Session 97 PD, Medicare Supplement: Key Issues and Challenges to Profitability. Moderator/Presenter: Kenneth L. Clark, FSA, MAAA

Transcription

1 Session 97 PD, Medicare Supplement: Key Issues and Challenges to Profitability Moderator/Presenter: Kenneth L. Clark, FSA, MAAA Presenter: John S. Cathcart, FSA, MAAA

2 SOA Health Meeting - Session 97 Medicare Supplement: Key Issues and Challenges to Profitability JOHN CATHCART, F.S.A., M.A.A.A. KENNETH L. CLARK, F.S.A., M.A.A.A.

3 Agenda Topics Pricing Considerations and Assumptions Rate Management Rate Structure / Alignment Considerations Legislative / Regulatory Issues 2

4 Pricing Considerations and Assumptions Market considerations Regulatory considerations Underwriting considerations Distribution of sales Rate structure Morbidity Commissions & expenses Persistency Rate management strategy 3

5 What is Rate Management? Process by which assumptions are realized (or not) for fun and profits (or not) What rate adjustments are appropriate Regulatory considerations Market considerations 4

6 What is Rate Management? (cont.) Scenario testing Experience analysis Factors affecting experience to justify rate adjustments Impact of rate adjustments on future experience Consequences of not managing rates appropriately 5

7 Rate Management as a Pricing Assumption Need to understand the need for rate increases and have a process in place for reviewing experience, and filing and implementing the rate increases Profit testing should include explicit assumptions for amount and timing of rate adjustments relative to claims trend Common assumption is that rate adjustments will be implemented equal claim trend Is this realistic? 6

8 What Rate Adjustments are Appropriate Rate adjustments should reflect: Changes in benefits (e.g., deductibles, Medicare allowables) Medical inflation Changes in utilization Corrections to previous years expected trends Rate adjustments should not reflect: Aging Underwriting wear-off 7

9 Regulatory Considerations Requirements vary by state Loss ratio standards Response time Credibility Pooling Actuarial equivalence Unanticipated changes in federal or state regulations Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Health Care Reform GI for Medicare Advantage disenrollments Other GI requirements NAIC Model Regulations 8

10 Distribution Channel Market Considerations Impact on new business as well as inforce Competition Low premiums vs. stable premiums Commissions Other Medicare supplement carriers Medicare Advantage 9

11 Scenario Testing Lapse rates Claims trend Rate increases relative to trend 10

12 Actual to expected claims Cumulative since inception By duration By calendar year Claims trend Lapse rates Distribution of business Experience Analysis 11

13 Factors Affecting Experience Open enrollment / guaranteed issue Underwriting Aging Changes in deductibles and Medicare allowables Other changes in Medicare Inflation and utilization Lapse rates Distribution of business 12

14 Impact of Rate Adjustments on Future Experience High rate increases high lapses assessment spiral High rate increases reduced sales Low rate increases higher than expected loss ratios Low rate increases inability to recognize profits which might be expected to result from lower effective commission ratios 13

15 Consequences of Not Managing Rates Appropriately Failure to manage rates appropriately is likely to have a negative impact on profitability relative to expectations Can future rate increases correct past mistakes? 14

16 Rate Structure / Alignment Considerations Aside from overall rate level how does a rate structure and rate relativity factors 1) align with the expected risk relativities exposed, and 2) influence the production, persistency, and ultimately the financial results? 15

17 Rate Structure / Alignment Considerations Rate Levels and Structure Industry Competition Rate Management Refined Assumptions Pricing Assumptions Potential Market Sales levels and Distributions Financial Results Experience Analysis Marketing and Underwriting 16

18 Age-Gender Factors Relative to Claim Costs Rate Structure / Alignment Considerations Relative to Competitors Age 65 Considered Desirable Area Factors Relative to Claim Costs Relative to Competitors May want to pinpoint certain region Plan Relativities 17

19 Rate Structure / Alignment Considerations What are the challenges? Data availability / reliability / applicability and credibility Experience based on Medicare Supplement plan exposure or CMS FFS Medicare data? Applicable to current and future cost levels Adjusted or normalized for other factors (example if looking at age / gender relationships are adjustments made to account for area differences?) Requires an assumed relationship or acceptable limitation. Is data credible? Maybe in total but what about after slicing in into refined classes? Consideration of industry competition Can t ignore although don t need / want to constantly mirror competitors Deviations from competition can be warranted / supported The realities of rating rationale to the market and regulation 18

20 Rate Structure / Alignment Age-Gender Factors Plan variation Each plan covers different combinations of Part A and Part B Medicare beneficiary obligations Age and gender relativities will vary by service Combination of utilization and cost component For certain benefits, such as Part A and Part B deductibles, its more about the utilization relativities Gender relativities vary by age Age 65 Key from a marketing perspective Built up demand? 19

21 Monthly Claim Costs Rate Structure / Alignment Age-Gender Factors Benchmark Medicare Supplement Claim Costs by Standardized Plan - Male Plan A Plan B Plan C Plan D Plan F Plan G Plan N Plan F-HD Attained Age 20

22 Monthly Claim Costs Rate Structure / Alignment Age-Gender Factors Benchmark Medicare Supplement Claim Costs by Standardized Plan - Female Plan A Plan B Plan C Plan D Plan F Plan G Plan N Plan F-HD Attained Age 21

23 Rate Structure / Alignment Age-Gender Factors What do typical Medicare Supplement age / gender rate relativities look like? Gender if not unisex rated, then Female rate generally reflects an overall percentage discount off of the male rate. Individual increasing age rates more prevalent than age band rates Avoids large jump in rates every five (5) years which could hurt persistency More closely aligned with claim relativities Allows more competitive rates at the lower end particularly age 65 How closely do they match underlying claim cost relativities? 22

24 Rate Structure / Alignment Age-Gender Factors Plan F Sample Age Slopes Carrier 1 Carrier 2 Carrier 3 Carrier 4 Carrier 5 Male Claim Costs Female Claim Costs 23

25 6.00 Rate Structure / Alignment Age-Gender Factors Plan F-HD Sample Age Slopes Carrier 1 Carrier 2 Carrier 5 Male Claim Costs Female Claim Costs 24

26 Rate Structure / Alignment Age-Gender Factors Plan G Sample Age Slopes Carrier 1 Carrier 2 Carrier 3 Carrier 4 Carrier 5 Male Claim Costs Female Claim Costs 25

27 Rate Structure / Alignment Age-Gender Factors Plan N Sample Age Slopes Carrier 1 Carrier 2 Carrier 4 Carrier 5 Male Claim Costs Female Claim Costs 26

28 Rate Structure / Alignment Age-Gender Factors What are the potential implications of these patterns? Policy reserve adequacy issues Statutory basis Experience evaluation and pricing implications Rate filing / loss ratio demonstrations Company forecasts Subsidization between rating cells Could be more competitive in certain cells Production could shift to unprofitable cells 27

29 Rate Structure / Alignment Area Factors XYZ Insurance Company Sample Area Factor Analysis Texas ZipCodes Cost Basis Rating 28

30 Rate Structure / Alignment Plan Relativities Plan F vs. Plan G Coverage difference equals Part B deductible ($166 in 2016) Why would the rate differential ever exceed the deductible? The inexact nature of Medicare Supplement pricing Retention components Experience / Morbidity difference can drive rate levels. GI vs. Non GI? Part B deductible is on a calendar basis while Medicare Supplement policies can be paid on a monthly basis and exposure can be less than one year. Is Plan F too high or is Plan G too low? In theory, Plan G should have a steeper age slope 29

31 Rate Structure / Alignment Plan Relativities Plan F vs. Plan G Examples of rate differences in excess of Part B Deductible Take a typical carrier s rates Look at lower end of the cost spectrum (female age 65) and high end (male age 85) for four geographic areas that cover a variation of cost levels. Left half of the chart is female age 65 and right half is male age 85 High end of the rate schedule certainly shows excess rate levels and an obvious choice for Plan G assuming individual qualifies or can pass underwriting. Low end isn t as cut and dry 30

32 Rate Structure / Alignment Plan Relativities Plan F vs. Plan G Annual Rate Difference in Excess of Part B Deductible

33 Rate Structure / Alignment Plan Relativities Potential Implications of MACRA (Medicare Access and CHIP Reauthorization Act of 2015) Plan F will disappear for the newly eligible. Plan G will become one of the GI options where it wasn t before. A grandfathered Plan F on the other hand will consist exclusively of non newly eligible underwritten and GI business. Minimum age will progressively increase If you don t have a Plan G now you may want to file one. Keep in mind Plan G claim cost slope is steeper than Plan F. Greater relative difference from Plan F at younger ages. Plan G exposure in 2020 and later will include guarantee issue business Bottom line is that Plan F will have less exposure to non UW business and Plan G will have more exposure with could narrow the gap. 32

34 Rate Structure / Alignment Plan Relativities Plan F vs. Plan F High Deductible Coverage difference equals High Deductible ($2,180 in 2016) Perhaps some of the same issues as the Plan F vs. Plan G differential Although F-HD is available for GI Bigger morbidity difference? In theory, Plan F-HD should also have a much steeper age slope 33

35 Rate Structure / Alignment Plan Relativities Plan F vs. Plan F-High Deductible Examples of rate differences in excess of High Deductible Same process as used to compare Plan F with Plan G Slightly different dynamic as this is a much higher threshold. High end of the rate schedule shows excess rate levels in high cost areas and an obvious choice for Plan F-HD. Low end clearly shows no excess but decision isn t obvious. Depends on health status and probability of using up the whole deductible. 34

36 Rate Structure / Alignment Plan Relativities 600 Plan F vs. Plan F-HD Annual Rate Difference in Excess of High Deductible

37 Medicare Supplement: Legislative / Regulatory Issues on the Horizon H.R. 2 (MACRA) Change The NAIC Medicare Supplement Subgroup Medicare Supplement Rate Refund Formula Proposed Changes 36

38 H.R. 2 The MACRA Medicare Access and CHIP Reauthorization Act of 2015 (aka The Doc Fix ) Prohibits Medicare Supplement from covering the Part B deductible for Medicare newly eligible effective 1/1/2020 Deductible will be approximately $200 in 2020 Those eligible (i.e., NOT Newly Eligible ) for Medicare before 1/1/2020 may continue to purchase plans that cover deductible (C or F) Defines those that are not newly eligible as those that turn 65, or qualified for Medicare by reason of disability before 1/1/2020 Requirements of Plans C or F apply to Plans D or G for those newly eligible (e.g., guaranteed issue) The NAIC will soon adopt updates to the Medicare Supplement Regulations (#651) 37

39 NAIC Medicare Supplement Work Group Senior Issues (B) Task Force assigned a Medicare Supplement work group to make recommendations on how to interpret and implement the MACRA Completed their recommendations on Feb 22 nd and presented to the NAIC Senior Issues Committee on April 3 rd : Those eligible for Medicare before 1/1/2020 will continue to have access to C and F or highdeductible F Creates high-deductible G Clarifies that the OOP spend to cover the Part B deductible portion of high-g cannot count toward OOP Max D and G will be the guaranteed issue mechanism for those eligible after 1/1/2020. C and F remains the GI mechanism for those previously eligible. Developing updates to the chart that presents the products available to the different audiences Recommendations were adopted 38

40 2020 Landscape 2016 Benefits Standardized Medicare Supplement Plans Part A Coinsurance and hospital costs up to 365 days after Medicare benefits used Part B coinsurance/copay A B C D F* G** K L M N Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes ƚ Blood (first 3 pints) Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes Part A hospice care coinsurance/copay Skilled Nursing Facility care coinsurance Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes No No Yes Yes Yes Yes 50% 75% Yes Yes Part A deductible No Yes Yes Yes Yes Yes 50% 75% 50% Yes Part B deductible No No Yes No Yes No No No No No Part B excess charges No No No No Yes Yes No No No No Foreign travel exchange (up to plan limits No No 80% 80% 80% 80% No No 80% 80% Out-of-pocket limit N/A N/A N/A N/A N/A N/A $4,940 $2,470 N/A N/A G.I. for newly eligible to Medicare G.I. for those eligible before 1/1/20 NO longer available for newly eligible to Medicare *includes High-deductible F ** will include High-deductible G ƚ Copayments on some office visits and ER visits apply 39

41 Next Steps in Implementation CMS to publish Updated Model in Federal Register Each state must adopt the model in law and / or regulation before 2020 Waivered states (MA, MN, WI) must make adjustments to their law and regulation 40

42 Medicare Supplement Rate Refund Formula Proposal 2014 proposal of AAA Medicare Supplement Work Group (MSWG) for revised formula used in calculating Medicare Supplement rate refunds to primarily address rate structure inequities The proposal has been discussed over time, but not fully considered due to reluctance to reopen the Medicare Supplement Model (#651) Because model #651 must now be reopened due to passage of the MACRA, the NAIC Health Actuarial Task Force (HATF) has identified review of the Medicare Supplement refund formula as important for 2016 HATF has had two calls to review the proposal Florida asked how rebates would change under the revised benchmarks, therefore a state survey is being conducted It is unclear whether this work will be completed before the Senior Issues Task Force has completed review of model #651 and reclosed the model 41

43 AAA Proposal Provisions Add a definition of issue age rate basis to the model Revise the language to indicate that issue-age rated products are not required to meet the loss ratio requirements effective in year 3 Replace current two sets of benchmark factors for group and individual with four, two of which are specific to group and individual issue-age Recommendations address need for a transitional period but makes no specific recommendation Additional considerations for the HATF Should Medicare Supplement plans be pooled across all letter plans? MSWG didn t make a recommendation with respect to pooling. Should tolerance formula be revised? MSWG recommended a geometric progression tolerance formula Should the HATF reconsider whether plans that offer a high deductible option (e.g., F, J, and presumably G) should be allowed to continue to pool their regular and high deductible business for purposes of MLR calculation? 42

44 Questions? John S. Cathcart Kenneth L. Clark