ACA Risk Mitigation Programs (3Rs) Update Kevin M. Dyke, FCAS, MAAA Chief Actuary 30 th Annual MAHP Summer Conference July 17,

Your Presenter 2

And let’s not forget our other speaker 3

When we last met in July 2013… Issuers wishing to participate in either the Individual or SHOP Marketplace in 2014 filed their rates by May 31, DIFS was in the midst of its review. All non-grandfathered policies were expected to be converted to fully compliant ACA policies in There were no “transitional” or “extended transitional” policies. – Affected rate adequacy for 2014 due to these policies being excluded from the single risk pool. 4

When we last met in July 2013… The risk corridors program, as designed, was to be paid for through budget appropriations, not revenue neutral. – As a revenue neutral program, it creates additional risk of underpricing. Self-insured groups not administered by a TPA were required to pay into the Reinsurance program in 2014 but not in 2015 and

Level Setting – 3Rs Claims Paid by Issuer R einsurance Recoverable (-) R isk Adjustment Recoverable (-) or Payable (+) R isk Corridor Recoverable (-) or Payable (+) Net Paid Claims Temporary ( ) Individual market only Covers a % of losses within a layer up to $250,000 Funded by contributions from all markets Permanent Transfers funds from plans with lower risk enrollees to plans with higher risk enrollees Revenue neutral (payments = receipts) Temporary ( ) QHPs only Relief for high loss ratios, after providing for reinsurance and risk adjustment. Now revenue neutral (originally a budgeted expense) 6

Recall that the 3Rs are NOT… R eading, W R iting, A R ithmetic R educe, R euse, R ecycle R epeal, R etool, R eplace (Obamacare) 7

Reinsurance Program Update: Improved Terms, but Too Late for Rates Coverage Year As Proposed Prior to Coverage Year Modified During Coverage Year Finalized Following Coverage Year % of layer between $60,000 and $250,000 80% of layer between $45,000 and $250, % of layer between $45,000 and $250, % of layer between $70,000 and $250,000 50% of layer between $45,000 and $250,000 TBD % of layer between $90,000 and $250,000 TBD 8

Reinsurance Program Update Reinsurance contributions not required for 2015 and 2016 from self-insured entities not managed by a third party administrator Reinsurance contributions by year (per member per month) – 2014: $5.25 – 2015: $3.67 – 2016: $2.25 9

Risk Adjustment Program Update 2014 model maintained for 2015 year Model recalibrated for 2016 year – Factors adjusted to reflect enrollee health risk using claims data – Reflect relative costs of given disease to average spending – Uses multiple years of data 10

Risk Corridors Program Update Includes state-by-state adjustments to reflect expected impact of transitional policies not included in risk corridor data. (No adjustment for early renewals) Budget neutrality – 2015 Notice of Benefit and Payment Parameters changed program from an appropriation to a budget neutral item – Excess collections are carried forward – Deficits caused payments to be prorated downward, with deficit carried forward 11

Risk Corridors Program Update Deficit/surplus at end of 2016 – Surplus will result in changes to profit floor and administrative cost ceiling – Deficit will use “other sources” for funding, subject to appropriations Risk corridor payments for

2014 Report on Final Reinsurance and Risk Adjustment Transfer Payments Final reports issued June 30, 2015 Detailed reinsurance payments and risk adjustment transfer payments for the 2014 coverage year, by state, market, and issuer NAIC actuaries (including MI) requested CCIIO provide more detailed information showing premiums and covered lives associated with each payment. 13

Final 2014 Report: Reinsurance Coinsurance raised from 80% to 100%, with $1 billion carried over to National payments: $7.9 billion Michigan payments: $200.2 million Payments ranged from 0-30%* of premiums per issuer *Percentages represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 14

Final 2014 Report: Reinsurance Payments by Issuer Note: Amounts in millions. Percentage represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 15

Final 2014 Report: Risk Adjustment Risk adjustment transfers funds from plans with lower risk profiles to plans with higher risk profiles (i.e. health status) Transfers netted to $0 for Michigan for both individual and small group markets (whew!) 16

Final 2014 Report: Risk Adjustment Transfers by Issuer Note: Amounts in millions. Percentage represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 17

Final 2014 Report: Risk Adjustment Transfers by Issuer Note: Amounts in millions. Percentage represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 18

Final 2014 Report: Risk Adjustment Transfers by Issuer Note: Amounts in millions. Percentage represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 19

Final 2014 Report: Risk Adjustment Transfers by Issuer Note: Amounts in millions. Percentage represents DIFS estimated percent of premium using 2014 Supplemental Health Care Exhibit data. 20

Thank you! 21