Session 132 L, Financial analysis of ACA health plans. Moderator/Presenter: David M. Liner, FSA, CERA, MAAA

Transcription

1 Session 132 L, Financial analysis of ACA health plans Moderator/Presenter: David M. Liner, FSA, CERA, MAAA Presenters: Patrick Dooling, CPA Daniel J. Perlman, ASA, MAAA

2 Financial analysis of ACA health plan issuers 2016 Society of Actuaries Health Meeting Philadelphia, PA June 17, 2016

3 Important Disclosures The material presented herein represents our current understanding of ACA risk mitigation program financial reporting results to date. All information is subject to change. We relied on information provided by others to form our conclusions. Our results may be inaccurate if this information is inaccurate The opinions expressed herein are our own and are not necessarily those of our employers. This material does not contain any legal advice. We do not intend to create a legal duty to any user of this communication. 2

4 Agenda Summary of 2014 actual-to-accrued analysis David M. Liner, FSA, CERA, MAAA Principal & Consulting Actuary, Milliman 2015 financial results: a first glance Daniel J. Perlman, FSA, MAAA Consulting Actuary, Milliman Accounting and audit considerations Patrick D. Dooling, CPA Audit Senior Manager, Deloitte 3

5 Evolution of ACA Provisions: Pre-ACA Premium Rate Structures Plan Design Gain / Loss 4

6 Evolution of ACA Provisions: Premium Rate Structures Plan Design MLR Rebates Gain / Loss 5

7 Evolution of ACA Provisions: Reinsurance Risk Adjustment Risk Corridor Premium Rate Structures Plan Design MLR Rebates Gain / Loss 6

8 Evolution of ACA Provisions: Risk Adjustment Premium Rate Structures Plan Design MLR Rebates * Based on current regulation Gain / Loss 7

9 ACA Financial Statement Uncertainty Mitigate Issuer Risk; Stabilize Premiums Uncertainty ACA 3R s Program Risk Corridors Reinsurance Risk Adjustment Increase Financial Statement Uncertainty Uncertainty 8

10 Pre-ACA Financial Statement Uncertainty ASSETS LIABILITIES, CAPITAL AND SURPLUS IBNR..$1,000,000 9

11 Pre-ACA Financial Statement Uncertainty ASSETS LIABILITIES, CAPITAL AND SURPLUS IBNR..$1,250,000 10

12 Post-ACA Financial Statement Uncertainty ASSETS LIABILITIES, CAPITAL AND SURPLUS Risk Adjustment $1,000,000 Risk Adjustment $1,000,000 11

13 Summary of 2014 actual-toaccrued analysis 12

14 Mission To reduce the amount of uncertainty currently reported by ACA health plan issuers by improving our collective ability to estimate ACA accruals, particularly risk adjustment. 13

15 Approach Compare Note 24 data to data published by CCIIO Match on HIOS Issuer ID to NAIC ID Statutory data issues New York California Massachusetts 14

16 2015 Timeline March financial statements due to state regulators May 15 EDGE server data submission due (originally April 30) June 15 Dan and Dave present analysis at SOA Health Meeting June 17 Final coinsurance parameter released June 30 Risk adjustment and reinsurance results published August 7 Postponement of preliminary risk corridor results September 17 Revised risk adjustment and reinsurance results published October 1 Release of risk corridor proration percentage November 19 Risk corridor results released February 2016 Dan and Dave publish paper incorporating actuals 15

17 Financial gain/(loss) of actual 3R results relative to accrued amounts as of December 31, 2014 (millions) 3R Program Accrued Amounts Actual Results Gain/(Loss) Risk Adjustment $230.2 $0 ($230.2) Reinsurance $6,873.0 $7,886.0 $1,013.0 Risk Corridors $1,038.6 $0 ($1,038.6) Aggregate $8,141.9 $7,886.0 ($255.9) 16

18 Financial gain/(loss) of actual-to-accrued 3R results as of December 31, 2014 (millions) 3R Program Total Dollars PMPM % of Premium Risk Adjustment ($230.2) ($1.53) (0.4%) Reinsurance $1,013.0 $ % Risk Corridors ($1,038.6) ($6.90) (1.8%) Aggregate ($255.9) ($1.70) (0.4%) 17

19 Number of ACA health plan issuers with potential RBC event triggered by actual-to-accrued variation as of December 31, 2014 (millions) RBC Event RBC Range Number of Plans Company Action Level 150% - 200% 3 Regulatory Action Level 100% - 150% 0 Authorized Control Level 70% - 100% 0 Mandatory Control Level 0% - 70% 4 Accounting Insolvency < 0% 5 18

20 Directionality of risk adjustment transfer amounts by percent of ACA health plan issuers as of December 31, 2014 (millions) Accrued Receipts Accrued Payments Accrued No Transfer Actual Receipts Actual Payments No Actual Receipts Actual Total 21% 5% 0% 26% 3% 20% 0% 23% 23% 28% 0% 51% Accrued Total 47% 53% 0% 100% 19

21 Actual Risk Adjustment Transfer Actual-to-Expected ACA Health Plan Risk Adjustment Transfers as of December 31, 2014 (millions) $350 $250 $150 $50 -$50 -$150 -$250 -$350 -$350 -$250 -$150 -$50 $50 $150 $250 $350 Expected Risk Adjustment Transfer 20

22 Actual Risk Adjustment Transfer Actual-to-Expected ACA Health Plan Risk Adjustment Transfers as of December 31, 2014 (millions) $25 $20 $15 $10 $5 $0 -$5 -$10 -$15 -$20 -$25 -$25 -$20 -$15 -$10 -$5 $0 $5 $10 $15 $20 $25 Expected Risk Adjustment Transfer 21

23 Transitional reinsurance estimate attribution as of December 31, 2014 (millions) Item Amount Amount Accrued by ACA Plan Issuers $6,873.0 Coinsurance Variation $1,718.3 Other Variation ($705.3) Actual Reinsurance Amount $7,

24 2015 financial results: a first glance 23

25 Data and methods 2015 annual statements were due 3/1/2016 Note 24 requires disclosure of accruals for 3Rs, including reconciliation to prior year accruals Reviewed all filed statements for health, life, and P&C companies (although the vast majority did not write business subject to the 3Rs) Reviewed reports from companies regulated by California Department of Managed Health Care 24

26 Limitations Data submitted by insurers may contain errors (reviewed for and corrected large obvious errors) Not all companies filed annual statements Not all companies completed footnotes Detail not available on rationale behind estimates State- and market-specific data theoretically available, but of questionable quality 25

27 Summary of 2015 risk adjustment Nationally, aggregate accruals are more plausible for : Net positive accrual of $230.2 million 2015: Net positive accrual of $93.8 million When counting by companies, less optimism in : 47 accrued receivables, 41 accrued payables 2015: 65 accrued receivables, 85 accrued payables Caveats on missing data 26

28 Summary of 2015 risk adjustment Zero vs. I don t know 2014: 92 zero accruals 2015: 29 zero accruals 27

29 Summary of 2015 risk adjustment $400,000 Risk adjustment net accruals by parent company ($000) $200,000 $0 ($200,000) ($400,000) ($600,000) ($800,000) 28

30 Summary of 2015 risk adjustment $150,000 Risk adjustment net accruals by parent company ($000) $100,000 $50,000 $0 ($50,000) ($100,000) 29

31 Summary of 2015 risk adjustment $25,000 Risk adjustment net accruals by parent company ($000) $20,000 $15,000 $10,000 $5,000 $0 ($5,000) ($10,000) ($15,000) ($20,000) ($25,000) 30

32 Summary of 2015 risk adjustment $10,000 Risk adjustment net accruals by parent company ($000) $8,000 $6,000 $4,000 $2,000 $0 ($2,000) ($4,000) ($6,000) ($8,000) ($10,000) 31

33 Summary of 2015 risk adjustment Direction of risk adjustment accruals, 2014 vs Accrued receivable Accrued payable Accrued zero No statements Total Accrued receivable 18% 5% 2% 0% 25% Accrued payable 3% 18% 1% 1% 22% Accrued zero 14% 18% 11% 6% 49% New in % 3% 2% 0% 5% Total 34% 44% 15% 6% 100% 47% of issuers accrued in the same direction as 2014 A significantly smaller number of issuers accrued zero 32

34 Summary of 2015 risk adjustment Reaction to 2014 actual results Accrued receivable Accrued payable Accrued zero No statements Total Actual receivable 29% 11% 6% 0% 46% Actual payable 5% 30% 8% 6% 50% New in % 3% 2% 0% 5% Total 34% 44% 15% 6% 100% Accrued receivable Accrued payable Accrued zero Total Actual receivable 33% 12% 7% 51% Actual payable 6% 34% 9% 49% Total 39% 46% 15% 100% Setting aside non-filers, two-thirds accrued the same direction they actually experienced in

35 Summary of 2015 risk adjustment Change in magnitude of accrual Increase in magnitude Decrease in magnitude Different direction Accrued zero No statements Total Overshot 7% 2% 3% 1% 0% 14% Undershot 18% 5% 2% 1% 1% 25% Accrued zero 0% 0% 32% 11% 6% 49% Direction incorrect 3% 1% 3% 1% 0% 7% New in % 0% 3% 2% 0% 5% Total 28% 8% 42% 15% 6% 100% Much more common to increase magnitude than decrease it 34

36 Summary of 2015 risk adjustment Comparisons to 2014 Significantly smaller optimism gap Greater impact from missing data (non-filers) 2014 actuals seem to have influenced 2015 accruals Aggregate plausibility vs. individual company results 35

37 Summary of transitional reinsurance 2014 total accrued: $6.87 billion 2014 total actual: $7.89 billion Amount Accrued by ACA Plan Issuers Coinsurance Variation Other Variation Actual Reinsurance Amount $6.87 billion $1.72 billion ($0.71) billion $7.89 billion 2015 total accrued: $7.44 billion 36

38 Summary of transitional reinsurance 2014 paid (at 100% coinsurance): $7.9 billion 2014 collected from industry: $9.7 billion 2014 funds carried forward to 2015: $1.8 billion 2015 amounts authorized: $6.0 billion Estimated 2015 amount available: $7.8 billion 2015 total accrued: $7.4 billion 37

39 Summary of transitional reinsurance What will the 2015 coinsurance rate be? Any insights for 2016? 38

40 Summary of risk corridors 2014 net accrued: +$1.04 billion 2014 net requested: +$2.51 billion 2014 net actual: $ net accrued: It s complicated Admitted vs. nonadmitted Current year vs. prior year 39

41 Summary of risk corridors For 2015, the annual statement data show: Payables of $55.0 million Receivables (admitted) of $144.6 million* Net (admitted) of $89.6 million* Unpaid 2014 receivable of $500.3 million (admitted and nonadmitted combined) * Includes $89M from one California company What does this mean for the 2014 funding gap? What about INT-15-01? 40

42 Next steps Currently, comparing 2015 financial results to certain universal truths (e.g., RA and RC must = 0) July: Perform similar actual-to-expected analysis to what was done for 2014 Added dimension of seeing how individual plans improve their ability to estimate ACA accruals Join us in Miami 41

43 Accounting and auditing considerations 42

44 Reinsurance Coinsurance rate Statutory rate preliminarily set at 50% - final rate expected June, 2016 Some reporting entities judgmentally increased rate based on excess funding from 2014 (~$1B) Data used in estimate Auditor tests of paid claim data IBNR component to ultimate loss experience by member 43

45 Risk Adjustment Methods for estimation Participation in Wakely study Internally developed estimate Data credibility and manual adjustments Insolvency issues Data used in estimate Auditor tests of Wakely s process and controls Validation of member risk scores 44

46 Risk Corridors Basis for recording receivable Legal considerations GAAP versus statutory treatment if receivable recorded Recent lawsuits Data used in estimate Validation of general ledger information Reliance upon reasonableness of reinsurance and risk adjustment estimates 45

47 Contact Dave Liner (860) Patrick Dooling (203) Daniel Perlman (303) 46