session 91 pd, pricing issues in health care...
TRANSCRIPT
Session 91 PD, Pricing Issues in Health Care
Reform
Moderator: Daniel S. Pribe, FSA, MAAA
Presenters:
Paul Harmon, FSA, MAAA Douglas T. Norris, FSA, MAAA
Daniel S. Pribe, FSA, MAAA
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Pricing Issues in Health Care ReformReform
Pricing under the Affordable Care ActIssues and Strategies (3Rs and MLR Requirement)
Doug NorrisConsulting Actuary, FSA, MAAA, PhD
October 22, 2013
2
isk Adjustment
einsurance
isk Corridorsisk Corridors(And the Minimum Loss Ratio Requirement)
Contributors / ReceiversContribute:
Non-Grandfathered
Individual/Small G Pl O /Off
Risk Adjustment
Receive:
Non-Grandfathered
Individual/Small G Pl O /Off
Contribute:
Everyone, including self-insured group
plans
Transitional Reinsurance
Receive:
Individual Market Insurers
Group Plans On/Off Exchange
Group Plans On/Off Exchange
Contribute:
Individual and Small Group QHPs
Risk CorridorsReceive:
Individual and Small Group QHPs
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Risk AdjustmentRisk Adjustment
Risk Adjustment
4
Risk Adjustment
Risk Adjustment
5
Risk Adjustment
Risk Adjustment
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Transitional Reinsurance
Transitional Reinsurance
$10b
$12b
Transitional Reinsurance Amount per Year
$10b
$6b
$4b$4b
$6b
$8b
$10b
$0b
$2b
2014 2015 2016
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Transitional Reinsurance
Jan 2014 Mar 2014 Dec 2014 Feb 2015 Jun 2015
Claim Incurred$230k
Claim Paid$230k
Year-End Annual Statements Due
Reinsurance Payment of ($230k-$60k)*80% = $136k
Transitional Reinsurance
90%
100%
Claim Responsibility (Assuming Commercial Reinsurance covering 100% above $250k)
Transitional Reinsurance Payment Commercial Reinsurance Payment
20%20%
30%
40%
50%
60%
70%
80%
90%
Insurer Claim Payment
ay e t
0%
10%
$0k $50k $100k $150k $200k $250k $300k $350k $400k
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Transitional Reinsurance
Effect of Transitional Reinsurance Payments on Booking Amounts for a $250k Paid Claim
Carrier Responsibility: $128.4k
$60.0k
$60.0k
$38.0k
$38.0k $30.4k
$152.0k
$121.6k
TR
Pa
id8
0%
TR
Pa
id
Claim Amount Below $60k
20% Payor Responsibility
Extra Payment
TR Payment
Carrier Responsibility: $98.0k
$0.0k $50.0k $100.0k $150.0k $200.0k $250.0k
All
Transitional Reinsurance
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Commercial Reinsurance
Risk Corridors
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Risk Corridors
Risk Corridors
Premium $458
After-Tax Premium $433
Allowable Costs $350
Non-Claims Costs $85
Taxes and Fees $25
Profits: $458 - $350 - $85 = $23
(5.31% of After-Tax Premium - Floored at 3%)
Admin Costs: $85 - $25 = $60
(Admin Costs + Profits = 19.17% of After-Tax Premium - Capped at 20%)
Allowable Admin Costs: $25 + $60 + $23 = $108
Target Amount: $458 - $108 = $350
Risk Corridor Ratio: $350 / $350 = 1.00
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Risk Corridors
Risk Corridors
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Risk Corridors
Minimum Loss Ratio Requirement
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MLR Requirement
Where are each of the following included in the MLR formula? Numerator or Denominator?
– Premiums
– Taxes
– Quality Improvement Expenses
– Licensing & Fees
– 3Rs Adjustments
– Denominator
– Denominator
– Numerator
– Denominator
– Numerator
– Claims – Numerator
MLR Requirement
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MLR Requirement
Jan 2014
Mar 2014
Dec 2014
Feb 2015
Jun 2015
Claim Incurred
Claim Paid
Year-End
Annual Statements Due
Reinsurance PaymentMLR Report Due
Sept2015
MLR Rebates Due
PLAN YEAR
MLR Requirement
90%90%
MLR: Example Effect of 3Rs and Premium Holidays
75%
82%83%
MLR Requirement, 80%
75%
80%
85%
%
70%Original MLR MLR after
Premium Holiday
MLR after Premium
Holiday and 3Rs Payments
MLR after 3Rs Payments with NO Premium
Holiday
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MLR Requirement
Interaction Action
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Pricing Issues in Health Care ReformSession 91Paul Harmon, FSA, MAAA
October 22, 2013
© 2013, Cambia Health Solutions, Inc. 31October 22, 2013
All HCR Impact is Local
© 2013, Cambia Health Solutions, Inc. October 22, 2013 32
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All HCR Impact is Local
Other Health Dep Public Rate Pre-ACA Rating Rate Review
AgeOther Demo
Health Status
Dep Count
Public Filings
Rate Hearings
Idaho No Bound Yes +/- 50% Up to 3 No NoUtah No Bound Yes +/- 30% Up to 3 No No
Oregon No Bound No No Up to 2 Yes YesWashington 3.75:1 No No All Yes No
© 2013, Cambia Health Solutions, Inc. October 22, 2013 33
• New population
• New pool morbidity
Today’s Focus
• Bonus Topics• Risk vs Market
• Deviating from AV Calculator
• Silver Cost Sharing Reduction plans
© 2013, Cambia Health Solutions, Inc. October 22, 2013 34
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• Macro vs Micro population buildup
New Insureds with new Morbidity
• Individual Pool Morbidity
• Small Group Pool Morbidity• Identify “moving” populations
• How many?
• What health status?
© 2013, Cambia Health Solutions, Inc. October 22, 2013 35
• Macro• Pool averages
Create a Population
Age Area TobaccoHealth Status
Current Pool 1.352 1.061 1.011 0.987Proj. Changes 2.2% 0.1% -0.4% 13.7%2014 Pool 1.382 1.062 1.007 1.122
© 2013, Cambia Health Solutions, Inc. October 22, 2013 36
2014 Pool 1.382 1.062 1.007 1.122
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• Micro• “Create” people
Create a Population
Member Age Area TobaccoCurrent
Member? Stay?Age
FactorArea
FactorTobacco Factor
Health Status
1 33 1 No Yes Yes 1.198 1.032 1.000 0.8832 44 2 No Yes Yes 1.397 0.912 1.000 1.2323 12 1 No Yes Yes 0.635 1.032 1.000 1.0554 27 2 Yes Yes No 1.048 0.912 1.050 0.993
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31566 64 3 No No N/A 3.000 1.022 1.000 2.44331567 31 1 Yes No N/A 1.159 1.032 1.050 1.652
Current Pool 1.352 1.061 1.011 0.9872014 Pool 1.382 1.062 1.007 1.122
• Pros• More tangible interdependence on assumptions
Micro Population Approach
• Moves assumptions from abstract to concrete
• Supports other filing exhibits (Part I)
• Cons• Interdependence means one change = many
changeschanges
© 2013, Cambia Health Solutions, Inc. October 22, 2013 38
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• For each affected sub-market• Develop assumptions regarding
Building the population
• How many move?
• What’s the “risk” of movers vs stayers
• Focus on morbidity in example• What is the health status of those that moveWhat is the health status of those that move
vs stay?
© 2013, Cambia Health Solutions, Inc. October 22, 2013 39
Pool Morbidity - Individual
Current Pool
Conversion/ PortabilityHigh Risk Pool PortabilityHigh Risk Pool
Group Uninsured
© 2013, Cambia Health Solutions, Inc. October 22, 2013 40
Medicaid
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• Process: • Elasticity model (who moves)
Individual – Current Pool
• Current pool data (how risky)
• Considerations:• Rating factor changes
• Covered benefit changes
• Availability of premium subsidies• Availability of premium subsidies
© 2013, Cambia Health Solutions, Inc. October 22, 2013 41
Current Pool Uninsured
• Process:• Actuarial judgment (who moves and how risky)
Individual – Uninsured
• Considerations:• Your guess
• Other’s guesses
V l d i k hi hl i t d d t• Volume and risk are highly interdependent
© 2013, Cambia Health Solutions, Inc. October 22, 2013 42
Uninsured Current Pool
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• Process:• Market data (who moves and how risky)
Individual – High Risk Pool
• Considerations:• Legislation
• SOA study (and others)
© 2013, Cambia Health Solutions, Inc. October 22, 2013 43
High Risk Pool Current Pool
• Process:• Current pool data (who moves and how risky)
Individual – Conversion/Portability
• Considerations:• Legislation
• SOA study (and others)
© 2013, Cambia Health Solutions, Inc. October 22, 2013 44
Port./Conv. Current Pool
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• Process:• Population income data (who moves)
Individual – Medicaid
• External studies (how risky)
• Considerations:• State expansion legislation
• SOA study• SOA study
© 2013, Cambia Health Solutions, Inc. October 22, 2013 45
Current Pool Medicaid
• Process:• Elasticity model (who moves)
Individual – Group
• Current pool data (how risky)
• Considerations:• Rating factor changes
C d b fit h• Covered benefit changes
© 2013, Cambia Health Solutions, Inc. October 22, 2013 46
Group Current Pool
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Pool Morbidity – Small Group
Current Pool
Uninsured
Individual
Associations
© 2013, Cambia Health Solutions, Inc. October 22, 2013 47
Individual
• Process:• Elasticity model (who moves)
Small Group – Current Pool
• Current pool data (how risky)
• Considerations:• Rating factor changes
• Covered benefit changes
• Owner vs employee elasticity• Owner vs employee elasticity
© 2013, Cambia Health Solutions, Inc. October 22, 2013 48
Current Pool Individual/Uninsured
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• Process:• Actuarial judgment (who moves and how risky)
Small Group – Uninsured
• Considerations:• New incentives to offer coverage
© 2013, Cambia Health Solutions, Inc. October 22, 2013 49
Uninsured Current Pool
• Process:• Association structure (who moves)
Small Group – Associations
• Current pool data (how risky)
• Considerations:• Bonafide status
St t l ti• State regulation
© 2013, Cambia Health Solutions, Inc. October 22, 2013 50
Associations Current Pool
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• Estimating Risk vs Market Risk
• Pricing from AV Calculator
Bonus (Random) Topics
• Determining Silver CSR plans
© 2013, Cambia Health Solutions, Inc. October 22, 2013 51
• Purpose: • Set rates at market average risk
My Risk vs Market Risk
• Considerations:• State or consultant market analysis
• Competitive dynamics
© 2013, Cambia Health Solutions, Inc. October 22, 2013 52
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• Purpose:• Defending benefit relativities different than AV
l l t
Pricing from AV Calculator
calculator
• Considerations• Network differences
• Out-of-network benefits
• AV calculator methodologyAV calculator methodology
• No “induced utilization”
© 2013, Cambia Health Solutions, Inc. October 22, 2013 53
• Purpose:• Design benefits for 73%, 87%, and 94% AV
Silver Cost Sharing Reduction Plans
• Considerations• AV tolerance +/- 1% instead of 2%
• 73% must be 2% richer than base silver
B fit t ’t b• Benefit components can’t be
leaner at any step
© 2013, Cambia Health Solutions, Inc. October 22, 2013 54
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SOA – 2013 Annual Meeting
Pricing Issues in Health Care ReformDaniel S. Pribe, FSA, MAAASession 091 – October 22, 2013
Challenges under the ACA(plus a few extra ones)
2014 – The Perfect Storm– The 3R’s
– ACA Shifts Business & Markets
– Federal Premium and Cost Sharing Subsidies
– Additional Fees
P L U S
• Trends• Trends
• Shifts in Provider Risk-taking
• Surplus and Solvency Issues
• Increased Regulatory Pressures and Earnings Scrutiny
• ICD10 Implementation
56
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Navigation
Premium Construction (really, margin development)
• Pre-ACAPremiumCl i- Claims
- Admin . Margin
• Post- ACAPremium
- Claims- Admin
+/ 3Rs+/- 3Rs- ACA fees- Rebates .
. Margin
57
Navigation: Traditional Framework
• Claims Estimation Base Period claims costs (including run-out) Trend to the projection period Adjust for
Ch i d l i bidit Changes in underlying morbidity Large claims / Reinsurance Provider reimbursement Cost sharing Seasonality
• Admin Operational expenses Company initiatives
58
Taxes and fees
• Margins State regulatory requirements Surplus/RBC requirements Company objectives
30
Navigation: Base Period Claims and Trend
PMPM
2013 2014 2015
59
• Several new pain points• Lack of data• New portfolio of products• Estimating trend• Changing risk profiles
Navigation: Risk Estimation
• Possible Methods• Historical claims data (?)
• MIB data
• Consumer data
• PRG
• Issues• Availability of data
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• Completeness of data
• Select to ultimate
• Cost
http://celebrating200years.noaa.gov/historymakers/Smagorinsky/hurricane_emily650.html
Three dimensional view of Hurricane Emily
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Navigation: Federal SubsidiesFigure 3: Demographic Characteristics of the Insurance
Market under ACA for USA for All Members
With Med + RxCoverage Percent Paid(in 000's) Distribution PMPM
Family Income in Month as a Percent of the Federal Poverty Level (FPL)Less than FPL 3 033 11 9% $411
Individual All Market under ACA
Premium Subsidies
• Choice of plan
SilverClaim Range Members Claims PMPM$0-$25k 25,509,373 60,400,199,586 $197$25k-$50k 21,366 8,810,936,506 $34,365$50k-$60k 4,833 3,240,663,968 $55,880$60k $75k 3 627 2 965 164 492 $68 135
Less than FPL 3,033 11.9% $411100%-138% FPL 928 3.6% $305138%-200% FPL 5,664 22.2% $230200%-300% FPL 5,934 23.2% $294300%-400% FPL 3,461 13.5% $253400%-500% FPL 1,709 6.7% $405500% or More FPL 4,820 18.9% $418
• On vs. Off exchange
Cost Sharing Subsidies$60k-$75k 3,627 2,965,164,492 $68,135$75k-$100k 4,995 5,144,461,432 $85,833$100k-$150k 2,415 3,261,951,727 $112,559$150k-$200k 831 1,819,279,215 $182,457$200k-$250k 493 1,283,596,885 $216,824$250k+ 2,086 10,965,003,917 $438,092Total 25,550,018 97,891,257,728 $319
• Estimation of subsidy
• Cash Flow
* Variation by plan will also affect reinsurance
Navigation: Other Fees• Health Insurance Provider Fee
• Patient Centered Outcomes Research Institute (PCORI)• $2 PMPY in 2012 - 2019
• Risk Adjustment User Fee• $0.96 PMPY in 2014
• Exchange Fees• Pooled across on and off exchange
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NASA GSFC's Remote Sensing Data website
Three views of Andrew on 23, 24 and 25 August 1992 as the hurricane moves East to West
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Provider Risk-Taking
Navigation: Provider Considerations
Provider Risk Taking
• Providers seeking direct risk
• Risk sharing arrangements
• Changes in cost and structures
• Additional considerations
63
Navigation: Other Considerations
• Surplus
• Cash Flow
• Materiality of adjustments
64
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Navigation: Other Considerations (cont.)
Product Portfolio Strategy
• Second Lowest Silver Plan
• Metallic Plans offered• Metallic Plans offered
• Bronze vs. Silver w Subsidy
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Navigation: Other Considerations (cont.)
Existing Liabilities
• Claim Reserves
• Premium Deficiency Reserves
66
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Navigation: Other Considerations (cont.)
Admin Expenses
• Second Lowest Silver Plan
• Metallic Plans offered• Metallic Plans offered
• Bronze vs. Silver w Subsidy
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Thank you
Daniel S. Pribe, FSA, [email protected]