Session 47L, Health Reserve Setting. Moderator/Presenter: Marilyn M. McGaffin, ASA, MAAA

Transcription

1 Session 47L, Health Reserve Setting Moderator/Presenter: Marilyn M. McGaffin, ASA, MAAA Presenters: David A. Berry, FSA, MAAA Lisa M. Parker, ASA, MAAA Andrew Z. Smith, ASA, MAAA SOA Antitrust Disclaimer SOA Presentation Disclaimer

2 2018 SOA Health Meeting LISA PARKER ASA, MAAA, PIR Session 47: Health Reserve Setting June 25, 2018

3 SOCIETY OF ACTUARIES Antitrust Compliance Guidelines Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants. The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding. There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures. While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines: Do not discuss prices for services or products or anything else that might affect prices Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers. Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so. Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs. Do alert SOA staff and/or legal counsel to any concerning discussions Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information. Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone s responsibility; however, please seek legal counsel if you have any questions or concerns. 2

4 Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 3

5 Polling Question Have you calculated health claim reserves? a) Yes, a lot b) Yes, some c) No d) Maybe 4

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7 Have you calculated health claim reserves? 5% 21% 44% Yes, a lot Yes, some No Maybe 30%

8 What is the definition of IBNR? a) Incurred But Not Reserved b) Indigo But Not Red c) Incurred But Not Reported d) In Between Null Reserve Polling Question 7

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10 100% What is the definition fo IBNR? 95% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 2% Incurred But Not Reserved Indigo But Not Red Incurred But Not Reported In Between Null Reserve 0%

11 Polling Question What is a Completion Factor? a) The completeness of the reserves b) The completeness of the lag factors c) The completeness of the liabilities on the balance sheet d) The completeness of the paid claims 10

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13 100% 90% 80% 70% 60% 50% 40% 30% What is a Completion Factor? 93% 20% 10% 0% 0% The completeness of the reserves 8% The completeness of the lag factors 0% The completeness of the liabilities on the balance sheet The completeness of the paid claims

14 Definitions IBNR: An estimate of the claims that have taken place but have not been reported to the insurer Paid Date: Date the insurance company pays the claim Incurred Date: Date of service (the date the claim occurs) Lag: The time difference between incurred month and paid month For example: Incurred in July 2017 and Paid in July 2017: Lag = 0 Incurred in July 2017 and Paid in September 2017: Lag = 2 Completion Factor: incurred claims that have been paid to date compared to the ultimate total paid. Used to complete the total amount of paid when calculating the IBNR 13

15 Claim Triangles Incurred Month > Paid Month Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 Total Jan , ,148 Feb , , ,633 Mar-16 34, , , ,350 Apr-16 80,348 44, , , ,876 May-16 10,972 70,780 31, , , ,854 Jun-16 3,081 19,843 70,197 46, , , ,930 Jul-16 4,076 6,060 6,938 76,751 52, , , ,179 Aug-16 1,265 3,498 4,740 15,840 76,033 45, , , ,780 Sep ,387 3,107 5,690 13,879 72,108 53, , , ,431 Oct-16 2,525 4,438 1,489 5,199 9,320 7,834 79,210 53, , , ,190 Nov-16 1,068 2,229 3,153 6,371 3,286 6,345 16,365 67,191 27, , , ,061 Dec ,302 1,293 2,066 2,017 8,404 13,127 61,168 35, , , ,735 Jan ,089 2,595 1,660 7,778 9,642 79,977 20, , , ,157 Feb , ,136 1,967 4,630 9,334 16,808 98,959 29, , ,193 Mar , ,608 3,679 3,529 6,360 70,414 43, ,535 Apr , ,807 3,237 2,541 5,268 11,788 70, ,505 May ,733 3,009 2,064 2,700 7,498 14, ,881 Jun ,085 1, ,666 3,984 4, ,261 Jul ,625 1, , ,387 Aug , , , ,910 Sep ,742 1,139 1,249 2,512 1, ,875 Oct , ,965 Nov ,692 1, ,968 Dec ,469 1, , ,963 a) Total 700, , , , , , , , , , , , , ,020 16,125,767 14

16 Development of Completions Factors Incurred Month > Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec , , , , , , , , , , , , , , , , , , , , , , , , , , , ,105 44,417 31,004 46,307 52,212 45,152 53,499 53,852 27,203 35,279 20,124 29,507 43, ,348 70,780 70,197 76,751 76,033 72,108 79,210 67,191 61,168 79,977 98,959 70,414 70, ,972 19,843 6,938 15,840 13,879 7,834 16,365 13,127 9,642 16,808 6,360 11,788 14, ,081 6,060 4,740 5,690 9,320 6,345 8,404 7,778 9,334 3,529 5,268 7,498 4, ,076 3,498 3,107 5,199 3,286 2,017 1,660 4,630 3,679 2,541 2,700 3,984 3, ,265 1,387 1,489 6,371 2,066 2,595 1,967 1,608 3,237 2,064 2, , ,438 3,153 1,293 1,089 1, ,807 3, , , ,525 2,229 1, , ,733 1,050 3,625 1,890 2, , , , , , , ,521 1, ,608 1,742 1,285 3,692 2, Total 700, , , , , , , , , , , , , ,020 15

17 Development of Completions Factors - Continued Incurred Month > Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,020 16

18 Development of Completions Factors - Continued Incurred Month > Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 average completion factor ,148 / 700,181 =.4130; 612,023 / 620,447 =.9864; 729,674 / 730,959 =.9982; 678,458, / 678,4588 = b) 17

19 Calculating the IBNR Incurred Estimated Remaining Paid Completion Total Claim Lag Month Claims Factors Incur Claim Reserve a) b) 23 Jan , , Feb , , Mar , , Apr , , May , , Jun , , Jul , , Aug , , Sep , , Oct , , Nov , , Dec , , Jan , ,155 1, Feb , ,986 2,088 9 Mar , ,164 2,849 8 Apr , ,312 4,047 7 May , ,519 6,347 6 Jun , ,510 8,244 5 Jul , ,136 12,983 4 Aug , ,528 19,697 3 Sep , ,090 41,182 2 Oct , , ,965 1 Nov , , ,977 0 Dec , , ,533 Est. Total Incur Claims = a) / b) Remaining Claim Reserve = Est Total Incur Claim - Incurred Paid Claims 16,125,767 Subtotal 880,065 18

20 Calculating the IBNR - Continued In this example, most recent 3 months aren t credible So, use another method to calculate the incurred claims for these 3 months Loss Ratio Method Earned Premium Per Member Per Month Incurred Claims Loss Ratio Oct-17 1,250,000 70% 875,000 Nov-17 1,175,000 70% 822,500 Dec-17 1,200,000 70% 840,000 19

21 Calculating the IBNR - Continued Incurred Estimated Remaining Paid Completion Total Claim Lag Month Claims Factors Incur Claim Reserve 23 Jan , , Feb , , Mar , , Apr , , May , , Jun , , Jul , , Aug , , Sep , , Oct , , Nov , , Dec , , Jan , ,155 1, Feb , ,986 2,088 9 Mar , ,164 2,849 8 Apr , ,312 4,047 7 May , ,519 6,347 6 Jun , ,510 8,244 5 Jul , ,136 12,983 4 Aug , ,528 19,697 3 Sep , ,090 41,182 2 Oct , , ,804 1 Nov , , ,550 0 Dec , , ,980 16,125,767 Subtotal 1,084,923 Margin = 5% 54,246 Adjustments 0 Total 1,139,169 Est. Total IC from prior page: 70% of the EP 875, , ,000 20

22 Questions??? 21

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24 Regulator Perspective Where to find items in the A/S Liabilities Page 3 Underwriting and Investment Exhibit What I do Quarterly/Annual Reserve Reviews Financial Exams Rate Review What I look for Reasonableness Methodology Trends & Relationships 23

25 Health Reserve Setting Society of Actuaries 2018 Health Meeting June 25, 2018 Zach Smith, ASA, MAAA Director, Bolton Health Actuarial Health Reserve Setting 2018 Health Meeting 1

26 SOCIETY OF ACTUARIES Antitrust Compliance Guidelines Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants. The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding. There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures. While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines: Do not discuss prices for services or products or anything else that might affect prices Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers. Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so. Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs. Do alert SOA staff and/or legal counsel to any concerning discussions Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information. Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone s responsibility; however, please seek legal counsel if you have any questions or concerns. Health Reserve Setting 2018 Health Meeting 2

27 Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. Health Reserve Setting 2018 Health Meeting 3

28 Health claim reserve setting is as much art as it is science - unknown Health Reserve Setting 2018 Health Meeting 4

29 Estimation Metrics Completion ratio overrides Where to cut off 100% credibility of completion factors Per member per month (PMPM) estimation Use of utilization metrics to estimate overrides Medical Loss Ratio (MLR) estimation Health Reserve Setting 2018 Health Meeting 5

30 Completion Ratio Overrides Unusual payment patterns can slow down or speed up completion ratios Need to review the claim triangle to determine how to adjust the completion ratio Often requires communication with other stakeholders (ex. claims department, legal department, medical management department, etc.) Health Reserve Setting 2018 Health Meeting 6

31 Completion Ratio Overrides Date Paid T-D C Ratio C Factor Ult Inc Reserve , , , , , , , , ,097, ,097, ,219, ,219, ,340, ,340, ,449, ,449, ,158, ,158, ,378, ,390,450 12, ,171, ,190,408 19, ,266, ,278,076 11, ,486, ,508,246 22, ,347, ,368,791 20, ,587, ,610,352 22, ,617, ,641,240 23, ,481, ,504,001 22, ,213, ,235,030 21, ,793, ,824,883 31, ,422, ,462,453 40, ,556, ,608,102 51, ,743, ,802,513 59, ,231, ,301,452 69, ,461, ,600, , ,892, ,143, , ,892, ,839, , , ,922,245 3,010,115 Date Paid T-D C Ratio C Factor Ult Inc Reserve , , , , , , , , ,097, ,097, ,219, ,219, ,340, ,340, ,449, ,449, ,158, ,158, ,378, ,378, ,171, ,171, ,266, ,266, ,486, ,486, ,347, ,347, ,587, ,587, ,617, ,617, ,481, ,481, ,213, ,215,361 2, ,793, ,800,024 6, ,422, ,440,784 18, ,556, ,585,151 28, ,743, ,777,851 34, ,231, ,281,199 49, ,461, ,577, , ,892, ,106, , ,892, ,806, , , ,887,729 2,975,599 Health Reserve Setting 2018 Health Meeting 7

32 Completion Factor Credibility Need to determine cut-off for 100% credibility of completion factors Typically, completion factors should be 80%-90% complete to be considered 100% credible Depends on the line of business and type of claim Health Reserve Setting 2018 Health Meeting 8

33 Completion Factor Credibility Date Paid T-D C Ratio C Factor Ult Inc Reserve , , , , , , , , ,097, ,097, ,219, ,219, ,340, ,340, ,449, ,449, ,158, ,158, ,378, ,378, ,171, ,171, ,266, ,266, ,486, ,486, ,347, ,347, ,587, ,587, ,617, ,617, ,481, ,481, ,213, ,215,361 2, ,793, ,800,024 6, ,422, ,440,784 18, ,556, ,585,151 28, ,743, ,777,851 34, ,231, ,281,199 49, ,461, ,577, , ,892, ,106, , ,892, ,806, , , ,887,729 2,975,599 Health Reserve Setting 2018 Health Meeting 9

34 Override Methodologies Estimation Methods PMPM Estimation Utilization Estimation Changes in utilization (e.g. inpatient admits or ER visits) Leads to cost/day estimations Medical Loss Ratio (MLR) Estimation Items to consider Seasonality Business or product line Risk of the population Contracting changes Recent system or process changes Check run cut-off dates Workdays in a month Flu outbreaks Etc. Health Reserve Setting 2018 Health Meeting 10

35 PMPM Estimation Average PMPM Date Paid T-D C Ratio C Factor Ult Inc Reserve Members 1 mo PMPM 3 mo PMPM ,486, ,486, , ,412, ,412, , ,958, ,958, , ,763, ,763, , ,928, ,928, , ,201, ,201, , ,433, ,433, , ,250, ,250, , ,386, ,386, , ,673, ,673, , ,531, ,531, , ,868, ,868, , ,410, ,410, , ,343, ,343, , ,325, ,325, , ,166, ,167,530 1,377 39, ,144, ,148,139 3,240 39, ,602, ,609,766 6,950 40, ,500, ,515,208 14,400 40, ,367, ,396,722 29,325 41, ,650, ,710,650 60,426 41, ,133, ,282, ,510 42, ,310, ,660, ,574 43, ,507, ,115, ,274 43, ,717, ,850,666 1,132,949 44, ,669, ,251,749 2,582,553 44, ,266, ,768,537 8,515,583 46, Health Reserve Setting 2018 Health Meeting 11

36 Utilization Estimation Inpatient Admits Date Paid T-D C Ratio C Factor Ult Inc Reserve Admits 1 mo Cost/Admit 3 mo Cost/Admit ,472, ,472, , ,837, ,837, , ,276, ,276, , , ,108, ,108, , , ,731, ,731, , , ,260, ,260, , , ,697, ,697, , , ,650, ,650, , , ,354, ,354, , , ,387, ,387, , , ,670, ,670, , , ,918, ,918, , , ,979, ,979, , , ,148, ,148, , , ,492, ,492, , , ,752, ,752, , , ,702, ,703, , , ,923, ,924,856 1, , , ,057, ,062,307 4, , , ,740, ,748,621 7, , , ,400, ,409,097 9, , , ,878, ,896,291 17, , , ,781, ,878,157 96, , , ,780, ,947, , , , ,938, ,128, , , , ,901, ,704, , , , ,766, ,069,006 2,302, , , Health Reserve Setting 2018 Health Meeting 12

37 Seasonality Example Need to account for different payment patterns that consistently occur at specific times of the year Health Reserve Setting 2018 Health Meeting 13

38 Change in Population Risk Date Members PMPM Risk Score , , , , , , , , , , , , , , , , , , , , , , , , Health Reserve Setting 2018 Health Meeting 14

39 Check Run Cut-off Dates Final Check Run (last Thursday of each month) 1/25/2018 2/22/2018 3/29/2018 4/26/2018 5/31/2018 6/28/2018 7/26/2018 8/30/2018 9/27/ /25/ /29/ /27/2018 Health Reserve Setting 2018 Health Meeting 15 Days Remaining in Month IBNR = Estimated Incurred Claims Actual Paid Claims If estimated incurred claims remain the same, lower actual paid claims will result in a higher reserve.

40 Reserve Setting Considerations How many claim triangles should be used? How detailed do the claim triangles need to be? Have there been changes to the population? How should you handle catastrophic claims? How should you account for claim inventories? Have there been any provider contracting changes? Have there been any legislative changes? Health Reserve Setting 2018 Health Meeting 16

41 How many claim triangles should be used? Consider different products Commercial Medicare Medicare Advantage Medicare Supplement Medicaid Catastrophic Plans Gap Plans Health Reserve Setting 2018 Health Meeting 17

42 How many claim triangles should be used? How detailed do the claim triangles need to be? Plan Type HMO PPO POS Type of Service Inpatient Outpatient Emergency Room Physician Pharmacy Ancillary Products (Dental, Vision, etc.) Health Reserve Setting 2018 Health Meeting 18

43 How many claim triangles should be used? How detailed do the claim triangles need to be? Geographic Area Population TANF, SSI (Disabled), Childless Adult (Medicaid Expansion) Chronic conditions versus non-chronic conditions Retiree versus Active employees Group Size Large Group Small Group Individual Health Reserve Setting 2018 Health Meeting 19

44 Have there been any changes to the population? Open Enrollment Period Medicaid Program Changes Legislative Changes Other Population Risk Changes Health Reserve Setting 2018 Health Meeting 20

45 Medicaid Program Changes Date Paid T-D C Ratio C Factor Ult Inc Reserve Members PMPM 6 mo PMPM ,185, ,875, , ,101, ,101, , ,623, ,823, , ,169, ,169, , ,619, ,619, , ,787, ,787, , ,897, ,897, , ,892, ,892, , ,126, ,126, , ,295, ,295, , ,981, ,981, , ,707, ,707, , ,031, ,031, , ,699, ,699, , ,224, ,224, , Health Reserve Setting 2018 Health Meeting 21

46 How can catastrophic claims be handled? Leave them in the claim triangle Remove them and include a separate large claim reserve Requires communicating between other areas of your organization (e.g. Medical Management, Health Services, etc.) Health Reserve Setting 2018 Health Meeting 22

47 Large Claim Example Date Paid T-D C Ratio C Factor Ult Inc Reserve ,472, ,472, ,837, ,837, ,276, ,276, ,108, ,108, ,731, ,731, ,260, ,260, ,697, ,697, ,650, ,650, ,354, ,354, ,387, ,387, ,670, ,670, ,918, ,918, ,979, ,979, ,148, ,148, ,492, ,492, ,752, ,752, ,702, ,703, ,923, ,924,856 1, ,057, ,062,307 4, ,740, ,748,621 7, ,400, ,409,097 9, ,878, ,896,291 17, ,781, ,878,157 96, ,780, ,984, , ,938, ,309, , ,901, ,157,869 1,255, ,766, ,307,443 3,541,154 Date Paid T-D C Ratio C Factor Ult Inc Reserve ,472, ,472, ,837, ,837, ,276, ,276, ,108, ,108, ,731, ,731, ,260, ,260, ,697, ,697, ,650, ,650, ,354, ,354, ,387, ,387, ,670, ,670, ,918, ,918, ,979, ,979, ,148, ,148, ,492, ,492, ,752, ,752, ,702, ,703, ,923, ,924,856 1, ,057, ,062,307 4, ,740, ,748,621 7, ,400, ,409,097 9, ,878, ,896,291 17, ,781, ,878,157 96, ,780, ,984, , ,938, ,309, , ,201, ,541,905 1,340, ,766, ,307,443 3,541,154 Health Reserve Setting 2018 Health Meeting 23

48 How should claim inventories be accounted for? Holiday or weather-related closures Claim system changes Claim department staffing issues Auto-pay implementation Health Reserve Setting 2018 Health Meeting 24

49 Additional Items to Consider Provider contracting changes Flu outbreaks Seasonality Health Reserve Setting 2018 Health Meeting 25

50 Flu Outbreak Example Date Paid T-D C Ratio C Factor Ult Inc Reserve Units 1 mo ,484, ,484, , ,411, ,411, , ,945, ,945, , ,761, ,761, , ,927, ,927, , ,201, ,201, , ,432, ,432, , ,250, ,250, , ,380, ,380, , ,657, ,657, , ,531, ,531, , ,871, ,871, , ,109, ,109, , ,346, ,346, , ,336, ,336, , ,168, ,169, , ,146, ,148,100 1,698 39, ,604, ,607,534 2,927 40, ,501, ,508,991 7,125 40, ,413, ,426,701 13,066 41, ,683, ,708,168 24,592 41, ,219, ,279,477 59,835 42, ,495, ,642, ,419 43, ,885, ,233, ,781 43, ,271, ,966, ,310 43, ,428, ,540,365 1,111,676 44, ,947, ,917,565 1,970,172 45, ,908, ,946,483 9,037,922 45, Health Reserve Setting 2018 Health Meeting 26

51 Relevant Actuarial Standards of Practice ASOP #5 Incurred Health and Disability Claims ASOP #23 Data Quality ASOP #25 Credibility Procedures ASOP #41 Actuarial Communications Health Reserve Setting 2018 Health Meeting 27

52 Recap Claim reserve setting is not entirely a mathematically exercise. Actuaries need to account for many different components that impact the ultimate incurred claims. Determining the impact of each component often requires working with other areas of your organization. Health Reserve Setting 2018 Health Meeting 28

53 Questions? Health Reserve Setting 2018 Health Meeting 29

54 Session 47: Reserve Setting Advanced Topics SOA Antitrust Compliance Guidelines Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants. The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding. There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures. While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines: Do not discuss prices for services or products or anything else that might affect prices Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers. Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so. Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs. Do alert SOA staff and/or legal counsel to any concerning discussions Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information. Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone s responsibility; however, please seek legal counsel if you have any questions or concerns. 6/25/2018 Berry - Page 1

55 Session 47: Reserve Setting Advanced Topics Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 6/25/2018 Berry - Page 2

56 Session 47: Reserve Setting Advanced Topics Session Review Claims reserving actuaries use historical payment patterns and PMPM s to estimate the current incurred claims/reserve amount What do you do when past data is not representative of current activity? Issues Workdays CF Algorithms Payment Cycles Catastrophic Claims Claims Inventory Problems New Product Implementation Provider Issues ACA Year 1 6/25/2018 Berry - Page 3

57 Session 47: Reserve Setting Advanced Topics Workdays Matter! Your ability to use the health care system is constrained by your access to a provider that is currently working ( work days ) Each day is different Saturday and Sunday are not 1.0, but they aren t 0 either Emergency services are different than non-emergent Varies by service type (e.g. admissions are more likely on Monday than Friday) Why does this matter? It should not affect payment patterns It does affect the ultimate PMPM, which is how you set the most recent months. 6/25/2018 Berry - Page 4

58 Session 47: Reserve Setting Advanced Topics Workdays Matter! 6/25/2018 Disclaimer: this is based on real data to demonstrate seasonality. Each year had been adjusted by a different scaler to produce a fixed trend. Berry - Page 5

59 Session 47: Reserve Setting Advanced Topics CF Algorithms There are a variety of algorithms to calculate completion factors. They all handle anomalies in the data a little differently. So there is value in running multiple algorithms to check for bias. $125 Comparison of Completion Methods Reserve for Credible CF Months $120 $115 $110 $105 $100 $95 $90 $85 $80 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Valuation Month Ratio 4 of 6 Classic 4 of 6 Ratio 10 of 12 Classic 10 of 12 Ratio 12 of 12 Classic 12 of 12 Average 6/25/2018 Berry - Page 6

60 Session 47: Reserve Setting Advanced Topics Payment Cycles Some companies process claims every day but cut checks once per week So monthly paid claims contain either 4 or 5 payment cycles That create a lot of volatility in the triangle What would you do? a) Ignore it. It isn t important. b) Change the data feed so that it goes through the last day of the month c) Adjust completion factor (e.g. look at historical CF s for 5 pay months) d) Adjust the cumulative paid claims before applying a normal CF e) Use completion factors based on weeks of runout 6/25/2018 Berry - Page 7

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63 Session 47: Reserve Setting Advanced Topics Payment Cycles CF s based on weeks of Runout Cumulative data doesn t change; it is just redistributed Pd Pd Incurred Month Mo Wk A B C A 13 $1 A 12 $2 A 11 $5 A 10 $10 B 9 $15 $1 B 8 $20 $2 B 7 $20 $5 B 6 $10 $10 C 5 $7 $15 $1 C 4 $5 $20 $2 C 3 $3 $20 $5 C 2 $1 $10 $10 C 1 $1 $7 $15 TOTAL $100 $90 $33 Runout Months Weeks MONTHLY TRIANGLE Mo. of Incurred Month Runout A B C 1 $18 $18 $33 2 $65 $72 3 $17 TOTAL $100 $90 $33 WEEKLY TRIANGLE Wk. of Incurred Month Runout A B C 5 $33 $33 $33 9 $57 $57 13 $10 TOTAL $100 $90 $33 } Volatility } Stability 6/25/2018 Berry - Page 10

64 Session 47: Reserve Setting Advanced Topics Catastrophic Claims The ACA eliminated annual and lifetime limits Perhaps as a result, we are seeing more very high dollar claims [HDC] (claims over $500k are regular and claims over $1m are not uncommon) Because these claims are very large but also erratic, they can distort the claims triangle / CF development What would you do? a) Ignore it. We always have HDC s in the CF s. Prego it s in there! b) Set two reserves using the CF method. One for HDC; one for non-hdc. c) Set HDC in aggregate using totals from an authorization report. d) Set HDC separately using by projecting the future claims triangle. e) Set HDC case by case using clinical and provider contracting intelligence. 6/25/2018 Berry - Page 11

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67 Session 47: Reserve Setting Advanced Topics Catastrophic Claims Paid PMPM Approach Convert triangle to PMPM s and project future payments 6/25/2018 Berry - Page 14

68 Session 47: Reserve Setting Advanced Topics Claims Inventory Problems Claim Inventories If inventories change considerably, the triangle will be distorted. Inv. => Paid => Reserve Medicare changed intermediary processors and stopped paying all claims during the transition. This affects Medigap policies, which pay secondary. What would you do? a) Ignore it. It isn t our problem; it s the intermediary s. b) Ignore the recent data and set all of those month on a PMPM. c) Estimate and add the missing claims before applying normal CF s. d) Use a longer term CF method and drop multiple values. e) Use a shorter term CF method and drop multiple values. Utilization Valuation Month Lines Dollars Charges 6/25/2018 Berry - Page 15

69 Session 47: Reserve Setting Advanced Topics Claims Inventory Problems You have a new product and find out the wrong fee schedule was loaded. They need to reprocess an entire year s worth of claims (impact could be positive or negative). What would you do? a) Ignore it. It could be positive or negative; so the expected value = 0. b) Choose a longer term CF method that drops multiple values. c) Choose a shorter term CF method that drops multiple values. d) Delete the tail of the triangle for the month for the months where claims were reprocessed. e) Get the claims detail and adjust the reserve database to use the original paid date for these claims. 6/25/2018 Berry - Page 16

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71 Session 47: Reserve Setting Advanced Topics New Product Implementation For a new product, you have no historical data. How do you calculate the reserve? What would you do? a) Ignore it. We don t need to set reserves for new products. b) Set all the PMPM s to Pricing. c) Develop completion factors from the triangle of a comparable product. d) Blend the triangle for this product with the triangle for a comparable product. e) Set the reserve equal to two months of paid claims. 6/25/2018 Berry - Page 18

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73 Session 47: Reserve Setting Advanced Topics Provider Issues A provider implements a new EMR System and is unable to submit claims for an extended period of time. Since these claims haven t been submitted, they are not in inventories. What would you do? a) Ignore it. It s the provider s problem, not mine. b) Use conservative completion factors. c) Estimate the missing paid from the triangle and adjust as if they were in the inventories. d) Pull a provider-specific claims triangle from your data warehouse and estimate the missing paid claims. e) Ask the provider for info. 6/25/2018 Berry - Page 20

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75 Session 47: Reserve Setting Advanced Topics ACA Year 1 In the first year of ACA, people were able to sign up throughout the year, which means the mix of business was constantly changing. What would you do? a) Ignore it. It is impossible to make sense of ACA in year 1. Blame it on the government. b) It doesn t affect CF s. Use the pricing PMPM for the current month. c) Use the actual paid to allowed data to set the allowed PMPM and then apply an expected PtoA ratio based on emerging data. d) Calculate expected PtoA factors using actual member mix. e) Book an MLR for year 1. 6/25/2018 Berry - Page 22

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77 Session 47: Reserve Setting Advanced Topics Expected PtoA Curve Assume all members have a $500 allowed PMPM regardless of metal or incurred month (i.e. no selection or seasonality) For simplicity, five cohorts join during the year and each cohort chooses a single metal. 6/25/2018 Berry - Page 24