We generally consider living a long life an important goal, and it certainly does beat the alternative. But one side effect of getting older is that, as we age, we typically acquire additional acute and chronic medical conditions, and the prevalence of many common chronic medical conditions increases significantly. Age/gender rating is an area in which actuarial considerations are often in direct tension with social or public policy considerations: there is a natural tension between the policy goals of making coverage more affordable for older people (with higher average costs) and the goal of encouraging younger people (with lower average costs) to purchase health insurance coverage.
In an article first published in the magazine The Actuary, Milliman consultants Doug Norris, Hans Leida, Erica Rode, and Travis (T.J.) Gray explore how age and gender affect costs and premiums in commercial healthcare.
The risk adjustment program, a permanent feature of the Patient Protection and Affordable Care Act of 2010 (ACA), aims to mitigate issues in the commercially insured guaranteed issue individual and small group markets. Under the ACA risk adjustment program, a member’s risk is measured using the U.S. Department of Health and Human Services hierarchical condition categories (HHS-HCC) risk adjuster model. In this particular model, carriers are incentivized to capture all existing member diagnoses that trigger any of the predefined 146 HCCs and condition groupings. By doing so, the carrier will maximize its average plan liability risk score and thus optimize its revenue transfer position relative to the market. In this report, Milliman’s Doug Norris and Ksenia Whittal explore the crucial role of diagnosis coding by focusing on certain variables—including carrier size, market share, and market size—in the ACA risk adjustment formula.
The Centers for Medicare and Medicaid Services (CMS) recently announced that the 2014 transitional reinsurance program’s coinsurance rate would be 100% rather than 80% as originally stated. This is good news for insurers in the health exchange’s individual market whose reimbursement requests will be paid in full (and then some). In this article, Milliman’s Daniel Perlman, Doug Norris, and Hans Leida discuss the financial implications this change could have on insurers.
For issuers of ACA-compliant plans in the individual market, the increased coinsurance has a fairly obvious direct positive impact on 2014 financial performance: more will be collected than many issuers likely assumed when preparing annual statements for 2014. Any issuer that had computed its transitional reinsurance recovery accruals at year-end 2014 based upon the originally announced coinsurance parameter will now receive an additional 25% (because 100% / 80% = 1.25) given the change in coinsurance. The impact of this change will vary significantly by insurer, but could be material in relation to overall individual ACA market claim costs for many insurers. It may not be uncommon to see reductions in net paid claims of 2% to 4% as a result of this change.
The CMS announcement suggests that the reimbursement requests made by insurance companies may be low enough that the transitional reinsurance program could pay 100% of the coinsurance rate and carry a surplus into 2015. The authors estimated that this surplus would be between $1 billion and $2 billion. In fact, based on new information released by CMS on June 30, 2015, it is now known that the surplus carried forward will be approximately $1.8 billion, in the range the authors predicted.
If, even after the increase in coinsurance, total payouts are less than the $9.7 billion in reinsurance assessments collected, there will be additional funds to roll forward into 2015. These additional funds could help create the same (or similar) outcome for the 2015 plan year by increasing the size of the reinsurance pool by any amount carried forward from 2014. (This could conceivably happen for the 2016 plan year as well, for similar reasons.)
Is there a surplus available to carry forward to 2015, and if so, how big is it? We don’t know for sure…however…[there may be] somewhere between $1 billion and $2 billion unspent.
…The bottom line is that there would be more money available to make reinsurance payments for the 2015 plan year. This is good news for issuers of ACA-compliant individual market plans. However, issuers should be cautious about relying on further enrichment in the 2015 program parameters, as (among other concerns) it is possible that the current parameters have already assumed some amount of carryover.
Even though it’s only the beginning of 2015, insurers are already starting to think about 2016 rate filings. Using 2014-2015 Health Insurance Marketplace data, we looked for correlations between silver plan premiums and variables such as the number of carriers and plans in a rating area, available industry metrics, and the structure of provider networks in each rating area. The analysis in this healthcare reform paper by Milliman’s Doug Norris, Matthew Smith, and Samuel Bennett focuses on the second-lowest-cost silver plan offered in each market and discovers some interesting findings.
In November 2013, President Barack Obama extended canceled health insurance policies sold in the small group and individual markets for one year. The three-part series below addresses subsequent federal guidance concerning the administration’s transitional policy for canceled health plans, including changes to the risk mitigation programs of the Patient Protection and Affordable Care Act (ACA).
• President Obama’s transitional policy for canceled plans
The president’s announcement that health insurance issuers would be permitted to renew certain canceled health insurance policies raises new questions for the individual and small group marketplaces in 2014.
• Update on canceled plans: Will changes to 2014 reinsurance and risk corridor programs provide financial relief?
Proposed modifications to the risk corridor and reinsurance programs are designed to stabilize the fledgling reformed markets on and off the exchanges.
• Canceled plans, part III: An extension, an expansion, and more changes to 2014 rules
Premium rates filed for 2014 might not cover claims costs if healthier individuals retain their noncompliant plans rather than seeking coverage in the ACA-compliant market.
On November 14, 2013, the president announced changes to healthcare reform, including the potential reinstatement of certain canceled health policies, as well as suggesting that changes might be made to the federal risk corridor program. Since then, the administration has provided more specifics on the proposed changes to the risk corridor calculations. In addition, they also proposed significant changes to the federal reinsurance program and extended deadlines for the filing of 2015 premium rates.
All of these changes are clearly designed to stabilize the fledgling reformed markets on and off the exchanges—and in particular to reduce the chances that insurers might exit the exchange markets or increase premium rates dramatically in 2015.
Will these changes to 2014 reinsurance and risk corridor programs provide financial relief for insurers? This paper by Doug Norris and Hans Leida offers some perspective.