Merged Market Analyses Gorman Actuarial, LLC 1 08/23/2011

Table of Contents  Market Segments  Premium Setting  What does it mean to merge markets?  Market Comparisons  Merged Market Scenarios  Enrollment Projections  Merged Market Results  Conclusions  All analysis shown was done prior to PL90 Gorman Actuarial, LLC 2 08/23/2011

Market Segments  Insurance carriers define market segments to assist them with managing their business  Sales & Marketing  Enrollment & Billing  Products & Premiums  Federal and State government define market segments to assist with regulation  Maine Individual Market – People who purchase insurance on their own which will include sole proprietors; Rating is regulated  Maine Small Group Market – Employer groups that have up to 50 employees; Rating is regulated  Maine Large Group Market – Employer groups that have more than 50 employees; Rating is not regulated  Large Group (51 to 100) Gorman Actuarial, LLC 3 08/23/2011

Premium Setting 08/23/2011Gorman Actuarial, LLC 4  Due to current Maine regulations, insurers set premiums separately for each market segment  Premiums are developed by analyzing data  Demographics  Health Status  Use of Medical Services  Individual Market  Guaranteed Issue states, where health underwriting not allowed, average premiums are generally higher and the population generally is older and tend to use more medical services than other markets  States where health underwriting is allowed, average premiums are generally lower and the population is typically younger and healthier than other markets- however the premiums for the older and less healthy in these markets may be extremely high

What does it mean to merge markets? Gorman Actuarial, LLC 5  Premiums are based on the combined populations of the merged markets  If market segments are not homogenous  One market segment subsidize the other  Premiums increase for one segment  The healthier and younger segment  This segment provides the subsidy  Premiums decrease for the other segment  The sicker and older segment  This segment will receive the subsidy  One set of regulations will apply to the merged market – this will also cause disruption 08/23/2011

Maine Market Comparison Gorman Actuarial, LLC 6 08/23/2011

Maine Market Comparison Gorman Actuarial, LLC 7 08/23/2011

Market Comparison Gorman Actuarial, LLC 8 08/23/2011

Merged Market Scenarios Gorman Actuarial, LLC 9 Individual MarketSmall Group Market Merged Market 1 Small Group Market Large Group 51 to 100 Market Merged Market 2  Results will change based on when the merging occurs  After CY 2014, markets will look different due to premium tax subsidies, Individual Market will be larger  Federal Health Reform allows states to merge these markets, it is not mandatory  Federal Health Reform requires this merging to take place in CY 2016  States have the option to merge prior to CY /23/2011

Maine Enrollment Current & Projected Gorman Actuarial, LLC 10  Membership projections modeled by Dr. Gruber  Modeling done prior to the passing of PL90  Individual Market grows considerably due to Federal Health Reform (FHR):  Individual Mandate and Premium Tax Subsidies  Uninsured drop by 60K  Small Group Market shrinks a little  Groups drop coverage due to premium increases due to FHR; may be exacerbated by PL90  Large Group 51 to assumed flat growth 08/23/2011

Maine Individual + Small Group Merged Markets Gorman Actuarial, LLC 11  Premium change due to merging Individual & Small Group Markets  Individual Market premiums decrease:9% to 15%  Small Group Market premiums increase:7% to 12%  Results independent of medical trends  Modeling does not reflect PL90 08/23/2011 * Note that the modeling does not reflect the federal transition reinsurance program

Maine Small Group + Large Group (51 to 100) 08/23/2011Gorman Actuarial, LLC 12  Premium change due to merging Small Group Market & Large Group (51 to 100)  Small Group Market premiums decrease up to 1%  Large Group (51 to 100) Market premiums increase up to 5%  Results independent of medical trends  Modeling does not reflect PL90 * Note that the modeling does not reflect the federal transition reinsurance program

Large Group (51 to 100) Market Gorman Actuarial, LLC 13  In CY 2016, Large Group (51-100) Market will be merged with Small Group Market  Large Group Rating Formula will move from partial experience rating to community rating  There will be “winners and losers” from this change  Groups that tend to be lower utilizers of medical care may experience premium increases  Groups that tend to be higher utilizers of medical may experience premium decreases  Difficult to model – every carrier’s rating formula in this market is different 08/23/2011

Conclusions Gorman Actuarial, LLC 14  Due to Federal Health Reform Uninsured drop by 60,000 and Individual Market grows  Merging Individual Market with Small Group:  Individual Market: Premiums decrease 9% to 15%  Small Group Market: Premiums increase 7% to 12%  Small Groups may drop coverage or move to self insured  Merging Small Group with Large Group (51 to 100)  Small Group Market premiums decrease up to 1%  Large Group (51 to 100) Market premiums increase up to 5%  While premiums changes are minimal on average, the Large Group (51 to 100) Market will experience premiums disruptions due to rating formula changes 08/23/2011