2015 john alden small group major medical rate filing.pdf

ACTUARIALMEMORANDUMandCERTIFICATIONfor

JOHNALDENLIFEINSURANCECOMPANYin

Missourion

FormJGM14.POL.MO

ThepurposeofthisannualratefilingistosettheindexrateandanyotherapplicableadjustmentstotheindexrateforJanuary1st,2015,assetforthintheAffordableCareAct(ACA)requirements,andtodemonstratethereasonablenessofbenefitsinrelationshiptopremiums.Thisratefilingisnotintendedforotherpurposes.AssurantHealthisthemarketingnameofthelegalentitiesTimeInsuranceCompanyandJohnAldenLifeInsuranceCompany.AssurantHealthwilladminister,issue,andinsurethisblock.Theselegalentitiesofferidenticalproductswiththesamerates,administrativesystems,andprocesses.

1. GeneralInformation:

a. InsuranceCompanyName JohnAldenLifeInsuranceCompanyb. State Missouric. HIOSIssuerID 49221d. Market SmallGroupMajorMedicale. EffectiveDates January1,2015December31,2015f. PrimaryContactName RobertAndersong. PrimaryContactPhone# 4142996866h. PrimaryContactEmailAddress [email protected]

i. GeneralPolicyDescription:

ThisratefilingisfornongrandfatheredsmallgroupmajormedicalplanswhichcovertheEssentialHealthBenefits(EHB)asrequiredundertheAffordableCareAct(ACA).TheseplansareguaranteedissueandguaranteedrenewableasdefinedundertheACAandHIPAA.Plansaremarketedthroughgeneralagencies,brokers,wholesalearrangements,anddirecttoconsumer.In2015,AssurantHealthwillonlysellplansoutsideoftheSHOPinthisstate.Coveragebeyondage65willbesecondarytoMedicare.Premiumsareonanattainedagebasisandwillincreasewithage.Premiumsalsovarybyplandesignandgeographicarea.In2015,onlytheoldestthreedependentsunderage21willbechargedapremiumrateforagivenpolicy.Wewilloffercompositeratingonthisformin2015.Wewillensurethatcompositeratesareequaltopermemberratesatissueandonrenewalinordertomaintainstabilityonthegroup'spremiumandemployer'scontributionintheeventofmemberaddonandterminations.Allgroupsizeswillbeeligibletoreceivecompositeratingonthisform.InaccordancetotheFederalrulesandregulationsreleasedonMarch11,2014,ourcompositeratingstructurewillfollowthefederalproposedtwotieredstructure.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page22. ProposedRateIncrease:

Theproposedaveragerateincreaseforthisstateis6%.Thisincreaseexcludesattainedageincreases.Therateincreasedoesvarybyplan.Theseadjustmentsaredescribedinfurtherdetailinsection14ofthismemorandum.AppendixAshowsthedevelopmentofbaseratesforthisproduct.Theremainingsectionsofthememorandumdetailtheassumptionsweusedtodeveloprates.ReasonsforRateIncrease:Thefollowinglistisabriefdescriptionofthesignificantfactorsdrivingtheproposedratechange.Moredetaileddescriptionsofthesefactorsareincludedlaterinthismemorandum.1.) MedicalTrend:Ourmedicaltrendaccountsfortheeffectsonfutureclaimsduetoinflation,

advancingmedicaltechnologyandtechniques,andincreasedutilizationandcostshifting.

2.) AdditionalFees:Thehealthinsurerfeeassessmentismovingfrom$8billionto$11.3billionin2015whichresultsinalowertargetlossratio.

3.) PaidtoAllowedRatio:Thedifferencebetweenourprojectedpaidtoallowedratioinour

experienceversusthatofthe2014actuarialvaluecalculatorresultsinanincreasetoourprice.

TherateincreasesvarybyproductprimarilyduetobenefitleveragingdifferencesbymetallevelanddifferencesinPPOnetworkfactors.Theseadjustmentsarewarrantedastheyresultinactuariallyappropriateratesthatreflectthetruecostdifferencesbetweentheplans.PleasenotethatourratingmethodologydiffersfromthatoutlinedintheUnifiedRateReviewTemplate.Rather,theUnifiedRateReviewTemplaterepresentsinformationrequiredbyFederalRegulationtofacilitatereview.ThefollowingsectionsnoteanydifferencesbetweentheUnifiedRateReviewTemplateandthepricingmethodologyweusedtodeveloprates.PleaserefertoAppendixAforourratedevelopmentmethodology.

3. ExperiencePeriodPremiumandClaims

WepreparedtheUnifiedRateReviewTemplateusingstateandlegalentityspecificnongrandfatheredexperienceinordertocomplywithDepartmentofHealthandHumanServices(HHS)requirements.Forthepurposeofestimatingtheaverageriskofthe2015market,grandfatheredandnongrandfatheredexperienceofTimeInsuranceCompanyandJohnAldenLifeInsuranceCompanywasreviewedtogether.Thiscombinedexperiencewasusedinordertodevelopanactuariallyappropriatepredictionofthemarketwidepermemberpermonthriskandstandardizedclaimcostin2015.Thesameexperiencebasisisusedforboththepricingmethodologyandthedevelopmentoffactorsthatwilladdresstheimpactofourriskrelativetothemarketandtheimpactthishasonpremiumrates.Thisprocessisdescribedinmoredetailbelow.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page3 ExperiencePeriod:TheexperienceperiodisclaimsincurredandpremiumearnedfromJanuary

1,2013throughDecember31,2013. PaidThroughDate:Thedatethroughwhichpaymentshavebeenmadeonclaimsincurred

duringtheexperienceperiodisFebruary28,2014. Premiums(NetofMLRRebate)inExperiencePeriod:IntheUnifiedRateReviewTemplate,the

earnedpremiumpriortoMedicalLossRatio(MLR)rebatesfortheCalendarYear2013experienceperiodwas$5,886,262.EarnedpremiumwasnotadjustedforanyreductionsprescribedwhencalculatingtheMLR,suchastaxesandassessments.TheMLRrebatesfortheexperienceperiodareestimatedat$0.

ThefinancialactuarialteamatAssurantHealthestimatesaccruedpremiumrefundsrequiredunderFederalMinimumLossRatioregulationsfortheIndividualMedicalandGroupMedicalinsurancebusiness.Theteamprojectsincurredclaims,earnedpremiums,andotherelementsandappliesadjustmentsasoutlinedinFederallawsandregulations.Theseprojectionsareperformedonastateandmarketlevelbasisandrecentclaimsexperienceisadjustedforestimatedclaimsreservesonastatelevelbasis.

AllowedandIncurredClaimsDuringtheExperiencePeriod:IntheUnifiedRateReview

Template,theamountofincurredclaimsprocessedthroughourclaimsystemfortheexperienceperiod2013is$4,467,100.Thebestestimateofexperienceperiodclaimsincurredbutnotreportedis$132,615.Theamountofallowedclaimsprocessedthroughourclaimsystemfortheexperienceperiod2013is$6,768,856.Thebestestimateofexperienceperiodallowedclaimsincurredbutnotpaidasofthepaidthroughdateshownaboveis$2,301,756.Allowedclaimsaredevelopedbysubtractingineligiblechargesanddiscountsfromthetotalproviderbilledamount.AssurantHealthhasnocapitationagreements.

Thepermemberpermonthexperienceperiodallowedclaimsinourpricingmethodologyis

baseduponallSmallGroupMedicalexperiencewithinthestateforAssurantHealth.ThemethodologyisdemonstratedinAppendixA.Experienceforlimitedbenefitplanswasnotincluded.Furthermore,anadjustmentwasmadeinordertopoollargeclaimsacrossourblock.Claimsinexcessof$50,000foraspecificmemberandincurredmonthwereremovedfromtheexperience,andthenanationwideaveragepoolingchargewasappliedpermember.Allpricingcomponents,includingthebaseexperienceperioddata,areappliedconsistentlyacrossthesingleriskpoolinthestateandmarketfor2015.

OurfinancialactuarialteamdevelopslagtrianglesfornationwideSmallGroupMedical

experience.ThesetrianglesareseparatelydevelopedforMedicalandPrescriptionDrugCardcoverage.SpecificlargeclaimsthatarepartofourcasemanagementprogramareremovedfromtheMedicaltrianglesandreservedforseparately.Historicalaveragesareusedinordertocalculatemonthlycompletionfactorsfortheremainingclaims.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page44. BenefitCategories Inpatientservicesarethosereceivedduringapatientshospitalstayandareincludedinthe

InpatientHospitalCategory.Outpatientservices(e.g.labtests,Xrays,andsomesurgicalservices)arethoserenderedbyafacilitywithinanoutpatientsetting.Professionalservicesincludeprimarycare,specialist,therapyandotherprofessionalchargesthatarenotincludedinfacilityfees.OtherMedicalservicesincludechargesforitemsthatdonotfallintothecategoriesabove,suchasambulanceanddurablemedicalequipment.TheOthercategoryismeasuredbasedupondistinctservicesoritemsprovided.RetailandmailorderpharmacyclaimsareincludedinthePrescriptionDrugcategory.

5. ProjectionFactors

AssurantHealthRiskRelativetotheMarketAverage:Toestablishthisestimate,AssurantHealthparticipatedintheWakelyNationalRiskAdjustmentSimulationProject(WNRASP).InthisprojecttheWakelyConsultingGroupquantifiedriskusingtheHCCHHSmodelthatHealthandHumanServices(HHS)developedforimplementationin2014.Wakelyconductedrisksimulationsinindividualandsmallgroupmarketsonlywhen75%+ofthestatewidemembershipwasrepresented.HealthplanscoveringthesemembersusedclaimexperiencetodetermineplanliabilityriskscoresconsistentwiththeHCCHHSmethodology.HealthplanspecificliabilityriskscoresalongwithallowableratingfactorsarecomparedtothescoresofallmarketparticipantsconsistentwiththemethodologysetforthintheRiskAdjustmentProgram.

TheWNRASPresultsprovidedtoAssurantHealthquantifythedifferenceintheriskoftheAssurantHealthbookofbusinessrelativetothestateandmarketaveragerisk.Theestimateofthemarketriskwasadjustedtoapproximateariskscorewhenthemarketincludesbothgrandfatheredandnongrandfatheredexperience.Sinceweusebothgrandfatheredandnongrandfatheredexperiencewefeelitisappropriatethatthemarketisonthissamebasis.In2012theWakelyNationalRiskAdjustmentSimulationProject(WNRASP)usedbothgrandfatheredandnongrandfathereddatawhilein2013onlynongrandfathereddatawasused.Tocalculateanadjustmenttoaccountforincludinggrandfatheredexperienceweusedthe2013marketto2012marketriskscore.Thefinalstateresultisadjustedtotheextentthatbaseperioddatawaslessthan100%credible,inordertobeonaconsistentbasiswiththeindexrateforthestate.Thefinalresultforuseinourpricingmethodologywasa0.91riskscore.ThisindicatesthatAssurantHealthbusinesspractices(e.g.distributionmethodsandunderwriting)andmemberselectionpatternshavecreatedabookofexperiencewith9%lowercosts.Ourpricingwasadjustedbyafactorof1.0/0.91torepresenttheaverageactuarialrisk,asshowninAppendixA.Thismultiplicativeadjustmentisconsistentlyappliedacrossallplanswithinthestate.Pleasenotethatthisadjustmentisnotaprojectionofa2014riskscore,butratheranadjustmenttogetAssurantHealthspecificmorbidityinlinewiththemarketaverage.Afterfurtherreviewingthisassumption,weapplieda5%adjustmentperactuarialjudgmentandreasonableness.Therefore,inAppendixAtheadjustmentis0.95.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page5 ChangesinBenefits:Thereisanadjustmentof4.15%withinourpricingandclaimprojectionto

includenewandexpandedbenefitsinaccordancewiththeEHBrequirementsoftheACA.Thetablebelowliststheestimatedadditionalcostassociatedwitheachnewbenefit.ThePediatricDentalexpensewasestimatedusingcommercialgroupexperiencefor2011and2012fromoursistersegment,AssurantEmployeeBenefits.Theremainingestimatesarebaseduponpurchaseddataofexperienceofastandardpopulation.

Benefit EstimatedAdditionalCost

Maternity 1.00%MentalHealthandSubstanceAbuse 0.45%

PediatricVision 0.40%Chiropractic 0.40%

PrivateDutyNursing 0.30%PediatricDental 1.60%GRANDTOTAL 4.15%

Wealsomadeanadjustmenttoaccountforthecoverageofadditionalpreventativeitemsthat

willbepaidfirstdollarduetoupdatesbytheUSPSTF.Webelievetheimpactofcoveringtheseadditionalfirstdollarbenefitsis1.0%.Thisestimatewasdeterminedbyevaluatingthevolumeoftheseitemsinourhistoricalexperience.Theadditionalfirstdollarpreventativebenefitsare:

1.) AlcoholMisuse2.) BreastCancerRisk3.) HepatitisCScreening4.) HIVScreening5.) TobaccoUsePreventioninChildrenandAdolescents

Inaddition,weexpectthatricherbenefitsin2015willinducedemandforhealthcareservicesthatishigherthantheaverageutilizationwithinourbaseexperience.WeassumethatfutureSilverplanswillhaveutilizationthatis3%higherthanouraveragecurrentexperience,Goldwillbe8%higher,andPlatinumwillbe15%higher.Baseduponourexpected2015splitofplansbymetallevel,wehaveadjustedourexperienceperiodclaimsby0.9%inordertoaccountforthisbenefitleveldrivenincreaseinutilization.Theprojected2015membershipwasusedtodeterminethesplitofplansbymetallevelandtheweightedaverageutilizationimpactThemembershipmethodologyisdescribedinmoredetailbelow.OtherAdjustments:Wemadeanadjustmentof4.1%withinourpricingandclaimprojectioninordertoaccountforexpectedimprovementsinPreferredProviderOrganization(PPO)discountsin2015relativetothe2013experienceperiod.OurexpectedPPOdiscountsaredevelopedbyusingacombinationofexperienceandreporteddatafromthenetworksthatwelease.ThefutureimprovementisdrivenbyalargershareofbusinessexpectedintheAetnaSignatureAdministrators(ASA)networkin2015relativeto2013.ThisnetworkarrangementismorefavorableforAssurantHealththanotherleasednetworks.Furthermore,ourrentalnetworksworktorenegotiateandimprovetheircontractswithprovidersovertime,whichalsocontributestowardstheimprovementindiscounts.TheASAnetworkwasfirstlaunchedinMissouriinApril2012.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page6

TrendFactors(cost/utilization):Theeffectsonfutureclaimsofinflation,advancingmedical

technologyandtechniques,andincreasedutilizationandcostshiftingareaccountedforbyanannualseculartrendassumptionof9.0%.Thisisanallowedclaimstrendfactor.Thistrendwasdevelopedfromhistoricalexperienceofournationwideblock.Ourhistoricalexperienceshowsslightlyhighertrendbutweareloweringitto9.0%asweanticipatetrendwillbelowerthanourhistoricalexperienceduetoamorestandardriskpopulationgoingforward.PleaseseeAppendixBforfurtherdetail.Experiencewastrendedfor24months,fromthemidpointof2013tothemidpointof2015.AgeShift:Theexpectedageshiftbetween2013and2015isincludedintheindexratedevelopment.PleaseseeAppendixAfordetails.

GeographicShift:Theexpectedgeographicshiftbetween2013and2015isincludedintheindexratedevelopment.PleaseseeSection15b.andAppendixAfordetails.

6. CredibilityManualRateDevelopment

ThemanualratereflectstheAssurantHealthSmallGroupMedical2013nationwideallowedclaimspermemberpermonth(pmpm).Thisallowedpmpmvaluehasbeenadjustedtoaddressthefollowingneeds:1. AdjustthenationwideclaimstoreflecttheAssurantHealthdistributionbyageinMissouri.2. RemovetheimpactofclaimsexperiencefromMissouri(toavoiddoublecountingthis

experienceintheratedevelopment).3. AdjusttoreflectthespecificutilizationandchargelevelpatternsofMissouri.Externaldata,inconjunctionwithclaimsexperiencefrom2012,isusedtodeterminetheMissouritonationwideexpectedcostrelativity.Inordertodeterminethisrelativityfor2012,regressionanalysisisusedholdingageandgenderconstant.If2012experienceinMissouriisnotfullycredible,thestaterelativecostfactorisblendedwithastaterelativecostfactordevelopedusingTruvenAnalyticsMarketScan2011database.Controllingforageandgender,regressionanalysisontheTruvendatabaseproducedthestatetonationwideallowedcostrelativity.The2011andTruvenblendedrelativityfactorisreferredtoasthemanualstatefactor.Aregressionbasedonnationwide2013allowedclaimsexperiencewasusedtosmoothallowedclaimlevelsbyage,gender,andsmokingstatus.Fromthisregression,predictedallowedclaimswerecalculatedateachageandsmokingstatuscombination.TheseallowedpmpmclaimlevelsareappliedtotheMissouridistributionofmembershipbyageandgender,andsummed.Inaddition,anadjustmentisappliedtoremovetheinfluenceMissouriclaimshaveonthenationwideaverageclaims.Themanualstatefactorismultipliedbyadjusted2013nationalclaimlevelsasdescribedinthepreviousparagraphtocalculatethemanualpmpmallowedclaimsinthestate.Themanualrateisblendedwiththebaseperiodrateasdescribedinthecredibilitysectionbelow.


Themanualratewasadjustedtothe2015pricingperiodusingtheprojectionfactorslistedinthesectionabove.

7. CredibilityofExperience

Todevelopourfullcredibilitystandard,weconductedastudytoestablishconfidencelevelsatdifferentcohortsizes.Inthisstudy,werandomlysampledcohortsfromourinternalblockofmembers.Weanalyzed100,000randomlysampledcohortsateachsizetoestablishthevarianceassociatedwithacohortofthatsize.Therequiredcohortsizetobeconsideredfullycrediblewassetatthepointwherewewere95%confidentthatclaimswouldfallwithin4%ofourtarget.Thisresultsinafullycrediblestandardof58,000membermonthsforexperiencethathashadclaimsinexcessof$50,000permemberpermonthlevelpooledacrosstheblock,asusedwithinourpricingmethodology.TheUnifiedRateReviewTemplateutilizesunpooledclaims.Therefore,baseduponthesame95%confidence,thestandardforfullcredibilityontheUnifiedRateTemplateis322,000membermonths.Partialcredibilityisassignedtotheexperienceperioddatabasedupontheclassicalcredibilityformulalistedbelow:SquareRoot((ExperienceDataMemberMonths)/(FullCredibilityStandard))Basedupontheabovecredibilitymethodology,ourMissouripooledexperienceasusedwithinpricingis79%credible.TheunpooledbaseexperienceasusedintheUnifiedRateReviewTemplateis0%credible.Thestatespecificexperiencewasremovedfromthedevelopmentofthemanualrateinordertoavoidanydoublecountingofthebaseperiodexperience.GiventhatwedonothavecredibleEHBclaimdatayet,wefeelitisappropriatetoincludegrandfatheredexperiencewithinourpricingdatainordertodevelopthemostpredictiveestimateoftheaveragemorbidityofthe2015market.Inaddition,pleasenotethatourotherpricingassumptionsweredevelopedonaconsistentbasis.Forexample,wedevelopedourchangeinmarketriskassumptionrelativetothetotalIMcurrentmarket,notrelativetothenongrandfatheredcurrentmarket.

SincetheURRTrequiresunpoolednongrandfathereddata,ourpricingapproachwasincompatiblewiththestandarduseoftheURRT.Therefore,weassigned0%credibilitytotheunpoolednongrandfathereddatawhichisrequiredintheURRTinordertogivefullcredibilitytothecredibilitymanualwhichmatchesourpricing.

8. PaidtoAllowedRatio

OurprojectedPaidtoAllowedRatiois65%.Inour2014pricingdevelopment,theActuarialValue(AV)calculatorprovidedbyHHSproduced


valuesthatwereveryclosetoourhistoricalpaidtoallowedratiosonanaggregatebasis.Therefore,wedetermineditwasreasonabletousetheHHSAVcalculatortodevelopestimatesofthepaidtoallowedratioofour2014insuredpopulation.However,our2013paidtoallowedratiowasslightlyhigherthanthevalueproducedAVcalculator,whichisreasonablegiventhatunderlyingdataintheAVcalculatorwasnotupdatedfromtheprioryear.Therefore,weareaccountingforthisdifferencebyincludingabenefitleveragingfactorinthepricingvaluesofourplans.Thisfactorwillvarybymetallevelduetothedifferingleveragingeffectsbycostsharinglevel.Bronzeplanswillhaveahigherleveragingeffectduetohighercostsharingandconversely,Platinumplanswillhavealowerleveragingeffectduetolowercostsharing.Todeterminetheleveragingfactors,weusedaclaimprobabilitydistributionfromthe2012MillimanHealthCostGuidelinestomodeltheleveragingeffectonourmetalplans.Thefinalassumptionsareasfollows:

MetalLevel LeveragingBronze 1.035Silver 1.030Gold 1.015

Platinum 1.010

TodeveloptheprojectedPaidtoAllowedRatio,weusedourmembershipprojectiontodeterminethedistributionofplansbymetallevelin2015.Wethenappliedtheleveragingfactorsbymetalleveltotheactuarialvaluesandaveragedthemtogetatotalprojectedpaidtoallowedratio.Themethodologyofourmembershipprojectionisdescribedinmoredetailbelow.

9. RiskAdjustmentandReinsurance

RiskAdjustment:In2014,theACAestablishedaRiskAdjustmentProgramthatwillallowissuerstosetpremiumsaccordingtotheaverageactuarialriskintheindividualandsmallgroupmarketwithoutrespecttothetypeofriskselectiontheissuerwouldotherwiseexpect.TheACAestablishesastandardquantificationofriskwiththeHCCHHSriskscoringmodel.UntilwegainfurtherknowledgeonthetotalMissourimarketrisk,wearecontinuingtopricetothemarketaverageriskof1.0.Therefore,nomarketwideadjustmentfortheriskadjustmentprogramwasappliedwhendeterminingthemarketadjustedindexrate.

ReinsuranceRecoveries:Thesmallgroupmarketisnoteligibletoreceivereinsurancerecoveries.

ReinsuranceContributions:TheReinsuranceProgramisfundedbyafeeof$3.67permemberpermonth.Wehaveincreasedourexpectedclaimcostswithinourpricingdevelopmentby1.2%inordertocoverthisfee.Inordertomaintaincompliancewiththerequiredrelativityofpricesbyage,wehaveappliedtheadjustmentonamultiplicativebasis.Ouradjustmentfactorwasdevelopedbydividing$3.67bytheexpectedtotalpermemberpermonthclaimcostsinthestate.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page910. NonBenefitExpensesandProfit&Risk

ThetablebelowliststheexpectedNonBenefitExpensesandTargetProfitforAssurantHealthinMissouri.Thepricingloadtocovertheseexpensesisappliedconsistentlyacrossproductsandplans,asdisplayedintheworkupoftheplanadjustedindexrate.Theseitemsarediscussedindetailinthefollowingparagraphs.

ExpenseCategory %ofPremium

GeneralandAdministrative 12.0%CommissionsandSalesBonus 5.5%ManagedCareandCostContainment 2.0%QualityImprovement 0.9%NetInvestmentIncome 2.0%Taxes,FeesandStateAssessments 2.4%ACAHealthInsurerFee 1.7%FederalIncomeTaxes 1.9%ProfitandRiskMargin(AfterTax) 1.1% Total 25.5%

Ourpricedforlossratiois74.5%inMissouri,whichisapproximatelyan80%MedicalLossRatioasdefinedbytheACA.ThecalculationoftheMedicalLossRatioisshownintheProjectedLossRatiosection.ThefinalpricedforTotalNonBenefitExpensesandProfitis25.5%.Inaddition,pleasenotethatexpensesforeachfunctionalareawithinthecompanyarerecordedatanationwidelevel.Expenseassumptionsforastateandproductareallocatedandrepresentedonapercentofpremiumbasis.Thispercentofpremiumrepresentationofexpensesisconsistentwithouractualtoexpectedlossratiopricingmethodology.AdministrativeExpenseLoads:GeneralandAdministrativeExpenses:Thiscategoryaccountsfortheexpensesofadministeringthebusiness,suchasclaimpaymentexpenses.Theassumptionwasderivedfromactualexpensesin2013relativetoactualrevenue.Indevelopingthisexpenseassumption,underwritingexpenseswereadjustedduetothereductionofstaffwithintheunderwritingfunctionalareathatoccurredinresponsetothe2014marketrules.CommissionsandSalesBonus:Thisisavariableexpensethatrepresentsthecostofacquiringbusiness.Ourcommissionschedulesandbonuscampaignswillbesetto5.5%ofpremium.ManagedCareandCostContainmentExpenses:Thisisavariableexpensethataccountsforexpensesincurredinordertoreduceclaimscosts,suchasaccessfeespaidtothePreferredProviderOrganizationNetworksthatareleasedonbehalfofourcustomers.Thisexpenseassumptionwasderivedfromactualexpensesin2013relativetoactualrevenue.QualityImprovementExpenses:Thiscategoryaccountsforexpensesincurredinordertoimprovethequalityofhealthcare.QualityImprovementExpensesareaddedtoclaimpayments


intheMedicalLossRatioCalculation.Thisexpenseassumptionwasderivedfromactualexpensesin2013relativetoactualrevenueandadjustedtoaccountforadditionalQIexpensesexpectedin2015.NetInvestmentIncome:Thiscategoryaccountsforinvestmentincomeearnedonreservesandsurplus.Thisassumptionwasderivedfromouractualcurrentnetinvestmentincomeratio.Profit&RiskMargin:Ourtargetedaftertaxmarginforriskandprofitis3%ofpremium.Thepricingloadforthis3%aftertaxmarginisappliedconsistentlyacrossproducts.In2015,weareexpectinga1.1%aftertaxmargin.

TaxesandFees:HealthInsurerFee:$8billionwillbecollectednationallyforthisfeein2014and$11.3billionin2015.Thefeeisbasedonourshareofthetotalmarketpremium.Itisestimatedthatthisfeewillbe1.7%ofpremium.Furthermore,thisfeeisnotdeductiblefromfederalincometaxes.StatePremiumTaxesandAssessments:Thisisestimatedatapproximately2.4%ofpremiumbasedupon2013experience.AnadjustmentwasmadetohistoricalexperienceinordertoreduceanyComprehensiveHealthAssociationassessments.Inaddition,anadjustmentofapproximately0.05%hasalsobeenmadetoaccountforthe$2permemberperyearPCORIfee.Theminimalimpactofthe$0.08permemberpermonthRiskAdjustmentProgramadministrationfeehasbeenremovedfromthissectionandisincludedintheprojectedriskadjustmentperthePartIIIActuarialMemoandCertificationInstructions.IncomeTaxes:FederalIncomeTaxesareexpectedtobe1.9%ofpremium,calculatedas((3%+1.7%)X40%),where3%isthepretaxprofitmargin,1.7%isthenondeductibleACAhealthinsurerfeecostand40%isanapproximationofthefederalincometaxrateforAssurantHealth.Pleasenotethatoureffectivefederalincometaxrateisexpectedtobegreaterthanthestandard35%duetothenondeductibilityofcertaininternalandexternalsmallgroupcompensation.Thisnondeductiblecompensationisprimarilyincurredwithinnonhealthinsurancelinesofbusinessfromourparentcompany,Assurant,Inc.ExchangeUserFees:Assurantwillonlyissuebusinessofftheexchangeinthisstatein2015.Therefore,noexchangeuserfeehasbeenappliedtotherates.

11. ProjectedLossRatio

Theprojectedfuturelossratiofortheperiodof1/1/2015through12/31/2015is74.5%.Ourpremiumratewasdevelopedbydividingprojectedincurredclaimsbythepricedforlossratio.Ourpricedforlossratiois74.5%inMissouri.However,attherequestofHHS,weremovedour0.6%loadtocoverthecostofnotchargingpremiumforchilddependentsbeyondthree.Withthisadjustment,ourprojectedlossratiois74.9%,whichisapproximatelyan80%MedicalLossRatioasdefinedbytheAffordableCareAct.AcalculationoftheprojectedMedicalLossRatio(MLR)isshownbelow:


MLR =(Claims+QualityImprovementExpense)/(PremiumTaxesandFees)=(A+B)/(DEFG)=(74.9%+0.9%)/(100%2.4%1.7%1.1%)=80%

Where: AisIncurredClaims,netofReinsuranceandRiskAdjustmentTransfers BisExpensesforImprovementintheQualityofHealthcare Dispremium

Eisstatepremiumtaxesandotherassessmentsandfees FistheHealthInsurerFee GisFederalIncomeTaxes(excludingtaxesonprofitduetoInvestmentIncome)

12. SingleRiskPoolandIndexRate

Thesingleriskpoolreflectsallcoveredlivesforeverynongrandfatheredproduct/plancombinationforthisstateandmarket.TheIndexRateistheestimatedtotalallowedclaimspermemberpermonthforallnongrandfatheredplansforallessentialhealthbenefitswithinthestate.ThisfiguredoesnotincludeadjustmentsforReinsurance,RiskAdjustmenttransfers,orexchangeuserfees.TherearenomaterialcoveredbenefitsinexcessoftheEssentialHealthBenefits.PleaseseeAppendixAfordetailontheprojected2015IndexRatecalculation.Also,pleaseseetheMarketAdjustedIndexRateandPlanAdjustedIndexRateExplanationSectionsbelowfordetailsonhowratesarecalculatedrelativetotheIndexRate.Theexperienceusedtodeveloptheprojectedindexrateincludestheexperienceoftransitionalplans.

13. MarketAdjustedIndexRate

TheMarketAdjustedIndexRateiscalculatedastheIndexRateadjustedforallallowable marketwidemodifiersdefinedinthemarketratingrules,45CFRPart156,156.80(d)(1). Theseadjustmentsinclude:

Federalreinsuranceprogram Riskadjustment Exchangeuserfee

Pleaseseesection9ofthismemoforadescriptionofthereinsuranceandriskadjustment.Pleaseseesection10ofthismemoforadescriptionoftheexchangeuserfeeadjustment.ThecalculationoftheMarketAdjustedIndexRatecanbefoundinAppendixA.

14. PlanAdjustedIndexRate

ThePlanAdjustedIndexRateiscalculatedastheMarketAdjustedIndexRateadjustedforallallowableplanlevelmodifiersdefinedinthemarketratingrules,45CFRPart156,156.80(d)(2).


Theseadjustmentsaredescribedbelow.ThecalculationofthePlanAdjustedIndexRatecanbefoundintheattachedrateexhibits.

ActuarialValueandCostSharing:o ActuarialValuePleaseseesection17ofthismemoforadescriptiononhow

theactuarialvalueswerecalculated.o PaidtoAllowedLeveragingFactorPleaseseesection8ofthismemofora

descriptiononhowthepaidtoallowedleveragingfactorwascalculated.o UtilizationWeexpectthatricherbenefitsin2015willinduceutilizationfor

healthcareservicesthatishigherthantheaverageutilizationwithinourbaseexperience.WeassumethatfutureSilverplanswillhaveutilizationthatis3%higherthanouraveragecurrentexperience,Goldwillbe8%higher,andPlatinumwillbe15%higher.ThesefactorsaretheprescribedHHSinducedutilizationfactorsusedintheHHSriskadjustmentcalculations.

ProviderNetworkPPOfactorsweredevelopedusinginternalcompanydiscount

experienceinconjunctionwithreporteddiscountsfromthenetwork.Thefactorsreflectthedifferencefromtheaveragediscountinthestate.

AdministrativeCostsTheadministrativecostfactoristhereciprocalofourprojectedlossratio.Pleaseseesection11foradescriptiononhowourprojectedlossratiowascalculated.Theadministrativecostsfactorisconstantacrossallplans.

15. Calibration

a. AgeCurveCalibrationTheagecurvecalibrationisusedtoadjustPlanAdjustedIndexRatetoa21yearold.Theagecurvecalibrationiscalculatedas:

1/AverageAgeRatingFactorWeightedbyAgeMembershipSplit

Theaverageageratingfactoristhestandardagecurveweightedbyourmembershipdistributioninthestate.TheagecurvecalibrationisapplieduniformlytoallplansandisdemonstratedinAppendixA.Duringthefilingreviewprocess,theexpectedageshiftbetween2013and2015wasincorporatedintheindexratedevelopment.

b. GeographicFactorCalibrationTheratingareafactorsusedinour2014pricingwereusedinthedevelopmentoffactorsfor2015,withtheexceptionofa10%decreaseinRatingArea3.Tocalibrate,wefirstused2013membershipandbalancedtheoverallstateareafactortoa1.0togettheareafactorsonthebasisofour2013pricingexperienceperiod.Secondly,weusedtheprojected2015membershipbyratingareaandreweightedtheareafactorsagainto


determinetheprojectedstateaverage.Theresultingstateaveragefactorinthisstatewas0.990.Thismarketwidecalibrationfactoristhenappliedafterthedeterminationoftheplanadjustedindexratesandthesmallgroupareafactorsaredividedbyittocalibratethemarketaveragebacktoa1.0.Thetablebelowshowstheresultingweightedaveragegeographicfactorof1.000forthestatealongwithrelativityfactorsforeachratingareawithinthestateandtheircorrespondingprojectedmemberdistributions.

RatingArea

2015SGMember

Distribution

2015WeightedSGAreaFactors

1 9.0% 1.032 19.1% 1.043 15.4% 1.014 5.8% 0.945 13.5% 0.996 6.9% 1.097 4.5% 0.928 13.6% 0.979 5.8% 0.9510 6.3% 0.97

Total 100% 1.000

Duringthefilingreviewprocess,thisgeographicshiftbetween2013and2015wasincorporatedintheindexratedevelopment.Thegeographiccalibrationisnow1.0.

16. ConsumerAdjustedPremiumRate

TheConsumerAdjustedPremiumRateisthefinalpremiumrateforaplanthatischargedtoanindividualorfamily.TheConsumerAdjustedPremiumRateisdevelopedbycalibratingthePlanAdjustedIndexRatetotheagecurveandgeographythenapplyingtheratingfactorsspecifiedby45CFRPart147,147.102.Theseratingfactorsaredescribedbelow.Theratingfactorscanbefoundintheattachedrateexhibitfile.

AreaFactorsAreafactorsweredevelopedusinginternalcompanyprediscountedallowedclaimexperience.Inareasthatwerelessthan100%credible,internalexperiencewassupplementedwithconsultantdata.TheAreafactorisconstantacrossallplansandisbalancedtoequal1.0intotalforthestate,asdescribedabove.

AgeFactorsTheagecurveusedtosettheagefactorsisthestandardagecurvesetbyHHS.Theagefactorsaresetrelativitytotheprojectedaverageageusedintheagecurvecalibrationabove.

TrendFactorsThetrendfactorsincreasequarterlyatarateof9%annually.PleaseseeAppendixBforfurtherdetail.

ActuarialMemorandumMissouriFormJGM14.POL.MO Page1417. AVMetalValues

TheHHSActuarialValueCalculator(AVC)wasusedtogeneratetheAVvaluesandmetalvaluesforsomeoftheplansinourportfolio.TogenerateAVsfortheplansthatcontainedbenefitsbeyondthoseinthecalculator,anacceptablealternativemethodologywasused.ThemethodologyusedtodeveloptheseplansAVsisdetailedbelow.1.MailOrderCopayApplicableplans:Silver5,Silver8,Gold5,Gold6,Platinum2,Platinum4,Platinum5MailordercopaysforAssurantHealthplanswillbe3timestheretailRxcopay.TheHHSactuarialvaluecalculatordoesnotallowfortheusertoinputdifferentdrugcopayvaluesformailorderdrugs.TheprojectedpercentageoftotalscriptsthatAssurantexpectstobemailorderin2014is12%.Therefore,wearecertifyingthattherewillbenoimpactof3xmailorderdrugcopaysontheactuarialvalue.2.$500FirstDollarD/X/LBenefitApplicablePlans:Silver1,Silver2,Silver3,Silver4,Silver5,Silver6,Silver8,Gold1,Gold2,Gold3,Gold4,Gold5,Gold6,Gold7,Platinum1,Platinum2,Platinum3,Platinum4,Platinum5AssurantHealthwillhavemanyplansthathavea$500firstdollarLabandXRaybenefit.Inordertoevaluatetheactuarialvalueofthisbenefit,anewcontinuancetablehadtobecreatedsincetheHHSAVCcannotcalculatetheimpactoffirstdollarbenefits.TheclaimcostbasiswasselectedastheactuarialcontinuancetablesoftheHHSAVC.ThecontinuancetablesoftheHHSactuarialtablesarecomprisedofclaimcostssegregatedbyservicecategory,plusanallowanceforadditionalclaimcostsexpectedfromhighriskpools.Continuancetableswerebuilttoremovetheadditionalcostofthehighrisktables.Thevalueaddedtothetableswasasetdollaramount,withoutallocationtotheseparateservicecategoryclaimcosts.Twoaggregatetableswerebuilt,onereflectingallservicecategoriesandthesecondreflectingallservicecategorieswithoutLabandXRay,bothofthesetablesexcludingthehighriskpooladditionalcosts.Expectedclaimcostsweredevelopedforeachmetallevelatadeductiblelevelthatgeneratestheprescribedmetalactuarialvalue,withanintegratedmedicalanddrugdeductible.AcontinuancetableofLabandXRaybenefitswasbuiltfromdatafromMilliman.ThetablewasadjustedsothattotalclaimcostsofLabandXraybenefitswereequaltotheamountofclaimsforLabandXRaysundereachmetalbenefitlevel.Thecontinuancetablewassplitintoprofessionalandtechnicalbytheuseofalevelproportionacrossallaverageclaimlevels.Thecontinuancetablewasutilizedtoderiveabenefitofa$500firstdollarcoveragebenefit.Remainingclaimswerethenappliedtothebaseplandeductible.Eachmetalplancontinuance


tablewasreliedontoderivethisvalue.Belowarethecalculationsofthe$500firstdollarlabandXraybenefitresultingfromtheprocessdescribedabove:

Silver1 Silver2 Silver3 Silver4 Silver5 Silver6 Silver8

ClaimCostofPlanatMetalLevel(a) $3,108 $3,136 $3,174 $3,209 $2,905 $3,285 $2,995

includesallmedicalandpharmacybenefits

ClaimCostofPlanatMetalLevel(b) $2,820 $2,854 $2,897 $2,918 $2,632 $2,988 $2,715

nobenefitsforLabandXRay

ValueofLabandXRay(c) $164 $164 $164 $164 $164 $164 $164

firstdollarbenefits,upto$500

AdditionalValueofLabandXRay,appliedagainst

deductible(d) $163 $166 $163 $167 $154 $170 $158

includesanestimateofimpactofdeductible

NewEstimateofMedicalClaimCoste=(b+c+d) $3,148 $3,183 $3,224 $3,249 $2,950 $3,323 $3,037

AdditionalAV(e/a1): 1.30% 1.50% 1.56% 1.23% 1.56% 1.14% 1.41%


Gold1 Gold2 Gold3 Gold4 Gold5 Gold6 Gold7

ClaimCostofPlanatMetalLevel(a) $3,865 $3,859 $3,852 $3,916 $3,962 $3,859 $4,081


ClaimCostofPlanatMetalLevel(b) $3,520 $3,521 $3,491 $3,546 $3,606 $3,521 $3,724


ValueofLabandXRay(c) $171 $171 $171 $171 $171 $171 $171


AdditionalValueofLabandXRay,appliedagainst

deductible(d) $205 $201 $213 $218 $211 $201 $213


NewEstimateofMedicalClaimCoste=(b+c+d) $3,895 $3,892 $3,874 $3,934 $3,988 $3,892 $4,107

AdditionalAV(e/a1): 0.78% 0.88% 0.55% 0.47% 0.66% 0.88% 0.65%


Platinum1 Platinum2 Platinum3 Platinum4 Platinum5

ClaimCostofPlanatMetalLevel(a) $4,735 $4,751 $4,763 $4,831 $5,015


ClaimCostofPlanatMetalLevel(b) $4,320 $4,324 $4,334 $4,410 $4,598


ValueofLabandXRay(c) $175 $175 $175 $175 $175


AdditionalValueofLabandXRay,applied

againstdeductible(d) $252 $259 $260 $255 $253


NewEstimateofMedicalClaimCoste=

(b+c+d) $4,747 $4,758 $4,769 $4,840 $5,026

AdditionalAV(e/a1): 0.25% 0.15% 0.14% 0.20% 0.22%

3.OneDeductiblePlansAffectedplans:1DedBronze2,1DedSilver4,1DedGold4TheOneDeductibleproductdesignconsistsofasinglefamilydeductibleforallmembersofthefamily.ThescopeofthisproductdesignisoutsidethoseallowedbytheHHSAVC.AcontinuancetablewasselectedthatreplicatedresultsoftheBronzelevelActuarialValuesfromtheHHSAVC,usinganintegrateddeductible.ActuarialValuescalculatedwiththisselectedtablecomparedfavorablywiththeAVscalculatedintheHHSAVC.ThisBronzelikecontinuancetablewasconjugatedwithitselftorepresenttheexpectedclaimsof2,3,4,5,6,or7membersunderaunifiedfamilydeductible.ExpectedmemberlevelAVsarethendevelopedfromaninputtedplandesign,foreachofsevendifferentcontinuancetables.AnaggregateplanlevelActuarialValueisdevelopedfromabusinessweightingbyfamilysize.Thefollowingtableshowsthecalculationoftheaggregate.


NumberofMembers MixofBusiness 1DedBronze2 1DedSilver4 1DedGold4

1 73% 59.9% 68.3% 78.6%2 10% 50.1% 62.4% 73.7%3 6% 54.1% 66.9% 79.1%4 6% 57.9% 70.4% 83.1%5 2% 61.4% 73.2% 86.1%6 2% 64.6% 75.4% 88.3%7 1% 67.4% 77.1% 89.9%

AggregateActuarialValue: 58.6% 68.1% 78.9%

TheplanportfolioforAssurantHealthisincludedinAppendixC.ScreenshotsoftheAVcalculationscanbefoundinAppendixD.

18. AVPricingValues TheAVpricingvaluesincludetheAVs,calculatedasdescribedabove,inadditiontoan

adjustmentforutilizationdifferencesweexpectduetoplancostsharingdesign.Whileweunderstandthedifficultyindifferentiatingincreasedutilizationfromanincreasedriskprofile,wedofeelitisappropriatetoadjustlowermembercostsharingplansforincreasedutilization.IntheActuarialValueCalculatorMethodologydocumentreleasedbyHHS,HHSstatesthatspendingisaffectedbyplandesignthroughinduceddemand,andtheyinturnhaveexplicitlydifferentiatedandestimatedtheimpactofinducedutilizationbymetallevel.AninternalstudyhasconfirmedthatinducedutilizationisrelevantandsuggeststhattheHHSdefinedinducedutilizationfactorsmaybeconservative.

Sincewedonthaveenoughcredibilitytodetermineseparateinducedutilizationfactorsfor

eachmetallevel,weareapplyingtheprescribedHHSinducedutilizationfactorsusedintheHHSriskscoretoourplans.

Theothervaluesusedindeterminingtheplanadjustedindexrateareexplainedintheapplicablesectionabove.Pleaseseetheattachedrateexhibitsfortheportionofthevaluethatisduetotheallowedplanmodifiers.

19. MembershipProjections

PleaseseeAppendixEforprojectedexperiencein2015.Ourprojectionof2015membermonthswasdevelopedbycombiningthefollowingpiecesofinformation:

2014openenrollmentsalesandexpected2015openenrollmentsales PoliciesthathaverolledtoanACAcompliantplanthrough4/1/2014 PoliciesthatweexpecttorolltoanACAcompliantplanthroughtheendof2015,

includingthosethatmaykeeptheircurrentNonACAcomplaintplanin2014androlltoanACAcompliantplanin2015


Wemodeledthemembershiponamonthlybasisthroughtheendof2015usingourmonthlylapseratesbymetallevelandexpectedrolldateforeverypolicywithinthestatethatisnotyetonanACAcompliantplan.Theexpectedmembercountduring2015foreachmonthisthenaddeduptoarriveatthetotalmembermonthsexpectedin2015.Anydifferencesbetweenthecurrentdistributionofprojectedmembermonthsandcurrentmetallicmembershipdistributionwouldbeattributedtoanymetallicrollsduringtheyear.

20. TerminatedProducts

NonGrandfatheredpoliciesunderformsTGM.TRT.MOandJGM.TRT.MOwillbediscontinued.Theseproductsareincludedintheexperienceperioddata.Inthisstate,policyholdershavetheoptiontocontinuetheirplanunderthePresident'stransitionalmemorandum.Theseproductsareincludedintheexperienceperioddata.

21. PlanType

All2015SmallGroupMedicalPlanswillbePPOplans.22. WarningAlerts

Adescriptionofthewarningalertsfromtheunifiedratereviewtemplateisbelow:1. Awarningappearsbecausehistoricalrateincreaseswerenotenteredforourterminated

products.Theinstructionsfortheunifiedratereviewtemplatespecificallystatethatthesearenotrequired.

19. EffectiveRateReviewInformation

None.

21. Reliance

IndevelopingthisratefilingIrelieduponinformationprovidedbyotherswithinmydepartment,aswellasoninformationprovidedbyotherdepartmentswithintheorganization.Ihavereviewedthisinformationforreasonableness,andIconsiderittobereliable.

22. ActuarialCertification

IamamemberoftheAmericanAcademyofActuaries.Tothebestofmyknowledgeandjudgment,1. Thisratefilingisincompliancewiththeapplicablelawsandregulationsconcerning

premiumratedevelopmentinthisstateandthebenefitsarereasonableinrelationshiptopremiums.


2. Theprojectedindexrateis:a. IncompliancewithallapplicableStateandFederalStatutesandRegulations.b. DevelopedincompliancewiththeActuarialStandardsofPractice.c. Reasonableinrelationtothebenefitsprovidedandthepopulationanticipatedtobe

covered.d. Neitherexcessivenordeficient.

3. Theindexrateandonlytheallowablemodifiersasdescribedin45CFR156.80(d)(1)and45CFR156.80(d)(2)wereusedtogenerateplanlevelrates.

4. ThepercentoftotalpremiumthatrepresentsessentialhealthbenefitsincludedinWorksheet2,SectionsIIIandIVwerecalculatedinaccordancewithactuarialstandardsofpractice.Tothebestofmyknowledge,thepercentoftotalpremiumthatrepresentsEHBsis100%.

5. TheHHSAVCalculatorwasusedtodeterminetheAVMetalValuesforallplansshowninWorksheet2ofthePartIUnifiedRateReviewTemplateexceptforthosedocumentedinthismemorandum.TheAVvaluesforthosedocumentedinthememorandumweredevelopedbasedononeoftheacceptablealternativemethodsandareinaccordancewithgenerallyacceptedactuarialprinciplesandmethodologies.

______________BrentWiskirchen,FSA,MAAAAssociateActuaryReformPricing9/2014

2015 john alden small group major medical rate filing.pdf

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