Market Reform Policy Issues – Geographic Analysis Rating Area... · © Oliver Wyman Market Reform Policy Issues – Geographic Analysis March 8, 2013

© Oliver Wyman

Market Reform Policy Issues – Geographic Analysis

March 8, 2013

11© Oliver Wyman

Relevant Laws and Regulations – Geographic Rating Areas

NC Statute for small group market only: A carrier shall define geographic area to mean medical care system. Medical care system factors shall reflect the relative differences in expected costs, shall produce rates that are not excessive, inadequate, or unfairly discriminatory in the medical care system areas, and shall be revenue neutral to the small employer carrier. (NCGS: 58-50-130(b)(7))

The final rules set minimum requirements for geographic rating areas, while still permitting states to request flexibility on rating areas.

• In establishing geographic rating areas, a state may use one of three approved standards for geographic rating areas, or submit its own standard, subject to CMS approval. The two approved geographic rating area standards are:

• One rating area for each MSA in the state and one rating area comprising all non-MSAs in the state; or

• Uniform rating areas established by the state that are no greater in number than the number of MSAs in the state plus one (16 for North Carolina), based on counties or 3-digit zip codes (i.e., areas in which all zip codes share the first three digits)

• A state may also propose to CMS for approval a number of rating areas greater than the number of rating areas greater than the number of MSAs in the state plus one (Insurance Market Rules §147.102(b)(4))

• It must be demonstrated that the proposed rating areas are not unfairly discriminatory, reflect significant differences in health care unit costs, lead to stability in rates over time, apply uniformly to all insurers in a market.

• All sections of a geographic rating area do not need to be geographically adjacent (Insurance Market Rules, Fed Reg. Vol 78, 13410)

• If a state does not establish adequate rating areas or submit information to CMS on those rating areas, the default will be one rating area for each MSA in the state and one rating area comprising all non-MSAs in the state.(Insurance Market Rules §147.102(b)(2))

22© Oliver Wyman

Geographic Rating AreasThe Rating Work Group further discussed the options for geographic rating after the proposed rules

were issued in November and recommended to the TAG that North Carolina should seek CCIIO approval for using counties as geographic areas. The TAG agreed with this recommendation.

Prior Consensus Points:

• Workgroup members reached consensus that the state should seek CCIIO approval for using counties as geographic rating areas, based on a desire to enable efficient pricing, facilitate price transparency to drive delivery system competition and innovation, and ensure the availability of coverage options throughout the state.

• If not approved for the 100 counties approach, North Carolina should seek as much flexibility as possible to group counties in a way that seeks to minimize market disruption as much as possible.

• North Carolina should conduct analysis to assess potential groupings that will minimize disruption.

33© Oliver Wyman

Analysis Conducted - MethodologyAnalysis was conducted to determine the level of disruption that would occur in the North

Carolina market under 16 geographic rating regions.

Analysis was conducted to determine the assignment of counties to rating regions that resulted in the least overall disruption across both the individual and small group markets when limited to 16 rating regions.

For carriers that currently rate by zip code, carrier membership by 3-digit zip was reallocated to counties using general population data by county within a 3-digit zip. The reallocated membership data for each 3-digit zip/county combination and the corresponding 3-digit zip area factors were used to calculate current county based area factors for each carrier.

Separately for the individual and small group markets, the following process was employed:

Allocate counties to regions and calculate a set of new average region factors for each carrier as the member weighted average of the county factors for those counties assigned to the regionCalculate the rate shock for each carrier and county by dividing the new factor assigned to the county by the old factor assigned to the county, and subtracting 1.Summarize the results by carrier and market, and across all carriers and markets.Repeat the steps above until the number of members experiencing a change within +/-2.5% was maximized when 16 rating regions were used

44© Oliver Wyman

Geographic Analysis Framework for Findings

A “plus” or “minus” threshold was used to mitigate the impact of either excessive or lower-than-expected premiums due to establishment of geographic rating areas. Amounts greater than 2.5%

could result in significantly higher premiums to consumers (when considered with other rating changes) and amounts less than -2.5% could result in insurers not being able to compete within a

specific geographic region.

Scenario Rationale or Threshold Number of Rating Areas

1• Default assignment of regions outlined in 147.102(b)(2) which establishes

each MSA as a rating area and one additional rating area comprised of all non-MSAs

16

2• Assignment of counties to 16 regions, separately for individual and small

group business, such that the number of members experiencing a rate change of greater than 2.5% or less than -2.5% is minimized.

16

55© Oliver Wyman

Scenario 1: Default Regions Disruption Results

Percent within +/- 2.5%

77.97%

Percent within +/-5%

88.26%


98.75%

Max Increase 20.05%

Max Decrease -22.51%

Distribution Findings

Distribution of Premium Impact Across the Small Group and Individual Market

Key Takeaways

• If North Carolina uses the default rating areas, approximately 22% of the eligible population would receive a premium change of greater than 2.5% and less than -2.5%, and approximately 12% of the population would have a change greater than 5% or less than -5%

• Much of the disruption is due to the impact of the small group market (see next slide)

2,295

33,039 29,027

405,568

24,517 21,485

4,228 -

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

> -10% -10% to -5% -5% to -2.5% -2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

66© Oliver Wyman

Scenario 1: Default Regions Disruption Results


71.05%


86.06%


97.96%

Max Increase 20.05%


Distribution FindingsDistribution of Premium Impact Across the Small Group Market


86.18%


90.88%


99.68%

Max Increase 19.80%


Distribution FindingsDistribution of Premium Impact Across the Individual Market

2,076 23,101 26,127

200,611

16,260 10,495 3,676 -

50,000

100,000

150,000

200,000

250,000

> -10% -10% to -5%

-5% to -2.5%

-2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

219 9,938 2,900

204,957

8,257 10,990 552 -

50,000

100,000

150,000

200,000

250,000

> -10% -10% to -5% -5% to -2.5%

-2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

7© Oliver Wyman 7

CherokeeClay

Graham

Macon

Swain

Jackson

Haywood

Madison

Buncombe

Henderson

Tran-sylvania

Yancey

Avery

McDowell

Rutherford

Polk

Watauga

Caldwell

Burke

Cleveland

AsheAlleghany

Wilkes

Alex-ander

Catawba

Lincoln

Gaston

Surry

Yadkin

Iredell

Stokes

Forsyth

Davie

Rowan

Cabarrus

Union

Rockingham

Guilford

DavidsonRandolph

Stanly

Anson

Mont-gomery Moore

Rich-mond

Caswell Person

ChathamWake

Lee

Warren

Franklin

Harnett

Hoke

Scot-land

Robeson Bladen

Columbus

Brunswick

Johnston

Northampton

Halifax

Nash

Wilson

Edgecombe

Wayne

Sampson

Duplin

Pender

NewHanover

Onslow

Jones

Lenoir

Greene

Pitt

Hertford

Gates

Bertie

Wash-ingtonMartin

BeaufortHyde

Tyrrell Dare

CravenPamlico

Carteret

MILES

0 25 50 75 100

Region 6

Region 7

KEYRegion 5

Region 8

Scenario 1: Default Regions

Region 2

Region 3

Region 1

Region 4

Region 10

Region 11

Region 9

Region 12

Region 14

Region 15

Region 13

Region 16

88© Oliver Wyman

Scenario 2: Individual Custom Regions Disruption Results


97.65%


98.89%


99.80%

Max Increase 22.95%



Distribution of Premium Impact Across the Individual Market

Key Takeaways

• If North Carolina uses custom rating regions for the individual market, less than 2.5% of the eligible individual population would receive a premium change of greater than 2.5% or less than -2.5%, and less than 1.2% of the individual population would have a change greater than 5% or less than -5%

119 1,305 1,447

232,225

1,500 860 357 -

50,000

100,000

150,000

200,000

250,000

> -10% -10% to -5%

-5% to -2.5%

-2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

9© Oliver Wyman 9

CherokeeClay

Graham

Macon

Swain

Jackson

Haywood

Madison

Buncombe

Henderson

Tran-sylvania

Yancey

Avery

McDowell

Rutherford

Polk

Watauga

Caldwell

Burke

Cleveland

AsheAlleghany

Wilkes

Alex-ander

Catawba

Lincoln

Gaston

Surry

Yadkin

Iredell

Stokes

Forsyth

Davie

Rowan

Cabarrus

Union

Rockingham

Guilford

DavidsonRandolph

Stanly

Anson

Mont-gomery Moore

Rich-mond

Caswell Person

ChathamWake

Lee

Warren

Franklin

Harnett

Hoke

Scot-land

Robeson Bladen

Columbus

Brunswick

Johnston

Northampton

Halifax

Nash

Wilson

Edgecombe

Wayne

Sampson

Duplin

Pender

NewHanover

Onslow

Jones

Lenoir

Greene

Pitt

Hertford

Gates

Bertie

Wash-ingtonMartin

BeaufortHyde

Tyrrell Dare

CravenPamlico

Carteret

MILES

0 25 50 75 100

Region 6

Region 7

KEYRegion 5

Region 8

Scenario 2: Individual Regions

Region 2

Region 3

Region 1

Region 4

Region 10

Region 11

Region 9

Region 12

Region 14

Region 15

Region 13

Region 16

1010© Oliver Wyman

Scenario 2: Small Group Custom Regions Disruption Results


87.73%


96.53%


99.68%

Max Increase 21.66%



Distribution of Premium Impact Across the Small Group Market

Key Takeaways

• If North Carolina uses custom rating regions for the small group market, approximately 12.5% of the eligible small group population would receive a premium change of greater than 2.5% or less than -2.5%, and roughly 3.5% of the small group population would have a change greater than 5% or less than -5%

668 3,537 15,788

247,692

9,076 5,357 228 -

50,000

100,000

150,000

200,000

250,000

> -10% -10% to -5% -5% to -2.5%

-2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

11© Oliver Wyman 11

CherokeeClay

Graham

Macon

Swain

Jackson

Haywood

Madison

Buncombe

Henderson

Tran-sylvania

Yancey

Avery

McDowell

Rutherford

Polk

Watauga

Caldwell

Burke

Cleveland

AsheAlleghany

Wilkes

Alex-ander

Catawba

Lincoln

Gaston

Surry

Yadkin

Iredell

Stokes

Forsyth

Davie

Rowan

Cabarrus

Union

Rockingham

Guilford

DavidsonRandolph

Stanly

Anson

Mont-gomery Moore

Rich-mond

Caswell Person

ChathamWake

Lee

Warren

Franklin

Harnett

Hoke

Scot-land

Robeson Bladen

Columbus

Brunswick

Johnston

Northampton

Halifax

Nash

Wilson

Edgecombe

Wayne

Sampson

Duplin

Pender

NewHanover

Onslow

Jones

Lenoir

Greene

Pitt

Hertford

Gates

Bertie

Wash-ingtonMartin

BeaufortHyde

Tyrrell Dare

CravenPamlico

Carteret

MILES

0 25 50 75 100

Region 6

Region 7

KEYRegion 5

Region 8

Scenario 2: Small Group Regions

Region 2

Region 3

Region 1

Region 4

Region 10

Region 11

Region 9

Region 12

Region 14

Region 15

Region 13

Region 16

1212© Oliver Wyman

Scenario 2: Custom Regions Combined Disruption Results


93.95%


98.01%


99.76%

Max Increase 22.95%



Distribution of Premium Impact Across the Individual and Small Group Market

Key Takeaways

• If North Carolina uses custom rating regions, approximately 6.0% of the eligible population would receive a premium change of greater than 2.5% or less than -2.5%, and approximately 2.0% of the population would have a change greater than 5% or less than -5%

787 4,842 17,235

479,917

10,576 6,217 585 -

100,000

200,000

300,000

400,000

500,000

600,000

> -10% -10% to -5%

-5% to -2.5%

-2.5% to2.5%

2.5% to 5% 5% to 10% > 10%

1313© Oliver Wyman

Results by Carrier – Individual (blinded)

Carrier

Scenario 1Default Regions

Scenario 2Custom Regions

Within +/- 2.5% Within +/- 5.0% Within +/- 2.5% Within +/- 5.0%

1 87.7% 90.9% 100.0% 100.0%2 79.2% 96.5% 85.3% 97.6%3 67.8% 73.8% 75.8% 82.3%4 85.1% 85.7% 90.7% 97.1%5 79.9% 89.6% 78.4% 85.3%6 76.4% 96.3% 83.0% 88.3%7 83.6% 97.7% 89.0% 98.2%8 80.5% 93.6% 96.9% 98.8%9 88.5% 98.2% 93.8% 98.3%

10 91.2% 92.2% 94.9% 98.2%11 77.3% 92.9% 89.9% 96.4%

Total 86.2% 90.9% 97.7% 98.9%

• The individual market experiences significantly less disruption when custom regions are used, with less than 3% of the members experiencing a a rate change of greater than 2.5% or less than -2.5%.

Key Takeaway

1414© Oliver Wyman

Results by Carrier – Small Group (blinded)

Carrier

Scenario 1Default Regions

Scenario 2Custom Regions

Within +/- 2.5% Within +/- 5.0% Within +/- 2.5% Within +/- 5.0%

1 66.9% 85.2% 96.7% 99.9%2 80.7% 87.9% 84.5% 98.2%3 69.3% 87.5% 63.1% 81.7%4 77.9% 80.3% 81.9% 92.9%5 72.9% 91.2% 46.1% 67.9%6 90.7% 100.0% 79.3% 100.0%7 29.3% 61.5% 64.0% 86.2%8 100.0% 100.0% 100.0% 100.0%9 72.7% 78.8% 59.8% 76.9%

10 56.4% 56.4% 80.1% 88.3%11 59.4% 100.0% 88.4% 97.2%

Total 71.1% 86.1% 87.7% 96.5%

• The small group market experiences significantly less disruption when custom regions are used, however almost 12.5% of the members will still receive a rate change of greater than 2.5% or less than -2.5%.

Key Takeaway

1515© Oliver Wyman

Scenario 1: Default Rating AreasRegion County Region County Region County Region County

1 Buncombe 9 Catawba 16 Cherokee 16 Mitchell

1 Haywood 10 Onslow 16 Chowan 16 Montgomery

1 Henderson 11 Franklin 16 Clay 16 Moore

1 Madison 11 Johnston 16 Cleveland 16 Northampton

2 Alamance 11 Wake 16 Columbus 16 Pamlico

3 Anson 12 Edgecombe 16 Craven 16 Pasquotank

3 Cabarrus 12 Nash 16 Dare 16 Perquimans

3 Gaston 12 Wilson 16 Davidson 16 Polk

3 Mecklenburg 13 Brunswick 16 Duplin 16 Richmond

3 Union 13 New Hanover 16 Gates 16 Robeson

4 Chatham 13 Pender 16 Graham 16 Rowan

4 Durham 14 Davie 16 Granville 16 Rutherford

4 Orange 14 Forsyth 16 Halifax 16 Sampson

4 Person 14 Stokes 16 Harnett 16 Scotland

5 Cumberland 14 Yadkin 16 Hertford 16 Stanly

5 Hoke 15 Currituck 16 Hyde 16 Surry

6 Guilford 16 Alleghany 16 Iredell 16 Swain

6 Randolph 16 Ashe 16 Jackson 16 Transylvania

6 Rockingham 16 Avery 16 Jones 16 Tyrrell

7 Greene 16 Beaufort 16 Lee 16 Vance

7 Pitt 16 Bertie 16 Lenoir 16 Warren

8 Wayne 16 Bladen 16 Lincoln 16 Washington

9 Alexander 16 Camden 16 Macon 16 Watauga

9 Burke 16 Carteret 16 Martin 16 Wilkes

9 Caldwell 16 Caswell 16 McDowell 16 Yancey

1616© Oliver Wyman

Scenario 2: Custom Rating Areas – Individual RegionsRegion County Region County Region County Region County

1 Bladen 4 Lenoir 7 Harnett 12 Orange

1 Columbus 4 Nash 7 Lee 12 Wake

1 Duplin 4 Northampton 7 Moore 13 Buncombe

1 Hoke 4 Wilson 8 Alleghany 13 Henderson

1 Lincoln 5 Camden 8 Iredell 13 Mitchell

1 Montgomery 5 Carteret 8 Wilkes 13 Polk

1 Onslow 5 Craven 9 Alexander 14 Cherokee

1 Richmond 5 Currituck 9 Ashe 14 Clay

1 Robeson 5 Dare 9 Avery 14 Graham

1 Rowan 5 Edgecombe 9 Burke 14 Haywood

1 Sampson 5 Gates 9 Caldwell 14 Jackson

1 Scotland 5 Hyde 9 Catawba 14 Macon

1 Stanly 5 Martin 9 McDowell 14 Madison

2 Anson 5 Pamlico 9 Rutherford 14 Swain

2 Cabarrus 5 Pasquotank 9 Watauga 14 Transylvania

2 Gaston 5 Perquimans 10 Alamance 14 Yancey

2 Mecklenburg 5 Pitt 10 Franklin 15 Davie

2 Union 5 Tyrrell 10 Johnston 15 Forsyth

3 Brunswick 5 Washington 10 Vance 15 Guilford

3 Cumberland 6 Beaufort 10 Warren 15 Rockingham

3 New Hanover 6 Bertie 11 Caswell 15 Stokes

3 Pender 6 Chowan 11 Chatham 15 Surry

4 Greene 6 Hertford 11 Granville 15 Yadkin

4 Halifax 6 Wayne 11 Person 16 Davidson

4 Jones 7 Cleveland 12 Durham 16 Randolph

1717© Oliver Wyman

Scenario 2: Custom Rating Areas – Small Group RegionsRegion County Region County Region County Region County

1 Brunswick 6 Carteret 9 Warren 13 New Hanover

1 Franklin 6 Craven 10 Alamance 13 Orange

1 Onslow 6 Edgecombe 10 Catawba 13 Rutherford

1 Union 6 Hertford 10 Clay 13 Sampson

1 Watauga 6 Hyde 10 Forsyth 14 Alexander

2 Burke 6 Northampton 10 Transylvania 14 Anson

2 Columbus 6 Pamlico 10 Yancey 14 Chatham

2 Harnett 6 Tyrrell 11 Bertie 14 Montgomery

2 Macon 7 Alleghany 11 Camden 14 Moore

3 Granville 7 Davie 11 Chowan 14 Wake

3 Lenoir 7 Lincoln 11 Currituck 15 Bladen

3 Wilson 7 Robeson 11 Dare 15 Caswell

4 Cabarrus 7 Rowan 11 Gates 15 Durham

4 Cleveland 7 Scotland 11 Jones 15 Gaston

4 Iredell 7 Stokes 11 Martin 15 Lee

4 Johnston 7 Yadkin 11 Perquimans 15 Mecklenburg

4 Stanly 8 Caldwell 11 Washington 15 Pender

4 Wilkes 8 Cherokee 12 Duplin 15 Person

5 Ashe 8 Graham 12 Greene 15 Richmond

5 Haywood 8 Henderson 12 Halifax 15 Surry

5 Hoke 8 Madison 12 Pitt 16 Avery

5 Jackson 8 Polk 12 Vance 16 Buncombe

5 Mitchell 8 Swain 12 Wayne 16 Cumberland

5 Rockingham 9 Nash 13 Davidson 16 Guilford

6 Beaufort 9 Pasquotank 13 McDowell 16 Randolph

QUALIFICATIONS, ASSUMPTIONS AND LIMITING

CONDITIONS

This report is for the exclusive use of the client named herein. This report is not intended for general circulation or publication, nor is it to be reproduced, quoted or distributed for any purpose without the prior written permission of . There are no third party beneficiaries with respect to this report, and does not accept any liability to any third party.

Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information. The findings contained in this report may contain predictions based on current data and historical trends. Any such predictions are subject to inherent risks and uncertainties. accepts no responsibility for actual results or future events.

The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. No obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof.

All decisions in connection with the implementation or use of advice or recommendations contained in this report are the soleresponsibility of the client. This report does not represent investment advice nor does it provide an opinion regarding the fairness of any transaction to any and all parties.

Documents

Market Reform Policy Issues – Geographic Analysis Rating Area... · © Oliver Wyman Market Reform Policy Issues – Geographic Analysis March 8, 2013