September 12, PreferredOne Insurance Company. Individual Comprehensive Medical Business. Rate Filing Justification

Transcription

1 September 12, 2018 Individual Comprehensive Medical Business Rate Filing Justification Part Ill Actuarial Memorandum and Certification OVERVIEW This document contains the Part III Actuarial Memorandum for s (PIC s) Individual Comprehensive medical block of business, effective January 1, These rates are guaranteed through December 31, This actuarial memorandum is submitted in conjunction with the Part I Unified Rate Review Template (URRT). The purpose of the actuarial memorandum is to provide certain information related to the submission of premium rate filings, including support for the values entered in the Part I URRT (which supports compliance with the market rating rules and reasonableness of applicable rate increases). This memorandum may not be appropriate for other purposes. GENERAL INFORMATION Company Identifying Information Company Legal Name: State: Minnesota HIOS Issuer ID: Market: Individual Effective Date: January 1, 2019 Company Contact Information Primary Contact Name: Tom Carlson Primary Contact Telephone Number: Primary Contact Address: Tom.carlson@preferredone.com HIOS Numbers 88102MN MN MN MN MN MN MN MN MN MN MN MN PreferredOne Individual Rate Filing Page 1

2 88102MN MN MN MN MN Description of Benefits The plans in this filing provide coverage for inpatient, outpatient, physician, prescription drugs, and miscellaneous services subject to deductible, and coinsurance. Annual out-of-pocket maximums apply to deductibles, and coinsurance. Pharmacy cost sharing is included in the deductible for some plans and reflects a multi-tier structure (generic, formulary, non-formulary, and specialty) for all other plans. All plans with coinsurance have those amounts accumulating toward the out-of-pocket maximum in actual operation. Marketing Method PIC is selling through the non-exchange market. Current lnforce As of March 2018, PIC has 300 members inforce on Individual ACA plans. II. PROPOSED RATE INCREASE(S) This submission is for Individual medical products available for sale and renewal on January 1, Three new plans are offered. The new plans are offered during open enrollment. After open enrollment, new policies are limited to special enrollment periods, such as an existing member having a child or marrying. Proposed Percentage Rate Adjustment Premium rates for the Individual market were developed using 2017 PIC Individual experience, in conjunction with Truven 2017 benchmark data. The average rate increase is 10% without reinsurance and 11% with reinsurance. These changes are from 2018 rates with reinsurance. Reason for Rate Change A number of items were considered when developing the premium rates, including but not necessarily limited to changes in the following items: Projected morbidity level of the population anticipated to purchase the plans, Anticipated medical trend, both utilization and cost of services, Applicable taxes and fees, Anticipated risk adjustment payments (receipts), and PreferredOne Individual Rate Filing Page 2

3 Anticipated Minnesota reinsurance program receipts. Calculations both with and without reinsurance are included as separate rate templates. Premium rates for the individual products were developed using PIC's 2017 Individual nongrandfathered experience, in conjunction with emerging 2018 ACA experience, and other industry studies and surveys. The proposed rates in this filing are expected to be in line with the morbidity that is expected. In late December of 2017, the Tax Cuts and Jobs Act passed, revising Section 5000A of the Affordable Care Act so as to reduce the shared responsibility payment for individuals failing to maintain minimum essential coverage (MEC) to 0%/$0 starting with Plan Year Given that the individual market enrollment has declined significantly in previous years, we believe that the repeal of the mandate will not have any significant effect, and we have not modified our rates for this change. III. EXPERIENCE PERIOD AND CLAIMS Claims Paid Through Date Incurred claims presented in Worksheet 1, Section I of the Unified Rate Review Template (URRT) for the experience period from January 1, 2017 through December 31, 2017 are based on claims paid through January 31, These claims have been completed using data paid through March, Premiums (net of MLR Rebate) in Experience Period The earned premium reported in Worksheet 1 of the URRT reflects the sum of member level premium for the experience period (calendar year 2017). PIC's 2017 individual loss ratio exceeded the MLR requirement, and, therefore, an adjustment for MLR rebates was not needed. Allowed and Incurred Claims Incurred During the Experience Period Table 1 provides a breakdown of the individual allowed and incurred claims during the experience period, as illustrated in Worksheet 1, Section I of the URRT. Table Individual Claims and Premium Individual Business Allowed Claims Incurred Claims Earned Premium Total $3,594,336 $2,833,877 $2,958,867 PIC processes all medical claims internally. Pharmacy claims are processed by a separate external vendor. Both allowed claims and incurred claims were provided directly from PIC's claim records. Total allowed claims were calculated as a combination of the following: [Allowed Claims (FFS) *Completion Factor] PreferredOne Individual Rate Filing Page 3

4 Total incurred claims were calculated as a combination of the following: [Paid Claims (FFS) * Completion Factor] Allowed Claims (FFS) and Paid Claims (FFS) reflect the applicable values from PIC's claim payment system for claims received and paid for that are covered on a fee-for-service basis (i.e., not capitated) during the experience period. Incurred but not paid claims are calculated as follows, for allowed and paid values, respectively: Allowed Claims (FFS) * (1 - Completion Factor) Paid Claims (FFS) * (1 -Completion Factor) The same completion factors are applied to allowed and incurred claims. Completion factors are developed by using generally accepted actuarial development methods for estimating claim liabilities. These completion factors were calculated using historical data incurred through 2017 with 1 month of claim run out. Consideration is given for liabilities calculated using a claim cost or loss ratio method for recent incurral months prior to the valuation date that have less data available (e.g., 1-3 months). IV. BENEFIT CATEGORIES in WORSHEET 1, SECTION II of the URRT Each claim processed on a fee-for-service basis during the experience period is assigned to the applicable benefit category from Worksheet 1, Section II of the URRT based on percentage of claims estimates from PIC. The utilization and unit costs reported in Worksheet 1, Section II of the URRT are calculated with PIC data. V. PROJECTION FACTORS This section includes a description of each factor used to project the experience period allowed claims to the projection period, and supporting information related to the development of those factors. Changes in the Morbidity of the Population Insured Morbidity is projected to increase by 0% for the base population, and 40% for the manual population. This value was determined based on the level of adverse selection being shown in the individual market today. The 2018 renewals are mostly legacy members, and are extremely high cost. We expect that final costs will be higher than what the manual rate shows, due to adverse selection. During 2017 and 2018 there were a large number of policy drops during the first few months of the year. The payment pattern through the year was not unexpected, with the monthly cost increasing as people met deductibles and the year wore on. For 2019 we expect an improvement in PreferredOne s experience due to new enrollees being healthier than our current enrollees. For the statewide market we expect further deterioration of the risk pool due to continued spiraling of adverse risk. Changes in Benefits PreferredOne Individual Rate Filing Page 4

5 Not applicable. Changes in Demographics We project demographics to be older than March 2018, continuing recent trends. Region Mix We project area mix to be consistent with March Trend Factors PIC s claim data were trended forward to the projection period using the service-specific utilization and unit cost trends in Worksheet 1, Section II. The service-specific factors reflect an aggregate trend of 13%. VI. CREDIBILITY MANUAL RATE DEVELOPMENT PIC's rates rely 6% on the base experience, and 94% on the manual rate. Source and Appropriateness of Experience Data Used Experience data is from the 2017 products. Adjustments Made to the Data Not applicable. Demographics Not applicable. Provider Contracting Not applicable. Benefits Not applicable. Inclusion of Capitation Payments Not applicable. VII. CREDIBILITY OF EXPERIENCE PIC's 2017 Individual experience represents 3,550 member months, and is not credible for rate setting in the typical sense. VIII. PAID TO ALLOWED RATIO The Paid to Allowed ratio shown in Worksheet 1, Section III of the URRT was developed by calculating the average ratio of Paid (i.e., after member cost sharing) to Allowed (i.e., before member cost sharing) claims for each plan, weighted by projected member months by plan as shown in PreferredOne Individual Rate Filing Page 5

6 Appendix B. IX. RISK ADJUSTMENT AND REINSURANCE Projected Risk Adjustments PMPM We have received an estimate for 2018 risk adjustment calculation from Wakely using data paid and incurred through April, Using this information we estimate a payment of $ PMPM. This is shown in the URRT. Reinsurance Recoveries Net of Reinsurance The Federal reinsurance program is discontinued after 2016, therefore we have removed this amount from our 2019 estimates. Minnesota has a reinsurance program for 2018 and This program s effect is expected to reduce the projected index rate by $PMPM. We have filed two rate tables and two URRTs to show rates both with and without reinsurance. We reviewed projected enrollment and determined that without reinsurance, enrollment would be lower as shown in the URRT. Acuity levels are assumed to be very similar in these scenarios, since the individual market has already lost half of the pre-aca individual market enrollment. X. NON-BENEFIT EXPENSED AND PROFIT AND RISK Administrative Expense Load Administrative expenses of $40.89 PMPM were developed based on PIC's 2018 business plan for its Individual medical business, with adjustments for anticipated changes in 2019 for general inflation. The values entered in Worksheet 1, Section III of the URRT illustrate this in total and as a percent of premium. For each individual policy the administrative load consists of a fixed amount and a percentage of the total, so the total administrative percentage varies by plan. PreferredOne is not on the exchange, and our estimated broker fees are %. Profit and Risk Load Profit and Risk Margin target values were determined as an aggregate value for the risk pool based on company targets, anticipated uncertainty of the 2019 market, and consideration for federal MLR requirements. As indicated in Worksheet 1, Section Ill of the URRT, we project 1% after-tax margin. Taxes and Fees Projected taxes and fees may be subtracted from premiums when calculating PIC's loss ratio for MLR purposes. The composite value is displayed in Worksheet 1, Section III of the URRT. The Health Insurance Tax (HIT) has been dropped for 2019 and Federal income taxes were lowered from 2018 levels. Table 2 Projected Taxes and Fees Item PMPM (with reinsurance) %Prem Premium Tax 2.00% Health Insurer Provider Fee 0.00% PCORI $ % PreferredOne Individual Rate Filing Page 6

7 Federal Income Tax 0.75% Total 2.75% XI. PROJECTED LOSS RATIO The projected loss ratio based on federally prescribed MLR methodology (excluding allowable adjustments, such as for credibility and high deductible) is below. PreferredOne Individual Rate Filing Page 7

8 Table 3 Medical Loss Ratio Calculation Amount PMPM (with Annotation reinsurance) Claims (1) Adjustments to Claims 1 (2) MLR Numerator (3) = (1) + (2) Premiums (4) Taxes and Fees 2 (5) MLR Denominator (6) = (4) - (5) Projected MLR 3 (7) = (3) /(6) 1 Adjustments for quality improvements and recoveries. 2 Adjustments include all applicable ACA taxes and fees. 3 The projected MLR does not take the Credibility Adjustment into account. XII. SINGLE RISK POOL The State of Minnesota does not allow transitional plans and therefore the impact of such plans was not taken into consideration in rate development. If the State of Minnesota starts to allow transitional plans, the rates in this filing will need to be revised. XIII. INDEX RATE Index Rate Development The index rate represents the estimated total combined allowed PMPM claims of all plans within PIC's Individual market in Minnesota. The index rate has not been adjusted for risk adjustment transfers, reinsurance fees or recoveries, or Exchange user fees. The index rate for the experience period is a measurement of the average allowed claims PMPM for EHB. The additional benefits offered beyond the EHB are not included in the index rate. Section III (Experience Period Premium and Claims) above describes the development of the experience index rate. The index rate for the projection period is a measurement of the average allowed claims PMPM for EHB. Section VI (Credibility Manual Rate Development) above describes the development of the projected index rate. The projected index rate covers a 12-month period for individual policies effective January 1, 2019 through December 31, As described in Section VI, the projected index rate reflects the anticipated claim level of the projection period with respect to trend, benefits, morbidity and demographics. The index rate has been adjusted to reflect that premiums are not collected for the fourth child and any additional children under age 21. PreferredOne Individual Rate Filing Page 8

9 The projected index rate for January 1, 2019 through December 31, 2019 is shown in Worksheet 1, Section Ill of the URRT. XIV. MARKET-ADJUSTED INDEX RATE The market-adjusted index rate is calculated as the index rate adjusted for all allowable market-wide modifiers defined under the market rating rules in 45 CFR Part 156, (d)(1). Table 4 Market Adjusted Index Rate Development Index Rate (1) Net Risk Adjustment (2) Net State Reinsurance (3) Exchange User Fee (4) Market Adjusted Index Rate (5) = (1) (2) (3) (4) XV. PLAN-ADJUSTED INDEX RATES The market-adjusted index rate is adjusted to compute the plan-adjusted index rates using the following allowable adjustments: Actuarial value and cost sharing adjustment The Actuarial Value and cost-sharing factors model estimates actuarial equivalent relative values of different benefit plans using estimated medical costs calibrated to PIC (including service area, provider reimbursement, and degree of health care management). Provider network, delivery system and utilization management adjustment The value of each provider network was determined based on a review of the contractually negotiated reimbursement arrangements of PIC. Expected utilization management savings of PIC were determined by review of the processes that will be used during the projection period as compared to processes used throughout the industry. Adjustment for benefits in addition to the EHB An allowed cost of $PMPM was applied to each plan's index rate to account for benefits in addition to the EHBs. Among these benefits are health club reimbursement (pooled with similar benefits in the single risk pool). This benefit is not treated as administration since it is paid by PIC to health clubs or directly to members, generating no medical claim. Adjustment for distribution and administrative costs PreferredOne Individual Rate Filing Page 9

10 Distribution and administrative costs were developed and applied to each plan on a "percent of premium" basis. The percent varies by plan since there is a fixed administrative component and a variable component, so when these are condensed into one percentage the percentage is not the same for all plans. The development of the plan-adjusted index rates are shown in Appendix C. XVI. CALIBRATION Calibration factors are applied to the Plan Adjusted Index Rates to calibrate rates for the expected age and geographic distribution of members projected to enroll. The approximate weighted average age factor of the risk pool is for an age of 44 for metallic plans. We calculated the risk pool weighted average age factor by projecting members on a five-year age group based on the 2017 experience and assuming a stable block of members. The age curve factor calibration is applied to all plans. PIC applies geographic rating factors to its plans as shown. The geographic rating factors were developed from the 2017 rate filing. Updated experience was reviewed and no changes will be made in Table 5 PreferredOne Community Health Plan Geographic Rating Factors Rating Area Factor Rating Area Rating Area Rating Area Rating Area Rating Area Rating Area Rating Area Rating Area Rating Area PreferredOne Individual Rate Filing Page 10

11 XVII. CONSUMER-ADJUSTED PREMIUM RATE DEVELOPMENT The consumer-adjusted premium rate is the final premium rate for a plan charged to a subscriber utilizing the rating and premium adjustments as articulated in the applicable market reform rating rules. It is the product of the plan adjusted index rate, the geographic rating factor, and the age rating factor. Tobacco rating factors are applied as appropriate. XVIII. AV METAL LEVELS The AV Metal Values included in Worksheet 2, Section I of the URRT were developed using the CMS AV calculator. Where non-embedded deductibles are present the AV value was further adjusted as required. Multiple tiers for generic drugs are in effect for some plans, and the AV value for these plans was adjusted. XIX. AV PRICING VALUES The appendix provides a summary of the AV pricing values by plan, as illustrated in Worksheet 2, Section I, and a breakdown of the components attributable to each of the allowable modifiers to the index rate, as described in 45 CFR Part 156, (d)(2), to arrive at the plan level rate. The impact of each plan's actuarial value and cost sharing includes the expected impact of each plan's cost-sharing amounts on the member's utilization of services, excluding expected differences in the morbidity of the members assumed to select the plan. We used a cost relativity model to estimate the value of cost-sharing and relative utilization of services for each plan. Our pricing models assume the same demographic and risk characteristics for each plan priced, thereby excluding expected differences in the morbidity of members assumed to select the plan. XX. MEMBERSHIP PROJECTIONS Membership projections, as illustrated in Worksheet 2, Section IV of the URRT were developed based on consideration for the following: Historical sales and underwriting data for PIC individual business, Provider networks, Anticipated activity in the Minnesota individual health insurance market due to various health care reform provisions. XXI. TERMINATED PRODUCTS The following will be terminated effective 12/31/2018. Some were merged into other products as AV compliance and mental health parity forced benefit changes, while others had no enrollment MN MN MN MN MN MN MN MN MN MN MN MN PreferredOne Individual Rate Filing Page 11

12 88102MN MN MN MN MN MN XXII. PLAN TYPE The applicable plan type for each plan has been noted in Worksheet 2, Section I of the URRT. XXIII. WARNING ALERTS No warning alerts appear in the URRT. XXIV. MINNESOTA REQUIREMENTS Experience Data The following table shows the PIC premium revenue, paid claims experience and resulting loss ratio since calendar year 2010 (no adjustments for rebates in earned premium): Table 6 Experience Data Year Earned Premium Incurred Claims Loss Ratio CY ,619,728 6,159, % CY ,330,226 12,112, % CY ,058, ,533, % CY ,543,628 31,082, % CY ,489,365 12,315, % CY2017 $2,958,867 $2,833, % Rate Increase History The following table shows the history of PIC rate adjustments since calendar year 2006: PreferredOne Individual Rate Filing Page 12

13 Table 7 Rate Increase History 1/1/2012 0% 1/1/2013 0% 1/1/ % 1/1/ % 1/1/ % 1/1/ % 1/1/ % 1/1/ % Enrollment History The following table shows recent history of PIC's enrollment in the Individual market. Table 8 Enrollment History Year , , , , , , , Anticipated Loss Ratio Member Months The projected loss ratio as specified by Minnesota-specific methodology. Table 9 Medical Loss Ratio Calculation Amount PMPM Annotation Claims (1) Adjustments to Claims (2) MLR Numerator (3) = (1) + (2) Premiums (4) Projected MLR (5) = (3) /(4) PreferredOne Individual Rate Filing Page 13

14 Factor Development Geographic Rating Area Factors The area factors PIC will use for 2019 are the same as the area factors for The geographic rating factors were developed from experience when developing rates in the 2014 rate filing. Updated experience was reviewed, and no changes will be made in Minnesota Statute 62A.65 Subdivision 2 specifies that policies shall be guaranteed renewable. For enrollees who moved out of state, PIC will cancel their policy as of the first of the following month. In the case where PIC was unaware of the enrollee moving out of state, PIC will retroactively increase premium 25% per month that the person was out of state and covered, and cancel the policy the first of the following month. This change has a negligible impact on our base data, since there were very few out of state policies in Any services received out of state are incurred as an out of network benefit. Table 10 Rating Area Factors Rating Area 2018 Members PIC 2018 Factors PIC 2019 Factors Composite Plan Factors The plan factors were developed by calculating benefit relativities in a cost relativity model. This model estimates actuarial equivalent relative values of different benefit plans using estimated medical costs adjusted to PIC's network experience (including PIC's network service area, its estimated provider reimbursement, and its level of utilization management). Network Factors PIC offers four networks, Preferred Health, Choice, and Select. The Preferred Health and Select networks are designed to highlight PIC's highest quality, most efficient group of providers that have committed to enhanced medical management. Quality and PreferredOne Individual Rate Filing Page 14

15 efficiency are measured using Optum's Impact Intelligence, which is a nationally recognized risk measurement tool. Impact Intelligence provides detailed provider profiling that supports complex analysis, reporting queries, and drilldowns that measure efficiency of care and quality of care. This tool utilizes advanced analytics such at Episode Treatment Groups (ETG's), Episode Risk Groups (ERG's), and Evidence Based Medicine (EBM). The efficiency scoring measures costs and utilization and is health status risk adjusted to compare the relative efficiency of providers. The quality of care is evaluated using over 650 measures in 68 clinical conditions. Network Table Network Factor Choice Select Preferred Health Lakes XXV. ACTUARIAL CERTIFICATION I am an Actuary with PreferredOne Administrative Services. I am a member of the American Academy of Actuaries and I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. This filing is prepared on behalf of PreferredOne Insurance Company. I certify to the best of my knowledge and judgment: 1. The projected index rate is: In compliance with all applicable State and Federal Statutes and Regulations (45 CFR (d)(1)). Developed in compliance with the applicable Actuarial Standards of Practice. Reasonable in relation to the benefits provided and the population anticipated to be covered. Neither excessive nor deficient based on my best estimates of the 2018 individual market. 2. The index rate and only the allowable modifiers as described in 45 CFR (d)(1) and 45 CFR (d)(2) were used to generate plan level rates. 3. The percent of total premium that represents essential health benefits included in Worksheet 2, Sections Ill and IV were calculated in accordance with actuarial standards of practice. 4. The CMS Actuarial Value Calculator was used to determine the AV Metal Values shown in Worksheet 2, Section I of the Part I Unified Rate Review Template for all plans. The Part I Unified Rate Review Template (URRT) does not demonstrate the process used to develop proposed premium rates. It is representative of information required by Federal regulation to be provided in support of the review of rate increases, for certification of qualified health plans for PreferredOne Individual Rate Filing Page 15

16 Minnesota exchanges and for certification that the index rate is developed in accordance with Federal regulation and used consistently and only adjusted by the allowable modifiers. The information provided in this actuarial memorandum is in support of the items illustrated in the URRT and does not provide an actuarial opinion regarding the process used to develop proposed premium rates. It does certify that rates were developed in accordance with applicable regulations, as noted. Differences between the projections and actual amounts depend on the extent to which future experience conforms to the assumptions made for this analysis. It is certain that actual experience will not conform exactly to the assumptions used in this analysis. Actual amounts will differ from projected amounts to the extent that actual experience deviates from expected experience. Respectfully Submitted, Thomas P. Carlson, FSA, MAAA PreferredOne Administrative Services September 12, 2018 Attachments APPENDICES REDACTED PreferredOne Individual Rate Filing Page 16

17 Appendix B PreferredOne Individual Rate Filing Page 17

18 Appendix C PreferredOne Individual Rate Filing Page 18

19 Appendix D PreferredOne Individual Rate Filing Page 19