Tag Archives: Ken Clark

Age slope considerations for MedSupp plans

Among the key rating classifications for Medicare Supplement (MedSupp) business is attained age-based rate adjustments as reflected in the premium rate schedule. However, this classification can become neglected as a key component of rate structure alignment and an area of opportunity for new market entrants as well as existing carriers. In this article, Milliman consultant Ken Clark delves into the theoretical actuarial considerations and the areas of opportunity in the market today.

What is your Medicare Supplement experience REALLY telling you?

Medicare Supplement (Med Supp) carriers often ask, “What’s going on with my Med Supp experience?” It’s a good question. And the answer isn’t always directly in front of you in a report or a chart.

In response to this question, my first question is, “What are you referring to: Loss ratio? Claims costs?” Loss ratio experience is impacted by both sides of the ledger, premium revenue and claims. There may be issues on both sides.

My second question is, “What were you expecting?”

It’s a difficult question to answer. Often, Med Supp carriers reply, “Our claims are going through the roof!” That may be so. But what is critically important to understand is the following:

1) Too high relative to what?
2) Where are claims too high?

Without answers to these questions, a carrier is left without a clue about the source, a potential solution, or a basis for future action.

The approach I often use includes measuring historical claims experience relative to benchmark (or expected) values at a refined level and then rolling up the results in total as well as by key risk characteristics. This type of actual-to-expected (A/E) analysis does two things to answer the questions above:

1) It provides an overall claims level measure (referred to here as morbidity level) together with the variation over time as well as specific risk characteristics (which we will expand on later).
2) It can provide the inherent underlying pure claims trend experienced after adjusting the measurements for other influences such as changes in the demographic and/or geographic mix, etc.

The hypothetical case study of InsureU Insurance Company provides a simple example.

Case study: InsureU Insurance Company

InsureU’s actuary, Cliff Diver, provides his boss, CEO Wanda Profits, with quarterly experience reports of among other things the new Med Supp line of business that InsureU has been selling for the last three years in the state of Bliss. InsureU has spent significant resources and capital to enter this market in order to expand membership base and hedge its risk in the commercial Patient Protection and Affordable Care Act (ACA) market. Given the lack of expertise in-house, InsureU turned to the support of consultant Sonny Days to price the product line. Premiums were priced based on various assumptions and expected to yield initial loss ratios in the low 70s. Projected financial results look something like Figure 1.

The launch of the product line had been seen as providing mixed results at best with regard to sales targets. Original sales targets were 800 policies in the first year but only 400 were issued. Competition has been fierce in the state of Bliss but InsureU weathered the storm and, on a bright note, the financial results were fantastic! So fantastic that Wanda convinced Cliff that rates were fine where they were and no rate increase in the first year was necessary. This was in spite of the recommendation by Sonny Days to file for a nominal rate increase equal to expected claims trend.

Fast-forward to year three. As sales have grown, Cliff nervously notices the quarterly reports showing financials going in the wrong direction. See Figure 2.

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As 2020 approaches, are Medicare Supplement carriers prepared for MACRA?

In September 2016, I published a white paper, “Will the Medicare Supplement market have “2020” vision in the world of MACRA?” Much was unknown at the time regarding formal regulatory guidance on the topic, including carrier and industry responses to the regulation. Much is still unknown about the impact of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) on Medicare Supplement carriers: will carriers take action proactively, or wait and react as we move into the 2020s?

There appears to be a general willingness (though not an endorsement) from the National Association of Insurance Commissioners’ Health Actuarial Task Force (NAIC HATF) to allow separate Plan G forms. That apparent willingness is based on the interpretation of “Guarantee Issue” availability as a separate “case” as described in current regulation. Supporters of this position argue that allowing separate Plan G forms protects pre-MACRA Plan G policyholders from the increased overall morbidity level expected for business sold after 2019. Some, though not all, regulators and industry groups share this stance, and the topic remains subject to continued debate. It is likely that the regulatory stance will vary by state.

However, what is not addressed is whether the same flexibility would be allowed for Plan F. If such flexibility is permitted, this would enable carriers to introduce more favorable rates in anticipation of more favorable experience.

The impact of MACRA will vary by carrier based on factors such as rate structure, level of underwriting, sales demographics, and in-force exposure. Carriers should take the key considerations below into account when evaluating their product lines:

Current sales distribution of enrollment type
Enrollment type would be Open Enrollees (OE), Guarantee Issue-eligible (GI), or medically underwritten (UW). All else being equal, a high proportion of OE and/or GI business and the shift of that business from Plan F to Plan G may also be expected to cause a shift in morbidity level from Plan F to Plan Gi. A high proportion of UW business may impact morbidity to a much greater extent for Plan F than Plan G. The extent of this impact depends on the strength of the underwriting process.

Rate structure
A rate structure with a relatively steep age slopeii will have a greater impact on experience (positive for Plan F and negative for Plan G) than a rate slope closer to the underlying claims slope. Why? All else being equal, a steep rate slope will likely have inherent subsidization of the younger ages by the older ages. Under MACRA, we may expect Plan F to take on a larger proportion of the subsidizers (older ages) while Plan G may be expected to assume a larger proportion of the “subsidizees” (younger ages).

Current volume of Plan G in-force
To the extent that a carrier will have a significant volume of Plan G enrollees by 2020, the initial impact of MACRA on Plan G enrollment for such carriers may be lessened. However, the same phenomenon would apply to Plan F but in the other direction.

Rate competitiveness
Rate competitiveness relative to industry competitors will play a key role in the volume and distribution of new business. But regardless of carrier decisions, it’s always prudent to analyze and quantify the potential impact of deviations.

Obviously, the future of Plan G is secure—or as secure as the entire Medicare Supplement market can be. I will close with commentary on the issue of the future of Plan F. Yes, Plan F will be restricted after 2019, but the potential market, while declining over time, won’t just disappear right away. Yes, it is likely that future Plan F sales will be to older individuals, but overall perhaps they will be healthier as a result of underwriting requirements. And yes, over time Plan F will become an older block and headed toward becoming effectively closed. However, keep in mind that older doesn’t necessarily mean less profitable, if age rating and past performance of pre-standardized plans are any indication.

iMACRA impacts Plans C and D in the same way but, for purposes of this blog, we limit reference to Plans F and G.
ii“Relative” to the underlying claims slope.

How will MACRA affect the Medicare Supplement market?

Clark_L_KennethWhat does recently passed legislation referred to as MACRA (Medicare Access and CHIP Reauthorization Act of 2015 ) mean for the Medicare Supplement industry? While the impact on Medicare Supplement doesn’t occur until 2020, individual carriers are in a position now to plan a course to proactively mitigate risks or exploit opportunities.

The Medicare Supplement market will split into two distinct markets
There will be those that are newly eligible for Medicare in 2020 and later (NE group) who don’t have access to Plans C/F and the non-newly eligible (NNE group) that will still have access to Plans C/F. Why is this important? While the NNE group will shrink over time, it will still comprise a significant segment of the market in the early 2020s.

Overall loss ratio experience should be better for a few years following MACRA implementation
How is this possible? Consider that for new business sold in the early 2020s, the NNE group that purchases Plans C/F will no longer consist of 65-year-olds who qualify for open enrollment without medical underwriting. Plan C/F morbidity will improve while Plan D/G morbidity will increase. For as long as Plans C/F make up a significant volume (and keep in mind this is older individuals at the higher rate levels), the overall loss ratio levels should be lower, all else being equal.

In spite of more favorable experience, however, retention dollars are expected to be lower for all years following MACRA implementation
While overall loss ratio experience may improve, the amount of retention dollars (premium less claims) will be lower, given an increased exposure to lower benefit Plan D/G coverage that doesn’t include the Part B deductible. The overall impact through 2025 is likely to be in the billions of dollars.

To learn more about how MACRA will impact the Medicare Supplement market, read my article “Will the Medicare Supplement market have “2020” vision in the world of MACRA?

Supplementing insurer’s Medicare product portfolio

Some carriers can benefit from offering Medicare Supplement (MedSupp) as an alternative to Medicare Advantage (MA). In this article, Milliman consultants Ken Clark and Scott Bentley discuss the following four reasons why carriers should consider adding MedSupp to their Medicare product line:

• Enrollment of seniors who otherwise won’t enroll in MA
• Enrollment of seniors in service areas where developing an MA provider network isn’t practical
• A potential hedge against a decrease in the value of MA products for consumers
• Simplicity and flexibility for the health plan

A change is coming to Medicare Supplement

The Medicare Access and CHIP Reauthorization Act of 2015 will affect Medicare Supplement coverage by calendar year 2020. It will specifically exclude the Part B deductible. The new legislation will have interesting ramifications for Medicare Supplement carriers to evaluate, considering Plan F will no longer be an option for individuals newly eligible for Medicare. In this paper, Milliman’s Ken Clark provides considerations and approaches that carriers should take when pricing Plan G under this new environment. He also discusses how typical rating practices today align with actual benefit relationships.