1. 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

2. 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.

3. 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.

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

5. 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

6. 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

7. 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

8. 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)?

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

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

18. 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?

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

20. Q & A

21. Thank you!