Session 46, Premium Deficiency Reserves for Health Products. Moderator: Matthew P Chamblee FSA, CERA, MAAA. Presenters: Thomas D Snook FSA, MAAA

Transcription

1 Session 46, Premium Deficiency Reserves for Health Products Moderator: Matthew P Chamblee FSA, CERA, MAAA Presenters: Thomas D Snook FSA, MAAA

2 Session 46: Panel Discussion: Premium Deficiency Reserve For Health Products Presented by Thomas D. Snook, FSA, MAAA Matthew P. Chamblee, FSA, MAAA, CERA

3 Agenda Introduction Background Case Study #1 Assumption Setting Case Study #2 Time Period Case Study #3 Collectability Case Study #4 Collectability Again Case Study #5 WAGs Case Study #6 Enrollment Case Study #7 Grouping of Business Conclusion 1

4 Introduction Purpose of this session is to have interactive, participatory discussion of issues that can arise in calculating PDRs in health insurance Not a presentation so much as a discussion Focus on medical insurance/managed care: Commercial (including ACA) Medicare Advantage Medicaid 2

5 Introduction Case study approach Real life examples of actual things that we have personally dealt with, seen, or heard about through our colleagues. Tried to identify interesting issues, thorny problems, sticky situations. PDRs lend themselves to ambiguity and the actuary must exercise professional judgment. Will talk more about this later. We will discuss things like enrollment counts, time periods, collectability, grouping, etc. We will discuss up to n cases, with n a function of how long you all want to talk about each one. N <= 7 since that s how many we have prepared. 3

6 Background Premium Deficiency Reserve is necessary when losses are expected: Premium is deficient, i.e., not enough to cover claims, admin and taxes Book reasonably expected losses now rather than them just emerging over time How do you do this? Sort of like a gross premium valuation Projection of experience over some time period 4

7 Background What guidance is available? Lots, and it can be confusing, ambiguous, and sometimes even conflicting SSAP 54 is the father document NAIC guidelines and annual statement instructions ASOP 42 Health Reserves Guidance Manual AAA discussion paper Why can t I just make stuff up? Regulators Auditors Code of Professional Conduct 5

8 Case Study #1 Assumption Setting Situation You are the opining valuation actuary for a company with a block of business losing money (i.e. Medicare Advantage) Losses have continued for several years in a row You are assessing the need for a PDR at 12/31 You present your calculations to management, but they challenge several assumptions Management tells you: 1. Company has retained a firm to help improve risk scores 2. Company has enterprise-wide effort underway to improve its Star rating 3. Company has added staff and implemented new protocols to tighten medical management NOTE: This is the same management team that has been in place for several years as losses have been incurred. 6

9 Case Study #1 Assumption Setting Considerations Any improvement that might occur has not shown up in the data yet You need to make reasonable (not conservative) assumptions in setting PDR Timing if these measures work, when will they have an effect? Questions How do you set revenue assumptions? How do you set claims assumptions? Are any other assumptions impacted? (administrative expenses?) Do you believe management? What is the actuary s duty to test the reasonableness of management projections of improvement? 7

10 Case Study #1 Polling Question If management s assumptions are achievable do you fully reflect these in the PDR testing? 1. Yes 2. No 60% 40% September 21, 2015

11 Case Study #2 Time Period Situation You are the opining valuation actuary for a managed Medicaid health plan The plan operates in just one state Capitation rates from the state are effective July 1 each year, and are generally locked in sometime in April Plan has a mixed historical record of profitability, but lost money last year. Front page of the newspapers discuss the state s budget shortfall and need to cut costs somewhere CMS requires states to certify that its rates are actuarially sound Considerations (at 12/31 valuation) You don t know what the capitation rates will be effective July 1 State has an incentive to limit the increase Your plan can t non-renew; doing so would mean shuttering the entire operation. 9

12 Case Study #2 Time Period Questions Do you even need to consider experience after July 1? 1. SSAP 54 the remainder of the contract period 2. ASOP 42 generally the earlier of the end of the contract period or the point at which the block no longer requires a premium deficiency reserve 3. NAIC Model Regulation all expected benefits unpaid.. and all unearned or expected premiums, adjusted for premium increases reasonably expected to be put into effect 4. NAIC guidance contradiction must be resolved using actuarial judgment.. contract period implicitly lasts until the business can be restored to profitability or lapses completely 5. AAA Discussion Paper mirrors HRGM, discusses actuarial judgment, offers examples If your PDR calculation needs to extend beyond July 1.. how long? What do you assume for capitation rate increase on July 1? 10

13 Case Study #2 Polling Question How long do you project in the PDR calculation 1. Only up to July 1 the end of the contract period 2. By definition the rates will be actuarially sound therefore no need to project after 7/1 3. Only until the time where you believe you have some certainty about capitation rates and claim costs 4. Until block becomes profitable or losses are not material 14% 14% 18% 54% September 21, 2015

14 Case Study #3 Collectability Situation Your client is a CO-OP Consumer Owned and Operated Plan established under the ACA. Client is a new company, not a lot of excess capital And ACA business is virtually all it writes At 12/31/14, you estimated that you have a risk corridor receivable due 1. Calculation is heavily dependent on risk adjuster estimates, and not a lot is known about where these are going to turn up 2. Collectability is in question due to Marco Rubio ( budget neutral ), but CMS insists payments will be made 3. So, for conservatism, company books only 50% of risk corridor as an asset You do a PDR calculation for 2015, it shows more losses to be expected.. and a risk corridor receivable again 12

15 Case Study #3 Collectability Considerations Many experts believe risk corridor collectability decreases each year Collectability is not an actuarial issue The auditors and regulators will likely have an opinion that may differ from yours Questions In the PDR calc for 2015, is it appropriate to use the full risk corridor receivable? 1. Yes CMS says it will be paid 2. No inconsistent with what we re holding for 2014 receivables. If the answer is no, what do you assume for the risk corridor receivable? 1. Zero? 2. Some % less than 50%? 3. 50%, consistent with 2014 thinking? 13

16 Case Study #3 Polling Question How much do you project you collect of the 2015 risk corridor receivable? 1. 0% 2. 0% to 50% - as program gets established the collectability is now more in question than before 3. 50% - so as to be consistent with last year since you believe assumptions have not materially changed or you know no better assumptions % - you believe now that it will be fully collected 47% 22% 22% 10% September 21, 2015

17 Case Study #3 Polling Question Does the lack of data or other items in this example make the opinion inconclusive or qualified? 1. Yes 2. No 48% 53% September 21, 2015

18 Case Study #4 Collectability Again Situation Block of business with significant risk-sharing with a provider network (i.e. ACO) The risk-sharing has been one-sided (upside only) for a few years, with modest amounts paid Next year the contract moves to two-sided risk now the ACO is at risk for losses Targets defined as a percent of premium You now think you are probably underrated for the coming year, meaning losses are likely losses the ACO will share in For this scenario, let s stipulate that the impact of this ACO contract is material on the performance of the entire block (grouping) 16

19 Case Study #4 Collectability Again Considerations If there aren t withholds (or withholds are insufficient), you will need the ACO to write the plan a check. Is this going to happen though? Lots of reasons why a plan may not force a provider group to pay up So again we have a collectability issue, but of a different sort ASOP 42 goes on at some length about provider risk sharing and states that the actuary should consider collectability Questions In your PDR calc. do you assume the ACO offsets some of the losses? Is this something that could be easily overlooked? 17

20 Case Study #4 Polling Question How much of the losses do we assume are collectable (as the contract stipulates)? 1. 0% - providers will not pay and those underwater are likely to remain underwater 2. We turn to the accountants in the plan to provide and review the collectability of the losses we can see if they are reasonable and if they are we will use them % - collectability is not an actuarial question so we assume 100% are collectable but we qualify our opinion % and unqualified opinion 71% 10% 10% 8% September 21, 2015

21 Case Study #5 Wild Guesses Situation Another company where ACA business is a very important component of inforce It s 12/31/14. Your company has retained an outside firm to estimate risk adjuster payables/receivables. They estimate a very large receivable the company is going to get a bunch of money in the risk adjuster mechanism The outside firm has devoted considerable resources to these estimates, and they have much broader exposure to the market in your state as a whole Nonetheless, you are skeptical. The large receivable does not seem reasonable to you. It is very different from what was assumed for 2014 and 2015 pricing. Set aside the question of what do you opine on for risk adjuster receivables, even though that is a very interesting question You have to make an assumption on risk adjusters in 2015 for your PDR calc 19

22 Case Study #5 Wild Guesses Considerations You don t trust the 2014 estimate, but you won t know the truth until well after your opinion is due But even if you did believe the estimate, 2015 could be quite different 1. Many carriers undertaking substantial efforts to improve risk scoring 2. ACA risk adjustment not like Medicare it s a zero sum game. You have to move forward just to keep up. An arms race in risk scoring is emerging data issues (EDGE server) may be corrected by 2015 Questions What do you assume for risk adjusters in your PDR calculation? It may be tempting just to assume it s a wash assume risk adjusters come in zero. Is this OK? Is it reasonable to assume 0 just because there are a lot of unknowns in the calculation? 20

23 Case Study #5 Polling Question What do you assume for your risk adjustment amount for year-end 2015 for purposes of PDR calc. In 2014 we had an unexpected payout to other plans. 1. the amount we used in pricing we believe that we should be a net receiver as our population seems less healthy than the state average. Coding is better than in it is a wash event though 2014 wasn t too many unknowns to know 3. not zero but a lesser payout than 2014 we believe we are doing better in coding and just don t believe our population is 4. same payment percentage as we experienced in % 21% 14% 14% September 21, 2015

24 Case Study #6 Enrollment Situation Another insurer with a lot of ACA individual business You are setting up the PDR calculation and are thinking about what you need to assume for enrollment Considerations HRGM says enrollment should include: 1. Contract in force at valuation date (including increase or decrease in enrollment under inforce group contracts) 2. Contracts expected to become effective after the valuation date, for which rate guarantees were made prior to the valuation date 3. Terminated contracts but coverage still inforce for whatever reason Open enrollment period ends before 12/31 22

25 Case Study #6 Enrollment Considerations Lapses you re allowed to make lapse rate assumptions in your calculation, and lapses can be very material for ACA business What does expected to become effective mean? Traditionally, this has been interpreted to mean groups written before 12/31 with an effective date after 12/31 The ACA interpretation is less clear. 1. Rates are filed well in advance of a calendar year and can t be changed; so rate guarantees have been made 2. But, to whom? Just people enrolled at 12/31? Also have to keep in mind, under ACA, a lot of people enroll but never pay a premium & hence lose coverage. Enrollees are said to be effectuated once they pay their first premium. 23

26 Case Study #6 Enrollment Questions What enrollment do you use for ACA business? We ve seen a wide variety of interpretations 1. Just contracts in force or effectuated at 12/31 2. Contracts in force or effectuated as of the date the actuary does the PDR calculation (presumable sometime in January or February) 3. A reasonable projection of new business to be written throughout the year 4. Some with lapse assumptions, some without 24

27 Case Study #6 Polling Question What enrollment do you use for ACA business? 1. Contracts in force or effectuated as of 12/31 2. Contracts in force or effectuated as of 12/31 with lapse projections 3. Contracts in force or effectuated as of 12/31 plus some enrollment projections and lapse projections 4. Contracts in force or effectuated as of date of PDR calc in February 4% 21% 46% 29% September 21, 2015

28 Case Study #7 Business Grouping Situation You are the opining valuation actuary for a carrier which writes both HMO and PPO business One legal entity (not a separate company for the HMO) The HMO is projecting losses, the PPO is projecting gains Considerations SSAP 54 contracts shall be grouped in a manner consistent with how policies are marketed, serviced, and measured Model Reg at a minimum, groupings need to be: comprehensive medical, LTC, DI, and limited benefit plans But HRGM considers more refined groupings groupings should reflect how premium rates are developed and applied Example given: comprehensive medical (striated by group size, possibly); med supp; MA; Part D; Medicaid; Dental; HDHPs 26

29 Case Study #7 Business Grouping Considerations ASOP 42 actuary should consider blocks of business in a manner consistent with applicable financial reporting requirements. An example is given in which PPO is separate from capitated managed care Questions Can you use PPO gains to offset HMO losses? How do you think this through? Interesting side note #1 one major auditing firm has held for one specific client that, for them, HMO and PPO cannot be grouped, going back to the original marketed, serviced, measured definition Interesting side note #2 I ve been told Texas does not allow PPO gains to offset HMO losses, but has no restriction on allowing HMO gains to offset PPO losses. 27

30 Case Study #7 Polling Question Can you use PPO gains to offset HMO losses in the same entity? 1. Heck ya I believe we should test at a more stratified level but we should group at the comprehensive medical, LTC, DI, and limited benefit plans level 2. PPO and HMO are serviced and measured differently therefore we need to group them separately 0% 0% 28 September 21, 2015 Answer Now

31 Case Study #8 Bonus Polling Question Let s say you are a company that sells only ACA commercial small group and individual business in NY. NY has just taken your rates and said you need to multiply them by Your projected profit was less than 7%. Do you have a PDR by default? 1. Yes 2. No 0% 0% 29 September 21, 2015 Answer Now

32 Available PDR Guidance ASOP 42 NAIC Health Reserves Guidance Manual SSAP 54 AAA Discussion Paper 30

33 Conclusion Thank you, thank you very much. Contact Info: 31