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.