Individual and Small Group Medical Products

Transcription

1 Southeastern Actuaries Conference Spring Meeting June 23-25, 25, 24 Individual and Small Group Medical Products Mark E. Litow, FSA, Consulting Actuary

2 Current Amount Spent on Health Care (in billions) Hospital Nursing Home Home Health Physician Rx OTC Drugs Dental/ Vision Misc. Admin Total Private Mkt. Total All Individual <age 65 $15 $1 $1 $19 $7 $1 $5 $5 $15 $61 $69 Small Group <age Large Group <age Medicaid <age Medicaid >age Medicaid LTC Medicare Program pd Medicare OOP-cvsv Non-Medicare >age Uninsured Other Public Total $511 $148 $38 $385 $163 $19 $93 $178 $124 $67 $1,66

3 Average Health Care Cost of Basic Population Cost (Excluding Admin) Popu- lation Cost Per Person OOP Exc. Revised Cost PP Total Relativity Private Market ,675 3, Medicaid ,194 7, Medicare , , Uninsured , ,558.7 Other Public ,273 19,273 Other (seniors) 139 Total 1, ,266 Note: Bad debt for uninsured estimated at $35 billion in other studies

4 Who Pays for Health Care Description Population (millions) Estimated for 2 Total Cost (billions) Cost/ Pop Annual Trend Estimated Cost 22 Medicare 39 $225 $5, $255 Medicaid , Uninsured Individual , Small Group , Large Group , ,35 Other Total 28 $1,27 $4, ,5

5 Current System in 23 Market Population (millions) Bill-all Services Cost Med Cost Per Person Admin % 1-OOP Benefit % Admin Only Benefit Cost w/admin Insurance Only Benefit Cost Total Cost Cost Per Person Benefit Only Exp Ratio to LG bncst Ind SG LG Medicare Medicaid Uhinsured Msc 1 * Subtotal LTC-NM Home Health Dental Other gov OTC Rx 15. Rx65+ above 65+ oop above Vision 15. Subtotal Grand Total * included in other government Med OOP coins and lack of rx

6 Factors Causing Problems Tax Code Medicare Medicaid Uncompensated Care (Uninsured) Mandated Benefits Rating Restrictions Other Regulations

7 Individual Market

8 Individual Market Serious Issues Facing Market Cost and cost shifting Mandated benefits Underwriting restrictions Rating Compliance Other

9 Individual Market Market Characteristics Transitional in Nature 3 year average Lapse of 35-5% 5% year 1, 2-3% renewal years Trend of 1-15% 15% per year before aging Adverse selection against rate increase vs. normal lapse / durational experience Deductible increasing over time (often 1,+ avg) and leveraging Market is competitive in some states, not in others

10 Individual Market Estimated Impact (trend increase) in Market Costs to Present Description of Factor Cost Shift Mandated Benefits Underwriting/Rating Restrictions Personal Responsibility/Product Mix Tax Equity Uninsured/Uninsurable/Insurer of Last Resort Small Group Market Reform Administrative Costs Composite Estimated Range of Impact 15-5% 5% 5-45% -1%+ -3% Affordability Effect Only Minimal Effect Minimal Effect An Increase Relative to Group 2-225% 225%

11 Individual Market Profitability Illustration Percentage of Income Average Not Target Average Policy Year -6 Mo Lifetime Premium Investment Income Incurred Claims Expenses Gain/(Loss) (.1)

12 Individual Market Benefit Design and Underwriting Issues Risk versus Lean Plan (Marketing Direction) Underwriting and Caliper of Risk (Preferred, Standard, Substandard, Imp Riders) Experience characteristics by bucket (benefits, underwriting) Other (age, area, industry, leverage, discretion) Other

13 Individual Market Types of Rating Strategies A. Form Position 1. Closed/Open Method 2. Always Open B. Condition/Experience Recognition 1. At Issue Only* 2. At Issue and Renewal (more limited at renewal) C. Durational Recognition 1. None 2. Limited, Much Less Than Actual * Includes condition-related discounts or rate-ups and/or impairment riders.

14 Individual Market Types of Rating Strategies D. Age/Sex (continued) 1. For Each Age by Sex 2. By Groups of Age by Sex E. Other 1. Benefit Driven (Mandates) 2. Risk Driven (Generally Included or Options)

15 Individual Market Case Studies of Strategies A & B Underlying Assumptions Annual Trend 12% Annual Aging 3.5% New Business increases by.25% for every 1% decrease in rates and vice versa Lapse increases by.25% for every 1 point increase in renewals, premiums and vice versa Adverse Selection impact based on probability distributions under standard cost distribution relativities for all services from the 21 Milliman Health Cost Guidelines Durational Rating Models based on similar relationships using constant durational increase (.25% relative to rate) every year Rate increases equal to trend plus aging plus adverse selection due to rate increase

16 $14, Illustrative Average Premiums Under Always Open Method over 1 Years with New Issues and Renewal Business at Same Annual Premium $12,793 $12, $1, $8,995 $9,387 Premium $8, $6, $4,849 $5,115 $6,58 $6,831 $4, $2, $1,5 $1,68 $1,739 $1,95 $2,41 $2,176 $2,413 $2,571 $2,95 $3,135 $3,723 $3,945 $ New Issues Rate (no aging) Year Renewal Rate (with aging) New Business - Increases with 12% trend and adverse selection due to new business subsidizing renewals. Renewal Rate Increases with 12% trend, 3.5% aging and adverse selection.

17 $9, Illustrative Average Premiums Under Closed/Open Method over 1 Years with New Issues and Existing Business Rates $8, $8,139 $7, $6,71 $6, $5,517 Premium $5, $4, $3, $2, $1,5 $1,5 $1,68 $1,739 $1,882 $2,87 $2,17 $2,535 $2,36 $3,79 $2,644 $3,74 $2,961 $4,542 $3,316 $3,714 $4,16 $1, $ New Issues Rate (no aging) Existing Year

18 Comparison of New Business Rates Always Open vs. Closed/Open Approach $1, $9, $9,387 $8, $7, $6,831 Premium $6, $5, $4, $3, $2, $1,5 $1,5 $1,68 $1,68 $1,95 $1,882 $2,176 $2,17 $2,571 $2,36 $3,135 $2,644 $3,945 $2,961 $5,115 $3,316 $3,714 $4,16 $1, $ New -Always Open New - Closed/Open Year

19 Comparison of Existing Business Rates Always Open vs. Closed/Open Approach $14, $12,793 $12, $1, $8,995 Premium $8, $6, $4,849 $4,542 $6,58 $5,517 $6,71 $8,139 $4, $2, $1,739 $1,739 $2,41 $2,87 $2,413 $2,535 $2,95 $3,79 $3,723 $3,74 $ Existing - Always Open Existing - Closed/Open Year

20 $14, Illustrative Average Premiums Under Health Status Renewal Underwriting (HSRU) Method over 1 Years with New Issues and Renewal Business at Same Annual Premium $12, $1, Premium $8, $6, $5,796 $6,94 $4,868 $4, $2, $1,5 $1,68 $1,739 $1,882 $2,51 $2,17 $2,436 $2,36 $2,894 $2,644 $3,44 $2,961 $4,91 $3,316 $3,714 $4,16 $ New Issues Rate (no aging) Renewal Rate (with aging) Year New Business rate increases with 12% trend. Renewal rates increase by trend, 3.5% aging, and adverse selection.

21 Comparison of Existing Business Premiums for Closed/Open no HSRU vs. Always Open HSRU (note: new business rates are the same) $14, $12, $1, Premium $8, $6, $4, $2, $ $1,739 $1,739 $2,87 $2,51 $2,535 $2,436 $3,79 $2,894 $3,74 $3,44 $4,542 Existing - Closed/Open no HSRU Year $4,91 $5,517 $4,868 $6,71 $5,796 $8,139 $6,94 Existing - Always Open HSRU

22 Individual Market Compliance Ranking Ranking Viable Profit potential exists with prudent company management due to a combination of reasonable if not favorable regulatory environment in the state and external influences that do not appear to be causing rapidly rising trends due to cost shifting. Between Viable & Questionable This category indicates a state where some carriers maybe profitable, but often that may be the case only in local markets. Further market adjustments will be needed in the future so that this state can become viable in all cases. Questionable The market has recently been deteriorating and indications are that future profitability is questionable for most companies. Poor Carriers could lose money due to the regulatory environment and/or substantial cost shifting unlikely to improve without substantial modifications. Number of States States AR, IL, IN, IO, MI, MT, NE, OH, OK, PA, TN, TX, VA, WI AR, CA, GA, ID, KA, MO, NC, ND, SC, SD, WY AK, CT, DE, FL, HI, KT, MN, NV, NH, UT, WV, DC AL, CO, LA, ME, MD, MA, MS, NJ, NM, NY, OR, RI, VT, WA

23 Individual Market Market Summary Individual market is perhaps nearing a crossroads (driven by numerous trends) Biggest risk continues to be growing costs and restrictive regulation Biggest opportunity comes from group market and health care system perils Market will ultimately prosper only if flaws in current system are fixed

24 Small Group Market

25 Small Group Market Serious Issues Facing Market Cost and Cost Shifting Guarantee Issue / Risk Selection Rating Bands Discounts / Networks Regulations

26 Small Group Market Characteristics Averse selection varies by state, but very serious in general Lapse rate about 25% 2-55 life employee groups serious problems Trend at least 1-2%+ per year before aging Cost sharing escalating significantly Market in trouble in many states

27 Small Group Market Estimated Impacted in Market 1954 to Present Cost shift 15-5% 5% Mandated Benefits - Less than individual market less than 5% Underwriting/Rating Restrictions 3-5% Personal Responsibility -5% Composite 2-16%

28 Small Group Market Profitability Illustration Percentage of Income Average Not Target Policy Year Premium Investment Income Claims Experience Gain/Loss Lifetime

29 Small Group Market Benefit Design and Underwriting Issues Rich versus Lean Benefits (market direction) Underwriting Tiers Experience Characteristics by Bucket Other (size, discounts, etc.)

30 Small Group Market Rating Issues Durational Targets Networks Exemptions

31 Small Group Market Compliance Ranking Ranking Viable Profit potential exists with prudent company management due to a combination of reasonable if not favorable regulatory environment in the state and external influences that do not appear to be causing rapidly rising trends due to cost shifting. Between Viable & Questionable This category indicates a state where some carriers maybe profitable, but often that may be the case only in local markets. Further market adjustments will be needed in the future so that this state can become viable in all cases. Questionable The market has recently been deteriorating and indications are that future profitability is questionable for most companies. Poor Carriers could lose money due to the regulatory environment and/or substantial cost shifting unlikely to improve without substantial modifications. Number of States States IL, IN, IA, NB, OH, TN, WI AR, DE, GA, ID, MI, OK, PA, TX, VI, WV CO, CT, HI, KA, LA, MO, MT, NJ, NV, NC, ND, OR, SC, SD, UT, WY, DC AL, AK, AZ, CA, FL, KY, ME, MD, MA, MN, MS, NH, NM, NY, RI, VT, WA

32 Small Group Market Market Summary Market in Trouble (Washington debates) Biggest issues continue to be growing costs and regulations Biggest opportunities consumer driven plans and changes in regulations Market will only prosper if flaws in current system are fixed