2015 celtic individual major medical rate filing

Celtic Insurance CompanyActuarial Memorandum

State of Missouri

1. General Informationa) Company Identifying Information

A. Company Legal Name: Celtic Insurance CompanyB. State: MissouriC. HIOS issuer ID: 99723D. Market: Individual Major MedicalE. Effective Date: January 1, 2015

b) Company Contact InformationA. Contact Name: Mark FreemanB. Contact Telephone Number: 312-332-8554C. Contact Email Address: [email protected]

c) Scope and Purpose This filing is a rate submission for the Celtic ACA-compliant individual major medical policy introduced to the Missouri market in2014. I have prepared this actuarial memorandum on behalf of Celtic InsuranceCompany to demonstrate compliance with the applicable laws of Missouri andapplicable requirements of the Affordable Care Act (ACA). This actuarialmemorandum is not intended for any other purpose.

d) Product ID 99723MO007e) 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 using the Actuarial Value (AV)Calculator.

f) Marketing Method This product will be sold through various marketingchannels including brokers, telesales representatives, and through an online webportal. This product will not be offered on the exchange.

2. Proposed Rate Increasea) Reason for Rate Increase No rate increase is requested. The actuarial

memorandum outlines the components to the development of the rate, includingconsideration of:- Updated market experience- Underlying medical trend, including trend leveraging from the plan design- Changes in the contributions to and receipts from the transitional federal

reinsurance program- Changes to ACA-related fees and taxes, including the Health Insurer fee and

the PCORI fee, and- Reduction in the allowance for pent-up demand included in the pricing

b) Brief Description of How Proposed Rates were Determined Rates for thisproduct were developed based on the historical allowed claim experience ofCeltics current individual market book of business. Missouri specific experiencewas projected forward and adjusted to reflect expected cost and utilizationdifferences, such as for medical inflation and changing morbidity of theunderlying population, between the experience period and the rating period.Additional adjustments which were made to adjust to a 2015 expected claim costinclude for changes in provider discounts, benefit level embedded in theexperience, additional EHB covered services, and demographics. To the extent

Celtic Insurance Company2015 Actuarial Memorandum

that state specific experience was determined not to be fully credible, a manualrate was developed based on nationwide experience which was adjusted toreflect expected claim levels for Missouri enrollees in 2015. Paid claims werecalculated as projected allowed claims multiplied by the estimated paid-to-allowed ratio for the proposed 2015 plan design. Finally, after makingadjustments to reflect the impact of transitional reinsurance and risk transferpayments, the adjusted paid claims were converted to a premium base rate byadding the expected costs for ACA related fees/taxes, administrative expenses,and a load for profit/risk margin. Rates were developed under the assumptionthat they would remain in effect for new sales for twelve months after theproposed effective date of 1/1/2015. The average annual premium per member isprojected to be $6,028. Please see Exhibit A for the proposed monthly rates byage and tobacco use. Premiums are developed for family coverage by adding upthe rate of each covered family member, with no more than the three oldestcovered children under age 21 being taken into account in computing thepremium.

c) Rating Factors Rating factors for age, geography, and tobacco use wereretained unchanged from the current rates. Below is a description of thedevelopment of the age, geographic and tobacco use rate adjustments. Pleasesee Exhibit B for the specific rating factor relativities being proposed.

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

B. Geographic Factors Premiums will vary by the 10 defined geographicrating areas. The geographic relativities were retained from the 2014filing, and had been developed such that the rating factors do not reflectexpected morbidity differences. Average expected geographic claimscosts PMPM were developed based on MarketScan data, and adjustedfor the risk adjustment factors for the membership underlying theMarketscan experience in each geography.

C. Tobacco Use A factor of 1.30 is being applied for those members whoutilize tobacco. This factor is based on Celtics historical experiencewhich demonstrates that tobacco users relative to nontobacco usershave approximately 30% higher claims after normalizing for agedifferences within the population. It is being assumed that approximately9% of total enrolled individuals will be tobacco users.

3. Experience Period Claims and Membershipa) Paid Through Date The date through which claims from the experience period

of January 1, 2013 to December 31, 2013 were paid was March 31, 2014.b) Premiums (net of MLR Rebate) in Experience Period

A. Prior to MLR Rebates: $4,614,795B. MLR Rebates: Celtic estimates that no MLR rebates will be paid for

calendar year 2013, based on the estimated MLR for 2013, taking intoaccount the credibility of the underlying experience in the state asnecessary.


c) Allowed and Incurred Claims Incurred During the Experience PeriodA. Allowed Claims

1. Processed through claim system $4,898,6862. Estimate of incurred but not paid claims $ 251,211

B. Incurred Claims1. Processed through claim system $3,507,6812. Estimate of incurred but not paid claims $ 182,277

C. Allowed claims were pulled directly from Celtics 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 paymentcompletion patterns for Celtics current individual market book ofbusiness, using the assumption that future claim payment completionpatterns would be similar.

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

5. Projection Factorsa) Changes in the Morbidity of the Population Insured In the nationwide

individual market from 2014, medical underwriting will no longer be utilized. Thisis expected to result in a change in morbidity for the membership underlying theindividual market. We have estimated that the morbidity of the membershipenrolled the individual market in 2015 will be approximately 13.8% higher thanthat of the large group market. This estimate was retained from 2014 and isbased on a review of the nationwide 2011 incurred claim PMPMs as provided inthe CCIIO MLR Reporting Data, assumptions regarding the average nationwideactuarial value of the plans in each market, and an assumption for the projectedincrease in the morbidity of the nationwide individual market based on the reportpublished by the Society of Actuaries (SOA) titled Cost of the Future NewlyInsured under the Affordable Care Act (ACA)1. Below is a summary of ouranalysis:

1 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


We retained our estimate for the morbidity of the large group market asdeveloped for the 2014 rate filing, using the Truven Health Analytics MarketScanCommercial database (MarketScan)2 from 2010.

Separately, we calculated the risk scores for the Celtic 2013 individual marketpopulation in Missouri. The two factors were compared, with the differenceassumed to be the factor necessary to adjust the underlying Celtic individualmarket morbidity such that it would reflect the morbidity of 2015 individualmarket. To ensure that benefit differences did not impact the comparison, riskscores for both populations were estimated using the Silver benefit tier.

Finally, the impact of the expected shift in the average mix by age and gender,equal to -1.3% was removed from the adjustment so that it could be included withthe demographic changes in the Other adjustment column of Worksheet 1,Section II. Excluding demographics, an adjustment equal to 1.437 was applied tothe underlying Missouri experience period allowed claims PMPM for this change.

In addition, an adjustment equal to 1.022 was applied to the historical claim coststo reflect that the newly insured individual market population will have a levelpent up demand due to now having access to health care benefits where beforethey had not. The assumed percentage of the individual market which isexpected to be newly insured is approximately 44.8% and is based on Missourispecific results provided in the previously mentioned report released by the SOAnamed: SOA Study: Cost of the Future Newly Insured under the Affordable CareAct (ACA). The final adjustment factor of 1.022 was developed based on theassumption that 44.8% of the individual market will be made up of newly insuredsand that those newly insured individuals will have approximately 5% higher

2 The MarketScan Commercial Claims and Encounters Database consists of employer- and health plan-sourced datacontaining medical and drug data for several million individuals annually, encompassing employees, their spouses,and dependents who are covered by employer-sponsored private health insurance.

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.o rg/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 o f the "Cost o f the Future Newly Insured under the Affordable Care Act (ACA)" study by the SOA


claims than average due to pent up demand. This assumption represents a 50%reduction from the 2014 assumption, reflecting a first step to the phasing-out ofpent-up demand allowances in Celtic pricing.

b) Changes in benefits Consistent with the 2014 rate filing, mandated coveragefor 2015 relative to the coverage available during the experience period isestimated to increase the expected allowed claims by approximately 8.6%. Thisadjustment had been developed based on a comparison of the coverageunderlying Celtics pre-ACA population relative to the Missouri EHB benchmarkplan. The most impactful newly mandated covered services which result in theestimated change include the following: pediatric dental, mental health/substanceabuse parity, outpatient rehabilitation, and maternity. Adjustments for each ofthese changing benefits were developed using a combination of an analysis ofclaims by service type from MarketScan as well as information available in otherindustry studies.

In addition, an induced utilization adjustment factor equal to 0.982 was applied tothe Missouri specific experience to reflect the expected impact on utilization ofthe difference in cost sharing between the estimated paid-to-allowed ratio (P/A)for the experience period of 65.6% to the projected P/A of 58.0% for the ACAplan design.

The induced utilization adjustment factor was developed consistent the followingtable of induced utilization factors which were released on pages 9091 of theHHS Notice of Benefit and Payment Parameters for 2014.

c) Changes in Demographics An adjustment equal to approximately 0.987 wasapplied to reflect the shift between the average mix of the underlying populationby age and gender for the experience period and the average mix anticipated tounderlie the projection period. To calculate this adjustment, the distribution ofmembership by age and gender was first pulled for the experience period.Expected claim costs were then applied to the distribution to develop a weightedaverage expected claim cost. Next, the anticipated distribution of membership byage and gender was developed. This anticipated distribution was based on the2011 US Census, excluding individuals covered by government health plans,reflecting that we are expecting the individual market to look more similarly to theoverall population now that medical underwriting will no longer be applied. Thesame expected claim costs by age and gender as were applied to the experienceperiod distribution of membership were then applied to the anticipated distributionof membership to develop a weighted average expected claim cost. Thecalculated expected claim costs for both the experience period and rating period


were then compared, resulting in an adjustment equal to the value describedabove.

In addition, a geographic adjustment of 0.999 was applied to reflect the impact ofdifferences in geographic claim costs between the projected 2015 Missourienrollment and the actual 2013 Missouri enrollment. To calculate this adjustment,expected geographic claim cost relativities by MSA were developed based onMarketScan claims data. These average claim costs PMPM were then adjustedto smooth out the impact of any large claims greater than $150K and tonormalize for any age/gender differences. As a result, the adjusted average claimcosts PMPM which were calculated reflect differences by geographic region inprovider payment patterns, morbidity (excluding age/gender), and averagenetwork discounts. We note that, given that Celtic will be using a broad basednetwork in 2015, we believe it is reasonable to assume that the average discountdifferences by market as reflected in the MarketScan data will be representativeof the average discount differences by market for Celtic in 2015. Next, theprojected 2015 Missouri population by MSA was developed based on thedistribution of membership in Missouri in MarketScan. Given that the MarketScandatabase is very large, it was assumed that the average membership by MSArepresented within MarketScan would be a better estimate of the futuremembership by MSA than the underlying Celtic insured population would be. The2013 expected claim cost was then calculated based on the weighted average ofCeltics 2013 population by MSA and the expected claim costs by MSA whichwere developed as described above. This value was compared to the expectedclaim cost based on the weighted average of the projected Celtic 2015population and expected claim costs by MSA. The difference between these twovalues was applied as the geographic adjustment.

d) Other Adjustments Other adjustments that have been applied to the historicalclaims include the following:

A. Provider Discount Change An adjustment was applied to thehistorical allowed costs to reflect a shift from the discount levels incalendar year 2013 to those expected in 2015. Claims submitted in2013 were adjusted, as necessary, to reflect the expected allowed coststhat would have been incurred if the 2015 networks discounts had beenapplied instead. The total network adjusted claims for the experienceperiod were compared to the unadjusted claims for the experienceperiod to develop the final adjustment to be applied. For Missouri, thisadjustment is equal to 1.110.

B. Large Claim Adjustment Allowed claim volumes at the state levelwere adjusted through the use of a $250K large claim pooling point,such that claims in excess of the $250K threshold were first removedand then a pooling charge equal to $21.74 PMPM was added back intothe experience. The pooling charge of $21.74 PMPM is equal to thetotal completed claim volume in excess of the $250K threshold dividedby total member months for the experience period. For Missouri, thisadjustment was equal to approximately 1.047.


e) Trend A trend rate used to project claims from the experience period to therating period was developed based on a review of the following two industryreports: Oliver Wyman Carrier Trend Report January 2014, and S&PHealthcare Economic Indices3. Given the changes that have occurred in theunderlying population of Celtics individual book of business in recent years, itwas assumed that industry level studies such as these would be most reliable fordeveloping trend estimates.

The Oliver Wyman Carrier Trend Report January 2014 edition presents thepricing trends used by participating carriers in the development of their rates forJanuary 2014. A total of 2.96 million members with individual health policies arerepresented by the 48 carriers with individual PPO business who participated inthis edition of the report. In total, the weighted average reported medical trendbeing used for Individual PPO products among participating carriers was 7.6%.For prescription drugs, a larger sample of 103 issuers representing over 60million members, reported a weighted prescription drug trend of 8.7%.

The S&P Healthcare Economic Indices seek to reflect the monthly rate of changein the principal cost components of the U.S. healthcare market. The commercialindices estimate the per capita change in revenues accrued each month byhospital and professional services facilities for services provided to patientscovered under commercial health insurance programs in the U.S. The annualgrowth rates are determined by calculating a percent change of the 12-monthmoving averages of the monthly index levels versus the same month of the prioryear. The commercial medical index show increases at 4.15% for data throughJuly 2013, having dropped from a value closer to 8% a year earlier.

We note that the prescription drug trends in the Oliver Wyman report are slightlyhigher than the medical trend, and that these are excluded from the S&P indices.Based on these studies, Celtic is retaining an annual trend rate of 7.0% at thistime. Historical experience was then projected from the midpoint of theexperience period, 7/1/2013, to the assumed midpoint of the rating period,7/1/2015, for a total of 24 months. The overall trend adjustment being applied tothe 2012 historical claims is 1.145.

6. Credibility Manual Rate Developmenta) Source and Appropriateness of Experience Data Used Celtic nationwide

experience from the experience period of January 1, 2013 through December 31,2013, with payments through March 31, 2014, was used as the basis for themanual rates which were developed. Since this data was determined to be fullycredible with 380,000 member months underlying the experience, and because itrepresents a population with similar characteristics (e.g. plan designs, morbidity)to the state specific Celtic population, it was determined to be the mostappropriate data set to use for developing the manual rate.

3 Annual Growth Rates Remain Stable in July 2013 According to the S&P Healthcare Economic Indices. September19, 2013. S&P Dow Jones Indices


b) Adjustments Made to the Data The following adjustments were made to thenationwide experience to reflect appropriate Missouri specific 2015 cost andutilization levels:

A. Changes in the Morbidity of the Insured Population As noted insection 5.a, we have estimated that the morbidity of the membershipunderlying the individual market in 2015 will be slightly higher than thatof the large group market. We retained our estimate for the morbidity ofthe large group market as developed for the 2014 rate filing, using theTruven Health Analytics MarketScan Commercial database(MarketScan).

Separately, we calculated the risk scores for the Celtic 2013 nationwideindividual market population. The two factors were compared, with thedifference assumed to be the factor necessary to adjust the underlyingCeltic individual market morbidity such that it would reflect the morbidityof 2015 individual market.

Finally, the impact of the expected shift in the average mix by age andgender, equal to 0.8% was removed from the adjustment so that it couldbe included with the demographic changes in the Other adjustmentcolumn of Worksheet 1, Section II. Excluding demographics, anadjustment equal to 1.269 was applied to the underlying nationwideexperience period allowed claims PMPM for this change.

In addition, an adjustment equal to 1.022 was applied to the historicalclaim costs to reflect that the newly insured individual market populationwill have a level pent up demand due to now having access to healthcare benefits where before they had not. The assumed percentage ofthe individual market which is expected to be newly insured isapproximately 44.8%, and is based on Missouri specific results providedin the previously mentioned report released by the SOA named: SOAStudy: Cost of the Future Newly Insured under the Affordable Care Act(ACA). The final adjustment factor of 1.022 was developed based onthe assumption that 44.8% of the individual market will be made up ofnewly insureds and that those newly insured individuals will haveapproximately 5% higher claims than average due to pent up demand.This assumption represents a 50% reduction from the 2014 assumption,reflecting a first step to the phasing-out of pent-up demand allowancesin Celtic pricing.

B. Changes in benefits Consistent with the 2014 rate filing, mandatedcoverage for Missouri for 2015 relative to the coverage available duringthe experience period for Celtic individuals is estimated to increase theexpected allowed claims by approximately 8.2%. This adjustment hadbeen developed based on a comparison of the coverage underlyingCeltics nationwide 2012 population relative to the EHB benchmarkplan. The most impactful newly mandated covered services which result


in the estimated change include the following: mental health/substanceabuse parity, pediatric dental, outpatient rehabilitation, habilitation care,and maternity. Adjustments for each of these changing benefits weredeveloped using a combination of an analysis of claims by service typefrom MarketScan as well as information available in other industrystudies.

In addition, an induced utilization adjustment factor equal to 0.983 wasapplied to the nationwide experience to reflect the expected impact onutilization of the difference in cost sharing between the estimated P/Afor the experience period of 65.2% to the projected P/A of 58.0% for therating period plan design. This induced utilization adjustment wasdeveloped to be consistent the table of induced utilization factors whichwere released on pages 9091 of the HHS Notice of Benefit andPayment Parameters for 2014.

C. Changes in Demographics An adjustment equal to approximately0.8% was applied to reflect the shift between the average mix of theunderlying Celtic nationwide population by age and gender for theexperience period and the average mix anticipated to underlie theprojection period. To calculate this adjustment, the distribution ofmembership by age and gender was first pulled for the nationwideexperience. Expected claim costs were then applied to the distributionto develop a weighted average expected claim cost. Next, theanticipated distribution of membership by age and gender wasdeveloped. This anticipated distribution was based on the 2011 USCensus4, excluding individuals covered by government health plans,reflecting that we are expecting the individual market to look moresimilarly to the overall population now that medical underwriting will nolonger be applied. The same expected claim costs by age and genderas were applied to the experience period distribution of membershipwere then applied to the anticipated distribution of membership todevelop a weighted average expected claim cost. The calculatedexpected claim costs for both the experience period and rating periodwere then compared, resulting in an adjustment equal to the valuedescribed above.

In addition, a geographic adjustment of 0.961 was applied to reflect theimpact of differences in geographic claim costs between the projected2015 Missouri enrollment and Celtics nationwide enrollment bygeographic region. To calculate this adjustment, expected geographicclaim cost relativities by MSA were developed based on MarketScanclaims data. These average claim costs PMPM were then adjusted tosmooth out the impact of any large claims greater than $150K and tonormalize for any age/gender differences. As a result, the adjustedaverage claim costs PMPM which were calculated reflect differences bygeographic region in provider payment patterns, morbidity (excluding

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


age/gender), and average network discounts. The nationwideexperience expected claim cost was then calculated based on theweighted average of Celtics 2013 population by MSA and the expectedclaim costs by MSA which were developed as described above. Thisvalue was compared to the expected claim cost for Missouri which wasdeveloped using the same approach. The difference between these twovalues was applied as the geographic adjustment to the nationwideclaims cost.

D. Provider Discount Change An adjustment was applied to thehistorical nationwide allowed costs to reflect a shift from the discountlevels in calendar year 2013 to the projected level of provider discountswhich will exist in 2015. Claims submitted in 2013 were adjusted, asnecessary, to reflect the expected allowed costs that would have beenincurred under Celtics 2015 network. The adjusted claims for theexperience period were compared to the unadjusted claims for theexperience period to develop the final adjustment to be applied. For thenationwide data, this adjustment is equal to 1.129.

E. Trend A description of how the trend assumption was developed isprovided in section 5.e

c) Inclusion of Capitation Payments Capitation payments were not considered,given that no capitation payments were made during the experience period norare any expected to be made during the projected rating period.

7. Credibility of Experiencea) Description of the Credibility Methodology Used Experience was assumed

to be fully credible at approximately 310,000 member months, or approximately25,800 members. This threshold was determined through the use of LimitedFluctuation Credibility Theory. Using this approach, a claim probabilitydistribution model was first developed based on industry level claim distributions.This claim probability distribution model was then adjusted to reflect the overallCeltic allowed claim cost level from the experience period. Based on the adjustedclaim probability distribution and the application of Limited Fluctuation CredibilityTheory, it was determined that 310,000 member months of experience would bean appropriate credibility threshold such that the underlying experience wouldrepresent expected claims levels within +/5%, 90% of the time. To determinethe credibility of state specific experience when full credibility did not exist, thefollowing formula was applied: (Actual Member Months / 310,000) ^ 0.5. Thismethodology is consistent with generally accepted actuarial practices used in theindustry.

b) Resulting Credibility Level Assigned to Base Period Experience Based onthe described methodology, the resulting credibility assigned to the Missourispecific experience was 21.8%.

8. Paid To Allowed Ratio The projected Paid to Allowed ratio was developed by running theproposed Bronze plan design through Oliver Wymans proprietary pricing model, which was


adjusted to reflect the projected level of allowed claims per person per year for Celtics 2014Missouri enrollees. This analysis resulted in a projected Paid to Allowed ratio for thespecified plan design of 65.7%.

We note that one of the reasons for the significant difference between the calculated AV of58.1% based on the AV calculator and projected Paid to Allowed ratio of 65.7% is the resultof the significant difference between the underlying assumed cost per person per year beingutilized between the two models. In the AV calculator, the average allowed cost per personper year is less than $5,000, whereas the projected average allowed claim cost per personper year for Celtics projected Missouri enrollees in 2015 is almost $8,000. Due to the impactof leveraging, as claim costs increase, the level of claims over the fixed deductibleassociated with the proposed plan design becomes greater, and the Paid to Allowed ratioincreases significantly.

9. Risk Adjustment and Reinsurancea) Projected Risk Adjustments Payments A risk transfer equal to $0.95 PMPM

is being projected. Given that one plan design is being proposed, in developingthe average premium rate PMPM, this amount was added to the projectedaverage claim payment PMPM for 2015 based on the adjustments describedpreviously. This is consistent with the requirement for risk adjustments to beallocated proportionally to plan premiums across the single risk pool. This 2015risk transfer payment was calculated using the formula outlined in the HHSNotice of Benefit and Payment Parameters for 2015. The following table providesthe assumptions which were applied in this calculation.

In developing the proposed rates, it is being assumed that the morbidity andgeographic distribution of Celtics 2015 population will look similar to theindividual market average overall. Given the relatively small size of Celticsexisting block and the uncertainty of the single risk pool population in 2015, webelieve this is a reasonable assumption to make. As a result of this assumption,

Risk Transfer Formula Assumptions and Calculation

Missouri

Market CelticAV Actuarial Value Factor 0.700 0.600RS Risk Score 1.117 0.954RF Rating Factor 1.355 1.355

IDF Induced Demand Factor 1.030 1.000GCF Geographic Cost Factor 1.000 1.000

P Average Premium $307.27RS * IDF * GCF 1.150 0.954

N1 Normalized (RS * IDF * GCF) 0.829AV * RF * IDF * GCF 0.977 0.813

N2 Normalized (AV * RF * IDF * GCF) 0.832Transfer = P x (N1-N2) -$0.95


the same factors are assumed for the Rating Factor and Geographic Cost Factorbetween the statewide calculation and Celtic calculation.

In addition, it is being assumed that the average statewide plan sold will beequivalent to the Silver metal tier. As a result, the statewide AV being assumedis 0.700 and the statewide IDF being assumed is 1.030. (These assumptions arebroadly consistent with the results from a recent ASPE report on marketenrollment5). For Celtic, the AV was set equal to the AV of the proposed Bronzetier and the IDF is assumed to be 1.000. The risk scores in the table above werecalculated based on the MarketScan population for Missouri. The Statewidefactor reflects the risk score for this population based on a Silver metal tier whilethe risk score for Celtic was calculated based on a Bronze metal tier. Finally, thestatewide average premium was assumed to be 10% above the second lowestcost carrier silver rates in 2014 on the Exchange for a 21-year old in the mostpopulous county, increased by the rating factors above.

Separately, the risk adjustment amounts include a $0.08 PMPM allowance forthe risk adjustment user fee.

b) Projected ACA Reinsurance Recoveries Net of Reinsurance Premium Aprojected net reinsurance recovery equal to $59.31 PMPM is being assumed inthe development of the proposed rates. This adjustment is made at the marketlevel. This assumption was developed by first scaling a representative claimprobability distribution to reflect Celtics 2015 expected allowed claim levels.Using the scaled claim probability distribution, estimated annual payments werethen calculated based on Celtics proposed Bronze plan design. Next, theestimated annual payments per member per year between the thresholds of$45,000 and $250,000 were accumulated and multiplied by 50%, consistent withfederal guidance regarding the transitional reinsurance program. This amountwas then divided by twelve to convert it to a PMPM basis. Lastly, the temporaryreinsurance assessment of $3.67 PMPM, which is being levied across allindividuals for 2015, was subtracted, resulting in a projected net reinsurancerecovery of $59.31 PMPM.

10. NonBenefit Expenses and Profit & Risk Expense assumptions were developed basedon a combination of a review of historical expense levels as well as prospective adjustmentsto reflect future expectations. Below are the assumptions being applied in the proposedrates:

a) Administrative Expense Load: 15.2%b) Profit or Contribution to Surplus Margin: 5%. This amount is consistent with the

level assumed in 2014 pricing.c) Taxes and Fees

A. Premium Tax: 2.0%B. Exchange User Fee: 0.0%C. ACA Insurer Tax: 2.9%.D. Comparative Effectiveness Research Fee: $0.17 PMPM

5 Available athttp://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Apr2014/ib_2014Apr_enrollAddendum.pdf


11. Projected Loss Ratioa) Projected Federal MLR The ACA minimum loss ratio (MLR) requirement for

individual policies is 80.0%. The ACA permits adjustments to the MLR for qualityimprovement initiatives and specified fees/taxes. After applying the allowed ACAadjustments, the projected federal MLR for this policy is 80.1%. Below is ademonstration of this calculation:

b) Projected Loss Ratio The projected loss ratio for 2015, based on dividingprojected incurred claims by earned premium, excluding expected netreinsurance recoveries and risk transfer payments, is equal to 86.5%. If netreinsurance recoveries and risk transfer payments are subtracted from claims,the projected loss ratio is 74.8%.

12. Single Risk Pool The single risk pool for Celtic for the individual market in Missouri wasestablished according to the requirements of 45 CFR part 156, at 156.80(d). Claimsexperience in the experience period includes all non-grandfathered individual businesswritten in Missouri. Projected 2015 enrollment includes only enrollment in fully ACA-compliant plans.

13. Index Rate The index rate for the experience period has been set equal to the allowedclaims cost PMPM in the market.

The index rate for the projection period is $660.86 PMPM. The index rate is set to representthe allowed claims PMPM for the proposed bronze plan design, for essential health benefitsonly, and has not been adjusted for payments and charges under the risk adjustment andreinsurance programs, or for Exchange user fees.

MLR Calculation

Calculated Paid Claims PMPM $434.29+ Risk Transfer Payment/Receipt $0.95+ Reinsurance Payment/Receipt -$62.98

+ QI Expense $0.00Total Adjusted Medical Expense $372.26

Calculated Overall Rate PMPM $502.33- CER Fee $0.17

- Risk Adjustment Fee $0.08- Reinsurance Fee $3.67- ACA Insurer Fee $9.47

- State Premium Tax $10.05- Federal Taxes $13.89

Total Adjusted Premium $465.01

Calculated Federal MLR 80.1%


14. Market Adjusted Index Rate The market adjusted index rate of $572.17 PMPM is equalto the Index Rate previously described adjusted for the impact of the temporary federalreinsurance program and the risk adjustment program (as described in Section 9 of thismemorandum, expressed as a % of projected paid claims). No Exchange user fees wereapplicable.

15. Plan Adjusted Index Rate Since only a single plan is offered, and no non-EHB benefitsare included, the Plan Adjusted Index Rate of $487.73 PMPM is calculated directly from themarket adjusted index rate as shown in in the table below.

16. Calibrationa. Age Calibration: As stated before, the anticipated distribution of membership by

age and gender was developed based on the 2011 US Census6, excludingindividuals covered by government health plans, reflecting that we are expectingthe individual market to look more similar to the overall population now thatmedical underwriting will no longer be applied. Using this distribution, and thefederal standard age curve, a weighted average age factor of 1.355 wascalculated. This was compared against the weighted average age of 34calculated using the same distribution, which coincides with a factor of 1.214 onthe standard age curve. It is not expected that these values would be identical,as the standard age curve is not a linear function across the ages.

b. Geographic Factor calibration: The geographic calibration factor is based on theweighted average geographic rating factor, using the proposed geographicfactors, and the projected enrollment by rating area. Geographic factors werecalibrated such that the weighted average factor is equal to 1.0.

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

Derivation of the Market Adjusted Index Rate Index Rate $660.86 Reinsurance Impact -13.7% Risk Adjustment Impact 0.3% Exchange User Fee 0.0% Market Adjusted Index Rate $572.17

= x (1+) x (1+) x (1+)

Derivation of the Plan Adjusted Index Rate Market Adjusted Index Rate $572.17 Cost Sharing Adjustment 65.7% Provider Network 0.0% Benefits in addition to EHB 0.0% Retention Adjustment 74.9% Tobacco Surcharge 3.0% Plan Adjusted Index Rate $487.73

=( x x (1+) x (1+))/( x (1+))


17. Consumer Adjusted Premium Rate Development The table below shows the crosswalkfrom the Plan Adjusted Index Rate to the Consumer Adjusted Premium Rate for a singleperson age 46 in Rating Area 6 in Missouri.

18. AV Metal Values The AV Metal Value included in Worksheet 2 of the Part I Unified RateReview Template was entirely based on the AV Calculator.

19. AV Pricing Values The AV Pricing value for the product proposed is the aggregate of allthe adjustments to derive the Plan Adjusted index rate from the Market Adjusted index rate,i.e. $487.73/ $572.17= 0.8524

20. Membership Projections Celtic will be offering only a single plan in the Missouri marketin 2015. We therefore project all membership in this plan. Due to the impact of transitionalpolicies, we reduced our projected enrollment compared to the 2014 filing. We assumed forthe purposes of completing Worksheet 2 of the Part I Unified Rate Review Template thatprojected membership in 2015 will be equal to 1,473 member months.

21. Terminated Products The following products were included in the experience period andwill be terminated for new business prior to 1/1/2014: CelticCare 1.0, CeltiCare 2.0,CeltiCare 2.1, CeltiCare 3.0, CelticCare 3.1, Celtic Basic 1.0, Celtic Basic 2.1, Celtic Basic2.2, CeltiCare 4.0, CeltiCare 5.0, CeltiCare 5.1, CeltiCare 5.2, HSA 2.0, HSA 2.1, HSA 3.0,and HSA 3.1.

22. Plan Type The plan type selected in the drop-down box in Worksheet 2, Section I isrepresentative of the proposed plan included with this filing.

23. Warning Alerts There is a warning in Worksheet 2 for Plan Adjusted Index Rate. Theapparent discrepancy is the result of comparing a rate with no calibration for tobacco loading(single risk pool average premium) with a rate that has already been calibrated for theaverage tobacco load.

Derivation of the Consumer Adjusted Premium Rate Plan Adjusted Index Rate $487.73 Calibration: Average Age 34 Calibration: Age Factor 1.355 Calibration: Geography 1.000 Base Rate $359.85

=/( x) Age 46 Age Factor 1.500 Geographic Factor: Rating Area 6 0.894 Consumer Adjusted Rate $482.56

= x x


Similarly, the warning for Total Premium in Worksheet 2 is because the premium revenueexpected from tobacco loadings have been excluded from the plan-level values, while it isincluded in the comparative value from worksheet 1.

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

25. Actuarial Certification I am a Fellow of the Society of Actuaries and a Member of theAmerican Academy of Actuaries, and I meet the Academys qualifications standards forpreparing health rate filings and, to the best of my knowledge and belief, I certify thefollowing:

x This filing was developed in compliance with the applicable Actuarial Standards ofPractice and conforms to generally accepted actuarial principals.

x This filing is in compliance with the applicable laws and regulations of Missouri andall applicable federal statutes and regulations

x Premiums are not inadequate, excessive, unfairly discriminatory, or unreasonable inrelation to the benefits and population anticipated to be covered.

x The index rate is developed in accordance with state and federal regulations (45CFR 156.80(d)(1)), and the Index rate( along with only the allowable modifiers asdescribed in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2)) are used in thedevelopment of plan specific premium rates.

x The percent of total premium that represents essential health benefits included inWorksheet 2, Sections III and IV were calculated in accordance with actuarialstandards of practice

x The AV Calculator, with no further adjustments, was used to determine the AV MetalValue for the proposed plan design.

________________________________Kurt Giesa, FSA, MAAA

Oliver Wyman Actuarial Consulting, Inc.

2015 celtic individual major medical rate filing

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