2012 Health Meeting June 13-15, 2012

Transcription

1 2012 Health Meeting June 13-15, 2012 Session #87 PD: Unpaid Claim Reserving 401: Emerging Issues in Medical Reserves and Liabilities John C. Lloyd, FSA, MAAA William T. O'Brien, FSA, MAAA, FCA Moderator Donna L. Kalin, FSA, MAAA Primary Competency Technical Skills & Analytical Problem Solving

2 5/30/2012 Unpaid Claims Reserves 401 Emerging Issues in Medical Reserves and Liabilities Society of Actuaries 2012 Health Meeting June 15, Better Prepare for What the Future Might Hold Topics: Market Churn Impact of Product and Insured Risk Impact on trend projections inherent in health reserving System Changes Impact of 5010 and ICD10 Impact on Reserving Data Regulation Addressing Valuation Issues Big Question -What if ACA is not Severable? Clarence Thomas usually talks only to me and his wife The Cat is Out of the Bag (Did you ever try to put a cat back in a bag?) New scrutiny and oversight pressure on rate increases and regulatory approvals New delivery Consumer Engagement and Purchasing Patterns New pressures MLR impact on cost of distribution New forms of risk-takers ACOs, Private Exchanges, COOPs New regulation ICD10, pre-existing conditions, rate banding and other cats ACA or Not Change in risk mix and regulation will have reserve impact 2 1

3 5/30/2012 Implications Requiring Valuation Planning Churn in Members and Products New products with no historical run rate basis for valuation Recoveries, COB, Claim Processing Changes in Trends and Over-rides PMPM Trend Lines demographics and risk profile how long before we know Seasonality Altered?? New cost of care provider mix, care management, regulation Rate Review, MLR, and Rebates Process for accruing for Rebates Potential for PDR Surplus and Margin Management Liabilities due to more Provider Risk-taking / Gain-share ACA 3-Rs Reinsurance Plan under ACA Risk Adjustment Plan under ACA Impact of Risk Corridors under ACA 3 Morbidity and Volume Churn Exchanges, Medicaid Private Coverage Through Exchange Private Coverage Out of Exchange Current Source of Coverage Employer Individual with Subsidy Individual No Subsidy Employer Individual Medicaid and CHIP (excl duals) Medicare, TRICARE & Other Uninsured Employer Workers and Dependents 154,436 6,750 8,626 3, , , Non-Group 14, , ,114 6, Employer Retired 3, , TRICARE 6, ,142 0 Medicare 33, ,195 0 Medicare DE 6, ,811 0 Medicaid & SCHIP 41, , , Uninsured 49,191 2,362 7,555 2,212 7, , ,470 Total 309,494 10,092 20,118 6, ,302 6,724 54,671 46,148 19,677 Employer and Medicare coverage relatively untouched Exchanges pick up Non-group and Uninsured Medicaid grows substantially from uninsured shift 4 2

4 5/30/2012 Impact of Market Churn Gross Impacts to Operations Member Interface Product Choices Retroactive Reporting Eligibility, COB, EOB HBE Interoperable Subsidy Accounting Gain-Share Contracting Analytics Provider Contracting Specialty Configuration Network Development Provider Outcomes Alignment Actuarial Services Pricing Trend Analytics Benchmarks Margin / Surplus MLR / Rebates Rate Review Member / Product Movement Metallic Products HBE Alternatives Actuarial Value Compliance Sales & Engagement Product Strategy Quality Content Risk Profiles Network Profile Process Capacity Speed to Change Clinical & Compliance Quality Reporting Care & Demand P4P and P4Q Technology & Bandwidth IT Expansions MLR Ops Efficiency 5 Reserve Estimates & Market Churn Typical Claims Liability Approach Reserves 101 Lags based on historical payment patterns for a block of business Lags or entire estimate adjusted for Operations and Inventory PMPM Over-rides = lag-based fully incurred times trend line PMPM tweaked for Seasonality, Recoveries, & Large Claims Anticipated Impacts Current and Future Economic downturn loss of members, accounts, or cost-shifting ACA Churn change in size and constituency of blocks of business Churning action of the various cats in various bags with or without ACA Valuation Implications Over-rides: trend line and/or seasonality historical morbidity current Cohort analysis or other methods for removing dislocation New members may use same coverage differently New entrants adjust for the mix? Blend? Lags: Payment patterns likely to be impacted by claims operations Speed of payment Inventory analysis and monitoring needed Large Claims historical pattern current COB and recoveries population changes and operations lag 6 3

5 5/30/2012 Revising Estimates under Market Churn Different trends due to risk mix in members or provider reimbursement Underlying risk-mix will change PMPM run rate expectation Can t just use traditional approach PMPM run rate as emerging Adjusted trend expectation proportionate blend of cohort historical May be carving out capitations back fill to get trend line Changes in provider reimbursement net cost different from allowed cost Risk adjustment ACA approach, predictive modeling, or at least demographic Blocks of business new or closed blocks that differ from past Exchange products - public / private enrollments shifting ACO, COOPs, Associations, or other sponsored plans Implications Start-up blocks use another block s completion and trend? Movement liabilities follow the members? Increased variability size of block, predictability as a base, evolution of block Reserve PAD / Margin Implications Less certainty in estimates - may require more margin Risk sharing lower risk --- but what about provider solvency? 7 Emerging Trends: ICD10 Code Changes Already seeing 5010 Implications Both Processing Speed and PMPM Cost ICD-10 is completely different coding approach Expanded Procedures Not just codes but coding in practice by providers Down-stream Impacts DRGs Other Provider Agreements and Modality Risk Adjustment Mechanism Software to detect claims patterns, Fraud and Abuse, Med Management & Profiling Software S U R G DRG Changes: MDC 6 M E D 8 4

6 5/30/2012 ICD10 Code Change: Impacts Trend Analytics Historical Market-basket Altered PMPM Cost Coding Broad Run Rate Dislocation Provider Reimbursement Up-coding and Trend Impact? DRGs and Reimbursement Methods Network Negotiated Outcomes Pricing & Rate Adjustment Benchmark Cost Data Provider Cost Trends Explanations to Regulators Medicare, Medicaid, Commercial Changes from ICD-9 to ICD-10 Datasets Risk Adjustment Predictive Model Logic Risk-Adjusted Revenue CMS Medicare Logic ACA Adjustment Scheme Underwriting Account Experience Reporting Rate Increase Projections Forecasts Budgets Claims Liability Estimation Processing and Throughput Rates Trend Dislocation on Over-rides 9 Future Issues: Reserves under ACA Premium Deficiency Questions HHS and DOI intensified review of rate increases rate adequacy & timing? HHS excessive increases may be less that trend? Skeptical audience at best Result: MLR targets versus Rates Approved may generate PDR Even greater impact under ACA Risk Corridors Directly Impacts Revenue Reserves and Liabilities Must hold MLR rebate estimates right now ACA Provisions (3-Rs) Net cost under Reinsurance Provisions Transfer amounts under Risk Adjustment --- Revenue Focus Project results for the market --- Risk Corridor Contract reserves - durational impact on individual medical changes Contracts were priced and reserved on a different morbidity slope May need to modify existing lapse assumptions Interesting question about 3:1 age limitations after 2014 Not much clarity -- HHS will announce more about Risk Adjustment in October, with Reinsurance and Risk Corridors after that.? 10 5

7 5/30/2012 Rules of the Road Sources of Guidance Actuarial Standards of Practice ASOP 5 Incurred Health and Disability Claims ASOP 7, Analysis of Life, Health, or Property/Casualty Insurer Cash Flows ASOP 18 Long-Term Care Insurance ASOP 22 Statements of Opinion Based on Asset Adequacy Analysis by Actuaries for Life or Health Insurers ASOP 23 Data Quality ASOP 28 Statements of Actuarial Opinion Regarding Health Insurance Liabilities and Assets ASOP 42 Determining Health and Disability Liabilities Other Than Liabilities for Incurred Claims Updated and new guidance is under review on ASOPs Actuarial Compliance Guideline ACG#4 Statutory Statements of Opinion Not Including an Asset Adequacy Analysis by Appointed Actuaries for Life or Health Insurers Qualification Standards Life and Health Valuation Law Manual Health Practice Council Practice Notes AICPA FASB FAS 60 FAS 120 Statutory Statements of Accounting Principle (SSAP) 11 6

8 Reserves 401: Emerging Issues Presented to SOA Health Meeting June 15, 2012 Presented by Bill O Brien, FSA, MAAA Consulting Actuary Milliman Houston, TX (713) Agenda Today we will focus on impacts to reserving from: 1. Provider Risk Sharing / ACOs 2. Changing Benefit Plan Designs 3. Current Trends Review findings of New Study by HCCI 2 1 [Enter presentation title in footer] Copyright 2007

9 Provider Risk Sharing / ACOs Provider Risk Settlements: Reserve implications Accrual for expected savings payment PAD/Margin needs not like medical claims If claims higher than target: Receivable from Provider Group Likelihood of recovery Cut off claims payments / refer to Provider Group Part D settlements, updates 3 Provider Risk Sharing / ACOs IBNR must consider Provider Solvency and Contingency Plans One method to Minimize Reserve issues: Separate In-network/OON Expected Claims In-Network: Pay Capitated provider for expected In-network claims Paid into provider owned, separate account Withhold expected IBNR amount IBNR amount held as Insurer asset, offset by liability Provider IBNR: Claims completion likely different pattern Large claim accruals may span in- and out-of-network Insurer acts as claims processor for Provider Group Out of Network: Insurer pays directly to OON providers. Insurer holds IBNR 4 2 [Enter presentation title in footer] Copyright 2007

10 Provider Risk Sharing / ACOs Capitated Arrangements Medicare % of Premium Restatement of premium revenue due to retro-settlements: Part D: Coverage Gap, Risk Corridor, Reinsurance, LICS Part C & D: Member Risk adjustment updates Determination of % to use Cross subsidies between Part C & Part D Contract needs specific definitions Approved Loss Ratio doesn t work Possible reserve needs for expected impacts Division of Financial Responsibility (DOFR) Generally takes a while for agreement on specific codes (e.g. Hospital based Radiologists) Can you trust claims data is complete? 5 Provider Risk Sharing / ACOs Membership Assignment/Attribution impacts Plurality of services has different meanings Calculate reserves separately for ACO, or combine with Commercial? If combined, PMPM membership base is an issue Out of Network claims PMPM = OON Claims / Membership What is the membership? How are trends calculated? What if there s disproportionate growth in/out of ACO? 6 3 [Enter presentation title in footer] Copyright 2007

11 Changing Plan Designs Increase in HSA/HRA Enrollment Can these plans still be lumped in with Commercial? Are completion factors, seasonality materially different? Higher Deductibles Changes slope of seasonality curve Increases end of year benefit rush Higher Per Service cost sharing Impacting utilization levels for IP, OP especially Decreases leveraged trends for Copay services Preventive Benefits with no cost sharing Redefining how office visit copays apply to physicals Lower net costs for some diagnostic/lab services Lower Pharmacy coverage 7 Changing Plan Designs With Reform: Reduction in average coverage level Current average plan Actuarial Equivalent of 83-84% Silver will be the benchmark plan, at 70% AV Low Income subsidies Based on income, AV for Silver plan must be increased First step to meet AV requirements is to lower out-of-pocket maximums Difficult variable to model in reserving, trends analyses Changes seasonality patterns Degrades value of any deductible 8 4 [Enter presentation title in footer] Copyright 2007

12 Current Trends HCCI Study, released May /2009 Trends 9 HCCI Study New Research Database with claims from Aetna, Humana, Kaiser, United, created Sept Billion claims, over 33 million individuals, from % of under-65, employer-sponsored insurance enrollees Based on carrier paid claims, including cost-sharing Includes effect of benefit changes over time 2010/2009: Total 3.3% increase in per capita costs 10 5 [Enter presentation title in footer] Copyright 2007

13 HCCI Study: Trend Largest cost driver = Unit Cost (intensity adjusted price) Utilization decreases of 3% + for IP, OP Intensity decrease of 2.3% for Lab/Radiology (OP Services) Total OP (ER/Surg) cost increase of > 10% 11 HCCI Study Other Findings Employee Total Costs rising faster than health care costs Cost increases by service category: Trend by Responsible Party Beneficiary Insurer Total Inpatient 7.0% 1.3% 1.6% Outpatient 10.6% 4.7% 5.5% Professional 8.0% 1.0% 2.3% Prescription Drugs 3.0% 4.3% 4.0% All Services 7.1% 2.6% 3.3% Out of pocket costs for some services increased greatly Per admission: 10.7% Per OP Visit: 10.7% Per professional procedure: 8.3% 12 6 [Enter presentation title in footer] Copyright 2007

14 HCCI Study Children s costs increased faster than adults Is the cost slope by age changing? Does diabetes or obesity play a role? Overall, Lower Trends for 2010, with one exception Inpatient MH/SA: Admits/Thousand: 5.0% Length of stay: 5.1% Cost per Admit: 8.6% See Table A.2 for historical breakdown of trend component, by service type 13 Historic trends are great and all, but how does this impact reserve setting now? How effectively did your reserve methods pick up these changes in underlying trend components? How long is the lag? What does this imply about margins, process? Would Time Series reserve methods track more closely? Will your method work as well in times of accelerating trends? What will happen in 2014? What about Q4 2013? 14 7 [Enter presentation title in footer] Copyright 2007

15 HCCI Study Future Studies Effects of Aging (Dale Yamamoto, Fall 2012) As individuals age, to what extent are health care costs, by service category, driven by greater consumption of higher cost services? Effects of Economic Downturn on Individual Insurance costs (Northwestern Univ.) Are remaining members higher cost than those dropping? How changes in the risk pool affect the average cost per enrollee How much of insurance rate increases are explained Determinants and Variation in Hospital Pricing Do more expensive hospitals provide better care? Contribution of rising prices to rising hospital spending Influence of market structure on hospital prices Do hospitals cost-shift? 15 QUESTIONS AND DISCUSSION 16 8 [Enter presentation title in footer] Copyright 2007