Ben Rayburn F.S.A., M.A.A.A Actuary State Issues and ACA Ben Rayburn F.S.A., M.A.A.A Actuary August 10, 2012 Ben.Rayburn@Milliman.com

Caveats Milliman has prepared this presentation for the specific purpose of providing discussion points for consideration related to state issues regarding the Patient Protection and Affordability Act (ACA). This presentation should not be used for any other purpose. This report has been prepared solely for the use of, and is only to be relied upon by, attendees of the Gulf States Chapter - AICP – 2012 Education Day. No portion of this report may be provided to any other party without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work.

Caveats (continued) We have relied upon the accuracy and completeness of various publicly available information. While we reviewed the data for reasonableness and consistency, we performed no verification or audit as to its accuracy. In the event the underlying data is inaccurate or incomplete, the results of our analysis may likewise be inaccurate or incomplete.

Table of Contents Introduction Exchanges Essential Benefits Actuarial Value Rate Review Other Implications and Considerations Resources Questions

Introduction The Patient Protection and Affordability Act (ACA) introduces new and significant changes to the way health insurance operates in all states ACOs and CO-OPs State Exchanges States are given responsibility in the Act for carrying out the implementation of many of these key changes States will be given flexibility in some cases, and strict guidelines in others

Introduction (continued) Some rules have been in effect for some time Dependent age limit of 26 Removal of lifetime and annual maximums Removal of Pre-existing limitations Final guidance and rules on many issues are yet to be released However, in many cases states must make key decisions this year This presentation focuses on some of the key changes introduced by PPACA, and the implications of these changes to the future role of states and carriers

Exchanges ACA orders the establishment of health insurance exchanges in each state Among some of the key state functions that states are expected to perform are: Certification of Quality Health Plans (QHPs) Standardized comparison of health plans Plan ratings (similar to Medicare Advantage star ratings) Standard information on benefits Screen and enroll members into the exchange, Medicaid, or CHIP Determine eligibility for tax credits and cost sharing reductions Provide open enrollment periods Provide electronic calculator to determine cost of coverage

Exchanges (continued) States can choose to either establish their own exchange, or defer the establishment of the exchange to the Department of Health and Human Services (HHS) There can be significant implications to this decision States that choose to establish their own exchange will face key decisions: Should carrier participation be voluntary or mandatory? Should the purchasing role of the state be: passive (all carriers and plans allowed)? selective (state picks who participates)? active (state sets the bar higher than the PPACA standards for participation)?

Exchanges (continued) HHS will decide the exchange features in cases where states defer the establishment of their exchange to HHS The implications to the state and carriers operating in that state can be significant Carriers will need to model the implications to their business under either scenario States have until November 16, 2012 to submit an exchange “blueprint” to HHS HHS approval of a state to run its own exchange will be granted by January 2013 HHS will provide grants through January 2015 to states for the planning and establishment of their exchanges States must be self-sufficient after that

Essential Benefits ACA defines ten benefits that must be covered by all plans operating in the exchanges Among the required benefits are: Emergency services Hospitalizations Maternity and newborn care Prescription drugs Pediatric services, including oral and vision care Coverage must be as good as that provided under a benchmark plan Each state must select a benchmark plan for EB purposes

Essential Benefits (continued) Four possible benchmarks in 2014 and 2015 Small group plan with the highest enrollment in the state Any of the three largest state employee plans by enrollment Any of the three largest FEHB plans by enrollment Largest insured commercial non-Medicaid HMO plan in the state HHS sets a default benchmark for states that don’t make a decision: Carriers will need to determine the impact on their rates under each possible benchmark

Actuarial Value Relative value of Essential Benefits coverage for a standard population Four Medal Tiers Platinum (90%+) Gold (80% - 89%) Silver (70% - 79%) Bronze (60% - 69%) HHS will provide the definition of “standard population” for calculation of the Actuarial Value (AV) To address area cost differences, HHS will publish three cost levels nationwide, and assign each state to one of these levels

Actuarial Value (continued) All carriers must use the same prescribed population in the calculation of the AV States can either modify the national prescribed datasets or come up with their own dataset A state’s decision to either use the nationally prescribed data or come up with its own will have an impact on carriers operating in that state

Risk Pools (continued) Merging the individual and risk pools can have significant implications Plan costs – Potentially lower for Individual business and higher for small group. This is due to the higher than average morbidity normally found in the Individual risk pools Enrollment – Potential enrollment drops in Small Group, and gains in Individual. Higher benefit costs may cause some groups to become self insured or to drop coverage, as they will face no penalties for doing so Market stability – Initial instability could be expected due to changes in premiums, benefits, etc

Rate Review Carriers must report rate increases at or above a threshold defined by HHS Standards apply to individual and small group carriers (grandfathered plans are exempted) Preliminary justification for the rate increases violating the threshold must be submitted and reviewed by the state or CMS Detailed documentation of the increases is only required if CMS will be reviewing the rate increases Applies to states that don’t meet CMS’ criteria to review rate increases

Rate Review (continued) States that conduct rate reviews will be required to enter their findings and review determination into the Health Insurance Oversight System (HIOS) The available rate review determinations are Unreasonable rate increase Unreasonable rate increase (modified) Unreasonable rate increase (rejected by the state) Not unreasonable Not unreasonable (modified) Withdrawn prior to determination Carriers are required to submit a final justification for rate increases deemed unreasonable, if the carrier still plans to implement the increases

Other Implications Due to ACA Impact on Ancillary Lines of Business Summary of Benefits and Coverage (SBC) Prescribed template Administrative burden

Considerations Regarding ACA What actuarial value calculator will be used, and how will it compare to the real world? What are the administrative burdens of dealing with Exchanges? What are the values of additional business in the Exchange vs. additional admin costs? Can Exchanges be self-sufficient after federal funding ends? Profiles of six state Exchange efforts show a great deal of progress and variety, but what hurdles do they still face? What are the current subsidies (i.e., underwriting tier, age / gender, area, size, etc.)? How are they expected to change? How will the Medicaid expansion (or non-expansion) impact the individual market?

Available Resources Government Websites CMS.gov HHS.gov Healthcare.gov NAIC.org Non-Government Websites KFF.org Milliman.com

Q & A

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