Financing and regulating healthcare in the United States is complicated. Fortunately, actuaries understand the intricacies and can provide unique perspectives to address the system’s complex challenges. In the article “Healthcare: It’s complicated,” Milliman’s Hans Leida and Lindsy Kotecki discuss issues related to reform that actuaries have helped navigate.
Here is an excerpt:
Besides predictability problems caused by regulatory or political factors, two challenges facing health actuaries during these transitional years have been (1) the lag between when market changes are implemented and when data on policies subject to the new rules becomes available, and (2) the difficulty in predicting consumer behaviour in reaction to major changes in market rules such as guaranteed issue and community rating. How many of the uninsured would sign up? How price-sensitive would members be when they renewed their coverage each year? How will changes in other sources of coverage (such as Medicaid expansion) impact the individual market? How will potential actions by competitors affect an insurer’s risk?
Despite the daunting nature of these challenges, actuaries have, out of necessity, found ways to try to address them. For example, faced with the data lag problem, they explored ways to augment traditional claim and enrollment data with new data sources such as marketing databases or pharmacy history data available for purchase. Such sources can be used to develop estimates of the health status of new populations not previously covered by an insurer. Many actuaries also developed agent-based stochastic simulation models that attempted to model the behaviour of consumers, insurers and other stakeholders in these new markets. Such models continue to be used to evaluate the potential outcomes of future changes to the healthcare system, and will probably be essential should efforts to repeal and replace the ACA prove successful.
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.
Any upcoming changes to the Patient Protection and Affordable Care Act (ACA) will not likely be fully implemented until 2019 or 2020. The stability of the individual and small group health insurance markets during this period of transition will depend on the regulatory changes that are made in the interim and the transparency of those changes.
A new paper by Milliman’s Lindsy Kotecki and Hans Leida presents five key considerations for promoting market stability for the 2018 and 2019 benefit years under the assumption that they are transitional years with many current ACA rules in effect.
1. Don’t collapse the stool.
2. Extend risk mitigation programs.
3. Extending the transitional policy.
4. Consider interim rule changes carefully.
5. Transparency is key.
As 2016 approaches, healthcare insurers should already be thinking about the 2017 premium rates they will need to file for their Patient Protection and Affordable Care Act (ACA) business. In the article “Ten potential drivers of ACA premium rates in 2017,” Milliman’s Aaron Wright, Hans Leida, and Lindsy Kotecki discuss several factors that may influence ACA plan rates moving forward. The factors are listed below.
2. Changes to essential health benefits and the Centers for Medicare and Medicaid Services (CMS) Actuarial Value Calculator.
3. Additional data.
4. Continued migrations.
5. Carrier shuffling.
6. Ongoing political uncertainty: Court cases and elections.
7. Transitional reinsurance.
8. Risk corridors.
9. Risk adjustment.
10. Changes in fees and taxes.
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.
The U.S. Department of Health and Human Services (HHS) finalized an update to the risk adjustment model coefficients used to determine the payment transfer amounts for the 2016 Patient Protection and Affordable Care Act (ACA) market. The impact of these changes depends on each carrier’s mix of enrollees. But there are several consistent themes when comparing the updated coefficients with the current ones. For example, carriers that enroll a disproportionate share relative to the market of sicker or higher-risk individuals are likely to receive higher-risk transfer payments. And carriers that enroll a disproportionate share of healthier individuals are likely to receive lower transfer payments or will have to pay higher amounts to other carriers. Milliman consultants Hans Leida and Scott Katterman provide some perspective in this healthcare reform paper.