Session 22 IF, ACA Transitional Solvency Risks. Moderator/Presenter: Samuel C. Vorderstrasse, FSA, MAAA

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1 Session 22 IF, ACA Transitional Moderator/Presenter: Samuel C. Vorderstrasse, FSA, MAAA Presenter: Armen Garnikovich Akopyan, ASA, MAAA

2 2016 SOA Health Meeting Sam Vorderstrasse, FSA, MAAA Armen Akopyan, ASA, MAAA ACA Transitional June 2016

3 Overview Temporary Market Stabilizers/De-stabilizers: Reinsurance for individual QHP s Risk Corridors (bailout misnomer) Transitional policies Permanent Features: Risk Adjustment Payments *Undercompensates for healthiest and sickest Minimum Medical Loss Ratios (Once behind, catching up is hard) Cost-Share Reduction Medicaid Expansion Advanced Premium Tax Credits Competitors: Managed Medicaid companies Blue plans National plans Co-ops: Perfect storm Regional plans Start-up plans Local Decisions to Mitigate Risks: (AR) Play or not Grab market share? Morbidity levels Unknowns, assumptions 3 R s What to assume 2

4 Risk Stabilization Programs (3Rs) Reinsurance ( ) Protects against the risk of large claims as a result of guaranteed issue Risk adjustment (Permanent program) Transfers money between carriers based on the relative risk of members Zero-sum game Risk corridor ( ) Protects against inaccurate rate setting Funding source is still unidentified Unintended consequences 3

5 Reinsurance and Risk Adjustment Observations Reinsurance Collected $9.7B in M fewer members in fully insured $45K to 100% Lower than projected ACA enrollment o Extensions, ACA dislike, operational failures, lack of understanding, # of uninsureds < 133% FPL much higher than anticipated Risk adjustment Achieved overall goal Carriers with low duration lost money Biases will shift as premiums stabilize and reinsurance is no longer offered Value of risk adjustment will decrease as fewer carriers remain 4

6 Risk Corridor Observations Rush to grab market share Some carriers offered low rates in hopes of increasing market share by betting on risk corridor assistance and member stickiness 5

7 Risk Corridor Observations Continued Lower APTC costs Reduced MLR rebates Additional adjustments increased shortfall for transitional plans Lack of Medicaid expansion increased receivables Greater reinsurance payments reduced shortfall 6

8 Federal Funds Greater in States with no Medicaid Expansion Medicaid Expansion No Medicaid Expansion No Coverage Gap $$ from Feds Potential Coverage Gap Less Healthy Join Pool (Anti- Selection) Increased Subsidies Higher Rates $$$$ from Feds Implicit Tax for Non-Subsidy Eligible 7

9 Risk Corridor and Reinsurance Amounts by State Decisions for All Carriers (includes DC) Trans. Policy Extension Medicaid Expansion # of States Payables Receivables Y Y 15 ($57M) $997M Y N 21 ($43M) $1,460M N Y 13 ($194M) $358M N N 2 ($16M) $1M Total 51 ($309M) $2,817M Trans. Policy Extension Medicaid Expansion # of States Average Membership Reinsurance PMPM Y Y M $1,947M $83 Y N M $3,437M $89 N Y M $2,336M $70 N N 2 0.2M $166M $61 Total M $7,886M $80 8

10 Key Issues for Risk Adjustment Partial-year enrollment Prospective vs. concurrent model Prescription drugs Transfer model High risk pooling Calibration data 9

11 Risk Adjustment Challenges Increased uncertainty Pricing lag Pros and cons of Special Enrollment Periods Durational issues Gap closure variations (ability to capture diagnosis codes) Winners/losers in zero sum game environment National risk adjustment factors applied at the state level New interventions Metal level distribution Risk 10

12 Summary of 2017 Risk Score Changes Separate trend factors were used for medical, specialty and nonspecialty drugs Addresses the lag issue, thus improving the predictive ability of the model Increases to conditions were few, but significant Hepatitis +210%, Multiple Sclerosis +91%, Cystic Fibrosis +75%, HIV/AIDS +71% Weights reduced for nearly all age groups in all metal levels Most adult factors reduced from -15% to -25% Larger impact to carriers with below-average risk scores About 80% of the population has no condition and gets only an A/G score 11

13 ARKANSAS MEDICAID EXPANSION AKA ARKANSAS WORKS Local Decisions to Mitigate Risks What is the Private Option?(aka Arkansas Works) Medicaid Expansion through the Exchange Public/Private Partnership (State pays premium, Feds reimburse State) Started to take shape early Pilot Single Risk Pool Private Insurance No Benchmark for 2014 and 2015; 2016 within 10% of second lowest Silver plan 1115 Waiver Budget Neutrality MLR, CSR, 3R s apply Members treated like other commercial members 12

14 THE REGULATORS CMS Medicaid CMS CCIIO Federal Medicaid Rules OPM OPM Rules Federal ACA Rules State of Arkansas DHS State of Arkansas AID AR Medicaid Rules & PO Control State Insurance Law & Rules 13

15 COST SHARING Arkansas Medicaid benefit was divided into two income categories: 0-100% Plan Z 100%-138% 94% Plan 14

16 Overall Deductible $150 Service Specific Deductibles Medical $0 Brand Drugs $0 Dental $0 Member Out-of-Pocket Max $754 (all services combined): COST SHARING ILLUSTRATION WAIVE DEDUCTIBLE High-Value Silver Plan 94% Actuarial Value Plan General Service Description Subject to Deductible Unit of Service Copays Coinsurance Behavioral Health IP Yes Day $ % Behavioral Health OP No Visit $ 4 100% Behavioral Health Professional No Visit $ 4 100% Durable Medical Equipment No Service $ 4 100% Emergency Room Services No Visit $ - 100% FQHC No Visit $ 8 100% In-patient Yes Day $ % Lab and Radiology No Visit $ - 100% Skilled Nursing Facility Yes Day $ % Other No Visit $ 4 100% Other Medical Professionals No Visit $ 4 100% Outpatient Facility Yes Visit $ - 91% Primary Care Physician No Visit $ 8 100% Specialty Physician No Visit $ % Pharmacy Generics No Prescription $ 4 100% Pharmacy Preferred Brand Drugs No Prescription $ 4 100% Pharmacy Non-Preferred Brand Drugs No Prescription $ 8 100% Pharmacy Specialty Drugs (i.e. highcost) No Prescription $ 8 100% 15

17 2014 CONTRACT YEAR Pricing Decisions and Assumptions Play with significant unknowns (had to be on SHOP also) Competitors likely Local one local National United No Co-ops Medicaid Expansion Centene and/or Molina Competitively priced, but doesn t assume Risk Corridor protection Risk Adjustment Zero transfer RI Model using parameters (set initially) Unknown Take up expansion population 50% at best assumed Morbidity assumed to be much higher than Small Group Transitional policies Not known at time of pricing, but we made sure our NGF would not be forced into ACA market for 2014 Assume high risk pool members will choose the Blue Plan Higher Risk Score to mitigate 16

18 2014 CONTRACT YEAR 2014 Actual Results Local Company (capped enrollment) ABCBS local Multistate Plan Ambetter (Centene) YE Enrollment 225,000 Arkansans insured by Private Option 50,000 other ACA compliant members ABCBS most market share Statewide Two Plans Lowest rates Lower deductible and higher coinsurance for RI certainly helped surplus situation No risk corridors R/A net receivable: Wakely Modeling No MLR rebates Modest rate increases to date Conclusion: Medicaid Expansion through the Exchange is the best market stabilizer of them all 17

19 2015 CONTRACT YEAR Transitional Policies stay NGF Income Redetermination: Backlog due to new system 10 days to respond Mail a letter Will the State retro back to 8/1 or 9/1 if later determined to be eligible? Voluntary Rx payments for members during August and September ABCBS and Ambetter Intent versus reality of State approach Who is likely to come back? (As Actuaries, I think you know) Hepatitis C Drugs: Still seeing increased usage 18

20 Co-ops Co-ops are a public plan option Purpose is to provide increased competition and additional choice for consumers Borrow funds from government to cover start-up costs and solvency reserves Facing a lot of financial difficulties Co-op Status Payables Receivables Collapsed (12) $0M $431M Remaining (11) ($5M) $71M Total ($5M) $502M Unintended consequences Probably hurt consumers more than they helped Possible contributor to recent industry onslaught of mergers and acquisitions 19

21 Risk Corridor and Reinsurance Amounts by State Decisions for Co-ops Trans. Policy Extension Medicaid Expansion Collapsed Co-ops Remaining Co-ops Payables Receivables Y Y 5* 5 ($3M) $168M Y N 5* 3 ($2M) $163M N Y 2 4 $0M $171M N N 0 0 $0M $0M Total 12* 12 ($5M) $502M Trans. Policy Extension Medicaid Expansion Collapsed Co-ops Remaining Co-ops Members as of 12/31 Reinsurance PMPM Y Y 5* 5 148K $123M $92 Y N 5* 3 199K $184M $103 N Y K $74M $39 N N 0 0 0K $0M $0 Total 12* K $380M $76 *Double-counted CoOportunity (a collapsed co-op); it was in both Iowa (Y,Y) and Nebraska (Y,N) 20

22 CO-OPS REMAINING (11 OUT OF 23) 21

23 CO-OPS REMAINING (11 OUT OF 23) 22

24 CO-OPS REMAINING (11 OUT OF 23) 23

25 CO-OPS REMAINING (11 OUT OF 23) Underwriting Results and Capital Position as of December 31,

26 CO-OPS REMAINING (11 OUT OF 23) 25

27 2016 CONTRACT YEAR Morbidity levels Transition policies stay NGF Specialty Drugs United in market but pulled back 26

28 2017 & BEYOND PO now known as Arkansas Works will continue for at least one more year Best market stabilizer becomes best market de-stabilizer at some point? Solvency/Surplus Adequacy Long Term When transitional policies end, how many will buy in Exchange or ACA compliant policies? United out of market NATIONAL RI gone and HIT gone Will R/A transfer payment become more equitable? Will coding accuracy improve or be gamed? Will the moratorium on HIT continue? Will ACA-compliant membership continue to grow? Will new Special Enrollment Period rules make a difference? Is market viable long-term? APTC ER Penalty Individual Penalty 27

29 Implications When There is Only One Exchange Carrier Lack of competition leads to higher rates Subsidies will be higher in these states Subsidies may prevent death spiral Subsidy-eligible individuals gain Insulated from rate increases Can use larger subsidies to reduce costs by buying down from the benchmark plan Non-subsidy individuals lose Severe rate increases may force some to exit Others may seek coverage in neighboring states 28

30 2017 & BEYOND QUESTIONS? 29