Thank you, The Rate Review System Team

Transcription

1 Rate Review Record: Issuer Name/State: Time Insurance Company WYOMING Market Type: Individual Policy Form ID(s): TIM14.POL.WY Filing Tracking Number: ASPC Submission Tracking Number: The review of the above submission has been marked complete on Nov 10, The determinations of the review for each product rate increase in the submission are as follows: Consumer Justification Narrative Title: 2015 Time Insurance Company Individual Medical Rate Change Product(s): 2014 EHB IM PLAN Status: Unreasonable Reviewer Comments: The Center for Consumer Information and Insurance Oversight reviewed this proposed rate increase and finds it to be Unreasonable. The issuer requested the following average increase(s) for product number 29941MO023 of percent In the HHS rate review program, a rate increase may be excessive if - It would result in a medical loss ratio (an MLR) that is below the Federal standard of 80 percent, - Any of the assumptions on which the increase is based is not supported by substantial evidence, or - The choice of assumptions or combination of assumptions on which the rate increase is based is unreasonable. The issuer did not provide adequate support and substantial evidence for some of the assumptions on which the increase is based, so this increase is determined to be Unreasonable. This rate increase was not determined to be excessive because the projected rate increase resulted in an MLR that satisfies the applicable Federal standard of 80 percent. The projected 2015 plan year medical loss ratio after the proposed rate increases is 80.0 percent, but the support provided was not adequate or substantial enough to fully support this percentage. In the event your submission contains product rate increases that have been deemed Unreasonable or Unreasonable (Modified), Unreasonable Rate Increase Comments must be submitted. Unreasonable Rate Increase comments must be submitted for each relevant rate increase via the Rate Review System 10 days in receipt of this . If you have any questions regarding this notification, please contact the Exchange Operation Support Center at CMS_FEPS@cms.hhs.gov or CMS Thank you, The Rate Review System Team

2 Assurant Health and its underwriting entity, Time Insurance Company, are committed to providing affordable health care coverage to meet the unique needs of individuals and families. We have a deep understanding of the affordability crisis within the healthcare marketplace and understand the challenge individuals and families have in paying premiums for their coverage. We understand that as a medical insurer we have a role in controlling costs. During the last several years we have reduced our administration and commission expenses significantly. Fundamentally, the vast majority of our rate increases reflect the cost of medical care that we fund on behalf of our policyholders. The following response helps to inform customers and other stakeholders about the company s position. 1) How Assurant Health sets rates: Assurant Health is committed to setting premium rates at a level that allows us to continue to serve the needs of our customers. Our premium rates are based on appropriate actuarial practices, backed by decades of experience and expertise in the individual market. In addition, we worked with independent actuarial consultants to validate our pricing methodology. We maintain our recent rate filings are actuarially justified and appropriate, and that they will enable Assurant Health to meet the medical loss ratio (MLR) requirements under health care reform. 2) Assumption support: We provided substantial support for the assumptions on which the 2015 rate increase is based. In addition, our Wyoming rate filing was reviewed by an independent actuarial consultant, which found our assumptions supporting such rates to be reasonable. Plans effective on or after January 1, 2014 are guaranteed issue, which means all applicants must be issued coverage regardless of health status; this continues to impact the morbidity of the single risk pool in We provided detailed support, including consultant data, outlining the development of our morbidity assumption, which adjusts for the impact of the guaranteed issue environment. Our medical trend assumption is supported by historical data and is based on the historical average claims trend of our customers. Assurant Health uses medical trend data that factors in both the rising cost of health care and the utilization of medical services and prescription drugs by our customers in determining premium rates.

3 Part II Written Explanation of the Rate Increase This is a Time Insurance Company rate filing for our existing individual medical products. These are non-grandfathered Individual Major Medical products which cover the Essential Health Benefits (EHB) as required under the Affordable Care Act (ACA). The development of the rates for these plans is detailed in the Part III Actuarial Memorandum premium and claims experience for these products is not yet complete. The requested average rate increase is 57%. The range of rate increase is 45% - 60%, not including attained age. There are 2,778 covered individuals who will be impacted by this rate increase in Wyoming. The rate increase will be effective January 1, The rate increase was developed based on the pricing methodology prescribed by the ACA. This rate increase is needed because allowed medical trend is assumed to continue at an annual rate of 9.5%. This includes increases in both the price and utilization of medical services. In addition, there are new fees associated with the ACA which contributed to the rate increase. The increase is also caused by a decrease in reinsurance recoveries provided by the ACA reinsurance program. The guarantee issue environment also results in increased costs as there continues to be migration from other market segments. The loss ratio is the ratio of incurred claims to earned premium. In Wyoming, the target loss ratio is 76.0%, which equates to the 80% Medical Loss Ratio under the ACA after allowable adjustments. The main drivers of our administrative expenses are employee salaries and benefits, agent commissions, and premium taxes, licenses and fees. We are working to lower our administrative expenses.

4 ACTUARIAL MEMORANDUM and CERTIFICATION for TIME INSURANCE COMPANY in Wyoming on Form TIM14.POL.WY The purpose of this annual rate filing is to set the index rate and any other applicable adjustments to the index rate for January 1 st, 2015, as set forth in the Affordable Care Act (ACA) requirements, and to demonstrate the reasonableness of benefits in relationship to premiums. This rate filing is not intended for other purposes. Assurant Health is the marketing name of the legal entities Time Insurance Company and John Alden Life Insurance Company. Assurant Health will administer, issue, and insure this block. These legal entities offer identical products with the same rates, administrative systems, and processes. 1. General Information: a. Insurance Company Name Time Insurance Company b. State Wyoming c. HIOS Issuer ID d. Market Individual Major Medical e. Effective Dates January 1, 2015 December 31, 2015 f. Primary Contact Name Robert Anderson g. Primary Contact Phone # h. Primary Contact Address Robert.Anderson1@Assurant.com i. General Policy Description: This rate filing is for non-grandfathered individual major medical plans which cover the Essential Health Benefits (EHB) as required under the Affordable Care Act (ACA). These plans are guaranteed issue and guaranteed renewable as defined under the ACA and HIPAA. Plans are marketed through general agencies, brokers, wholesale arrangements, and direct-to-consumer. In 2015, Assurant Health will only sell plans outside of the public health exchanges in this state. Coverage beyond age 65 will be secondary to Medicare. Premiums are on an attained age basis and will increase with age. Premiums also vary by plan design, tobacco status and geographic area. In 2015, only the oldest three dependents under age 21 will be charged a premium rate for a given policy. 2. Proposed Rate Increase: The proposed average rate increase for this state is 57%. This increase excludes attained age increases. The rate increase does vary by plan. These adjustments are described in further detail in section 14 of this memorandum. Appendix A shows the development of base rates for this product. The remaining sections of the memorandum detail the assumptions we used to develop rates.

5 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 2 Reasons for Rate Increase: The following list is a brief description of the significant factors driving the proposed rate change. More detailed descriptions of these factors are included later in this memorandum. 1.) Medical Trend: Our medical trend accounts for the effects on future claims due to inflation, advancing medical technology and techniques, and increased utilization and cost shifting. 2.) Additional Fees: The health insurer fee assessment is moving from $8 billion to $11.3 billion in 2015 which results in a lower target loss ratio. 3.) Average Morbidity: There will continue to be changes in the projected risk pool due mainly to, but not limited to, the following factors: a.) Continued group and Medicaid migration b.) Continued uninsured migration c.) Current IM consumers forgoing coverage 4.) Paid to owed Ratio: The difference between our projected paid to allowed ratio in our experience versus that of the 2014 actuarial value calculator results in an increase to our price. 5.) Reinsurance: The initial ACA reinsurance program for 2014 was to reimburse carriers 80% of claim costs between $60,000 and $250,000. In 2015, the reimbursement will change to 50% of claim costs between $70,000 and $250,000. However, per recent guidance, HHS has suggested that the parameter is going to be lowered again in 2015 from $70,000 to $45,000, which we have taken into account. The rate increases vary by product primarily due to benefit leveraging differences by metal level and differences in PPO network factors. These adjustments are warranted as they result in actuarially appropriate rates that reflect the true cost differences between the plans. Please note that our rating methodology differs from that outlined in the Unified Rate Review Template. Rather, the Unified Rate Review Template represents information required by Federal Regulation to facilitate review. The following sections note any differences between the Unified Rate Review Template and the pricing methodology we used to develop rates. Please refer to Appendix A for our rate development methodology. 3. Experience Period Premium and Claims We prepared the Unified Rate Review Template using state and legal entity specific nongrandfathered experience in order to comply with Department of Health and Human Services (HHS) requirements. For the purpose of estimating the average risk of the 2015 market, grandfathered and non-grandfathered experience of Time Insurance Company and John Alden Life Insurance Company was reviewed together. This combined experience was used in order to develop an actuarially appropriate prediction of the market wide per member per month risk and standardized claim cost in The same experience basis is used for both the pricing methodology and the development of factors that will address the impact of our risk relative to

6 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 3 the market and the impact this has on premium rates. This process is described in more detail below. Experience Period: The experience period is claims incurred and premium earned from January 1, 2013 through December 31, Paid Through Date: The date through which payments have been made on claims incurred during the experience period is February 28, Premiums (Net of MLR Rebate) in Experience Period: In the Unified Rate Review Template, the earned premium prior to Medical Loss Ratio (MLR) rebates for the Calendar Year 2013 experience period was $5,119,682. Earned premium was not adjusted for any reductions prescribed when calculating the MLR, such as taxes and assessments. The MLR rebates for the experience period are estimated at $369,017. The financial actuarial team at Assurant Health estimates accrued premium refunds required under Federal Minimum Loss Ratio regulations for the Individual Medical and Group Medical insurance business. The team projects incurred claims, earned premiums, and other elements and applies adjustments as outlined in Federal laws and regulations. These projections are performed on a state and market level basis and recent claims experience is adjusted for estimated claims reserves on a state level basis. owed and Incurred Claims During the Experience Period: In the Unified Rate Review Template, the amount of incurred claims processed through our claim system for the experience period 2013 is $2,120,301. The best estimate of experience period claims incurred but not reported is $88,226. In order to account for claims incurred but not reported, allowed claims were completed using a completion factor. The amount of allowed claims processed through our claim system for the experience period 2013 is $4,078,124. The best estimate of experience period allowed claims incurred but not paid as of the paid through date shown above is $230,733. owed claims are developed by subtracting ineligible charges and discounts from the total provider billed amount. Assurant Health has no capitation agreements. The per member per month experience period allowed claims in our pricing methodology is based upon all Individual Medical experience within the state for Assurant Health. The methodology is demonstrated in Appendix A. Experience for limited benefit plans was not included. Furthermore, an adjustment was made in order to pool large claims across our block. Claims in excess of $50,000 for a specific member and incurred month were removed from the experience, and then a nationwide average pooling charge was applied per member. pricing components, including the base experience period data, are applied consistently across the single risk pool in the state and market for Our financial actuarial team develops lag triangles for nationwide Individual Medical experience. These triangles are ly developed for Medical and Prescription Drug Card coverage. Specific large claims that are part of our case management program are removed from the Medical triangles and reserved for ly. Historical averages are used in order to calculate monthly completion factors for the remaining claims.

7 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 4 4. Benefit Categories Inpatient services are those received during a patient s hospital stay and are included in the Inpatient Hospital Category. Outpatient services (e.g. lab tests, X-rays, and some surgical services) are those rendered by a facility within an outpatient setting. Professional services include primary care, specialist, therapy and other professional charges that are not included in facility fees. Other Medical services include charges for items that do not fall into the categories above, such as ambulance and durable medical equipment. The Other category is measured based upon distinct services or items provided. Retail and mail order pharmacy claims are included in the Prescription Drug category. 5. Projection Factors Changes in the Morbidity of the Insured Population: There are two adjustments that we are using to get to an estimate of the 2015 market risk. The first is an adjustment to get Assurant specific pre-reform risk to the market average. The second is to get the average pre-reform market risk to the expected 2015 average market risk. Both are explained in further detail below. Assurant Health to Market Average: To establish this estimate, Assurant Health participated in the Wakely National Risk Adjustment Simulation Project (WNRASP). In this project the Wakely Consulting Group quantified risk using the HCC-HHS model that Health and Human Services (HHS) developed for implementation in Wakely conducted risk simulations in individual and small group markets only when 75%+ of the state wide membership was represented. Health plans covering these members used claim experience to determine plan liability risk scores consistent with the HCC-HHS methodology. Health plan specific liability risk scores along with allowable rating factors are compared to the scores of all market participants consistent with the methodology set forth in the Risk Adjustment Program. Wakely was not able to gain enough health plan participation in the Wyoming IM market. We therefore utilized the nationwide results of the risk simulation along with state by state risk estimates developed using the Truven Analytics MarketScan 2011 database and the "Cost of the Future Newly Insured under the Affordable Care Act (ACA)" study prepared by Optum Health and commissioned by the Society of Actuaries. Our estimate of Assurant Health's Wyoming IM risk relative to the Wyoming IM market was developed using the following process. First, we used the HCC-HHS model to develop risk scores for Assurant Health (AH) and MarketScan members in Wyoming. We then derived the relative risk of the large group market and the IM market in Wyoming using the Optum Study. Using the estimate of AH to MarketScan and MarketScan to the Wyoming IM market allows us to develop the AH relative to the Wyoming IM market risk assumption. The estimate of the market risk was then adjusted to approximate a risk score when the market includes both grandfathered and non-grandfathered experience. Since we use both grandfathered and non-grandfathered experience we feel it is appropriate that the market is on this same basis. In 2012 the Wakely National Risk Adjustment Simulation Project (WNRASP) used both grandfathered and nongrandfathered data while in 2013 only non-grandfathered data was used. To calculate an

8 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 5 adjustment to account for including grandfathered experience we used the 2013 market to 2012 market risk score. The final state result is adjusted to the extent that base period data was less than 100% credible, in order to be on a consistent basis with the index rate for the state. The final result for use in our pricing methodology was a 0.79 risk score. This indicates that AH business practices (for example distribution methods and underwriting) and member selection patterns have created a book of experience with 21% lower costs. Our pricing was adjusted by a factor of 1.0/0.79 to represent the average actuarial risk, as shown in Appendix A. This multiplicative adjustment is consistently applied across all plans within the state. Pre-reform Market to Post Reform Market: The ACA incentivizes various subpopulations of Wyoming to migrate into or out of the ACA IM market, altering the average risk of the insured population. Key drivers of this migration include, but are not limited to: 1.) The availability of subsidies, which will incentivize lower risk, formerly uninsured persons to enter the ACA IM market 2.) The guaranteed-issue environment, which will incentivize members of the uninsured population with pre-existing conditions to enter the ACA IM market 3.) Employees losing group coverage, which in general will result in an increase in morbidity as the group market is less healthy than the pre-reform IM market Our final estimate is that the morbidity of the 2015 insured population in Wyoming will increase by 35% over the morbidity of the pre-aca insured population. A number of sources were used to calculate this morbidity factor. Figures published by the Department of Health & Human Services in Summary Enrollment Report for the Initial Annual Open Enrollment Period were accepted as the definitive count of exchange applications through the end of March. We used data provided by the Wakely Consulting Group in connection with their National Risk Adjustment Reporting Project (NRAP) to determine off-exchange enrollment through the end of March, the volume of early-adopters both on- and off -exchange, and the number of insured on non-compliant plans scheduled to roll to a compliant plan by the end of Morbidity data furnished by the Society of Actuaries in their Cost of the Future Newly Insured under the Affordable Care Act (ACA) was used to compare the morbidity of the migrating population to the morbidity of the pre-aca insured population. Other industry studies were used to validate the reasonableness of our results. In addition to the expected change in the average risk of the insured population, we anticipate that there will be an increase in utilization relative to our experience period due to the pent up demand as newly insured enrollees continue to sign up for coverage. When consumers are uninsured or underinsured, they may opt to delay healthcare services. Historically, approximately 30% of our sales have been to customers who did not previously have health insurance. These previously uninsured customers have claim experience that is significantly worse than those with prior coverage. This experience discrepancy is most pronounced in the first 6 months of coverage, when the experience relativity between these two cohorts is up to 20% higher than the ultimate relativity. We expect that the mandate to purchase insurance may

9 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 6 temper the pent up demand of the newly insured entering the market in Therefore, the 2015 utilization on newly insured individuals will not have as large of a spike as our historical experience. Our assumption is that an additional 10% of our block will be newly insured individuals, with 10% higher than typical utilization in the first 6 months of coverage. This leads to an adjustment of 0.5% within our pricing and claim projection. Changes in Benefits: There is an adjustment of 8.3% within our pricing and claim projection to include new and expanded benefits in accordance with the EHB requirements of the ACA. The table below lists the estimated additional cost associated with each new benefit. The Pediatric Dental expense was estimated using commercial group experience for 2011 and 2012 from our sister segment, Assurant Employee Benefits. The remaining estimates are based upon purchased data of experience of a standard population. Benefit Estimated Additional Cost Maternity 3.1% Mental Health and Substance Abuse 1.2% Pediatric Vision 0.4% Chiropractic 0.4% Bariatric Surgery 0.1% Infertility 1.2% Private Duty Nursing 0.3% Pediatric Dental 1.6% GRAND TOTAL 8.3% We also made an adjustment to account for the coverage of additional preventative items that will be paid first dollar due to updates by the USPSTF. We believe the impact of covering these additional first dollar benefits is 1.0%. This estimate was determined by evaluating the volume of these items in our historical experience. The additional first dollar preventative benefits are: 1.) Alcohol Misuse 2.) Breast Cancer Risk 3.) Hepatitis C Screening 4.) HIV Screening 5.) Tobacco Use Prevention in Children and Adolescents In addition, it is expected that the average actuarial value of our block will increase from approximately 60% to approximately 68.6% after the change to standardized Bronze, Silver, Gold and Platinum metallic plans. Furthermore, approximately 30% of business within our experience data is on a plan that has an actuarial value of 55% or less. We expect that richer benefits in 2015 will induce demand for healthcare services that is higher than the average utilization within our base experience. We assume that future Silver plans will have utilization that is 3% higher than our average current experience, Gold will be 8% higher, and Platinum will be 15% higher. Based upon our expected 2015 split of plans by metal level, we have adjusted our experience period claims by 2.7% in order to account for this benefit level driven increase in utilization. The projected 2015 membership was used to determine both the average actuarial

10 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 7 value and utilization impact. The membership methodology is described in more detail below. Other Adjustments: We made an adjustment of 0.8% within our pricing and claim projection in order to account for expected changes in Preferred Provider Organization (PPO) discounts in 2015 relative to the 2013 experience period. Our expected PPO discounts are developed by using a combination of experience and reported data from the networks that we lease. Trend Factors (cost/utilization): The effects on future claims of inflation, advancing medical technology and techniques, and increased utilization and cost shifting are accounted for by an annual secular trend assumption of 9.5%. This is an allowed claims trend factor. This trend was developed from historical experience of our nationwide block. Our historical experience shows slightly higher trend but we are lowering it to 9.5% as we anticipate trend will be lower than our historical experience due to a more standard risk population going forward. Please see Appendix B for further detail. Experience was trended for 24 months, from the mid-point of 2013 to the mid-point of Age Shift: The expected age shift between 2013 and 2015 is included in the index rate development. Please see Appendix A for details. Geographic Shift: The expected geographic shift between 2013 and 2015 is included in the index rate development. Please see Section 15 b. and Appendix A for details. 6. Credibility Manual Rate Development The manual rate reflects the Assurant Health Individual Medical 2013 nationwide allowed claims per member per month (pmpm). This allowed pmpm value has been adjusted to address the following needs: 1. Adjust the nationwide claims to reflect the Assurant Health distribution by age and tobacco use in Wyoming. 2. Remove the impact of claims experience from Wyoming (to avoid double counting this experience in the rate development). 3. Adjust to reflect the specific utilization and charge level patterns of Wyoming. External data, in conjunction with claims experience from 2012, is used to determine the Wyoming to nationwide expected cost relativity. In order to determine this relativity for 2012, regression analysis is used holding age, gender, and smoking status constant. If 2012 experience in Wyoming is not fully credible, the state relative cost factor is blended with a state relative cost factor developed using Truven Analytics MarketScan 2011 database. Controlling for age and gender, regression analysis on the Truven database produced the state to nationwide allowed cost relativity. The 2011 and Truven blended relativity factor is referred to as the manual state factor. A regression based on nationwide 2013 allowed claims experience was used to smooth allowed claim levels by age, gender, and smoking status. From this regression, predicted allowed claims were calculated at each age and smoking status combination. These allowed pmpm claim levels

11 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 8 are applied to the Wyoming distribution of membership by age, gender, and smoking status and summed. In addition, an adjustment is applied to remove the influence Wyoming claims have on the nationwide average claims. The manual state factor is multiplied by adjusted 2013 national claim levels as described in the previous paragraph to calculate the manual pmpm allowed claims in the state. The manual rate is blended with the base period rate as described in the credibility section below. The manual rate was adjusted to the 2015 pricing period using the projection factors listed in the section above. 7. Credibility of Experience To develop our full credibility standard, we conducted a study to establish confidence levels at cohort sizes. In this study, we randomly sampled cohorts from our internal block of members. We analyzed 100,000 randomly sampled cohorts at each size to establish the variance associated with a cohort of that size. The required cohort size to be considered fully credible was set at the point where we were 95% confident that claims would fall within 4% of our target. This results in a fully credible standard of 82,000 member months for experience that has had claims in excess of $50,000 per member per month level pooled across the block, as used within our pricing methodology. The Unified Rate Review Template utilizes unpooled claims. Therefore, based upon the same 95% confidence, the standard for full credibility on the Unified Rate Template is 562,000 member months. Partial credibility is assigned to the experience period data based upon the classical credibility formula listed below: Square Root ( (Experience Data Member Months) / (Full Credibility Standard) ) Based upon the above credibility methodology, our Wyoming pooled experience as used within pricing is 72% credible. The unpooled base experience as used in the Unified Rate Review Template is 0% credible. The state specific experience was removed from the development of the manual rate in order to avoid any double counting of the base period experience. Given that we do not have credible EHB claim data yet, we feel it is appropriate to include grandfathered experience within our pricing data in order to develop the most predictive estimate of the average morbidity of the 2015 market. In addition, please note that our other pricing assumptions were developed on a consistent basis. For example, we developed our change in market risk assumption relative to the total IM current market, not relative to the non-grandfathered current market. Since the URRT requires unpooled nongrandfathered data, our pricing approach was incompatible with the standard use of the URRT. Therefore, we assigned 0% credibility to the unpooled-nongrandfathered data which is required in the URRT in order to give full credibility to the credibility manual which matches our pricing.

12 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 9 8. Paid to owed Ratio Our projected Paid to owed Ratio is 68.6%. In our 2014 pricing development, the Actuarial Value (AV) calculator provided by HHS produced values that were very close to our historical paid to allowed ratios on an aggregate basis. Therefore, we determined it was reasonable to use the HHS AV calculator to develop estimates of the paid to allowed ratio of our 2014 insured population. However, our 2013 paid to allowed ratio was slightly higher than the value produced AV calculator, which is reasonable given that underlying data in the AV calculator was not updated from the prior year. Therefore, we are accounting for this difference by including a benefit leveraging factor in the pricing values of our plans. This factor will vary by metal level due to the differing leveraging effects by cost sharing level. Bronze plans will have a higher leveraging effect due to higher cost sharing and conversely, Platinum plans will have a lower leveraging effect due to lower cost sharing. To determine the leveraging factors, we used a claim probability distribution from the 2012 Milliman Health Cost Guidelines to model the leveraging effect on our metal plans. The final assumptions are as follows: Metal Level Leveraging Catastrophic Bronze Silver Gold Platinum The approximate average leveraging using the factors above is 3%, which is lower than our historical benefit leveraging of 4%. We believe this decrease is appropriate given the large proportion of our historical book that had AV s less than 55%. To develop the projected Paid to owed Ratio, we used our membership projection to determine the distribution of plans by metal level in We then applied the leveraging factors by metal level to the actuarial value s and averaged them to get a total projected paid to allowed ratio. The methodology of our membership projection is described in more detail below. 9. Risk Adjustment and Reinsurance Risk Adjustment: In 2014, the ACA established a Risk Adjustment Program that will allow issuers to set premiums according to the average actuarial risk in the individual and small group market without respect to the type of risk selection the issuer would otherwise expect. The ACA establishes a standard quantification of risk with the HCC-HHS risk scoring model. Until we gain further knowledge on the total Wyoming market risk, we are continuing to price to the market average risk of 1.0. Therefore, no market wide adjustment for the risk adjustment program was applied when determining the market adjusted index rate.

13 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 10 Reinsurance Recoveries: In 2015, the ACA has a Reinsurance Program that will reimburse carriers 50% of claim costs between $70,000 and $250,000 per member. However, per recent guidance, HHS has suggested that the parameter is going to be lowered again in 2015 from $70,000 to $45,000. We are taking this change into account which results in a negative 13% adjustment to our expected claim costs within our pricing in order to account for expected reinsurance recoveries. This projected reinsurance adjustment is applied to the index rate to develop the market adjusted index rate in accordance with Part III instructions. Our reinsurance recovery assumption was developed using Truven Health MarketScan Research Databases, which is representative of a standard population and with coverage similar to the ACA EHB package. The exposure and claim data was limited to members that had complete data and were on a non-capitated basis. In addition, the claim data for each member was trended to 2015 and a utilization adjustment was made to scale claims to the appropriate cost sharing level. The reinsurance formula was applied by member, and the result was divided by total paid claims on the same adjusted basis. This process was done to estimate a reinsurance recovery factor for each plan metal level. The final composite factor above was developed based upon our expected mix of Bronze, Silver, Gold and Platinum business. The reinsurance recovery estimated in 2014 was 16% for Wyoming. Therefore, this results in an estimated rate impact of 3.6% over the prior year. Reinsurance Contributions: The Reinsurance Program is funded by a fee of $3.67 per member per month. We have increased our expected claim costs within our pricing development by 0.8% in order to cover this fee. In order to maintain compliance with the required relativity of prices by age, we have applied the adjustment on a multiplicative basis. Our adjustment factor was developed by dividing $3.67 by the expected total per member per month claim costs in the state. 10. Non-Benefit Expenses and Profit & Risk The table below lists the expected Non-Benefit Expenses and Target Profit for Assurant Health in Wyoming. The pricing load to cover these expenses is applied consistently across products and plans, as displayed in the work-up of the plan adjusted index rate. These items are discussed in detail in the following paragraphs. Expense Category % of Premium General and Administrative 12.0% Commissions and Sales Bonus 5.0% Managed Care and Cost Containment 2.5% Quality Improvement 0.9% Net Investment Income -2.5% Taxes, Fees and State Assessments 1.1% ACA Health Insurer Fee 1.7% Federal Income Taxes 2.0% Profit and Risk Margin (After Tax) 1.3% Total 24.0%

14 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 11 Our priced for loss ratio is 76.0% in Wyoming, which is approximately an 80% Medical Loss Ratio as defined by the ACA. The calculation of the Medical Loss Ratio is shown in the Projected Loss Ratio section. The final priced for Total Non-Benefit Expenses and Profit is 24.0%. In addition, please note that expenses for each functional area within the company are recorded at a nationwide level. Expense assumptions for a state and product are allocated and represented on a percent of premium basis. This percent of premium representation of expenses is consistent with our actual to expected loss ratio pricing methodology. Administrative Expense Loads: General and Administrative Expenses: This category accounts for the expenses of administering the business, such as claim payment expenses. The assumption was derived from actual expenses in 2013 relative to actual revenue. In developing this expense assumption, underwriting expenses were adjusted due to the reduction of staff within the underwriting functional area that occurred in response to the 2014 market rules. Commissions and Sales Bonus: This is a variable expense that represents the cost of acquiring business. Our commission schedules and bonus campaigns will be set to 5.0% of premium. Managed Care and Cost Containment Expenses: This is a variable expense that accounts for expenses incurred in order to reduce claims costs, such as access fees paid to the Preferred Provider Organization Networks that are leased on behalf of our customers. This expense assumption was derived from actual expenses in 2013 relative to actual revenue. Quality Improvement Expenses: This category accounts for expenses incurred in order to improve the quality of healthcare. Quality Improvement Expenses are added to claim payments in the Medical Loss Ratio Calculation. This expense assumption was derived from actual expenses in 2013 relative to actual revenue and adjusted to account for additional QI expenses expected in Net Investment Income: This category accounts for investment income earned on reserves and surplus. This assumption was derived from our actual current net investment income ratio. Profit & Risk Margin: Our targeted after tax margin for risk and profit is 3% of premium. The pricing load for this 3% after tax margin is applied consistently across products. In 2015, we are expecting a 1.3% after tax margin. Taxes and Fees: Health Insurer Fee: $8 billion will be collected nationally for this fee in 2014 and $11.3 billion in The fee is based on our share of the total market premium. It is estimated that this fee will be 1.7% of premium. Furthermore, this fee is not deductible from federal income taxes. State Premium Taxes and Assessments: This is estimated at approximately 1.1% of premium based upon 2013 experience. An adjustment was made to historical experience in order to reduce any Comprehensive Health Association assessments. In addition, an adjustment of approximately 0.05% has also been made to account for the $2 per member per year PCORI fee. The minimal impact of the $0.08 per member per month Risk Adjustment Program

15 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 12 administration fee has been removed from this section and is included in the projected risk adjustment per the Part III Actuarial Memo and Certification Instructions. Income Taxes: Federal Income Taxes are expected to be 2% of premium, calculated as ((3.4% + 1.7%) X 40%), where 3.4% is the pre-tax profit margin, 1.7% is the non-deductible ACA health insurer fee cost and 40% is an approximation of the federal income tax rate for Assurant Health. Please note that our effective federal income tax rate is expected to be greater than the standard 35% due to the non-deductibility of certain internal and external individual compensation. This non-deductible compensation is primarily incurred within non-health insurance lines of business from our parent company, Assurant, Inc. Exchange User Fees: Assurant will only issue business off the exchange in this state in Therefore, no exchange user fee has been applied to the rates. 11. Projected Loss Ratio The projected future loss ratio for the period of 1/1/2015 through 12/31/2015 is 76.0%. Our premium rate was developed by dividing projected incurred claims by the priced for loss ratio. Our priced for loss ratio is 76.0% in Wyoming. However, at the request of HHS, we removed our 0.4% load to cover the cost of not charging premium for child dependents beyond three. With this adjustment, our projected loss ratio is 76.3%, which is approximately an 80% Medical Loss Ratio as defined by the Affordable Care Act. A calculation of the projected Medical Loss Ratio (MLR) is shown below: MLR = (Claims + Quality Improvement Expense) / (Premium Taxes and Fees) = ( A + B) / (C D E F) = (76.3% + 0.9%) / (100% - 1.1% - 1.7% - 1%) = 80% Where: A is Incurred Claims, net of Reinsurance and Risk Adjustment Transfers B is Expenses for Improvement in the Quality of Healthcare C is premium D is state premium taxes and other assessments and fees E is the Health Insurer Fee F is Federal Income Taxes (excluding taxes on profit due to Investment Income) 12. Single Risk Pool and Index Rate The single risk pool reflects all covered lives for every non-grandfathered product/plan combination for this state and market. The Index Rate is the estimated total allowed claims per member per month for all nongrandfathered plans for all essential health benefits within the state. This figure does not include adjustments for Reinsurance, Risk Adjustment transfers, or exchange user fees. There

16 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 13 are no material covered benefits in excess of the Essential Health Benefits. Please see Appendix A for detail on the projected 2015 Index Rate calculation. Also, please see the Market Adjusted Index Rate and Plan Adjusted Index Rate Explanation Sections below for details on how rates are calculated relative to the Index Rate. The experience used to develop the projected index rate includes the experience of transitional plans. 13. Market Adjusted Index Rate The Market Adjusted Index Rate is calculated as the Index Rate adjusted for all allowable market-wide modifiers defined in the market rating rules, 45 CFR Part 156, (d)(1). These adjustments include: Federal reinsurance program Risk adjustment Exchange user fee Please see section 9 of this memo for a description of the reinsurance and risk adjustment. Please see section 10 of this memo for a description of the exchange user fee adjustment. The calculation of the Market Adjusted Index Rate can be found in Appendix A. 14. Plan Adjusted Index Rate The Plan Adjusted Index Rate is calculated as the Market Adjusted Index Rate adjusted for all allowable plan level modifiers defined in the market rating rules, 45 CFR Part 156, (d)(2). These adjustments are described below. The calculation of the Plan Adjusted Index Rate can be found in the attached rate exhibits. Actuarial Value and Cost Sharing: o Actuarial Value Please see section 17 of this memo for a description on how the actuarial values were calculated. o Paid to owed Leveraging Factor Please see section 8 of this memo for a description on how the paid to allowed leveraging factor was calculated. o Utilization We expect that richer benefits in 2015 will induce utilization for healthcare services that is higher than the average utilization within our base experience. We assume that future Silver plans will have utilization that is 3% higher than our average current experience, Gold will be 8% higher, and Platinum will be 15% higher. These factors are the prescribed HHS induced utilization factors used in the HHS risk adjustment calculations. The Platinum 1 plan will also have an additional 10% factor applied, which is explained in further detail in Section 18 below. o Non-tobacco User Adjustment The non-tobacco user factor is used to put the market adjusted index rate on a non-tobacco basis. This factor is consistent across all plans. The tobacco calibration factor is the reciprocal of the following calculation:

17 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page Calibration (Non tobacco Member Months + Tobacco Member Months * Tobacco Load) Total Member Months Provider Network PPO factors were developed using internal company discount experience in conjunction with reported discounts from the network. The factors reflect the difference from the average discount in the state. Catastrophic Plan Adjustment - For the catastrophic plan, we continue to assume the population will almost entirely consist of consumers under age 30, thus, the younger consumers on this plan will not need to subsidize older consumers. Therefore, to develop our Catastrophic Plan adjustment factor, we have estimated and removed the impact to the year old price that was specifically due to the change from our current age slope to the new state specified 3:1 age slope. We believe that the hardship exemption will have little to no effect on the catastrophic population so we have not made an adjustment for it. Administrative Costs The administrative cost factor is the reciprocal of our projected loss ratio. Please see section 11 for a description on how our projected loss ratio was calculated. The administrative cost factor is constant across all plans. a. Age Curve Calibration The age curve calibration is used to adjust Plan Adjusted Index Rate to a 21 year old. The age curve calibration is calculated as: 1 / Average Age Rating Factor Weighted by Age Membership Split The average age rating factor is the standard age curve weighted by our membership distribution in the state. The age curve calibration is applied uniformly to all plans and is demonstrated in Appendix A. During the filing review process, the expected age shift between 2013 and 2015 was incorporated in the index rate development. b. Geographic Factor Calibration The rating area factors used in our 2014 pricing were used in the development of factors for To calibrate, we first used 2013 membership and balanced the overall state area factor to a 1.0 to get the area factors on the basis of our 2013 pricing experience period. Secondly, we used the projected 2015 membership by rating area and reweighted the area factors again to determine the projected state average. The resulting state average factor in this state was This market wide calibration factor is then applied after the determination of the plan adjusted index rates and the individual area factors are divided by it to calibrate the market average back to a 1.0.

18 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 15 The table below shows the resulting weighted average geographic factor of for the state along with relativity factors for each rating area within the state and their corresponding projected member distributions. Rating Area 2015 IM Member Distribution 2015 Weighted IM Area Factors % % % 0.99 Total 100% During the filing review process, this geographic shift between 2013 and 2015 was incorporated in the index rate development. The geographic calibration is now Consumer Adjusted Premium Rate The Consumer Adjusted Premium Rate is the final premium rate for a plan that is charged to an individual or family. The Consumer Adjusted Premium Rate is developed by calibrating the Plan Adjusted Index Rate to the age curve and geography then applying the rating factors specified by 45 CFR Part 147, These rating factors are described below. The rating factors can be found in the attached rate exhibit file. Area Factors See above for an explanation of the development of the area factors. The Area factor is constant across all plans and is balanced to equal 1.0 in total for the state, as described above. Age Factors The age curve used to set the age factors is the standard age curve set by HHS. The age factors are set relative to the projected average age used in the age curve calibration above. Tobacco Status - A regression based on nationwide 2012 and 2013 experience was used to calculate a composite smoker factor of The non-tobacco user factor is AV Metal Values The HHS Actuarial Value Calculator (AVC) was used to generate the AV values and metal values for the majority of the plans in our portfolio. There are a select number of Assurant Health plans that use an acceptable alternative methodology to generate AVs. The methodology used to develop these plans AVs is detailed below. Please note that these are the same adjustments that were used in our prior filing, which we feel is appropriate given that the AVC has not been updated. 1. Specialty High-Cost Drugs Applicable Plans: Bronze 4, Bronze 5

19 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 16 Specialty Drugs for Assurant Health plans with a Rx deductible/coinsurance will go towards the medical deductible/coinsurance. The HHS AVC does not allow for the user to specify that specialty drugs should go to the medical deductible and coinsurance when inputting a plan design with a drug deductible. The following is a table detailing the average cost and scripts from the Bronze Rx continuance table in the HHS AVC: Rx Category Avg Cost per EE Avg Scripts % of Total Scripts Generics $ % Preferred Brand $ % Non-Preferred Brand $ % Specialty High-Cost $ % Total $ % Since the frequency of specialty high-cost drugs is very low compared to the other drug categories, I am certifying that the impact of the specialty high-cost drugs being subject to medical deductible/coinsurance instead of drug deductible/coinsurance will be insignificant to the AV. 2. Rx Brand Deductible Accumulation Applicable Plans: Bronze 4, Bronze 5 Based on the documentation in the HHS AVC, services that have both deductibles and copays will be valued as though the copay is paid first, with the remainder going towards the deductible. However, for our plans with a drug deductible, the copays will only apply after the deductible is reached. To account for this, we have determined the equivalent coinsurance rate for the brand drugs and used that in place of the brand copays. Plan Brand Copay (pref/non-pref) AV w/ no Rx Ded Equivalent Coins Bronze 4 $50/$ % 61%/61% Bronze 5 $50/$ % 61%/61% 3. Office Visit Limits Applicable Plans: Bronze 2, Silver 2, Silver 4 Office visit copay limits for Assurant Health plans will apply to primary care and specialty care office visits in total. The HHS calculator only allows for the user to apply copay limits to primary care visits. The average frequencies for office visits from the bronze and silver copay limits are detailed below:

20 Actuarial Memorandum Wyoming Form TIM14.POL.WY Page 17 Avg Frequency - PCP Avg Frequency - SP Total PCP % of Total Bronze Combined Table % Silver Combined Table % Assumed PCP % of Total 60% Using the assumption that 60% of office visits are primary care, the table below details the number of visits that would be primary care vs. specialty for a 4 total visit limit and a 10 total visit limit. Visit Limit PCP % PCP Visits SP Visits 4 60% % 6 4 Therefore, for a plan with a 4 copay limit, a 2 copay limit was inputted for primary care, and likewise for a 10 visit limit, a 6 copay limit was inputted. The value calculated below for the Bronze 2 plan was subtracted from the HHS AV to account for the visit limits on specialty care. For the silver plans, moving from an unlimited PCP copay to a 4 copay limit has a negligible effect on the AV. Therefore, I am certifying that the AV impact of a specialist copay limit on the Silver 2 and Silver 4 plans will be insignificant. Bronze 2 AV No Copay (a) 59.0% AV Unlimited $35 PCP Copay (b) 61.3% AV 2 Visit $35 Copay (c) 60.2% Impact of No copay to unlimited (d = b-a) 2.3% Impact of No copay to X visit limit (e = c-a) 1.2% Net Impact (f = (d-e)/d) 48% AV Unlimited $35 SP Copay (g) 60.5% Est. AV Impact of 2 Visit SP Limit (h = -(g-a)*f) -0.7% 4. $500 First Dollar D/X/L Benefit Applicable Plans: Silver 3, Silver 4 Plan AV Impact Bronze 2-0.7% Silver 2 0.0% Silver 4 0.0% Assurant Health will have two silver plans that have a $500 first dollar Lab and X-Ray benefit. In order to evaluate the actuarial value of this benefit, a new continuance table had to be created since the HHS AVC cannot calculate the impact of first dollar benefits.