Session 47L, Health Reserve Setting. Moderator/Presenter: Marilyn M. McGaffin, ASA, MAAA

Session 47L, Health Reserve Setting Moderator/Presenter: Marilyn M. McGaffin, ASA, MAAA Presenters: David A. Berry, FSA, MAAA Lisa M. Parker, ASA, MAAA Andrew Z. Smith, ASA, MAAA SOA Antitrust Disclaimer SOA Presentation Disclaimer

2018 SOA Health Meeting LISA PARKER ASA, MAAA, PIR Session 47: Health Reserve Setting June 25, 2018

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Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 3

Polling Question Have you calculated health claim reserves? a) Yes, a lot b) Yes, some c) No d) Maybe 4

Have you calculated health claim reserves? 5% 21% 44% Yes, a lot Yes, some No Maybe 30%

What is the definition of IBNR? a) Incurred But Not Reserved b) Indigo But Not Red c) Incurred But Not Reported d) In Between Null Reserve Polling Question 7

100% What is the definition fo IBNR? 95% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 2% Incurred But Not Reserved Indigo But Not Red Incurred But Not Reported In Between Null Reserve 0%

Polling Question What is a Completion Factor? a) The completeness of the reserves b) The completeness of the lag factors c) The completeness of the liabilities on the balance sheet d) The completeness of the paid claims 10

100% 90% 80% 70% 60% 50% 40% 30% What is a Completion Factor? 93% 20% 10% 0% 0% The completeness of the reserves 8% The completeness of the lag factors 0% The completeness of the liabilities on the balance sheet The completeness of the paid claims

Definitions IBNR: An estimate of the claims that have taken place but have not been reported to the insurer Paid Date: Date the insurance company pays the claim Incurred Date: Date of service (the date the claim occurs) Lag: The time difference between incurred month and paid month For example: Incurred in July 2017 and Paid in July 2017: Lag = 0 Incurred in July 2017 and Paid in September 2017: Lag = 2 Completion Factor: incurred claims that have been paid to date compared to the ultimate total paid. Used to complete the total amount of paid when calculating the IBNR 13

Claim Triangles Incurred Month ------> Paid Month Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 Total Jan-16 289,148 289,148 Feb-16 272,042 271,591 543,633 Mar-16 34,105 262,805 210,440 507,350 Apr-16 80,348 44,417 305,947 299,165 729,876 May-16 10,972 70,780 31,004 231,266 229,832 573,854 Jun-16 3,081 19,843 70,197 46,307 230,747 258,755 628,930 Jul-16 4,076 6,060 6,938 76,751 52,212 223,474 210,668 580,179 Aug-16 1,265 3,498 4,740 15,840 76,033 45,152 263,416 220,836 630,780 Sep-16 616 1,387 3,107 5,690 13,879 72,108 53,499 313,558 234,587 698,431 Oct-16 2,525 4,438 1,489 5,199 9,320 7,834 79,210 53,852 357,774 314,549 836,190 Nov-16 1,068 2,229 3,153 6,371 3,286 6,345 16,365 67,191 27,203 268,833 297,017 699,061 Dec-16 709 467 1,302 1,293 2,066 2,017 8,404 13,127 61,168 35,279 249,901 280,002 655,735 Jan-17 226 103 444 604 1,089 2,595 1,660 7,778 9,642 79,977 20,124 266,917 255,998 647,157 Feb-17 0 24 215 1,199 591 1,136 1,967 4,630 9,334 16,808 98,959 29,507 278,325 764,193 Mar-17 0 0 723 720 519 1,152 816 1,608 3,679 3,529 6,360 70,414 43,007 733,535 Apr-17 0 0 0 276 241 1,547 398 3,807 3,237 2,541 5,268 11,788 70,377 675,505 May-17 0 0 0 0 632 698 67 1,733 3,009 2,064 2,700 7,498 14,746 678,881 Jun-17 0 0 0 0 0 670 84 3,085 1,050 525 2,666 3,984 4,039 659,261 Jul-17 0 0 0 0 0 0 514 765 361 3,625 1,558 444 3,079 656,387 Aug-17 0 0 0 0 0 0 0 1,608 616 805 1,890 712 2,218 727,910 Sep-17 0 0 0 0 0 0 0 0 1,742 1,139 1,249 2,512 1,910 924,875 Oct-17 0 0 0 0 0 0 0 0 0 1,285 810 690 798 768,965 Nov-17 0 0 0 0 0 0 0 0 0 0 3,692 1,521 690 778,968 Dec-17 0 0 0 0 0 0 0 0 0 0 0 2,469 1,815 308,020 736,963 a) Total 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 16,125,767 14

Development of Completions Factors Incurred Month ------> Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 0 289,148 271,591 210,440 299,165 229,832 258,755 210,668 220,836 234,587 314,549 297,017 280,002 255,998 308,020 1 272,042 262,805 305,947 231,266 230,747 223,474 263,416 313,558 357,774 268,833 249,901 266,917 278,325 2 34,105 44,417 31,004 46,307 52,212 45,152 53,499 53,852 27,203 35,279 20,124 29,507 43,007 3 80,348 70,780 70,197 76,751 76,033 72,108 79,210 67,191 61,168 79,977 98,959 70,414 70,377 4 10,972 19,843 6,938 15,840 13,879 7,834 16,365 13,127 9,642 16,808 6,360 11,788 14,746 5 3,081 6,060 4,740 5,690 9,320 6,345 8,404 7,778 9,334 3,529 5,268 7,498 4,039 6 4,076 3,498 3,107 5,199 3,286 2,017 1,660 4,630 3,679 2,541 2,700 3,984 3,079 7 1,265 1,387 1,489 6,371 2,066 2,595 1,967 1,608 3,237 2,064 2,666 444 2,218 8 616 4,438 3,153 1,293 1,089 1,136 816 3,807 3,009 525 1,558 712 1,910 9 2,525 2,229 1,302 604 591 1,152 398 1,733 1,050 3,625 1,890 2,512 798 10 1,068 467 444 1,199 519 1,547 67 3,085 361 805 1,249 690 690 11 709 103 215 720 241 698 84 765 616 1,139 810 1,521 1,815 12 226 24 723 276 632 670 514 1,608 1,742 1,285 3,692 2,469 13 0 0 0 0 0 0 0 0 0 0 0 14 0 0 0 0 0 0 0 0 0 0 15 0 0 0 0 0 0 0 0 0 16 0 0 0 0 0 0 0 0 17 0 0 0 0 0 0 0 18 0 0 0 0 0 0 19 0 0 0 0 0 20 0 0 0 0 21 0 0 0 22 0 0 23 0 Total 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 15

Development of Completions Factors - Continued Incurred Month ------> Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 0 289,148 271,591 210,440 299,165 229,832 258,755 210,668 220,836 234,587 314,549 297,017 280,002 255,998 308,020 1 561,190 534,396 516,387 530,431 460,579 482,229 474,084 534,394 592,361 583,382 546,918 546,919 534,323 308,020 2 595,295 578,813 547,391 576,738 512,791 527,381 527,583 588,246 619,564 618,661 567,042 576,426 577,330 308,020 3 675,643 649,593 617,588 653,489 588,824 599,489 606,793 655,437 680,732 698,638 666,001 646,840 647,707 308,020 4 686,615 669,436 624,526 669,329 602,703 607,323 623,158 668,564 690,374 715,446 672,361 658,628 662,453 308,020 5 689,696 675,496 629,266 675,019 612,023 613,668 631,562 676,342 699,708 718,975 677,629 666,126 666,492 308,020 6 693,772 678,994 632,373 680,218 615,309 615,685 633,222 680,972 703,387 721,516 680,329 670,110 669,571 308,020 7 695,037 680,381 633,862 686,589 617,375 618,280 635,189 682,580 706,624 723,580 682,995 670,554 671,789 308,020 8 695,653 684,819 637,015 687,882 618,464 619,416 636,005 686,387 709,633 724,105 684,553 671,266 673,699 308,020 9 698,178 687,048 638,317 688,486 619,055 620,568 636,403 688,120 710,683 727,730 686,443 673,778 674,497 308,020 10 699,246 687,515 638,761 689,685 619,574 622,115 636,470 691,205 711,044 728,535 687,692 674,468 675,187 308,020 11 699,955 687,618 638,976 690,405 619,815 622,813 636,554 691,970 711,660 729,674 688,502 675,989 677,002 308,020 12 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 13 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 14 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 15 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 16 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 17 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 18 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 19 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 20 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 21 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 22 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 23 700,181 687,642 639,699 690,681 620,447 623,483 637,068 693,578 713,402 730,959 692,194 678,458 677,002 308,020 16

Development of Completions Factors - Continued Incurred Month ------> Lag Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Dec-17 average completion factor 0 0.4130 0.3950 0.3290 0.4331 0.3704 0.4150 0.3307 0.3184 0.3288 0.4303 0.4291 0.4127 0.3781 1.0000 0.3838 1 0.8015 0.7771 0.8072 0.7680 0.7423 0.7734 0.7442 0.7705 0.8303 0.7981 0.7901 0.8061 0.7892 1.0000 0.7841 2 0.8502 0.8417 0.8557 0.8350 0.8265 0.8459 0.8281 0.8481 0.8685 0.8464 0.8192 0.8496 0.8528 1.0000 0.8429 3 0.9650 0.9447 0.9654 0.9462 0.9490 0.9615 0.9525 0.9450 0.9542 0.9558 0.9622 0.9534 0.9567 1.0000 0.9546 4 0.9806 0.9735 0.9763 0.9691 0.9714 0.9741 0.9782 0.9639 0.9677 0.9788 0.9713 0.9708 0.9785 1.0000 0.9730 5 0.9850 0.9823 0.9837 0.9773 0.9864 0.9843 0.9914 0.9751 0.9808 0.9836 0.9790 0.9818 0.9845 1.0000 0.9826 6 0.9908 0.9874 0.9885 0.9849 0.9917 0.9875 0.9940 0.9818 0.9860 0.9871 0.9829 0.9877 0.9890 1.0000 0.9875 7 0.9927 0.9894 0.9909 0.9941 0.9950 0.9917 0.9971 0.9841 0.9905 0.9899 0.9867 0.9884 0.9923 1.0000 0.9909 8 0.9935 0.9959 0.9958 0.9959 0.9968 0.9935 0.9983 0.9896 0.9947 0.9906 0.9890 0.9894 0.9951 1.0000 0.9936 9 0.9971 0.9991 0.9978 0.9968 0.9978 0.9953 0.9990 0.9921 0.9962 0.9956 0.9917 0.9931 0.9963 1.0000 0.9960 10 0.9987 0.9998 0.9985 0.9986 0.9986 0.9978 0.9991 0.9966 0.9967 0.9967 0.9935 0.9941 0.9973 1.0000 0.9974 11 0.9997 1.0000 0.9989 0.9996 0.9990 0.9989 0.9992 0.9977 0.9976 0.9982 0.9947 0.9964 1.0000 1.0000 0.9983 12 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 13 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 14 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 15 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 16 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 17 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 18 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 19 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 20 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 21 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 22 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 23 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 289,148 / 700,181 =.4130; 612,023 / 620,447 =.9864; 729,674 / 730,959 =.9982; 678,458, / 678,4588 = 1.0000 b) 17

Calculating the IBNR Incurred Estimated Remaining Paid Completion Total Claim Lag Month Claims Factors Incur Claim Reserve a) b) 23 Jan-16 700,181 1.000000 700,181 0 22 Feb-16 687,642 1.000000 687,642 0 21 Mar-16 639,699 1.000000 639,699 0 20 Apr-16 690,681 1.000000 690,681 0 19 May-16 620,447 1.000000 620,447 0 18 Jun-16 623,483 1.000000 623,483 0 17 Jul-16 637,068 1.000000 637,068 0 16 Aug-16 693,578 1.000000 693,578 0 15 Sep-16 713,402 1.000000 713,402 0 14 Oct-16 730,959 1.000000 730,959 0 13 Nov-16 692,194 1.000000 692,194 0 12 Dec-16 678,458 1.000000 678,458 0 11 Jan-17 677,002 0.998300 678,155 1,153 10 Feb-17 800,898 0.997400 802,986 2,088 9 Mar-17 709,315 0.996000 712,164 2,849 8 Apr-17 628,265 0.993600 632,312 4,047 7 May-17 691,172 0.990900 697,519 6,347 6 Jun-17 651,266 0.987500 659,510 8,244 5 Jul-17 733,153 0.982600 746,136 12,983 4 Aug-17 709,831 0.973000 729,528 19,697 3 Sep-17 865,908 0.954600 907,090 41,182 2 Oct-17 622,196 0.842900 738,161 115,965 1 Nov-17 620,950 0.784100 791,927 170,977 0 Dec-17 308,020 0.383800 802,553 494,533 Est. Total Incur Claims = a) / b) Remaining Claim Reserve = Est Total Incur Claim - Incurred Paid Claims 16,125,767 Subtotal 880,065 18

Calculating the IBNR - Continued In this example, most recent 3 months aren t credible So, use another method to calculate the incurred claims for these 3 months Loss Ratio Method Earned Premium Per Member Per Month Incurred Claims Loss Ratio Oct-17 1,250,000 70% 875,000 Nov-17 1,175,000 70% 822,500 Dec-17 1,200,000 70% 840,000 19

Calculating the IBNR - Continued Incurred Estimated Remaining Paid Completion Total Claim Lag Month Claims Factors Incur Claim Reserve 23 Jan-16 700,181 1.000000 700,181 0 22 Feb-16 687,642 1.000000 687,642 0 21 Mar-16 639,699 1.000000 639,699 0 20 Apr-16 690,681 1.000000 690,681 0 19 May-16 620,447 1.000000 620,447 0 18 Jun-16 623,483 1.000000 623,483 0 17 Jul-16 637,068 1.000000 637,068 0 16 Aug-16 693,578 1.000000 693,578 0 15 Sep-16 713,402 1.000000 713,402 0 14 Oct-16 730,959 1.000000 730,959 0 13 Nov-16 692,194 1.000000 692,194 0 12 Dec-16 678,458 1.000000 678,458 0 11 Jan-17 677,002 0.998300 678,155 1,153 10 Feb-17 800,898 0.997400 802,986 2,088 9 Mar-17 709,315 0.996000 712,164 2,849 8 Apr-17 628,265 0.993600 632,312 4,047 7 May-17 691,172 0.990900 697,519 6,347 6 Jun-17 651,266 0.987500 659,510 8,244 5 Jul-17 733,153 0.982600 746,136 12,983 4 Aug-17 709,831 0.973000 729,528 19,697 3 Sep-17 865,908 0.954600 907,090 41,182 2 Oct-17 622,196 0.842900 875,000 252,804 1 Nov-17 620,950 0.784100 822,500 201,550 0 Dec-17 308,020 0.383800 840,000 531,980 16,125,767 Subtotal 1,084,923 Margin = 5% 54,246 Adjustments 0 Total 1,139,169 Est. Total IC from prior page: 70% of the EP 875,000 822,500 840,000 20

Questions??? 21

Regulator Perspective Where to find items in the A/S Liabilities Page 3 Underwriting and Investment Exhibit What I do Quarterly/Annual Reserve Reviews Financial Exams Rate Review What I look for Reasonableness Methodology Trends & Relationships 23

Health Reserve Setting Society of Actuaries 2018 Health Meeting June 25, 2018 Zach Smith, ASA, MAAA Director, Bolton Health Actuarial Health Reserve Setting 2018 Health Meeting 1

Health claim reserve setting is as much art as it is science - unknown Health Reserve Setting 2018 Health Meeting 4

Estimation Metrics Completion ratio overrides Where to cut off 100% credibility of completion factors Per member per month (PMPM) estimation Use of utilization metrics to estimate overrides Medical Loss Ratio (MLR) estimation Health Reserve Setting 2018 Health Meeting 5

Completion Ratio Overrides Unusual payment patterns can slow down or speed up completion ratios Need to review the claim triangle to determine how to adjust the completion ratio Often requires communication with other stakeholders (ex. claims department, legal department, medical management department, etc.) Health Reserve Setting 2018 Health Meeting 6

Completion Ratio Overrides Date Paid T-D C Ratio C Factor Ult Inc Reserve 1-2016 793,852 1.00000 1.00000 793,852 0 2-2016 780,452 1.00000 1.00000 780,452 0 3-2016 958,081 1.00000 1.00000 958,081 0 4-2016 690,945 1.00000 1.00000 690,945 0 5-2016 1,097,966 1.00000 1.00000 1,097,966 0 6-2016 1,219,870 1.00000 1.00000 1,219,870 0 7-2016 1,340,172 1.00000 1.00000 1,340,172 0 8-2016 1,449,535 1.00000 1.00000 1,449,535 0 9-2016 1,158,514 1.00000 1.00000 1,158,514 0 10-2016 1,378,214 0.99120 0.99120 1,390,450 12,236 11-2016 2,171,132 1.00000 0.99120 2,190,408 19,276 12-2016 1,266,829 1.00000 0.99120 1,278,076 11,247 1-2017 2,486,173 1.00000 0.99120 2,508,246 22,073 2-2017 2,347,946 1.00000 0.99120 2,368,791 20,845 3-2017 2,587,381 1.00000 0.99120 2,610,352 22,971 4-2017 2,617,997 1.00000 0.99120 2,641,240 23,243 5-2017 2,481,509 0.99982 0.99102 2,504,001 22,492 6-2017 2,213,271 0.99924 0.99026 2,235,030 21,759 7-2017 2,793,648 0.99867 0.98894 2,824,883 31,235 8-2017 2,422,208 0.99465 0.98366 2,462,453 40,245 9-2017 2,556,787 0.99661 0.98032 2,608,102 51,315 10-2017 2,743,447 0.99857 0.97892 2,802,513 59,066 11-2017 2,231,488 0.99048 0.96960 2,301,452 69,964 12-2017 2,461,735 0.97637 0.94669 2,600,359 138,624 1-2018 3,892,815 0.99243 0.93953 4,143,383 250,568 2-2018 2,892,287 0.80169 0.75321 3,839,943 947,656 3-2018 912,130 0.30875 0.23255 3,922,245 3,010,115 Date Paid T-D C Ratio C Factor Ult Inc Reserve 1-2016 793,852 1.00000 1.00000 793,852 0 2-2016 780,452 1.00000 1.00000 780,452 0 3-2016 958,081 1.00000 1.00000 958,081 0 4-2016 690,945 1.00000 1.00000 690,945 0 5-2016 1,097,966 1.00000 1.00000 1,097,966 0 6-2016 1,219,870 1.00000 1.00000 1,219,870 0 7-2016 1,340,172 1.00000 1.00000 1,340,172 0 8-2016 1,449,535 1.00000 1.00000 1,449,535 0 9-2016 1,158,514 1.00000 1.00000 1,158,514 0 10-2016 1,378,214 1.00000 1.00000 1,378,214 0 11-2016 2,171,132 1.00000 1.00000 2,171,132 0 12-2016 1,266,829 1.00000 1.00000 1,266,829 0 1-2017 2,486,173 1.00000 1.00000 2,486,173 0 2-2017 2,347,946 1.00000 1.00000 2,347,946 0 3-2017 2,587,381 1.00000 1.00000 2,587,381 0 4-2017 2,617,997 1.00000 1.00000 2,617,997 0 5-2017 2,481,509 0.99982 0.99982 2,481,966 457 6-2017 2,213,271 0.99924 0.99906 2,215,361 2,090 7-2017 2,793,648 0.99867 0.99772 2,800,024 6,376 8-2017 2,422,208 0.99465 0.99239 2,440,784 18,576 9-2017 2,556,787 0.99661 0.98903 2,585,151 28,364 10-2017 2,743,447 0.99857 0.98761 2,777,851 34,404 11-2017 2,231,488 0.99048 0.97821 2,281,199 49,711 12-2017 2,461,735 0.97637 0.95510 2,577,476 115,741 1-2018 3,892,815 0.99243 0.94787 4,106,921 214,106 2-2018 2,892,287 0.80169 0.75990 3,806,152 913,865 3-2018 912,130 0.30875 0.23462 3,887,729 2,975,599 Health Reserve Setting 2018 Health Meeting 7

Completion Factor Credibility Need to determine cut-off for 100% credibility of completion factors Typically, completion factors should be 80%-90% complete to be considered 100% credible Depends on the line of business and type of claim Health Reserve Setting 2018 Health Meeting 8

Completion Factor Credibility Date Paid T-D C Ratio C Factor Ult Inc Reserve 1-2016 793,852 1.00000 1.00000 793,852 0 2-2016 780,452 1.00000 1.00000 780,452 0 3-2016 958,081 1.00000 1.00000 958,081 0 4-2016 690,945 1.00000 1.00000 690,945 0 5-2016 1,097,966 1.00000 1.00000 1,097,966 0 6-2016 1,219,870 1.00000 1.00000 1,219,870 0 7-2016 1,340,172 1.00000 1.00000 1,340,172 0 8-2016 1,449,535 1.00000 1.00000 1,449,535 0 9-2016 1,158,514 1.00000 1.00000 1,158,514 0 10-2016 1,378,214 1.00000 1.00000 1,378,214 0 11-2016 2,171,132 1.00000 1.00000 2,171,132 0 12-2016 1,266,829 1.00000 1.00000 1,266,829 0 1-2017 2,486,173 1.00000 1.00000 2,486,173 0 2-2017 2,347,946 1.00000 1.00000 2,347,946 0 3-2017 2,587,381 1.00000 1.00000 2,587,381 0 4-2017 2,617,997 1.00000 1.00000 2,617,997 0 5-2017 2,481,509 0.99982 0.99982 2,481,966 457 6-2017 2,213,271 0.99924 0.99906 2,215,361 2,090 7-2017 2,793,648 0.99867 0.99772 2,800,024 6,376 8-2017 2,422,208 0.99465 0.99239 2,440,784 18,576 9-2017 2,556,787 0.99661 0.98903 2,585,151 28,364 10-2017 2,743,447 0.99857 0.98761 2,777,851 34,404 11-2017 2,231,488 0.99048 0.97821 2,281,199 49,711 12-2017 2,461,735 0.97637 0.95510 2,577,476 115,741 1-2018 3,892,815 0.99243 0.94787 4,106,921 214,106 2-2018 2,892,287 0.80169 0.75990 3,806,152 913,865 3-2018 912,130 0.30875 0.23462 3,887,729 2,975,599 Health Reserve Setting 2018 Health Meeting 9

Override Methodologies Estimation Methods PMPM Estimation Utilization Estimation Changes in utilization (e.g. inpatient admits or ER visits) Leads to cost/day estimations Medical Loss Ratio (MLR) Estimation Items to consider Seasonality Business or product line Risk of the population Contracting changes Recent system or process changes Check run cut-off dates Workdays in a month Flu outbreaks Etc. Health Reserve Setting 2018 Health Meeting 10

PMPM Estimation Average PMPM Date Paid T-D C Ratio C Factor Ult Inc Reserve Members 1 mo PMPM 3 mo PMPM 1-2016 7,486,664 1.00000 1.00000 7,486,664 0 26,369 283.92 2-2016 8,412,565 1.00000 1.00000 8,412,565 0 27,301 308.15 3-2016 9,958,856 1.00000 1.00000 9,958,856 0 28,909 344.49 313.13 4-2016 9,763,315 1.00000 1.00000 9,763,315 0 30,298 322.24 325.23 5-2016 10,928,237 1.00000 1.00000 10,928,237 0 31,606 345.76 337.51 6-2016 10,201,887 1.00000 1.00000 10,201,887 0 32,766 311.35 326.33 7-2016 10,433,015 1.00000 1.00000 10,433,015 0 33,649 310.05 322.00 8-2016 11,250,783 1.00000 1.00000 11,250,783 0 34,249 328.50 316.75 9-2016 10,386,256 1.00000 1.00000 10,386,256 0 34,778 298.65 312.34 10-2016 10,673,530 1.00000 1.00000 10,673,530 0 35,411 301.42 309.38 11-2016 10,531,190 1.00000 1.00000 10,531,190 0 36,069 291.97 297.31 12-2016 9,868,212 1.00000 1.00000 9,868,212 0 36,199 272.61 288.57 1-2017 11,410,051 1.00000 1.00000 11,410,051 0 36,778 310.24 291.71 2-2017 10,343,888 1.00000 1.00000 10,343,888 0 37,482 275.97 286.28 3-2017 12,325,113 0.99997 0.99997 12,325,486 373 38,526 319.93 302.16 4-2017 11,166,153 0.99991 0.99988 11,167,530 1,377 39,322 284.00 293.39 5-2017 12,144,899 0.99986 0.99973 12,148,139 3,240 39,894 304.51 302.71 6-2017 11,602,816 0.99967 0.99940 11,609,766 6,950 40,250 288.44 292.35 7-2017 12,500,808 0.99945 0.99885 12,515,208 14,400 40,752 307.11 300.04 8-2017 13,367,397 0.99896 0.99781 13,396,722 29,325 41,158 325.50 307.15 9-2017 11,650,224 0.99702 0.99484 11,710,650 60,426 41,732 280.61 304.29 10-2017 13,133,476 0.99387 0.98874 13,282,986 149,510 42,843 310.04 305.33 11-2017 13,310,578 0.98550 0.97441 13,660,152 349,574 43,452 314.38 301.92 12-2017 12,507,839 0.97874 0.95370 13,115,113 607,274 43,577 300.96 308.44 1-2018 13,717,717 0.96856 0.92371 14,850,666 1,132,949 44,008 337.46 317.67 2-2018 11,669,196 0.88641 0.81879 14,251,749 2,582,553 44,750 318.48 319.02 3-2018 6,266,902 0.51825 0.42434 14,768,537 8,515,583 46,152 320.00 325.29 Health Reserve Setting 2018 Health Meeting 11

Utilization Estimation Inpatient Admits Date Paid T-D C Ratio C Factor Ult Inc Reserve Admits 1 mo Cost/Admit 3 mo Cost/Admit 1-2016 2,472,478 1.00000 1.00000 2,472,478 0 229 10,796.85 2-2016 2,837,996 1.00000 1.00000 2,837,996 0 239 11,874.46 3-2016 3,276,056 1.00000 1.00000 3,276,056 0 273 12,000.21 11,587.76 4-2016 3,108,599 1.00000 1.00000 3,108,599 0 279 11,141.93 11,659.48 5-2016 3,731,468 1.00000 1.00000 3,731,468 0 317 11,771.19 11,641.11 6-2016 3,260,249 1.00000 1.00000 3,260,249 0 271 12,030.44 11,649.73 7-2016 3,697,206 1.00000 1.00000 3,697,206 0 324 11,411.13 11,720.31 8-2016 3,650,771 1.00000 1.00000 3,650,771 0 325 11,233.14 11,530.68 9-2016 3,354,614 1.00000 1.00000 3,354,614 0 290 11,567.63 11,397.86 10-2016 3,387,153 1.00000 1.00000 3,387,153 0 313 10,821.58 11,198.86 11-2016 3,670,350 1.00000 1.00000 3,670,350 0 299 12,275.42 11,543.37 12-2016 2,918,407 1.00000 1.00000 2,918,407 0 294 9,926.55 11,010.94 1-2017 3,979,787 1.00000 1.00000 3,979,787 0 334 11,915.53 11,400.80 2-2017 3,148,464 1.00000 1.00000 3,148,464 0 310 10,156.34 10,710.72 3-2017 4,492,906 1.00000 1.00000 4,492,906 0 333 13,492.21 11,894.74 4-2017 3,752,158 1.00000 1.00000 3,752,158 0 319 11,762.25 11,843.58 5-2017 3,702,676 0.99984 0.99984 3,703,260 584 341 10,860.00 12,032.55 6-2017 3,923,060 0.99970 0.99954 3,924,856 1,796 327 12,002.62 11,530.17 7-2017 5,057,461 0.99950 0.99904 5,062,307 4,846 390 12,980.27 11,994.73 8-2017 4,740,754 0.99930 0.99834 4,748,621 7,867 411 11,553.82 12,177.11 9-2017 3,400,046 0.99900 0.99735 3,409,097 9,051 319 10,686.82 11,803.59 10-2017 3,878,911 0.99819 0.99554 3,896,291 17,380 358 10,883.49 11,079.05 11-2017 4,781,616 0.98460 0.98021 4,878,157 96,541 439 11,111.98 10,917.16 12-2017 4,780,825 0.97850 0.96638 4,947,150 166,325 430 11,505.00 11,183.05 1-2018 4,938,470 0.96984 0.96288 5,128,877 190,407 436 11,754.00 11,456.06 2-2018 3,901,900 0.86140 0.82942 4,704,367 802,467 405 11,615.72 11,625.73 3-2018 1,766,289 0.52336 0.43408 4,069,006 2,302,717 350 11,625.73 11,669.31 Health Reserve Setting 2018 Health Meeting 12

Seasonality Example Need to account for different payment patterns that consistently occur at specific times of the year Health Reserve Setting 2018 Health Meeting 13

Change in Population Risk Date Members PMPM Risk Score 1-2016 26,369 283.92 1.1413 2-2016 26,632 308.15 1.1179 3-2016 26,899 324.72 1.1104 4-2016 27,168 322.24 1.1203 5-2016 27,439 320.89 1.1317 6-2016 27,714 311.35 1.1308 7-2016 27,991 310.05 1.1477 8-2016 28,271 328.50 1.1447 9-2016 28,553 298.65 1.1467 10-2016 28,839 301.42 1.1451 11-2016 29,127 291.97 1.1498 12-2016 29,419 304.68 1.1501 1-2017 38,538 329.29 1.4722 2-2017 38,924 338.16 1.4421 3-2017 39,313 375.51 1.4324 4-2017 39,706 369.80 1.4452 5-2017 40,103 366.70 1.4599 6-2017 40,504 345.23 1.4587 7-2017 40,909 342.36 1.4805 8-2017 41,318 384.31 1.4766 9-2017 41,731 317.63 1.4792 10-2017 42,149 323.55 1.4771 11-2017 42,570 303.59 1.4832 12-2017 42,996 330.59 1.4836 Health Reserve Setting 2018 Health Meeting 14

Check Run Cut-off Dates Final Check Run (last Thursday of each month) 1/25/2018 2/22/2018 3/29/2018 4/26/2018 5/31/2018 6/28/2018 7/26/2018 8/30/2018 9/27/2018 10/25/2018 11/29/2018 12/27/2018 Health Reserve Setting 2018 Health Meeting 15 Days Remaining in Month 6 6 2 4 0 2 5 1 3 6 1 4 IBNR = Estimated Incurred Claims Actual Paid Claims If estimated incurred claims remain the same, lower actual paid claims will result in a higher reserve.

Reserve Setting Considerations How many claim triangles should be used? How detailed do the claim triangles need to be? Have there been changes to the population? How should you handle catastrophic claims? How should you account for claim inventories? Have there been any provider contracting changes? Have there been any legislative changes? Health Reserve Setting 2018 Health Meeting 16

How many claim triangles should be used? Consider different products Commercial Medicare Medicare Advantage Medicare Supplement Medicaid Catastrophic Plans Gap Plans Health Reserve Setting 2018 Health Meeting 17

How many claim triangles should be used? How detailed do the claim triangles need to be? Plan Type HMO PPO POS Type of Service Inpatient Outpatient Emergency Room Physician Pharmacy Ancillary Products (Dental, Vision, etc.) Health Reserve Setting 2018 Health Meeting 18

How many claim triangles should be used? How detailed do the claim triangles need to be? Geographic Area Population TANF, SSI (Disabled), Childless Adult (Medicaid Expansion) Chronic conditions versus non-chronic conditions Retiree versus Active employees Group Size Large Group Small Group Individual Health Reserve Setting 2018 Health Meeting 19

Have there been any changes to the population? Open Enrollment Period Medicaid Program Changes Legislative Changes Other Population Risk Changes Health Reserve Setting 2018 Health Meeting 20

Medicaid Program Changes Date Paid T-D C Ratio C Factor Ult Inc Reserve Members PMPM 6 mo PMPM 10-2014 7,185,383 1.00000 1.00000 5,875,966 0 23,920 245.65 11-2014 6,101,631 1.00000 1.00000 6,101,631 0 25,282 241.35 12-2014 7,623,926 1.00000 1.00000 6,823,528 0 26,112 261.32 1-2015 7,169,572 1.00000 1.00000 7,169,572 0 27,692 258.90 2-2015 7,619,266 1.00000 1.00000 7,619,266 0 29,832 255.40 3-2015 7,787,636 1.00000 1.00000 7,787,636 0 29,995 259.63 254.11 4-2015 6,897,900 1.00000 1.00000 6,897,900 0 23,556 292.83 5-2015 6,892,482 1.00000 1.00000 6,892,482 0 23,571 292.42 6-2015 7,126,840 1.00000 1.00000 7,126,840 0 23,756 300.00 7-2015 7,295,841 1.00000 1.00000 7,295,841 0 23,752 307.17 8-2015 6,981,926 1.00000 1.00000 6,981,926 0 23,777 293.65 9-2015 7,707,718 1.00000 1.00000 7,707,718 0 23,823 323.54 10-2015 8,031,805 1.00000 1.00000 8,031,805 0 24,678 325.47 11-2015 7,699,556 1.00000 1.00000 7,699,556 0 25,024 307.69 12-2015 8,224,183 1.00000 1.00000 8,224,183 0 25,290 325.20 Health Reserve Setting 2018 Health Meeting 21

How can catastrophic claims be handled? Leave them in the claim triangle Remove them and include a separate large claim reserve Requires communicating between other areas of your organization (e.g. Medical Management, Health Services, etc.) Health Reserve Setting 2018 Health Meeting 22

Large Claim Example Date Paid T-D C Ratio C Factor Ult Inc Reserve 1-2016 2,472,478 1.00000 1.00000 2,472,478 0 2-2016 2,837,996 1.00000 1.00000 2,837,996 0 3-2016 3,276,056 1.00000 1.00000 3,276,056 0 4-2016 3,108,599 1.00000 1.00000 3,108,599 0 5-2016 3,731,468 1.00000 1.00000 3,731,468 0 6-2016 3,260,249 1.00000 1.00000 3,260,249 0 7-2016 3,697,206 1.00000 1.00000 3,697,206 0 8-2016 3,650,771 1.00000 1.00000 3,650,771 0 9-2016 3,354,614 1.00000 1.00000 3,354,614 0 10-2016 3,387,153 1.00000 1.00000 3,387,153 0 11-2016 3,670,350 1.00000 1.00000 3,670,350 0 12-2016 2,918,407 1.00000 1.00000 2,918,407 0 1-2017 3,979,787 1.00000 1.00000 3,979,787 0 2-2017 3,148,464 1.00000 1.00000 3,148,464 0 3-2017 4,492,906 1.00000 1.00000 4,492,906 0 4-2017 3,752,158 1.00000 1.00000 3,752,158 0 5-2017 3,702,676 0.99984 0.99984 3,703,260 584 6-2017 3,923,060 0.99970 0.99954 3,924,856 1,796 7-2017 5,057,461 0.99950 0.99904 5,062,307 4,846 8-2017 4,740,754 0.99930 0.99834 4,748,621 7,867 9-2017 3,400,046 0.99900 0.99735 3,409,097 9,051 10-2017 3,878,911 0.99819 0.99554 3,896,291 17,380 11-2017 4,781,616 0.98460 0.98021 4,878,157 96,541 12-2017 4,780,825 0.97850 0.95913 4,984,517 203,692 1-2018 4,938,470 0.96984 0.93021 5,309,012 370,542 2-2018 3,901,900 0.81509 0.75820 5,157,869 1,255,969 3-2018 1,766,289 0.43892 0.33279 5,307,443 3,541,154 Date Paid T-D C Ratio C Factor Ult Inc Reserve 1-2016 2,472,478 1.00000 1.00000 2,472,478 0 2-2016 2,837,996 1.00000 1.00000 2,837,996 0 3-2016 3,276,056 1.00000 1.00000 3,276,056 0 4-2016 3,108,599 1.00000 1.00000 3,108,599 0 5-2016 3,731,468 1.00000 1.00000 3,731,468 0 6-2016 3,260,249 1.00000 1.00000 3,260,249 0 7-2016 3,697,206 1.00000 1.00000 3,697,206 0 8-2016 3,650,771 1.00000 1.00000 3,650,771 0 9-2016 3,354,614 1.00000 1.00000 3,354,614 0 10-2016 3,387,153 1.00000 1.00000 3,387,153 0 11-2016 3,670,350 1.00000 1.00000 3,670,350 0 12-2016 2,918,407 1.00000 1.00000 2,918,407 0 1-2017 3,979,787 1.00000 1.00000 3,979,787 0 2-2017 3,148,464 1.00000 1.00000 3,148,464 0 3-2017 4,492,906 1.00000 1.00000 4,492,906 0 4-2017 3,752,158 1.00000 1.00000 3,752,158 0 5-2017 3,702,676 0.99984 0.99984 3,703,260 584 6-2017 3,923,060 0.99970 0.99954 3,924,856 1,796 7-2017 5,057,461 0.99950 0.99904 5,062,307 4,846 8-2017 4,740,754 0.99930 0.99834 4,748,621 7,867 9-2017 3,400,046 0.99900 0.99735 3,409,097 9,051 10-2017 3,878,911 0.99819 0.99554 3,896,291 17,380 11-2017 4,781,616 0.98460 0.98021 4,878,157 96,541 12-2017 4,780,825 0.97850 0.95913 4,984,517 203,692 1-2018 4,938,470 0.96984 0.93021 5,309,012 370,542 2-2018 4,201,900 0.81509 0.75820 5,541,905 1,340,005 3-2018 1,766,289 0.43892 0.33279 5,307,443 3,541,154 Health Reserve Setting 2018 Health Meeting 23

How should claim inventories be accounted for? Holiday or weather-related closures Claim system changes Claim department staffing issues Auto-pay implementation Health Reserve Setting 2018 Health Meeting 24

Additional Items to Consider Provider contracting changes Flu outbreaks Seasonality Health Reserve Setting 2018 Health Meeting 25

Flu Outbreak Example Date Paid T-D C Ratio C Factor Ult Inc Reserve Units 1 mo 1-2016 7,484,253 1.00000 1.00000 7,484,253 0 26,368 283.84 2-2016 8,411,928 1.00000 1.00000 8,411,928 0 27,300 308.13 3-2016 9,945,435 1.00000 1.00000 9,945,435 0 28,908 344.04 4-2016 9,761,809 1.00000 1.00000 9,761,809 0 30,297 322.20 5-2016 10,927,322 1.00000 1.00000 10,927,322 0 31,604 345.75 6-2016 10,201,163 1.00000 1.00000 10,201,163 0 32,763 311.36 7-2016 10,432,518 1.00000 1.00000 10,432,518 0 33,642 310.10 8-2016 11,250,091 1.00000 1.00000 11,250,091 0 34,242 328.55 9-2016 10,380,327 1.00000 1.00000 10,380,327 0 34,771 298.54 10-2016 10,657,536 1.00000 1.00000 10,657,536 0 35,405 301.02 11-2016 10,531,444 1.00000 1.00000 10,531,444 0 36,062 292.04 12-2016 9,871,847 1.00000 1.00000 9,871,864 0 36,192 272.77 1-2017 10,109,296 1.00000 1.00000 10,109,296 0 36,769 274.94 2-2017 10,346,745 0.99999 0.99999 10,346,851 106 37,473 276.11 3-2017 12,336,724 0.99999 0.99998 12,336,930 206 38,517 320.30 4-2017 11,168,542 0.99995 0.99994 11,169,244 702 39,311 284.13 5-2017 12,146,402 0.99992 0.99986 12,148,100 1,698 39,881 304.61 6-2017 11,604,607 0.99989 0.99975 11,607,534 2,927 40,233 288.51 7-2017 12,501,866 0.99968 0.99943 12,508,991 7,125 40,734 307.09 8-2017 13,413,635 0.99960 0.99903 13,426,701 13,066 41,137 326.39 9-2017 11,683,576 0.99887 0.99790 11,708,168 24,592 41,713 280.68 10-2017 13,219,642 0.99759 0.99549 13,279,477 59,835 42,826 310.08 11-2017 13,495,377 0.99367 0.98919 13,642,796 147,419 43,432 314.11 12-2017 12,885,809 0.98436 0.97372 13,233,590 347,781 43,552 303.86 1-2018 14,271,665 0.97928 0.95354 14,966,975 695,310 43,984 340.28 2-2018 12,428,689 0.96262 0.91790 13,540,365 1,111,676 44,699 302.93 3-2018 11,947,393 0.89262 0.85844 13,917,565 1,970,172 45,339 306.97 4-2018 4,908,561 0.41597 0.35196 13,946,483 9,037,922 45,789 304.58 Health Reserve Setting 2018 Health Meeting 26

Relevant Actuarial Standards of Practice ASOP #5 Incurred Health and Disability Claims ASOP #23 Data Quality ASOP #25 Credibility Procedures ASOP #41 Actuarial Communications Health Reserve Setting 2018 Health Meeting 27

Recap Claim reserve setting is not entirely a mathematically exercise. Actuaries need to account for many different components that impact the ultimate incurred claims. Determining the impact of each component often requires working with other areas of your organization. Health Reserve Setting 2018 Health Meeting 28

Questions? Health Reserve Setting 2018 Health Meeting 29

Session 47: Reserve Setting Advanced Topics SOA Antitrust Compliance Guidelines Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants. The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding. There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures. While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines: Do not discuss prices for services or products or anything else that might affect prices Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers. Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so. Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs. Do alert SOA staff and/or legal counsel to any concerning discussions Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information. Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone s responsibility; however, please seek legal counsel if you have any questions or concerns. 6/25/2018 Berry - Page 1

Session 47: Reserve Setting Advanced Topics Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 6/25/2018 Berry - Page 2

Session 47: Reserve Setting Advanced Topics Session Review Claims reserving actuaries use historical payment patterns and PMPM s to estimate the current incurred claims/reserve amount What do you do when past data is not representative of current activity? Issues Workdays CF Algorithms Payment Cycles Catastrophic Claims Claims Inventory Problems New Product Implementation Provider Issues ACA Year 1 6/25/2018 Berry - Page 3

Session 47: Reserve Setting Advanced Topics Workdays Matter! Your ability to use the health care system is constrained by your access to a provider that is currently working ( work days ) Each day is different Saturday and Sunday are not 1.0, but they aren t 0 either Emergency services are different than non-emergent Varies by service type (e.g. admissions are more likely on Monday than Friday) Why does this matter? It should not affect payment patterns It does affect the ultimate PMPM, which is how you set the most recent months. 6/25/2018 Berry - Page 4

Session 47: Reserve Setting Advanced Topics Workdays Matter! 6/25/2018 Disclaimer: this is based on real data to demonstrate seasonality. Each year had been adjusted by a different scaler to produce a fixed trend. Berry - Page 5

Session 47: Reserve Setting Advanced Topics CF Algorithms There are a variety of algorithms to calculate completion factors. They all handle anomalies in the data a little differently. So there is value in running multiple algorithms to check for bias. $125 Comparison of Completion Methods Reserve for Credible CF Months $120 $115 $110 $105 $100 $95 $90 $85 $80 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Valuation Month Ratio 4 of 6 Classic 4 of 6 Ratio 10 of 12 Classic 10 of 12 Ratio 12 of 12 Classic 12 of 12 Average 6/25/2018 Berry - Page 6

Session 47: Reserve Setting Advanced Topics Payment Cycles Some companies process claims every day but cut checks once per week So monthly paid claims contain either 4 or 5 payment cycles That create a lot of volatility in the triangle What would you do? a) Ignore it. It isn t important. b) Change the data feed so that it goes through the last day of the month c) Adjust completion factor (e.g. look at historical CF s for 5 pay months) d) Adjust the cumulative paid claims before applying a normal CF e) Use completion factors based on weeks of runout 6/25/2018 Berry - Page 7

Session 47: Reserve Setting Advanced Topics Payment Cycles CF s based on weeks of Runout Cumulative data doesn t change; it is just redistributed 4 4 5 Pd Pd Incurred Month Mo Wk A B C A 13 $1 A 12 $2 A 11 $5 A 10 $10 B 9 $15 $1 B 8 $20 $2 B 7 $20 $5 B 6 $10 $10 C 5 $7 $15 $1 C 4 $5 $20 $2 C 3 $3 $20 $5 C 2 $1 $10 $10 C 1 $1 $7 $15 TOTAL $100 $90 $33 Runout Months 3 2 1 Weeks 13 9 5 MONTHLY TRIANGLE Mo. of Incurred Month Runout A B C 1 $18 $18 $33 2 $65 $72 3 $17 TOTAL $100 $90 $33 WEEKLY TRIANGLE Wk. of Incurred Month Runout A B C 5 $33 $33 $33 9 $57 $57 13 $10 TOTAL $100 $90 $33 } Volatility } Stability 6/25/2018 Berry - Page 10

Session 47: Reserve Setting Advanced Topics Catastrophic Claims The ACA eliminated annual and lifetime limits Perhaps as a result, we are seeing more very high dollar claims [HDC] (claims over $500k are regular and claims over $1m are not uncommon) Because these claims are very large but also erratic, they can distort the claims triangle / CF development What would you do? a) Ignore it. We always have HDC s in the CF s. Prego it s in there! b) Set two reserves using the CF method. One for HDC; one for non-hdc. c) Set HDC in aggregate using totals from an authorization report. d) Set HDC separately using by projecting the future claims triangle. e) Set HDC case by case using clinical and provider contracting intelligence. 6/25/2018 Berry - Page 11

Session 47: Reserve Setting Advanced Topics Catastrophic Claims Paid PMPM Approach Convert triangle to PMPM s and project future payments 6/25/2018 Berry - Page 14

Session 47: Reserve Setting Advanced Topics Claims Inventory Problems Claim Inventories If inventories change considerably, the triangle will be distorted. Inv. => Paid => Reserve Medicare changed intermediary processors and stopped paying all claims during the transition. This affects Medigap policies, which pay secondary. What would you do? a) Ignore it. It isn t our problem; it s the intermediary s. b) Ignore the recent data and set all of those month on a PMPM. c) Estimate and add the missing claims before applying normal CF s. d) Use a longer term CF method and drop multiple values. e) Use a shorter term CF method and drop multiple values. Utilization Valuation Month Lines Dollars Charges 6/25/2018 Berry - Page 15

Session 47: Reserve Setting Advanced Topics Claims Inventory Problems You have a new product and find out the wrong fee schedule was loaded. They need to reprocess an entire year s worth of claims (impact could be positive or negative). What would you do? a) Ignore it. It could be positive or negative; so the expected value = 0. b) Choose a longer term CF method that drops multiple values. c) Choose a shorter term CF method that drops multiple values. d) Delete the tail of the triangle for the month for the months where claims were reprocessed. e) Get the claims detail and adjust the reserve database to use the original paid date for these claims. 6/25/2018 Berry - Page 16

Session 47: Reserve Setting Advanced Topics New Product Implementation For a new product, you have no historical data. How do you calculate the reserve? What would you do? a) Ignore it. We don t need to set reserves for new products. b) Set all the PMPM s to Pricing. c) Develop completion factors from the triangle of a comparable product. d) Blend the triangle for this product with the triangle for a comparable product. e) Set the reserve equal to two months of paid claims. 6/25/2018 Berry - Page 18

Session 47: Reserve Setting Advanced Topics Provider Issues A provider implements a new EMR System and is unable to submit claims for an extended period of time. Since these claims haven t been submitted, they are not in inventories. What would you do? a) Ignore it. It s the provider s problem, not mine. b) Use conservative completion factors. c) Estimate the missing paid from the triangle and adjust as if they were in the inventories. d) Pull a provider-specific claims triangle from your data warehouse and estimate the missing paid claims. e) Ask the provider for info. 6/25/2018 Berry - Page 20

Session 47: Reserve Setting Advanced Topics ACA Year 1 In the first year of ACA, people were able to sign up throughout the year, which means the mix of business was constantly changing. What would you do? a) Ignore it. It is impossible to make sense of ACA in year 1. Blame it on the government. b) It doesn t affect CF s. Use the pricing PMPM for the current month. c) Use the actual paid to allowed data to set the allowed PMPM and then apply an expected PtoA ratio based on emerging data. d) Calculate expected PtoA factors using actual member mix. e) Book an MLR for year 1. 6/25/2018 Berry - Page 22

Session 47: Reserve Setting Advanced Topics Expected PtoA Curve Assume all members have a $500 allowed PMPM regardless of metal or incurred month (i.e. no selection or seasonality) For simplicity, five cohorts join during the year and each cohort chooses a single metal. 6/25/2018 Berry - Page 24