Session 84 TS, Payment Transfer Formula - The Mystery Revealed. Moderator/Presenter: Julia S. Lambert, FSA, MAAA

Transcription

1 Session 84 TS, Payment Transfer Formula - The Mystery Revealed Moderator/Presenter: Julia S. Lambert, FSA, MAAA Presenter: Kelsey Leigh Stevens, FSA, MAAA

2 SOA Health Meeting 2015 Tuesday June 16, 2015 Session 84: Payment Transfer Formula The Mystery Revealed Julia Lambert, FSA, MAAA Kelsey Stevens, FSA, MAAA

3 2 Agenda Audience Response System Overview The pieces EXCEL example

4 Audience Response System Keypad Enter your response when you see the answer now button A light on the keypad will indicate your response was recorded You may change your answer while polling is open No need to press go Answer Now

5 4 Interactive Question Did you participate in the SOA fun run this morning? 1. Yes 2. No 99% 1% 1 2

6 5 Interactive Question What lines of business do you work in? (You can select all that apply) 1. Individual 2. Small Group (<50) 3. Mid-size (50-100) 61% 66% 48% 38% 4. Large (>100) 24% 5. Other

7 6 ACA Risk Adjustment Overview Designed to transfer funds from health plan issuers that enroll lower risk enrollees to those issuers that enroll higher risk enrollees. Intended to mitigate risks resulting from significant market changes like: o o o guarantee issue, prohibiting the use of pre-existing conditions, and rating restrictions. Aimed at protecting insurers financially and bringing premium stability to consumers. Starting with rates in 2014, issuers must effectively set premiums based on the average (1.0) risks of the state.

8 7 ACA Risk Adjustment Overview, cont d Uses medical diagnosis codes from medical records to assess member-level health risks Model estimates the Plan Liability Risk Scores ( PLRS or simply risk scores ). o PLRS includes the impact of the value of the benefit plan Concurrent model - uses current year claims and membership data to determine risk adjustment transfers for the same year Based on coefficients on Hierarchical Condition Categories ( HCC ) Separate models for each ACA-defined metallic tier Applies to all non-grandfathered and non-transitional health benefit plans offered in the small group and non-group market, both inside and outside the Exchange.

9 8 Interactive Question How familiar are you with the formula? 1. This is my first time looking at it 2. Seen it, that s it 3. Seen it, and tried to understand it, but gave up 4. Have a loose understanding 5. Have a thorough understanding 21% 17% 12% 39% 11%

10 9 Payment Transfer Formula Where: TT ii = Transfer for issuer ii PP ss = State Average Premium PPPPPPPP ii = Issuer ii s plan liability risk score IIIIII ii = Issuer ii s induced demand factor AAAAAA ii = Issuer ii s allowable rating factor AAAA ii = Issuer ii s metal level actuarial value GGGGGG ii = Issuer ii s geographic cost factor ss ii = Issuer ii s share of State enrollment, and the denominator is summed across all issuers in the risk pool in the market + state Transfers = Premium with risk selection Premium without risk selection

11 10 State Average Premium Average premium for entire state Calculated using total billable member months

12 11 Plan Liability Risk Score, PLRS Plan average risk score including risk of all members on the policy Only component in the transfer calculation that has the adjustment by total member months and by total billable months. o All other components are averaged using total billable months

13 12 Plan Liability Risk Score, PLRS, cont d Risk scores by age and metal level displayed below

14 13 Induced Demand Factors, IDF Accounts for greater utilization of health care services induced by lower enrollee cost sharing in higher metal level plans Varies by metal level only Metal level Induced demand adjustment Catastrophic 1.00 Bronze 1.00 Silver 1.03 Gold 1.08 Platinum 1.15

15 14 Plan Actuarial Value, AV Accounts for relative differences in plan liability due to differences in AV Varies by metal level only Metal level AV adjustment Catastrophic 0.57 Bronze 0.60 Silver 0.70 Gold 0.80 Platinum 0.90

16 15 Interactive Question ARF stands for: A. Age Rating Factor B. Administrative Retention Factor C. Allowable Rating Factor D. Acute Renal Failure 20% 1% 76% 3% A. B. C. D.

17 16 Allowable Rating Factor, ARF Standard age curve ranges from 1.0 at age 21 to 3.0 for ages 64+ Child factor = Accounts only for age rating Tobacco use, wellness discounts, and family rating requirements not be included in payment transfer formula Weighted by billable member months

18 17 Geographic Cost Factor, GCF Some plans costs (i.e. input prices or utilization) vary by region GCF calculated based on the observed average silver plan premium for risk pool in a geographic area relative to the Statewide average silver plan premium Three step calculation o o o Step 1: Compute average premium for each silver plan in each rating area Step 2: Generate a set of age-standardized plan average premiums for each silver plan by dividing by the ARF Step 3: Compute GCF for each area and assign to all plans in that area (divide the billable enrollment-weighted average of standardized silver level plan premiums in a geographic area by the average of those premiums Statewide)

19 EXCEL MODEL 18

20 19 So what does this mean? Aha s? Takeaways?

21 20 Transfers Based on Statewide Premiums Low cost and low risk score regions have higher payment transfers as a percent of collected premiums than those in high cost regions. Health plans are not more or less likely to pay into the risk adjustment system solely as a result of offering lower average premiums.

22 21 Transfers Based on Statewide Premiums, cont d Risk adjustment transfers are based on statewide premiums, not claims, which results in a payment transfer of premiums related to administrative fees, not just claims. In addition to the transfer of administrative expenses, lower cost health plans with risk transfer payables actually end up subsidizing higher cost plans. Transfer Attributable to: Transfer PMPM (assume 3% lower risk/ administrative subsidizing Premium Relativity Carrier Premium lower risk) lower claims costs higher cost plans 5% lower $ $13.08 $10.56 $1.86 $ % lower $ $13.08 $10.01 $1.77 $ % lower $ $13.08 $9.45 $1.67 $ % lower $ $13.08 $7.78 $1.37 $3.92 Statewide Average $436.00

23 22 Transfers Based on Statewide Premiums, cont d Regional differences in coding, risk, and demographics may result in payment transfers that create subsidies between regions.

24 23 Zero CC Members After risk adjustment, issuers are losing money on those members who are not assigned any HCCs. To the extent that an issuer has a larger proportion of zero condition category members than the market as a whole, the issuer is being penalized by the risk adjustment transfer formula. Member Portion Risk Risk Paid Adjusted Claims Premium Loss #CC Months of MM Score PMPM PMPM Ratio 0 43,207,036 81% % 1 7,447,839 14% % 2 1,950,935 4% ,451 2,057 71% 3 573,430 1% ,637 3,826 69% 4 214,260 0% ,447 6,458 69% 5 92,498 0% ,670 9,607 69% 6 46,222 0% ,600 13,344 72% 7 26,066 0% ,049 16,878 71% 8 15,657 0% ,506 20,255 72% 9 9,217 0% ,590 23,762 74% ,435 0% ,367 33,069 68% Total 53,599, % %

25 24 Interactive Question What do you anticipate your payables/receivables on risk adjustment transfer will be? A. Receive Significant (>10% of Premium) B. Receive Some (0-10% of Premium) C. Pay Some (0-10% of Premium D. Pay Significant (>10%) 16% 30% 30% 25% A. B. C. D.

26 2014 WNRAR Results Overview Relative Risk by Market Share 3.5 Individual Entity Relative Risk to Market by % of Market Share % 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 25