 $496.79 $645.82 39 $468.05 $608.4740 $539.58 $701.46 40 $469.55 $610.41 40 $457.71 $595.02 40 $503.09 $654.01 40 $473.99 $616.1841 $549.72 $714.63 41 $478.37 $621.87 41 $466.31 $606.20 41 $512.53 $666.29 41 $482.89 $627.7542 $559.43 $727.26 42 $486.82 $632.86 42 $474.54 $616.91 42 $521.59 $678.06 42 $491.42 $638.8443 $572.94 $744.82 43 $498.57 $648.14 43 $486.00 $631.80 43 $534.18 $694.44 43 $503.29 $654.2744 $589.83 $766.78 44 $513.27 $667.25 44 $500.33 $650.43 44 $549.93 $714.91 44 $518.12 $673.5645 $609.67 $792.57 45 $530.54 $689.70 45 $517.16 $672.31 45 $568.43 $738.96 45 $535.55 $696.2246 $633.32 $823.31 46 $551.11 $716.45 46 $537.22 $698.38 46 $590.48 $767.62 46 $556.32 $723.2247 $659.91 $857.89 47 $574.26 $746.54 47 $559.78 $727.72 47 $615.28 $799.86 47 $579.69 $753.5948 $690.31 $897.41 48 $600.71 $780.93 48 $585.57 $761.24 48 $643.62 $836.71 48 $606.39 $788.3149 $720.29 $936.38 49 $626.80 $814.84 49 $611.00 $794.30 49 $671.57 $873.04 49 $632.72 $822.5450 $754.07 $980.29 50 $656.19 $853.05 50 $639.65 $831.54 50 $703.06 $913.98 50 $662.39 $861.1151 $787.42 $1,023.65 51 $685.22 $890.78 51 $667.94 $868.32 51 $734.16 $954.41 51 $691.69 $899.2052 $824.15 $1,071.40 52 $717.18 $932.33 52 $699.10 $908.83 52 $768.41 $998.93 52 $723.96 $941.1553 $861.31 $1,119.70 53 $749.51 $974.37 53 $730.62 $949.80 53 $803.05 $1,043.96 53 $756.60 $983.5854 $901.42 $1,171.85 54 $784.42 $1,019.74 54 $764.64 $994.03 54 $840.45 $1,092.58 54 $791.83 $1,029.3855 $941.53 $1,223.99 55 $819.32 $1,065.12 55 $798.66 $1,038.26 55 $877.84 $1,141.20 55 $827.07 $1,075.1956 $985.02 $1,280.52 56 $857.16 $1,114.31 56 $835.55 $1,086.22 56 $918.39 $1,193.91 56 $865.27 $1,124.8557 $1,028.93 $1,337.60 57 $895.37 $1,163.99 57 $872.80 $1,134.64 57 $959.33 $1,247.13 57 $903.84 $1,174.9958 $1,075.79 $1,398.53 58 $936.16 $1,217.00 58 $912.55 $1,186.32 58 $1,003.02 $1,303.93 58 $945.01 $1,228.5159 $1,099.01 $1,428.72 59 $956.36 $1,243.27 59 $932.25 $1,211.93 59 $1,024.67 $1,332.08 59 $965.40 $1,255.0360 $1,145.88 $1,489.64 60 $997.15 $1,296.29 60 $972.01 $1,263.61 60 $1,068.37 $1,388.88 60 $1,006.57 $1,308.5461 $1,186.41 $1,542.33 61 $1,032.42 $1,342.14 61 $1,006.39 $1,308.31 61 $1,106.16 $1,438.01 61 $1,042.18 $1,354.8362 $1,213.01 $1,576.91 62 $1,055.56 $1,372.23 62 $1,028.95 $1,337.64 62 $1,130.96 $1,470.25 62 $1,065.54 $1,385.2063 $1,246.37 $1,620.27 63 $1,084.59 $1,409.96 63 $1,057.25 $1,374.42 63 $1,162.06 $1,510.68 63 $1,094.84 $1,423.29

64+ $1,266.63 $1,646.62 64+ $1,102.22 $1,432.89 64+ $1,074.44 $1,396.77 64+ $1,180.95 $1,535.24 64+ $1,112.64 $1,446.44


Exhibit A - Proposed Monthly Rates by Rating Area- State of Connecticut

AgeNon-Tobacco



User Tobacco User0-20 $252.91 $328.78 0-20 $232.57 $302.34 0-20 $248.50 $323.0521 $398.28 $517.77 21 $366.25 $476.13 21 $391.34 $508.7422 $398.28 $517.77 22 $366.25 $476.13 22 $391.34 $508.7423 $398.28 $517.77 23 $366.25 $476.13 23 $391.34 $508.7424 $398.28 $517.77 24 $366.25 $476.13 24 $391.34 $508.7425 $399.88 $519.84 25 $367.72 $478.03 25 $392.90 $510.7726 $407.84 $530.19 26 $375.04 $487.55 26 $400.73 $520.9527 $417.40 $542.62 27 $383.83 $498.98 27 $410.12 $533.1628 $432.93 $562.81 28 $398.11 $517.55 28 $425.38 $553.0029 $445.68 $579.38 29 $409.83 $532.78 29 $437.90 $569.2830 $452.05 $587.67 30 $415.69 $540.40 30 $444.17 $577.4231 $461.61 $600.09 31 $424.48 $551.83 31 $453.56 $589.6332 $471.17 $612.52 32 $433.27 $563.26 32 $462.95 $601.8433 $477.14 $620.29 33 $438.77 $570.40 33 $468.82 $609.4734 $483.52 $628.57 34 $444.63 $578.02 34 $475.08 $617.6135 $486.70 $632.71 35 $447.56 $581.83 35 $478.21 $621.6836 $489.89 $636.85 36 $450.49 $585.63 36 $481.34 $625.7537 $493.07 $641.00 37 $453.42 $589.44 37 $484.47 $629.8238 $496.26 $645.14 38 $456.35 $593.25 38 $487.60 $633.8939 $502.63 $653.42 39 $462.21 $600.87 39 $493.87 $642.0340 $509.01 $661.71 40 $468.07 $608.49 40 $500.13 $650.1741 $518.56 $674.13 41 $476.86 $619.92 41 $509.52 $662.3742 $527.72 $686.04 42 $485.28 $630.87 42 $518.52 $674.0843 $540.47 $702.61 43 $497.00 $646.10 43 $531.04 $690.3644 $556.40 $723.32 44 $511.65 $665.15 44 $546.70 $710.7045 $575.12 $747.66 45 $528.87 $687.52 45 $565.09 $734.6246 $597.42 $776.65 46 $549.38 $714.19 46 $587.00 $763.1047 $622.52 $809.27 47 $572.45 $744.18 47 $611.66 $795.1648 $651.19 $846.55 48 $598.82 $778.46 48 $639.83 $831.7849 $679.47 $883.31 49 $624.82 $812.27 49 $667.62 $867.9050 $711.33 $924.73 50 $654.12 $850.36 50 $698.93 $908.6051 $742.80 $965.64 51 $683.06 $887.97 51 $729.84 $948.7952 $777.45 $1,010.68 52 $714.92 $929.40 52 $763.89 $993.0553 $812.50 $1,056.25 53 $747.15 $971.30 53 $798.33 $1,037.8254 $850.33 $1,105.43 54 $781.94 $1,016.53 54 $835.50 $1,086.1555 $888.17 $1,154.62 55 $816.74 $1,061.76 55 $872.68 $1,134.4856 $929.19 $1,207.95 56 $854.46 $1,110.80 56 $912.99 $1,186.8857 $970.61 $1,261.80 57 $892.55 $1,160.32 57 $953.69 $1,239.7958 $1,014.82 $1,319.27 58 $933.21 $1,213.17 58 $997.12 $1,296.2659 $1,036.73 $1,347.75 59 $953.35 $1,239.35 59 $1,018.65 $1,324.2460 $1,080.94 $1,405.22 60 $994.00 $1,292.20 60 $1,062.09 $1,380.7161 $1,119.17 $1,454.93 61 $1,029.16 $1,337.91 61 $1,099.65 $1,429.5562 $1,144.27 $1,487.55 62 $1,052.24 $1,367.91 62 $1,124.31 $1,461.6063 $1,175.73 $1,528.45 63 $1,081.17 $1,405.52 63 $1,155.22 $1,501.79

64+ $1,194.85 $1,553.30 64+ $1,098.75 $1,428.38 64+ $1,174.01 $1,526.21


Exhibit B - Adjusted Community Rating Factor Relativities

Age Curve

Age Age Factor0-20 0.63521 1.000 Tobacco User Adjustment22 1.000 Non-Tobacco User 1.00023 1.000 Tobacco User 1.30024 1.00025 1.00426 1.024 Rating Area Relativities27 1.048 CT Rating Area 1 1.09428 1.087 CT Rating Area 2 0.95229 1.119 CT Rating Area 3 0.92830 1.135 CT Rating Area 4 1.02031 1.159 CT Rating Area 5 0.96132 1.183 CT Rating Area 6 1.03233 1.198 CT Rating Area 7 0.94934 1.214 CT Rating Area 8 1.01435 1.22236 1.23037 1.23838 1.24639 1.26240 1.27841 1.30242 1.32543 1.35744 1.39745 1.44446 1.50047 1.56348 1.63549 1.70650 1.78651 1.86552 1.95253 2.04054 2.13555 2.23056 2.33357 2.43758 2.54859 2.60360 2.71461 2.81062 2.87363 2.952

64+ 3.000











2. Proposed Rates































Morbidity Relativity - 2014 Non-Group to Large GroupNon-Group Large Group




http://content.healthaffairs.o rg/content/31/6/1339.full?keytype=ref&siteid=healthaff&ijkey=rbXCP2itIBXLU#T1


4Based on Figure S-1 o f the "Cost of the Future Newly Insured under the Affo rdable Care Act (ACA)" study by the SOA

To adjust the experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market Connecticut population and the Connecticut membership included in the MarketScan. The MarketScan risk adjustment factor was then adjusted to normalize for the difference due to the large group plans covering more services than the non-group plans, and the two factors were compared. The difference was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. This adjustment was then increased by an additional 13.8% to reflect the assumption that the morbidity of the individual market will be 13.8% higher than that of the large group market in 2014. Finally, the impact of the expected shift in the average mix by age and gender, equal to -2.7%, was removed from the adjustment so that it could be included with the



demographic changes in the “Other” adjustment column of Worksheet 1, Section II. Overall, an adjustment equal to 1.877 was applied to the underlying Connecticut experience period allowed claims PMPM for this change. In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is approximately 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA named: “SOA Study: Cost of the Future Newly Insured under the Affordable Care Act (ACA).” The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.

b) Changes in benefits – Newly mandated coverage for 2014 relative to the coverage available during the experience period is estimated to increase the expected allowed claims by approximately 6.8%. This adjustment was developed based on a comparison of the coverage underlying Celtic’s 2012 population relative to the Connecticut EHB benchmark plan. The most impactful newly mandated covered services and the estimated cost of each which result in the estimated change of 6.8% include the following: pediatric dental (1.5%), habilitation services (0.5%), and maternity (3.0%), home health care services (0.2%), emergency transportation (0.3%), skilled nursing facility (0.2%), substance abuse parity (0.6%), chiropractic care (0.5%), and hearing aids (0.1%). Adjustments for each of these changing benefits were developed using a combination of an analysis of claims by service type from MarketScan as well as information available in other industry studies. In addition, an induced utilization adjustment factor equal to 0.993 was applied to the Connecticut specific experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated paid-to-allowed ratio (P/A) for the experience period of 61.5% to the projected P/A of 58.0% for the rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period, was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for some services will be covered in 2014 but were not covered in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period.





Platinum 1.15

c) Changes in Demographics – An adjustment equal to approximately 0.973 was applied to reflect the shift between the average mix of the underlying population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the experience period. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census4, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 0.972 was applied to reflect the impact of differences in geographic claim costs between the projected 2014 Connecticut enrollment and the actual 2012 Connecticut enrollment. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs PMPM were then adjusted to smooth out the impact of any large claims greater than $150K and to normalize for any age/gender differences. As a result, the adjusted average claim costs PMPM which were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average network discounts. We note that, given that Celtic will be using a broad based network in 2014, we believe it is reasonable to assume that the average discount differences by market as reflected in the MarketScan data will be representative of the average discount differences by market for Celtic in 2014. Next, the projected 2014 Connecticut population by MSA was developed based on the distribution of membership in Connecticut in MarketScan. Given that the MarketScan database is very large, it was assumed that the average membership by MSA represented within MarketScan would be a better estimate of the future membership by MSA than the underlying Celtic insured population would be. The 2012 expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the expected claim costs by MSA which were developed as described above. This value was



compared to the expected claim cost for the projection period, which was based on the weighted average of the projected Celtic 2014 population and expected claim costs by MSA. The difference between these two values was applied as the geographic adjustment.






rating period was developed based on a review of the following two industry reports: Oliver Wyman Carrier Trend Report – January 2013, and S&P Healthcare Economic Indices5. Given the changes that have occurred in the underlying population of Celtic’s individual book of business in recent years, it was assumed that industry level studies such as these would be most reliable for developing trend estimates. The Oliver Wyman Carrier Trend Report – January 2013 edition presents the pricing trends used by participating carriers in the development of their rates for January 2013. A total of 5.7 million members with individual health policies are represented by the carriers who participated in this edition of the report. In total, the weighted average reported medical trend being used for PPO products was 8.85%. The weighted prescription drug trend among participating carriers was 8.70%. The S&P Healthcare Economic Indices seek to reflect the monthly rate of change in the principal cost components of the U.S. healthcare market. The indices are



designed to estimate the per capita change in total allowed claim costs incurred each month by patients (through their co-payments) and their healthcare benefit programs for services rendered by hospitals and physicians. In reviewing the S&P Healthcare Economic Indices reflecting data through June 20126, the 1 year change in the Commercial Index was 8.09%. We note that this result aligns closely with the results of the Oliver Wyman Carrier Trend Report – January 2013 edition provided above. In addition to considering the results of these reports, it is our expectation that the rules and regulations related to the ACA will have the effect of lowering trends from existing levels over time. However, the magnitude and speed of this potential change is unknown. When considering this assumption in combination with the information provided by the two studies noted above, it was determined that an annual trend rate of 7.0% would be reasonable at this time. The annual trend rate of 7.0% is assumed for all major service categories and represents the combined impact of both cost and utilization changes. Medical technology trend is included in this annual trend assumption as well. Given that this is a new policy form, benefit buy downs were not considered to be impactful in the development of the trend assumption. The impact of cost sharing leveraging on trend is included in the projected paid to allowed ratio described in section 8. The estimated annual impact of cost sharing leveraging due to the assumed 7.0% annual trend for the proposed Bronze plan design is approximately 2.0% per year. Historical experience was then projected from the midpoint of the experience period, 7/1/2012, to the assumed midpoint of the rating period, 7/22/20147, for a total of approximately 24.6 months. The overall trend adjustment being applied to the 2012 historical claims is 1.149. Below is the completed 2012 Connecticut experience split by utilization and average cost per service for each major service category: Experience by Major Service Category



6 Deceleration in Annual Growth Rates for All Nine Indices in June 2012 According to the S&P Healthcare Economic Indices. August 16, 2012. S&P Dow Jones Indices 7 July 22, 2014 is used as the midpoint of the rating period on the assumption that membership enrollment will be weighted towards the beginning of the year, with an average effective date of April 1, 2014.









c) Adjustments Made to the Data – The following adjustments were made to the

nationwide experience to reflect appropriate Connecticut specific 2014 cost and utilization levels:


section 5.a, we have estimated that the morbidity of the membership underlying the individual market in 2014 will be approximately 13.8% higher than that of the large group market. To adjust the nationwide experience period claims to reflect this assumption, risk adjustment factors were first developed using the HHS risk adjustment model for both the Celtic 2012 individual market population by state and the membership included in the Truven Health Analytics 2010 MarketScan Commercial database (MarketScan) by state. The MarketScan risk adjustment factors were then adjusted to normalize for the difference due to the large group plans covering more services than the non-group


plans. Next, the two risk adjustment factors for each state were compared and the difference between the adjustment factor based on Celtic’s population and the adjustment factor based on the MarketScan population was assumed to be the factor necessary to adjust the underlying Celtic individual market morbidity such that it would reflect the morbidity of the large group market. The weighted average of the risk adjustment factor differences for each state was then calculated based on the underlying Celtic 2012 membership. This weighted average was increased by an additional 13.8% to reflect the assumption for the expected morbidity between the individual and large group markets in 2014 as noted above. Finally, the impact of the expected shift in the average mix by age and gender, equal to -1.2%, was removed from the adjustment so that it could be included with the demographic changes in the “Other” adjustment column of Worksheet 1, Section II. Overall, an adjustment equal to 1.498 was applied to the nationwide experience period allowed claims PMPM for this change.

In addition, an adjustment equal to 1.033 was applied to the historical claim costs to reflect that the newly insured individual market population will have a level pent up demand due to now having access to health care benefits where before they had not. The assumed percentage of the individual market which is expected to be newly insured is 33%, and is based on Connecticut specific results provided in the previously mentioned report released by the SOA named: “SOA Study: Cost of the Future Newly Insured under the Affordable Care Act (ACA).” The final adjustment factor of 1.033 was developed based on the assumption that 33% of the individual market will be made up of newly insureds, and that those newly insured individuals will have approximately 10% higher claims than average during the first year of coverage due to pent up demand.


In addition, an induced utilization adjustment factor equal to 0.994 was applied to the nationwide experience to reflect the expected impact on utilization of the difference in cost sharing between the estimated P/A for the experience period of 61.3% to the projected P/A of 58.0% for the


rating period plan design, assuming average allowed costs remained consistent with 2012 levels. The estimated P/A for the experience period was based on the credibility weighted Celtic state specific and nationwide paid-to-allowed ratios, adjusted to reflect that claims for services such as maternity will be covered in 2014 but were not covered in most states in 2012. The projected P/A for the rating period was developed based on the proposed Bronze plan design and the results of inputting that plan design into the Oliver Wyman proprietary pricing model, assuming the same allowed costs PMPM as for the experience period. This induced utilization adjustment was developed to be consistent the table of induced utilization factors which were released on pages 90–91 of the HHS Notice of Benefit and Payment Parameters for 2014.


0.988 was applied to reflect the shift between the average mix of the underlying Celtic nationwide population by age and gender for the experience period and the average mix anticipated to underlie the projection period. To calculate this adjustment, the distribution of membership by age and gender was first pulled for the nationwide experience. Expected claim costs were then applied to the distribution to develop a weighted average expected claim cost. Next, the anticipated distribution of membership by age and gender was developed. This anticipated distribution was based on the 2011 US Census8, excluding individuals covered by government health plans, reflecting that we are expecting the individual market to look more similarly to the overall population now that medical underwriting will no longer be applied. The same expected claim costs by age and gender as were applied to the experience period distribution of membership were then applied to the anticipated distribution of membership to develop a weighted average expected claim cost. The calculated expected claim costs for both the experience period and rating period were then compared, resulting in an adjustment equal to the value described above. In addition, a geographic adjustment of 1.056 was applied to reflect the impact of differences in geographic claim costs between Connecticut and Celtic’s nationwide enrollment by geographic region. To calculate this adjustment, expected geographic claim cost relativities by MSA were developed based on MarketScan claims data. These average claim costs were then adjusted to smooth the impact of any large claims greater than $150K and to normalize for age/gender differences. As a result, the adjusted average claim costs PMPM that were calculated reflect differences by geographic region in provider payment patterns, morbidity (excluding age/gender), and average provider charges. The nationwide experience expected claim cost was then calculated based on the weighted average of Celtic’s 2012 population by MSA and the



expected claim costs by MSA which were developed as described above. This value was compared to the expected claim cost for Connecticut which was developed using the same approach. The difference between these two values was applied as the geographic adjustment to the nationwide claims cost.




d) Inclusion of Capitation Payments – Capitation payments were not considered, given that no capitation payments were made during the experience period nor are any expected to be made during the projected rating period.





proposed Bronze plan design through Oliver Wyman’s proprietary pricing model, which was adjusted to reflect the projected level of allowed claims per person per year for Celtic’s 2014 Connecticut enrollees. This analysis resulted in a projected Paid to Allowed ratio for the specified plan design of 66.5%.


We note that one of the reasons for the significant difference between the calculated AV of 58.1% based on the AV calculator and projected Paid to Allowed ratio of 66.5% is the result of the significant difference between the underlying assumed cost per person per year being utilized between the two models. In the AV calculator, the average allowed cost per person per year is approximately $5,000, whereas the projected average allowed claim cost per person per year for Celtic’s projected Connecticut enrollees in 2014 is approximately $8,358. Due to the impact of leveraging, as claim costs increase, the level of claims over the fixed deductible associated with the proposed plan design becomes greater, and the Paid to Allowed ratio increases significantly.


a) Projected ACA Reinsurance Recoveries Net of Reinsurance Premium – A projected net reinsurance recovery equal to $51.83 PMPM is being assumed in the development of the proposed rates. This assumption was developed by first scaling a representative claim probability distribution to reflect Celtic’s 2014 expected allowed claim levels. Using the scaled claim probability distribution, estimated annual payments were then calculated based on Celtic’s proposed Bronze plan design. Next, the estimated annual payments per member per year between the thresholds of $60,000 and $250,000 were accumulated and multiplied by 80%, consistent with federal regulation regarding the transitional reinsurance program. This amount was then divided by twelve to convert it to a PMPM basis. Lastly, the temporary reinsurance fee of $5.25 PMPM, which is being assessed across all fully insured carriers for 2014, was subtracted, resulting in a projected net reinsurance recovery of $51.83 PMPM.

b) Projected Risk Transfer Payments – A risk transfer recovery amount equal to $9.91 PMPM is being projected. Given that one plan design is being proposed, in developing the average premium rate PMPM, this amount was subtracted from the projected average claim payment PMPM for 2014 based on the adjustments described previously. This 2014 risk transfer payment was calculated using the formula outlined in the HHS Notice of Benefit and Payment Parameters for 2014. The following table provides the assumptions which were applied in this calculation.


Risk Transfer Formula Assumptions and CalculationConnecticut

Statewide CelticAV Actuarial Value 0.700 0.581RS Risk Score 1.083 0.920RF Rating Factor 1.355 1.355IDF Induced Demand Factor 1.030 1.000GCF Geographic Cost Factor 1.000 1.000

P Average Premium $517.53RS*IDF*GCF 1.115 0.920

N1 normalized (RS*IDF*GCF) 0.825AV*RF*IDF*GCF 0.977 0.787

N2 normalized (AV*RF*IDF*GCF) 0.806Transfer = State P x (N1 - N2) $9.91

In developing the proposed rates, it is being assumed that the morbidity and geographic distribution of Celtic’s 2014 population will look similar to the individual market average overall. Given the relatively small size of Celtic’s existing block and the significant shifts in enrollment that are expected to occur in 2014, we believe this is a reasonable assumption to make. As a result of this assumption, the same factors are assumed for the Rating Factor and Geographic Cost Factor between the statewide calculation and Celtic calculation.

In addition, it is being assumed that the average statewide plan sold will be equivalent to the Silver metal tier. As a result, the statewide AV being assumed is 0.700 and the statewide IDF being assumed is 1.030. For Celtic, the AV was set equal to the AV of the proposed Bronze plan and the IDF is assumed to be 1.000. The risk scores in the table above were calculated based on the MarketScan population for Connecticut. The Statewide factor reflects the risk score for this population based on a Silver metal tier while the risk score for Celtic was calculated based on a Bronze metal tier. Finally, the statewide average premium was developed by adjusting the calculated Celtic premium, excluding risk transfer payments, for differences in the assumed AV (0.700 / 0.581) and discount off of billed charges between Celtic and the estimated statewide individual market.



a) Administrative Expenses – It is being assumed that total administrative expenses in 2014 will be equal to approximately 15.0% of premium. Per the Supplemental Health Care Exhibit (SHCE), Celtic’s 2012 administrative expense ratio, including claims adjustment and sales expense, was equal to 21.9% of premium. While the assumed 2014 administrative expense ratio is lower than the 2012 administrative expense ratio, there were two significant items which were


considered in determining that this assumption is reasonable. First, we note that it is expected that a number of Celtic’s current members will terminate their existing coverage and purchase new coverage on the exchange in 2014 to take advantage of premium and cost sharing subsidies. If this does occur, Celtic’s overall membership and corresponding premium volume would decrease, all else being equal, which would result in administrative expenses increasing as a percentage of premium. However, we also note that total premium on a PMPM basis is expected to increase significantly in 2014 relative to 2012. As a result of this change, all else being equal, administrative expenses would be expected to decrease as a percentage of premium. Ultimately, it is being assumed that the impact of a reduction in future membership will be more than offset by the significant increase in premium PMPM, leading to a net decrease to the total administrative expense ratio relative to the level reported in the 2012 SHCE.




B. Comparative Effectiveness Research Fee – An amount equal to $0.17 PMPM is being included in the proposed rates to reflect that a comparative effectiveness research fee equal to $2.00 per policy will be charged in 2014.









+ Risk Transfer Payment/Receipt -$9.91+ Reinsurance Payment/Receipt -$57.08

- QI Espense $0.00Total Adjusted Medical Expense $396.18

Calculated Overall Rate PMPM $527.40- CER Fee $0.17

- Risk Adjustment Fee $0.08- Reinsurance Fee $5.25- ACA Insurer Fee $11.08

- State Premium Tax $9.23- Federal Taxes $9.23





14. AV Pricing Values – Given that only one plan design is being proposed, this is the fixed






Page 17 Celtic Insurance Company 2014 Actuarial Memorandum 17. Plan Type – The plan type selected in the drop-down box in Worksheet 2, Section I is





20. Data Reliance


21. Actuarial Certification – I am a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries, and I meet the Academy’s qualifications standards for preparing health rate filings. The projected index rate is in compliance with all applicable State and Federal Statutes and Regulations (45 CFR 156.80(d)(1)), was developed in compliance with the applicable Actuarial Standards of Practice, is reasonable in relation to the benefits provided and the population anticipated to be covered, and is neither excessive nor deficient. Plan level rates were generated using the index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2). In addition, the AV Calculator, with no further adjustments, was used to determine the AV Metal Value for the proposed plan design.




Documents

Filing at a Glance · titled Cost of the Future Newly Insured under the Affordable Care Act (ACA). 5. To adjust the experience period claims to reflect this assumption, risk adjustment