How Companies Underwrite Medicare Supplement: An insurance carrierʼs perspective. By Jill M. Burns FSA, MAAA Chief Actuary#

Transcription

1 How Companies Underwrite Medicare Supplement: An insurance carrierʼs perspective By Jill M. Burns FSA, MAAA Chief Actuary# 1

2 Medico Considerations What premium rate and rate increase strategy? Ü Competitively priced product with reasonable future rate increases How to accomplish this? Ü Risk Selection What risks? Ü Non-Underwritten and Underwritten 2

3 Non-Underwritten Open Enrollment Underwriting None None Guarantee Issue Time Period 6 months following initial eligibility for Medicare Part B 63-day period following certain events Created/Provided by OBRA-90 Med Supp Plans All Specified Pre-existing Exclusions Yes Balanced Budget Act of 1997; modified 1999 No 3

4 Non-Underwritten: Open Enrollment Standard Rule: Prior to or during the 6 month period beginning with the first day of the first month in which an individual is both: 65 years of age or older, and Enrolled for benefits under Medicare Part B. 4

5 Open Enrollment State Variations HI, KS, LA, ME, NH, OR, PA, SD, TX l enrolled in Part B, without regard to age FL - By reason of disability or end-stage renal disease MS includes retroactive approval date CA, FL, MA, MN, WI l Variations due to terminations of various types 5

6 Non-Underwritten: Guarantee Issue NAIC Model Rules Guarantee Issue Situations: l Employee welfare benefit plan that supplements Medicare When employee leaves plan l Medicare Advantage or PACE provider (when 65+) When plan terminates or not in individual s area or plan violated material provision or misrepresentation or other certain conditions l Medicare cost organization or Health prepayment plan or Select Similar instances as above 6

7 Non-Underwritten: Guarantee Issue NAIC Model Rules (continued) Guarantee Issue situations: l Medicare supplement enrollment ceases Due to insolvency, bankruptcy, material violation, misrepresentation, or other involuntary termination l Individual switches from Medicare Supplement to Medicare Advantage, Medicare cost organization, PACE program or Select plan Disenrolls during first 12 months l Initial enrollment in Medicare Advantage or PACE program Disenrolls during first 12 months l Part D plan (when previous drug coverage with Med Supp) 7

8 Guarantee Issue State Variations NAIC Model Rules l AL, AZ, DC, DE, GA, KS, KY, MD, NC, ND, NH, NM, NV, RI, SC, WV Language variations l AK, AR, CA, CO, CT, FL, HI, IA, ID, IL, IN, LA, MA, ME, MI, MN, MO, MS, MT, NE, NJ, NY, OH, OK, OR, PA, SD, TN, TX, UT, VA, VT, WA, WI, WY 8

9 Open Enrollment & Guarantee Issue Unique Situations California - 30 day open-enrollment after birthday Connecticut unique provision Massachusetts open enrollment 2/1-3/31 Maine annual guarantee issue period at least one month each calendar year Missouri guarantee issue period within 30 days of policy anniversary (30 days before and 30 days after) New York applicants must be accepted at all times throughout the year Washington guarantee issue on replacements 9

10 Oregon Birthday Rule 1/1/ day guarantee issue after birthday How will consumers (and agents) respond? l Shop for lowest rate l Differentiation service levels How will premium rates be impacted? l More people covered (or do healthy go without coverage?) l Healthy subsidize unhealthy l Inforce blocks potential for higher lapsation 10

11 Disabled (Under 65) CA, CO, CT, DE, FL, GA, HI, IL, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, NH, NJ, NY, OK, OR, PA, SD, TN, TX, VT, WA, WI State requirements vary l Plans available l Premium rates l Underwriting (KY allows) 11

12 Open Enrollment / Guarantee Issue Age- ins Baby boomers How healthy are these people? State Open- enrollment / Guarantee Issue Anniversary / Birthday rules Conversions Medicare Advantage Employer plan termination Disabled Mental/nervous, heart conditions, back conditions End-stage renal disease 12

13 Example - Relativity to Underwritten Type First Yr Lifetime Impact Age-ins 25% 3% to 7% higher State Open Enr / Guar Iss 50% 10% to 15% higher Retiree Plan Conversion 75% 20% to 25% higher Med Adv Conversion 200% 25% to 30% higher Disabled 300% 300% higher 13

14 Impact by % Sales Type Relativity % % % Underwritten % 60% 80% Age-ins % 20% 12% State Open Enr / Guar Iss % 5% 2% Retiree Plan Conversion % 5% 2% Med Adv Conversion % 5% 2% Disabled % 5% 2% Impact to Claim Level

15 Impact of Large Claims Company A Company B Company C Premium $10,000,000 $50,000,000 $200,000,000 Claims $7,200,000 $36,000,000 $144,000,000 Loss Ratio 72.0% 72.0% 72.0% # Large Claims Revised Loss Ratio 82.0% 77.0% 74.5% 15

16 Carrier Actions Do not sell in certain states Revise commissions Adjust premium rates 16

17 Underwritten Tools for Risk selection l Application Health Questions l Prescription Drug Screens l Telephonic Interviews l MIB l Height/Weight Tables l Attending Physician Statements (APS) l Administrative Processes 17

18 Medico s Underwriting Re-entered Marketplace in 2008 Initial Tools l Application Health Questions l Telephonic interviews l Limited APS l Preferred/Standard (tobacco use) l Administrative procedures Applications accepted up to 60 days prior to effective date Conversions 18

19 Subsequent Modifications August 2009: l Added Prescription Drug Screen September 2010: l APS ordered for ages 75 and over when no hit on drug screen (evolved into Physicians Information Line (PIL)) February 2011: l Replaced APS/PIL with Express Doctor Report (EDR) 19

20 Subsequent Modifications April 2011: l Modified application & more comprehensive interviews in new states February 2012: l Modification made in all States 20

21 Medical Record Requests Initial Attending Physician Statement (APS) l 1% ordered initially l 60% declined l 20 day avg turnaround time Express Doctor Report (EDR) l 15% ordered l 20% declined l <10 day turnaround 21

22 Application modifications Added questions for: l Lou Gehrig s disease l Diabetes with co-morbidity l Physical therapy or using oxygen l Advised for medical tests, treatment or therapy that has not been performed Changed timeframe from past 2 years to 5 for: l Cancer 22

23 Impact on Placement Rates Prescription drug screen l 3% decrease for few months (varied by age) APS for over 75 without drug screen l 10% decrease for over age 75 for two months Replace PIL with EDR l No impact Modified application l 5% decrease initially 23

24 Additional Considerations Time Service Costs l Staffing vs. Outsourcing Future Rate Increases Captive vs. Brokerage l Service levels l Anti-Selection 24

25 Comparison Example: Company A Company B Application Questions Strict Less Strict Rx Drug Screen Yes Yes Telephonic Interviews All Random Placement 85% 92% Loss Ratio 65% 74% Avg Premium Rate $1,500 $1,500 25

26 Financial Results: Company A Company B New Business Submitted $10,000,000 $12,000,000 New Business Issued 8,500,000 11,040,000 Underwriting Costs 620, ,400 Claims 5,525,000 8,169,600 Remaining $2,355,000 $2,355,000 26

27 Conclusions Pros and Cons to how companies underwrite Monitor competitors to avoid antiselection Consider entire package Need data to avoid unanticipated results 27

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29 Medicare Supplement Underwriting Overview Regulations Strategic Considerations Typical Underwriting Tools Market Research Study Overview Techniques and Metrics Caveats and Limitations Market Research Study Results Overall By Health Condition How to Use the Results Carriers Wholesalers / Agents Potential Future Trends 2

30 When Can t a Medicare Supplement Policy be Underwritten? During the Open Enrollment Period Guarantee Issue Situations (Loss of Creditable Coverage) Specific State Regulations expand guarantee issue rights When Can A Medicare Supplement Be Underwritten? Replacement of Another Medicare Supplement Policy Outside Original Open Enrollment Period 3

31 Underwriting Strategy is a Key Element of Success Impacts Pricing and Product Strategy Generally 40-60% of issued policies will be underwritten Impacts Marketing and Distribution Strategy Identify Target Market Distribution Method Direct (e.g. Turning Age 65 Lists) Brokerage (e.g. Replacement of Existing Policies) Impacts Administration Strategy Staffing Levels Time Service Standards 4

32 Application Health Questions Prescription Drug Screens / MIB Telephonic Interviews Height / Weight Tables Attending Physician Statements Administrative Processes 5

33 Analyzed Underwriting Techniques Reviewed company applications, underwriting manuals, and client discussions Metrics 145 Companies Over 90% of the market covered (premiums) Data Structure Conditions Grouped ICD9 Category Declination Criteria grouped into general categories 6

34 Caveats and Limitations Study assumes company underwriting rules do not vary by state or plan Did not review declinable drug listings Access to underwriting manuals was limited Prescription Drug Screens Height / Weight Tables Administrative Procedures Data as of March 31,

35 Type of Underwriting Underwriting Type Full Underwriting > 5 Health Questions Limited Underwriting < 5 Health Questions Not an exact science % of Companies Full Underwriting 62.2% Full Underwriting (2+ Rate Tiers) 23.9% Limited Underwriting 13.9% No Underwriting 3.9% 8

36 Underwriting Tools Underwriting Tools % of Companies Health Questions 96.0% Prescription Drug Screens >60% Telephone Interview >45% Prescription Drug screens & Telephone Interview is estimated Did not have access to information for all companies Telephone includes both mandatory and random calls 9

37 Application is the Primary Underwriting Tool Categorized Health Conditions by Declination Criteria Tables provide distribution of companies in each declination category Only Includes Most Frequently Asked Conditions 10

38 Declination Criteria Angioplasty Arterial Fibrillation Cardiomyopathy Congestive Heart Failure Heart Artery Blockage Heart Attack Not Asked 51% 53% 62% 18% 85% 18% 1 Years 0% 2% 0% 3% 4% 7% 2 Years 12% 22% 16% 33% 7% 32% 3 Years 1% 3% 3% 3% 1% 3% 5 Years 34% 17% 18% 36% 2% 36% 10 Years 0% 0% 0% 0% 0% 0% Ever 2% 2% 1% 6% 1% 3% 11

39 Declination Criteria Peripheral Vascular Disease Stroke TIA Aneurysm Not Asked 27% 11% 23% 53% 1 Years 3% 4% 0% 0% 2 Years 32% 38% 37% 8% 3 Years 1% 5% 5% 1% 5 Years 36% 38% 34% 33% 10 Years 0% 1% 0% 0% Ever 1% 3% 1% 4% 12

40 Declination Criteria Bone Marrow Transplant Hodgkin's Disease/ Lymphoma Internal Cancer Leukemia Malignant Melanoma Not Asked 85% 35% 9% 27% 55% 1 Years 0% 0% 5% 3% 0% 2 Years 5% 19% 34% 23% 23% 3 Years 1% 3% 9% 3% 9% 5 Years 1% 36% 40% 38% 10% 10 Years 0% 1% 1% 1% 1% Ever 7% 6% 2% 4% 1% 13

41 Declination Criteria Any Liver Problem Cirrhosis Crohn's Disease Hepatitis Ulcerative Colitis Not Asked 85% 15% 88% 74% 89% 1 Years 0% 4% 0% 0% 0% 2 Years 5% 28% 4% 14% 3% 3 Years 1% 3% 1% 5% 1% 5 Years 4% 32% 4% 5% 4% 10 Years 1% 1% 1% 1% 1% Ever 4% 17% 2% 2% 2% 14

42 Declination Criteria Kidney Disease/Failure, Dialysis Not Asked 8% 90 Days 1% 1 Years 4% 2 Years 19% 3 Years 3% 5 Years 38% 10 Years 1% Ever 27% 15

43 Declination Criteria Diabetes - Insulin Dependent Not Asked 16% 1 Years 4% 2 Years 11% 2 Years, Over 50 Units 3% 3 Years 3% 5 Years 36% 5 Years, Over 50 Units 1% 10 Years 1% Ever 11% Ever, Over 50 Units 9% Diabetes with Complications 5% 16

44 Declination Criteria Multiple Sclerosis/ Lou Gehrig's Disease Myasthenia Gravis Other Cognitive Disorder Parkinson Disease Senile Dementia/ Alzheimer's Disease Not Asked 42.1% 67.4% 41.9% 12.5% 9.9% 1 Years 3.3% 0.0% 0.7% 3.9% 3.9% 2 Years 16.4% 7.1% 7.4% 16.4% 17.1% 3 Years 2.6% 1.4% 1.5% 3.9% 3.3% 5 Years 9.2% 7.8% 33.8% 36.8% 38.2% 10 Years 0.0% 0.0% 0.0% 0.0% 0.0% Ever 26.3% 16.3% 14.7% 26.3% 27.6% 17

45 Declination Criteria Advised to Have Joint Replacement Rheumatoid Arthritis Muscular Dystrophy Osteoporosis With Fractures Systemic Lupus Not Asked 40% 45% 71% 68% 54% 1 Years 8% 3% 0% 0% 2% 2 Years 18% 38% 9% 11% 21% 3 Years 3% 2% 2% 1% 2% 5 Years 29% 7% 7% 6% 6% 10 Years 0% 0% 0% 0% 0% Ever 1% 5% 10% 15% 15% 18

46 Declination Criteria COPD / Cold / Emphysema Chronic Pulmonary Disorders / Oxygen Not Asked 17% 73% 1 Years 3% 4% 2 Years 17% 9% 3 Years 3% 1% 5 Years 36% 5% 10 Years 1% 1% Ever 23% 8% 19

47 Identify Industry Best Practices In Underwriting New Carrier Entering the Market Product Positioning Understanding Premium Rate Differences Competitive Analysis Risk Management Identify Underwriting Weaknesses 20

48 Wholesalers Identify Carriers to Represent Assist with Agent Recruitment Agents Streamline Applicant Placement Limit unwanted declinations 21

49 What are Potential Trends in Medicare Supplement Underwriting? Telephonic Underwriting (Eliminate Paper) Auto Underwriting Streamline APS reporting? Regulations Changes Mandate Guarantee Issue 22

50 Name: Bryan R. Neary Title: Principal & Consulting Actuary