MEMORANDUM. Re: Updated Preliminary Calculation of Rate Changes Effective January 1, 2007

Transcription

1 1515 Arapahoe Street Tower 1, Suite 410 Denver, CO Phone Fax MEMORANDUM Date: October 12, 2006 To: Board of Directors Re: Updated Preliminary Calculation of Rate Changes Effective January 1, 2007 From: Liz Leif The purpose of this memorandum is to provide information regarding the preliminary calculation of rates for the plans effective January 1, This document describes the methodology used to calculate the rates. All rates were calculated in accordance with the requirements of RCW Only very minor changes have been incorporated in the calculations since our July memorandum. They had no impact on the Medicare plans, while the non-medicare plan rate change was reduced from an average of 1.8% to 2.0%. The revisions were as follows: The annual member company enrollment survey was finalized and as a result there was a minor enrollment change in one of the five benchmark carriers. One of the carriers supplied trend information that was slightly different from what had previously been assumed. The membership by rate cell was updated so the overall averages changed slightly. The new HDHP plan has been named Plan 4. Calculation Methodology for Plans 1, 3, and 4 The preliminary rates for Plans 1, 3 and 4 have been calculated using the following methodology: Five benchmark companies were identified from the Benefit Management, Inc., 2005 survey of enrollment of member companies. The five companies with the largest individual membership as of December 2005 were: Regence Blue Shield, LifeWise Health Plan of Washington, Group Health Cooperative, Premera Blue Cross, and Regence Blue Cross Blue Shield of Oregon. These are the same companies as were used last year. The individual plan rates and benefits for coverage comparable to s plans were secured from these five companies. s Plans 1 and 3 have deductible options of $500, $1,000, $1,500, $2,500, and $5,000. Of the five companies, four offer $1,000 and $2,500 deductible plans, while three offer $500, $1,500, and $5,000 deductible plans. A new $3,000 HSA-eligible High Deductible Health Plan (HDHP) will be offered in Of the five companies, four are offering similar plans with a $2,500 deductible. The rates for this new plan were calculated using the same methodology as the rate development for the other plans. The new plan will be known as Plan 4. The rates of each carrier were trended from the midpoint of the carrier s current rating period to the midpoint of the rating period beginning January 1, The trend rates used for each carrier were determined based on information provided by each carrier regarding current individual plan trend rates. The trend rates ranged from 8% to 25%. 1

2 The trended rates for each of the carriers were adjusted to reflect the actuarial value of differences in benefit design and managed care approach between the carrier s plan and the corresponding nonmanaged care deductible options. The actuarially adjusted rates for the five companies were averaged for each deductible option, using a weighted average based on December 2005 membership. This calculation resulted in the preliminary 2007 standard risk rate for each plan design. For this preliminary rate calculation, the standard risk rates were multiplied by 1.40 for Plan 1 and 1.10 for Plans 3 and 4 to arrive at the preliminary 2007 rates. These are the multipliers used in The preliminary 2007 rates were compared to the 2006 rates to determine the preliminary rate change. The average rate change for each deductible option was determined based on the May 2006 membership in each rate cell. The rate changes within each deductible option of Plan 1 were smoothed to produce a revenue neutral overall rate increase for each option. The rates were then compared to the standard risk rate and modified to ensure that the rates did not exceed the statutory maximums of 1.50 for Plan 1 and 1.25 for Plan 2 or fall below the statutory minimum of 1.10 times the standard risk rate. The rate changes for Plan 3 were not smoothed since the rates are currently at the minimum rate level. The discounted rates for low income members aged 50 to 64 and those who were enrolled in a prior medical benefit during the 63-day period prior to application with continuous enrollment for 18 months in the prior plan or who have been enrolled in for more than 36 months were calculated according to statutory requirements. The resulting rate changes are shown in the following table. Plan Rate Increase Range Average Rate Increase Plan 1, $500 deductible -1.7% Plan 1, $1,000 deductible -5.1% Plan 1, $1,500 deductible +0.6% Plan 3, $500 deductible -2.6% to -1.8% -2.2% Plan 3, $1,000 deductible -3.5% to -2.7% -3.2% Plan 3, $2,500 deductible -2.7% to -1.7% -2.1% Plan 3, $5,000 deductible -3.0% to -2.2% -2.5% Overall -2.0% The small rate change has resulted primarily because the rate calculation last year assumed trend rates of 13% to 15%, but the average 2006 rate increase for the five companies was only 6%. Calculation Methodology for Medicare Plans The preliminary rates for the Plan 2, Basic, and Basic Plus plans were calculated as described below: The five companies with the largest Medicare Supplement membership as of December 2005 were: United Healthcare (AARP), Premera Blue Cross, Regence Blue Shield, Sterling Life Insurance Company, and State Farm. These are the same companies as were used last year. The Medicare Supplement rates for Plan F were secured from the Washington Office of the Insurance Commissioner, along with the effective date of the current rates. All five of the companies offer Plan F, which is the closest to the Plan 2 benefit design. The rates of each carrier were trended from the effective date of the current rates to the start of the rating period beginning January 1, The trend rate used was the average annualized 2

3 rate difference between current rates and those used in last year s rate calculation, which averaged 8.0%. The preliminary trended rates for the five companies were averaged, using a weighted average based on preliminary December 2005 membership. The trended average Plan F rate was adjusted to reflect the actuarial value of differences in benefit design between Plan F and the Plan 2, Basic, and Basic Plus plans. The modifications included prescription drug benefits as well as a few minor plan differences such as preventive care. There are also two Basic Plus Low Income plans with different pharmacy benefits that are defined in federal law and indexed each year. The multipliers from Plan F to the plans are shown in the following table: Plan Multiplier Plan Basic Basic Plus BP LI Level BP LI Level The standard risk rates for the five plans are shown in the following table. Plan Multiplier Plan 2 $ Basic $ Basic Plus $ BP LI Level 1 $ BP LI Level 2 $ The 2005 CMS demographic cost factors were used to develop age-banded rates for Medicareeligible enrollees under age 65. CMS is phasing out the use of age/gender factors in favor of a risk adjustment methodology. We suggest retaining the current age factors for the long term. We are not aware of any other published age factors for a disabled Medicare population under age 65. The standard risk rates were multiplied by 1.50 for over age 65 and 1.10 for under age 65 to arrive at the preliminary 2007 rates. The discounted rates for those who were enrolled in a prior medical benefit during the 63-day period prior to application with continuous enrollment for 18 months in the prior plan or who have been enrolled in for more than 36 months were calculated according to statutory requirements. These discounts are applied to the over age 65 rates only, since the under age 65 rates are at the statutory minimum multiplier of The resulting rate changes for Plan 2, Basic, and Basic Plus are shown in the following table, along with the enrollment distribution as of May Plan Rate Change Enrollment Plan 2 9.1% 557 Basic 4.7% 44 Basic Plus 11.4% 343 BP LI Level % 11 3

4 Plan Rate Change Enrollment BP LI Level % 2 Average 9.9% 957 The increase in the standard risk rate is 5.0%. The rate increases in the plans (other than Basic) are greater than that because the value of the pharmacy benefits has increased at a greater trend rate than the increase in the value of the Plan F Medicare Supplement benefits. The value of the pharmacy benefits for Basic Plus and its low-income versions is also increased due to the indexing of benefits in Medicare Part D plans. Exhibits The following exhibits are attached: Exhibit I Premium Scenarios Exhibit II Plan 2, Basic, and Basic Plus Enrollment Distribution by Multiplier Exhibit III Plans 1 and 3 Enrollment Distribution by Multiplier Exhibit IV Preliminary Plan 2, Basic, and Basic Plus 2007 Rates Exhibit V Preliminary Plan 1 and Plan Rates 4

5 Exhibit I Premium Scenarios Estimated Monthly Premium May 2006 Membership 2006 and 2007 Rates Scenario Plan Max Multiplier 2006 Premium 2007 Premium % Change $ Change 2006 Approach Plan $323,882 $319, % Plan $759,939 $744, % Plan $260,109 $283, % Basic Plus 1.50 $103,280 $115, % Basic 1.50 $8,423 $8, % Monthly Total $1,455,633 $1,471, % $16,283 Annual Total $17,467,598 $17,662, % $195, Approach Plan $323,882 $342, % Plan $759,939 $780, % Plan $260,109 $283, % Basic Plus 1.50 $103,280 $115, % Basic 1.50 $8,423 $8, % Monthly Total $1,455,633 $1,530, % $75,174 Annual Total $17,467,598 $18,369, % $902, Approach Plan $323,882 $319, % Plan 2 Max = Plan $759,939 $744, % 1.40 Plan $260,109 $278, % Basic Plus 1.40 $103,280 $113, % Basic 1.40 $8,423 $8, % Monthly Total $1,455,633 $1,465, % $9,723 Annual Total $17,467,598 $17,584, % $116, Approach Plan $323,882 $342, % Plan 2 <65 = Plan $759,939 $780, % 1.50 Plan $260,109 $359, % Basic Plus 1.50 $103,280 $149, % Basic 1.50 $8,423 $11, % Monthly Total $1,455,633 $1,643, % $187,409 Annual Total $17,467,598 $19,716, % $2,248,912 All at 1.10 Plan $323,882 $288, % Plan $759,939 $744, % Plan $260,109 $272, % Basic Plus 1.10 $103,280 $111, % Basic 1.10 $8,423 $8, % Monthly Total $1,455,633 $1,425, % -$29,995 Annual Total $17,467,598 $17,107, % -$359,938 All at Max Plan $323,882 $393, % No Discounts Plan $759,939 $845, % Plan $260,109 $371, % Basic Plus 1.50 $103,280 $152, % Basic 1.50 $8,423 $11, % Monthly Total $1,455,633 $1,774, % $319,284 Annual Total $17,467,598 $21,299, % $3,831,407 Note: These projections do not reflect the impact of price elasticity. For every 10% decrease in rate, it can be assumed that membership goes up by 3.94%. 10/4/2006 Leif Associates

6 2007 Plan 2, Basic, and Basic Plus Enrollment Distribution by Multiplier May 06 Membership Exhibit II Plan 2 Membership Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Multiplier Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Basic Plus Membership Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Multiplier Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Basic Membership Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Multiplier Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Basic Plus Low Income Levels 1 and 2 Membership Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Multiplier Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Combined Membership Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total Multiplier Age Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo Total Under Total /4/2006 Leif Associates

7 Exhibit III 2007 Plans 1 and 3 Enrollment Distribution by Multiplier April 06 Membership Plan 1 Membership Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total $ $1, $1, Total Multiplier Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total $ $1, $1, Total Plan 3 Membership Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total $ $1, $2, $5, Total , Multiplier Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total $ $1, $2, $5, Total Combined Membership Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total Plan Plan ,571 Total , Multiplier Plan Full Premium 18 Mo Prior 36 Mos Cont 18 Mo+36 Mo LI < 250% LI >250% Total Plan Plan Total /4/2006 Leif Associates

8 PRELIMINARY Exhibit IV Plan 2, Basic, and Basic Plus January 2007 Rates Full Premium Enrolled in prior medical benefit plan during the 63-day period prior to application with continuous enrollment for 18 months in the prior plan Enrolled in Pool for more than 36 months Enrolled in Pool for more than 36 months and had 18 months continuous enrollment in the prior plan Plan 2 AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR 0-34 $ % 0-34 $ % 0-34 $ % 0-34 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $ % 65+ $ % 65+ $ % 65+ $ % Basic with Rx Rider AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR 0-34 $ % 0-34 $ % 0-34 $ % 0-34 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $ % 65+ $ % 65+ $ % 65+ $ % Basic with Rx Rider AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR Low Income Level $ % 0-34 $ % 0-34 $ % 0-34 $ % Below 135% of FPL $ % $ % $ % $ % Assets < $6K $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $ % 65+ $ % 65+ $ % 65+ $ % Basic with Rx Rider AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR Low Income Level $ % 0-34 $ % 0-34 $ % 0-34 $ % Below 150% of FPL $ % $ % $ % $ % Assets $6K to $10K $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $ % 65+ $ % 65+ $ % 65+ $ % Basic AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR AGE RATE % SRR 0-34 $ % 0-34 $ % 0-34 $ % 0-34 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $ % 65+ $ % 65+ $ % 65+ $ % 10/4/2006 Leif Associates

9 Plans 1, 3, and 4 January 2007 Rates PRELIMINARY Exhibit V Basic Rates Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % $1, % $1, % $ % $ % 65+ $1, % $1, % $ % $ % Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $1, % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR <251% FPL $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Rate % SRR 251% - 300% FPL $ % $ % $ % Plan 4 $ % $ % $ % $ % $ % $1, % $1, % $ % $ % 10/4/ Leif Associates

10 Plans 1, 3, and 4 January 2007 Rates PRELIMINARY Exhibit V Enrolled in prior medical benefit plan during the 63-day period prior to application with continuous enrollment for 18 months in the prior plan $500 $1,000 $1,500 Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % 65+ $1, % $ % $ % $ % Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $1, % $ % $ % $ % $500 $1,000 $1,500 Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR <251% FPL $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % $500 $1,000 $2,500 $5,000 Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR 251% - 300% FPL $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % 10/4/ Leif Associates

11 Plans 1, 3, and 4 January 2007 Rates PRELIMINARY Exhibit V Enrolled in Pool for more than 36 months Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % $1, % $1, % $ % $ % 65+ $1, % $1, % $ % $ % Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $1, % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR <251% FPL $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR 251% - 300% FPL $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % 10/4/ Leif Associates

12 Plans 1, 3, and 4 January 2007 Rates PRELIMINARY Exhibit V Enrolled in the Pool for more than 36 months and had 18 months continuous enrollment in the prior plan Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR Plan 4 Rate % SRR Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % 65+ $1, % $ % $ % $ % Child $ % $ % $ % $ % <25 $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % 65+ $1, % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR <251% FPL $ % $ % $ % $ % $ % $ % $1, % $ % $ % $500 $1,000 $2,500 $5,000 Rate % SRR $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % $ % Low Income Plan 1 AGE Rate % SRR Rate % SRR Rate % SRR 251% - 300% FPL $ % $ % $ % $ % $ % $ % $1, % $ % $ % $500 $1,000 $2,500 $5,000 Rate % SRR $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $1, % $ % $ % $ % $ % 10/4/ Leif Associates