Final 2016 Letter to Issuers in the Federally-facilitated Marketplaces 1. HHS Notice of Benefit and Payment Parameters for 2016; Final Rule 2

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1 WHITE PAPER Cnsideratins fr 2016 Health Insurance Rate Develpment, Rate Filing, and Rate Review Julia Lerche, FSA, MAAA, MSPH Ken Ehresmann, FSA, MAAA, MBA As the implementatin f the Affrdable Care Act (ACA) prgresses, cnsideratins fr rate develpment, filing and review cntinue t evlve. While uncertainty remains fr issuers n the impact f the ACA risk mitigatin prgrams n their 2014 financial results, many issuers will have significantly mre experience under the ACA refrms with which t develp 2016 rates than they previusly had. At the same time, a majr legal challenge (King v Burwell) intrduces new uncertainties. This paper utlines cnsideratins fr issuers and regulatrs with respect t 2016 individual and small grup health insurance. These cnsideratins draw frm multiple surces, including regulatins and guidance released t date. Key surces include: Final 2016 Letter t Issuers in the Federally-facilitated Marketplaces 1 HHS Ntice f Benefit and Payment Parameters fr 2016; Final Rule Qualified Health Plan (QHP) Templates and Instructins 3 Unified Rate Review Template (URRT) URRT instructins (which include instructins fr the actuarial memrandum) 3 Final 2016 Actuarial Value Calculatr wrkbk and descriptin f changes 4 This paper is a reflectin f ur understanding f the majr plan-design and rating requirements utlined in each f the surces abve and hw they fit tgether. Regulatins and guidance, and thus the infrmatin prvided in this paper, are subject t change. This paper des nt cver rating f grandfathered and grandmthered health insurance plans nr stand-alne dental plans, it is nt intended t be a cmplete list f changes fr 2016, and des nt cnstitute legal advice. This paper als presumes a basic understanding f the insurance prvisins in the ACA. 1 Guidance/Dwnlads/2016_Letter_t_Issuers_2_20_2015.pdf Methdlgy.pdf March 2015

2 Plan Changes The regulatins and guidance fr 2016 include several prvisins that will necessitate changes t sme f the plans ffered in Mst ntably, updates t the Actuarial Value Calculatr (AVC) will generally increase the Actuarial Value (AV) f plans, requiring issuers t increase cnsumer cst sharing fr sme plans in rder t stay within the de minimis range fr a given metal level. While prviding additinal cnsumer prtectins, new requirements fr cst sharing in family plans will impact plan rates. Plan changes made t remain cmpliant with the AV and ther regulatins fall int the categry f unifrm mdificatin under regulatins prmulgated in and wuld nt trigger the need t create new plans. Cvered Benefit and Cst Sharing Requirements The regulatins and guidance released t date identified several changes that may have an impact n 2016 plan designs and rates. Unless therwise nted, the fllwing requirements apply t market-wide single risk pl plans in the individual and small grup markets, including thse plans ffered nly ff the Marketplace. Actuarial Value Calculatr (AVC): Changes t the AVC fr 2016 culd significantly impact plan designs fr While n changes have been made t the enrllment distributin supprting the cntinuance tables, r the assumed utilizatin f services, HHS has applied tw years f trend (6.5% per annum) t the underlying unit csts in the cntinuance tables, t mre accurately reflect increasing healthcare csts. This generally results in higher calculated plan AVs. In sme cases, the change in the AVC increases plan AVs such they are n lnger within the de minimis range required fr the plan s metal level, requiring plan design changes (generally increases in cnsumer cst sharing) t remain cmpliant. These plan design changes may be mre drastic n the leaner metal plans plans as a result f deductible leveraging. Varius enhancements t the AVC have als been made based n user feedback. A majr mdificatin included in the 2016 AVC is the use f effective cinsurance instead f the general cinsurance rate. The 2014 and 2015 calculatrs relied n a user input fr the effective cinsurance used t calculate the pint at which the MOOP was assumed t have been met. The 2015 AVC uses the cst sharing features f the plan t calculate this amunt. This change will allw the calculatr t mre accurately and cnsistently reflect the estimated AV f a given plan. Flexibility in applying the plan s deductible and MOOP has been added. The user is nw able t enter mre cmplex plan designs regarding cmbined and separate deductibles and MOOPs. The ability t add cpays after the deductible is incrprated int the 2016 AVC. The impact f these changes will vary based n the cst-sharing features f the plan. Based n Wakely s experience, the changes t the AV calculatr fr 2016 have increased plan AVs by up t March 2015 Page 2 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

3 percentage pints althugh the majrity f AVs will have a significantly smaller impact, especially at the higher AV metal levels. Maximum ut-f-pcket limits fr standard plans: The 2016 Ntice f Benefit and Payment Parameters indicated that the maximum ut f pcket (MOOP) limits fr 2016 standard plans are increasing by rughly 3.8% t $6,850 fr self-nly cverage (up frm $6,600 in 2015) and $13,700 fr ther than self-nly cverage (up frm $13,200 in 2015) limits fr Health Savings Accunt (HSA) cmpatible High Deductible Health Plans (HDHPs) have nt been released at the time f this writing, hwever in 2015, these were $6,450 fr self-nly cverage and $12,900 fr family cverage. These limits are lwer than the ACA limits. Maximum ut-f-pcket limits fr cst-sharing reductin plans: There are n changes prpsed t the MOOPs fr the 87% and 94% AV cst-sharing reductin (CSR) plan variatins fr individuals with husehld incmes up t 200% FPL ($2,250 fr self-nly cverage and $4,500 fr ther than self-nly cverage), but the MOOP fr % FPL is prpsed t increase t $5,450 fr self-nly cverage (up frm $5,200 in 2015) and $10,900 fr ther than self-nly cverage (up frm $10,400 in 2015). Maximum ut-f-pcket limits fr ther than self-nly cverage: The 2016 Ntice f Benefit and Payment Parameters clarified that the annual limitatin n cst sharing fr self-nly cverage (prpsed t be $6,850 fr standard, nn-csr, plans in 2016) apply t each individual cvered under a plicy that cvers mre than ne individual. Thus a plicy with a family MOOP f $8,000 with n embedded per individual MOOP wuld n lnger be cmpliant with the regulatins, and wuld be required t include an embedded per individual MOOP f nt mre than $6,850. Wakely estimates that this change culd impact rates in sme plans by up t 7.2%. The impact will vary by the MOOP amunt (higher MOOP plans will experience the biggest impacts) and the distributin f self-nly versus family cntracts (the mre families, the higher the impact). Family cst sharing reprting in Plan and Benefits Template: T cnfirm cmpliance, the 2016 Plan and Benefits Template cllects mre detailed cst sharing features fr family plicies, including embedded per individual deductible and MOOP amunts. Applicatin t HSA-qualified HDHPs: Fr HSA-cmpatible HDHPs, issuers will als need t ensure that any embedded per individual MOOP is n less than the minimum family deductible required by the IRS (this is $2,600 fr 2015, 2016 amunts have nt yet been released). Drug cverage: The fllwing changes are being made t prescriptin drug cverage requirements: Expanded exceptin prcess: The 2016 Ntice f Benefit and Payment Parameters requires issuers t ntify enrllees f decisins related t standard requests fr cverage f a drug nt n the plan s frmulary within 72 hurs f the request. Issuers must als have a prcess fr independent review f denied exceptin requests. Drugs fr which cverage is granted thrugh March 2015 Page 3 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

4 the exceptin prcess are t be treated as Essential Health Benefits (EHB) and cst sharing must cunt twards the plan s in-netwrk MOOP. Frmulary drug list transparency: Issuers are required t maintain easily accessible, up-t-date, accurate and cmplete lists f all cvered drugs. The lists must be plan specific and available n the issuer s public website. Transitinal cverage fr new enrllees: Cnsistent with the 2015 Letter t Issuers, the 2016 Letter t Issuers CCIIO encurages issuers t temprarily cver nn-frmulary drugs as thugh they were frmulary drugs (including lifting prir authrizatin and step therapy requirements) during the first 30 days f cverage t mitigate treatment disruptins fr new enrllees. Definitin f habilitative services: Fr states with EHB benchmark plans that did nt include cverage habilitative services and the state did nt define habilitative services, a new HHS definitin will apply. HHS nw defines habilitative services t include cverage fr health care services and devices that help a persn keep, learn, r imprve skills and functining fr daily living. This is a change frm 2014 and 2015 requirements in which issuers in these states had the flexibility t define what was cvered in this EHB categry. The 2016 Ntice f Benefit and Payment Parameters als requires that any limits impsed n habilitative services be n less favrable than thse impsed n cverage f rehabilitative services. Cverage f pediatric services: Fr plan years beginning in 2016, pediatric services cvered under the Essential Health Benefits prvisin f the ACA, including ral and visin care, must be cvered until at least the end f the mnth in which the enrllee turns 19 years f age. Discriminatry design: HHS nted in the 2016 Ntice f Benefit and Payment Parameters that it has becme aware f benefit designs that they believe wuld discurage enrllment by individuals based n age r based n health cnditins, in effect making thse plan designs discriminatry. Fr example, a hearing aid benefit that nly applies t enrllees age 6 and yunger. Althugh n specific rules will be prvided, based n the 2016 Issuer Letter it is expected that issuers are nly t impse limitatins and exclusins based n clinical guidelines and medical evidence, and t use reasnable medical management. Plan premiums may be impacted t the extent that issuers must expand benefits as a result f these clarificatins. Small Grup Annual Maximum Limitatin: As a reminder, in the Prtecting Access t Medicare Act f 2014 passed last year, the annual maximum limitatin n deductibles fr plans in the small grup market was eliminated. This is nt a change frm Prvider Netwrk Requirements N changes are expected t the federal netwrk adequacy requirements fr 2016 QHPs. Similar t the prescriptin drug frmulary transparency requirements fr 2016, QHPs will als be required t maintain up-t-date, accurate and cmplete prvider directries fr each plan that are available n the issuers publicly accessible website. Issuers must update their prvider directries at least mnthly. March 2015 Page 4 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

5 Cnsideratins fr Rate Develpment The fllwing prvides sme cnsideratins fr 2016 rate develpment based n federal guidance prvided at the time f this writing. It is nt intended t be an exhaustive list. State specific guidance is nt reflected. Base perid experience: This will be the first year fr which many issuers have a full calendar year (2014) f claims experience that reflect the majr changes under the ACA. In cnsidering this experience, issuers and regulatrs will need t understand the distributin f enrllees based n when and hw lng members were enrlled in cverage. In a number f states, Marketplace enrllment grew rapidly after January 1 st, s many enrllees in the individual market were nt enrlled in cverage fr a full year. All else equal, enrllees with partial year enrllments will have lwer per member per mnth paid claims csts n average than enrllees with full-year enrllments, since the partial enrllees d nt have the full 12 mnths t accrue ut-f-pcket expenses t deductible and ut-f-pcket maximum amunts. Trend: When develping trend and cnsidering histrical experience, issuers will need t accunt fr changes t netwrks, gegraphic distributin f enrllees, demgraphic and mrbidity mix, cvered benefits and cst sharing. Reinsurance: Reinsurance recveries (applicable nly in the individual market) are expected t decrease as the 3-year prgram phases ut. The aggregate natinal reinsurance payments decrease frm $6 billin in 2015 t $4 billin in The 2016 prpsed reinsurance prgram parameters include a $90,000 attachment pint, 50% cinsurance and a $250,000 cap. The parameters published when issuers filed 2015 rates were a $70,000 attachment pint, 50% cinsurance, and a $250,000 cap. Hwever, the 2016 Prpsed Ntice f Benefit and Payment Parameters reduced the 2015 attachment pint t $45,000. A number f issuers used this lwer attachment pint in the develpment f their 2015 rates as HHS indicated their intent t make this change in May The 2016 parameters will cause a material change in the reinsurance estimates built int the 2016 rating in cmparisn with It is reasnable t expect that the impact t paid claims may be reduce by 50%. Fr example, if an issuer built a 9-11% reductin t claims in fr the reinsurance prgram fr 2015, the same issuer may nly expect 4-5% fr Risk Adjustment: Federally calculated risk transfer amunts fr 2014 will nt be available until June 30, 2015, after mst state rate filing deadlines. Fr purpses f rate develpment, sme issuers may utilize a private service, such as Wakely s Natinal Risk Adjustment Reprting prject 6 t estimate the impact f the risk adjustment prgram based n available enrllment and claims data within a state market. Regulatrs shuld cnsider requesting 2014 risk adjustment transfer amunts based n HHS calculatins in early July t ensure that 2016 rating assumptins are cnsistent, after any apprpriate adjustments, with 2014 risk adjustment results. Regulatrs might als want t cnsider allwing issuers t adjust their Market-Adjusted Index Rates t reflect any significant mdificatins that might result frm incrpratin f March 2015 Page 5 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

6 actual risk adjustment transfers. States utilizing the Federally-Facilitated Marketplace (FFM) system have until August 25, 2015 t finalize QHP rates. Mrbidity/demgraphics: Unlike past years, mst issuers will have experience fr the newly enrlled ppulatin resulting frm the majr cverage prvisins f the ACA. Enrllment and claims data can be analyzed t better estimate the impact f ppulatin changes n prjected claims cmpared t the infrmatin available fr 2014 and 2015 rating. Adjustments will need t be made t the experience perid t ensure prper reflectin f the expected risk in 2016, including but nt limited t: rapid expansin f membership in experience perid, delayed entry f membership due t the extended pen enrllment perid, increasing penalties fr nt having insurance and the impact f mvement int and ut f the risk pl due t Medicaid expansin, high risk pl clsings, r ther state specific prgrams. While there is general cnsensus that the remaining uninsured ppulatin wh may take-up insurance in 2016 is generally healthier than the ppulatin f previusly uninsured individuals wh have already entered the market, it is unclear hw additinal new entrants wuld impact the existing risk pl in the 2014 experience. Issuers in FFM states will als need t cnsider the ptential impact f the discntinuatin f federal subsidies in the individual market shuld the plaintiff prevail in King v. Burwell. Issuers will want t clearly state their assumptins regarding subsidies in their rate filings, as the utcme f the case culd have a significant impact n the adequacy f rates. Induced demand/utilizatin: As additinal data becme available fr ACA plans, issuers shuld cnsider updating their induced demand/utilizatin factrs. These factrs can be develped, fr example, by reviewing claims data by metal level, nrmalizing fr ppulatin health risk. Issuers perating n a Marketplace shuld als cnsider updating their induced demand/utilizatin adjustments t better reflect emerging experience and any differences between actual and expected take-up f cnsumers wh are eligible fr cst-sharing reductins. Regulatrs might cnsider requesting additinal justificatin and experience studies t supprt these factrs. Fees: The fllwing list includes expected changes in fees that need t be cnsidered in rating. FFM user fee: The FFM user fee must be applied by issuers cnsistently at the market level and included in the Market Adjusted Index Rate. Fr 2016, the prpsed FFM user fee is 3.5% f Marketplace premium, which is the same as fr 2014 and States perating their wn Marketplace define their wn fees r financing mechanisms and levels. Reinsurance fee: The annual reinsurance fee fr 2016 is $27.00 per enrllee per year, dwn frm $44.00 fr Risk adjustment user fee: The 2016 risk adjustment user fee is increasing t $1.75 per enrllee per year (the 2015 fee was $0.96 per enrllee per year). Issuer fee: The aggregate issuer fees fr 2016 will remain the same as it was in 2015, $11.3 billin. Plan level factrs: Plan level factrs are still expected t reflect prvider netwrk, utilizatin management, cvered benefits, cst sharing, distributin and administrative cst differences March 2015 Page 6 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

7 acrss plans. Plan level factrs shuld incrprate any required cst sharing changes made t plans, including changes made t cme int cmpliance with metal level requirements based n the 2016 AVC and implementatin f the embedded per individual MOOP fr family cverage, as applicable. In the URRT instructins, hwever, HHS has clarified that plan level adjustments t recup lst revenue related t the three dependent child cap fr family rate develpment and any catastrphic adjustment t nn-catastrphic plans are nt cnsistent with the rating regulatins. Gegraphic area factrs: Gegraphic rating factrs must be applied unifrmly t all plans fr each issuer within a market. The 2016 URRT instructins clarify that gegraphic factrs shuld reflect differences in the cst f delivery but may nt reflect differences in mrbidity by regin. Actuaries are required t certify such in the actuarial memrandum. Age factrs: N changes are expected fr State specific age curve variatins apply fr the District f Clumbia, Massachusetts, Minnesta, New Jersey and Utah. Tbacc factrs: The ACA limits tbacc rating factrs t a 1.5 t 1:0 rati. Sme states d nt allw tbacc rating at all (e.g., Califrnia, District f Clumbia, Massachusetts, New Jersey, New Yrk, Rhde Island, and Vermnt), while thers impse limits that are lwer than 1.5 (e.g., Arkansas, Clrad, and Kentucky). 7 Issuers participating in the small grup market and prviding cmpsite premiums shuld cnsider the required applicatin f tbacc rating based n the individual member s premium level, and nt the average acrss emplyees. Family tiers: Family tiers nly apply in states with pure cmmunity rating (i.e., New Yrk and Vermnt). N changes t state-specific tier ratis are expected. Cnsideratins Specific t Small Grup Rating Expansin f Small Grup Market: Prir t 2016, states had sme flexibility in defining the small grup market. Fr plan years beginning n r after January 1, 2016, this flexibility is n lnger available. A small emplyer will be defined as an emplyer wh emplyed an average f at least ne but nt mre than 100 fulltime-equivalent emplyees n business days during the preceding calendar year and wh emply at least 1 emplyee n the first day f the plan year. Under the transitinal plicy issued in March 2014, states can allw issuers t cntinue renewing current plans t thse emplyers with 51 t 100 emplyees thrugh Octber 1, Thugh it is expected that states allwing cntinuatin f pre-2014 plicies in the individual and small grup markets wuld extend this plicy t grups f , it is unclear whether additinal states will d the same fr these emplyer grups. Allwing these grups t cntinue in their current plicies has the ptential t lead t adverse selectin in the small grup single risk pl, as healthier grups will be mre likely t stay in their current, smetimes underwritten r partially underwritten plicies, rather than mve int the adjusted cmmunity rated, small grup risk pl. Even if states d nt allw cntinuatin f current plicies, the expansin f the small grup market culd have an adverse effect if the change pdf March 2015 Page 7 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

8 leads yunger and healthier grups t self-funding arrangements which wuld similarly remve them frm the single risk pl. Small Grup Cmpsite Premiums: While CMS anticipated that the ability t calculate and display premiums based n an average enrllee premium amunt wuld be functinal in the Federally Facilitated Small Business Health Optins Prgram (FF-SHOP) fr plan years beginning in 2016, it was recently annunced that this functinality will nt be in place. Outside the FF-SHOP, if an issuer chses t prvide average enrllee premium amunt, special cnsideratin will have t be ffered fr tbacc users in the grup. The additinal premium charged fr tbacc use can nly be applied at the member level, nt the grup as a whle. Additinally, issuers shuld be aware that sme states have adpted alternative appraches t cmpsite rating. Emplyee Chice in SHOP: In all FF-SHOPs, fr plan years beginning n r after January 1, 2016, emplyers will have a chice f tw methds t make QHPs available t qualified emplyees: Offer emplyees a chice f all QHPs at a single metal level f cverage Offer a single QHP While sme issuers may find this t have sme impact n expected claims, we d nt believe this shuld be material. This change may increase the administrative cmplexity assciated with SHOP participatin. Changes in Rate Filing and Reprting Requirements Rate Filing Timeline: Rate increases fr cverage effective n r after January 1, 2016, bth n and ff the Marketplaces, must be submitted t CMS (thrugh HIOS) and the applicable State at a unifrm timeline at the earlier f the date set by the State, and a date set in guidance by HHS. Fr 2016 rate filings, the date set by HHS is May 15, In past years, mst states accepted rate filings fr issuers withut any QHPs (nt participating n the Marketplace) at a later date than the QHP rate filings. This will n lnger be allwed fr annual rate filings. Public Psting f Rate Filings: In the 2016 Benefit and Payment Parameters, CMS has prpsed that in states with Effective Rate Review prgrams that elect t make rate infrmatin public, the states d s n a unifrm time schedule set by the Secretary in future guidance. Final and prpsed rate actins wuld be psted alng with a mechanism fr public cmments. This wuld apply t bth the individual and small grup markets regardless if issuers participate n the Marketplace. The instructins fr the URRT/actuarial memrandum indicate that issuers can submit a redacted versin f the actuarial memrandum that will be used fr public disclsures, thugh the instructins nte that CMS will pst infrmatin that is nt exempt frm disclsure under HHS FOIA regulatin. Specifics related t what infrmatin is apprpriate fr redactin have nt been prvided at the time f this writing. CMS already psts infrmatin frm Part I (URRT) and Part II (narrative justificatin) t its website fr public review. Changes t URRT: HHS made ne change t the URRT n Wrksheet 2. The experience perid average rate was replaced with the experience perid plan adjusted index rate. The plan adjusted March 2015 Page 8 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

9 index rate was nt defined in the instructins fr the 2014 URRT and Actuarial Memrandum, s issuers will need t calculate this amunt based n the methdlgy defined fr 2015 r Changes t the Actuarial Memrandum (Part III) Instructins: The URRT instructins, which nw als cntain instructins fr the actuarial memrandum, were updated fr 2016 and include the fllwing additin and clarificatin t the rate develpment requirements: Adjustments t accunt fr the three child dependent limit and catastrphic adjustments fr nn-catastrphic plans are nt allwable adjustments in determining the Plan Adjusted Index Rate. Issuers must certify that gegraphic factrs reflect differences in delivery csts and nt differences in ppulatin mrbidity by regin. Changes t QHP Plan and Benefits Template: Issuers will need t include the percent f premium attributable t EHB in the Plan and Benefits Template fr 2016 QHPs. This will need t match the amunt included in Wrksheet 2 f the URRT. Additinally, several fields were mved frm the wrksheet that defines benefit packages t the wrksheet that defines plan level details. This allws issuers t better differentiate infrmatin acrss cst-sharing reductin variatins assciated with a given standard plan. Other changes are utlined in the instructins fr the template. QHP Plan ID Crsswalk Template: CMS expects t implement an autmatic re-enrllment frm 2015 t 2016 QHPs in the FFM. As a result, issuers that ffered plans n the FFMs in plan years beginning in 2015 will submit Plan ID Crsswalk data t shw year-ver-year plan mappings. Issuers will submit the template via directly t a CMS prvided address. HHS recently annunced that aut-renewal will nt apply n the FF-SHOP, s Plan Crsswalks d nt need t be submitted t the FF-SHOP. Timeline Several significant changes have been made t the timeline and prcess fr rate filing and review fr 2016 rates. Many f the deadlines are driven by a change in the pen enrllment perid, which is scheduled t begin n Nvember 1, 2015 (2015 pen enrllment began n Nvember 15, 2014). Additinally, in an effrt t encurage unifrmity and fairness, the 2016 Benefit and Payment Parameters require that all issuers fllw the same rate filing timeline regardless f whether QHP certificatin is sught. The ratinale f the prpsed apprach is t imprve predictability and transparency, reduce anti-cmpetitive behavir, and establish a mre meaningful pprtunity fr cnsumers and ther stakehlders t cmment n prpsed rate increases befre rates are finalized. The federal rule als requires that rate filing infrmatin be publicly psted n a unifrm schedule. Table 1 prvides a summary f key dates related t rate filing and review. A mre detailed QHP certificatin timeline fr the FFM is prvided in the Appendix. March 2015 Page 9 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

10 Table QHP Applicatin and Rate Filing and Review Timeline fr FFM (subject t change) Activity Issuers submit all QHP and nn-qhp Unified Rate Review rate filings t CMS and the applicable State a Public disclsure f Parts I, II, and III f Rate Filing Justificatin fr prpsed rate increases subject t review b Deadline fr all risk pls with QHPs t be in final status in URR system Deadline fr all risk pls with n QHPs t be in final status in URR system Public disclsure fr all rate increases (including thse nt subject t review) Federal Deadline May 15, 2015 (states may set earlier deadline) 10 business days fllwing receipt f all rate filings in the relevant market segment August 25, 2015 Octber 9, 2015 Nvember 1, 2015 (states may pst earlier with ntificatin t HHS) 2016 Open Enrllment Perid Nvember 1, 2015 January 31, 2016 a All QHP issuers and issuers with a rate increase fr any plan in 2016 are required t submit Unified Rate Review rate filings. b Rate filings subject t review include thse with rate increases, at the prduct level fr 2016, f 10% r greater. The URRT instructins als prvide a timeline fr submissin f small grup market quarterly rate changes. These changes must be submitted at least 105 days prir t the effective date f the rate change (r earlier if required by the state). Rates must be finalized at least 45 days prir t the effective date. This prvides states with 60 days t review these filings. Other Cnsideratins fr Regulatrs King v. Burwell: Regulatrs in FFM states will want t develp cntingencies t ensure that rates are adequate shuld federal subsidies n lnger be available t FFM enrllees. This might include allwing issuers t file tw sets f rates r develping a timeline, prcess and parameters fr refiling. The eliminatin f subsidies is expected t significantly impact the risk pl and wuld likely result in claims far in excess f thse anticipated in the 2016 rate filings assuming cntinuatin f subsidies. A study perfrmed by The Urban Institute fund that unsubsidized premiums wuld increase by 35% n average acrss the 34 FFM states shuld subsidies n lnger be available which wuld lead t a deteriratin f the risk pl. 9 This refers t the rates an issuer files, nt the premium a subsidized member currently pays. Therefre, a currently subsidized member will experience a rate increase much greater since nt nly is the underlying rate ging up 35%, but the subsidy they were receiving will n lnger be available. A similar study frm the RAND Crpratin estimated the impact t be 47% n average acrss thse states. 10 Outlier analysis: Similar t the prcess fr 2015 QHP certificatin, the Center fr Cnsumer Infrmatin and Insurance Oversight (CCIIO) plans t perfrm and share the results f a rate utlier analysis with state regulatrs in FFM states. The utlier analysis will encmpass three views: rate, March 2015 Page 10 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

11 discriminatin via cst sharing, and drug frmulary. States where HHS is nt perfrming this review may want t cnsider perfrming similar analyses. Psting f rate filings: Public psting f rate filings may be new in sme states. Regulatrs will need t cnsider the extent t which they allw issuers t change their rate filings in reactin t rate filing infrmatin frm ther issuers. States might als anticipate increases in the number f public cmments related t the filings. Actual versus expected analysis: As risk crridr data becme available, regulatrs will want t wrk with issuers t evaluate financial results fr 2014 and determine if any shrtfalls r vercllectins are expected t cntinue int The utcme f this analysis may als be helpful in determining the reasnability f prpsed 2016 rates reinsurance payments and risk adjustment transfers are expected t be available at the end f June 2015, and 2014 risk crridr and MLR reprts are due t HHS at the end f July State regulatrs shuld cnsider allwing issuers t amend their Market-Adjusted Index Rates t reflect significant differences in actual versus expected risk adjustment and reinsurance results. Regulatrs may als want t cnsider requesting 2014 results and reprts frm issuers if these are nt available directly frm HHS t re-assess the reasnableness f 2016 prpsed rates. Market analysis: If they haven t already, regulatrs shuld cnsider cmpiling enrllment and premium data frm issuers t get a hlistic view f their health insurance markets. This might include lking at enrllment, plan selectins and/r average premiums by age and/r gegraphy acrss plan types such as grandfathered, transitinal/grandmthered, Marketplace and nn- Marketplace plicies. Because transitinal/grandmthered plicies are prhibited frm being renewed after Octber 1, 2016, states may want t analyze the expected impact f rlling thse plicies int the single risk pl. Impact analysis f small grup market expansin: Regulatrs may want t wrk with their issuers currently prviding cverage t large grups t identify the extent f the impact f the small grup market expansin n emplyer grups with emplyees. If they haven t already, regulatrs shuld decide if they will allw issuers t allw grups f that size t renew their current plicies thrugh Octber 1, Leveraging risk scre data: States may want t wrk with HHS and/r their issuers t cllect data frm the risk adjustment prgram t get a better understanding f the relative risk prfile f the members cvered by each issuer. Cnsumer impact/affrdability analysis: Fr individuals eligible fr premium subsidies, the affrdability f insurance will depend n the difference between the secnd lwest cst silver plan and ther available plans fr each regin. Thugh nt necessarily a regulatry functin, states may want t understand the impact f these dynamics fr plans that will be available n the Marketplace in 2016 t supprt cnsumer educatin and assistance activities. Supprting cnsumer transparency: T supprt cnsumer transparency, regulatrs may want t cnsider requiring issuers t cmplete a standard template utlining prjected lss ratis and the develpment f rate changes frm 2015 t This might include a breakdwn f factrs such as: March 2015 Page 11 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

12 Actual vs. expected experience fr 2014 Actual vs. expected demgraphics fr 2015 Expected change in demgraphics frm 2015 t 2016 Expected change in mrbidity assumptins fr 2015 vs Expected change in risk adjustment payment/receipts fr 2015 vs Prjected trend Impact f netwrk changes Impact f benefit/cst sharing changes frm 2015 t 2016 Impact f reductin in reinsurance receipts frm 2015 t 2016 Impact f changes in administrative expenses and risk/prfit lads Reprting t CCIIO: CMS will be lking t state regulatrs fr infrmatin abut patterns r practices f excessive r unjustified rate increases t determine whether particular issuers shuld be excluded frm the FFM. 11 States receiving premium review grants are required t prvide this reprting per the terms f the grant. It is imprtant t nte that in many cases, states have rate apprval authrity and wuld nt apprve excessive r unjustified rate increases. Preparing fr anticipated changes in 2017: There are several changes anticipated fr the 2017 plan year that regulatrs shuld prepare fr. These include: Rate increases calculated at the plan rather than prduct level: Rate filings subject t review under federal standards will be defined based n filings fr which any plan (rather than any prduct) is prpsed t have a rate increase that meets r exceeds the threshld (10% fr mst states). Thugh mst states have similar prcesses fr reviewing all rate increases, whether r nt they exceed the subject t review threshld, sme states may need t make mdificatins t their prgrams t accmmdate this change. Essential Health Benefits: States will be required t select a new benchmark plan fr purpses f defining EHB fr the 2017 plan year. The ptins fr the new benchmark will be based n plans available in 2014, whereas the current benchmark was a plan ffered in Similar t the previus benchmark selectin prcess, states nt selecting a benchmark will default t the largest plan by enrllment in the largest prduct by enrllment in the State s small grup market. It is imprtant t nte that in sme cases this may nt be an ACA-cmpliant plan, especially in states that allwed pre-2014, transitinal plicies t cntinue int and beynd Depending n the extent f changes t the benchmark ptins and the selectin prcess, states may need t dedicate a significant amunt f time and effrt t evaluating the benchmark ptins and engaging stakehlders. March 2015 Page 12 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

13 Pharmacy and therapeutics (P&T) cmmittee: Fr plan years beginning in 2017, in rder t stay in cmpliance with the EHB requirements, issuers must use a P&T cmmittee fr reviewing drug frmularies and utilizatin management practices fr clinical apprpriateness. Premium Stabilizatin Prgrams: Tw f the premium stabilizatin prgrams, namely reinsurance and risk crridrs, are scheduled t end in Cnclusin As in recent years, success in the 2016 rate setting and rate review prcess will require attentin t detail and nimbleness fr bth issuers and regulatrs. Bth parties shuld make every effrt t remain up-t-date with the finalized tls and guidance. Issuers and regulatrs shuld als take nte f the earlier pen enrllment and cmpressed time allwed fr rate develpment (in mst states) t ensure adequate attentin is alltted fr apprpriate rate setting and rate review. March 2015 Page 13 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann

14 Appendix QHP Applicatin Submissin and Review Prcess Table A-1: FFM QHP Certificatin Timeline Activity Initial QHP Applicatin Submissin Windw First SERFF Data Transfer Deadline fr States FFM Review f QHP Applicatin Submissins as f Initial Submissin Deadline f May 15 FFM States 4/15/2015 5/15/2015 States Perfrming Plan Management State Defined N/A 5/15/2015 5/18/2015-6/26/2015 First Crrectin Ntice Sent 6/29/2015-6/30/2015 Deadline fr Submissin f Revised QHP Data fr Re-review 7/10/2015 State Defined Secnd SERFF Data Transfer Deadline fr States N/A 7/10/2015 FFM Review f Crrected QHP Applicatin Submissins Received as f June 9 7/13/2015 8/12/2015 Secnd Crrectin Ntice Sent 8/13/2015 8/14/2015 Final Deadline fr Submissin f QHP Data; Final Deadline fr State Plan Apprval; Deadline fr All Risk Pls with 8/25/2015 QHPs t be in Final Status in the URR System; Data Lcked Dwn QHP Agreement/Final Certificatin Final FFM Review f Crrected QHP Applicatin Submissins Received as f July 24 8/26/2015 9/16/2015 Certificatin Ntices and QHP Agreements Sent t Issuers 9/17/2015-9/18/2015 Open Enrllment 11/1/2015 1/31/2016 March 2015 Page 14 Cnsideratins fr 2016 Health Insurance Rate Develpment, Filing and Review Julia Lerche & Ken Ehresmann