Sec J ACA

Question 1

Small group insurance underwriting criteria allowed by the ACA

Answer 1

1. Verification that the entity is a licenses employer in the state
2. Participation and contribution requirements for coverages issued outside open enrollment periods
3. A requirement that a group’s employees live, work, or reside within the service area of the plan’s network
4. Employee eligibility requirements, such as the number of hours worked
5. Enforcement of employer restrictions on coverage for late entrants (such as waiting periods)

Question 2

Large group program design considerations due to the ACA

Answer 2

• Underwriters must consider the impact on large group medical plans of the following changes*
  1. Groups with more than 50 full-time equivalent employees are subject to employer penalties if health benefit offeringss do not meet minimum value requirements, including that the plan’s actuarial value must be at least 60% and certain classes of benefits must be covered
  2. Benefit plans must allow the employee the option to cover dependents (but the ACA’s definition of dependent does not include spouses)
  3. The maximum waiting period before benefits must be offered to eligible new employees was shortened
  4. Plans must be affordable (cost less than 9.5% of income for single coverage) to avoid employer penalties
  5. Penalties will apply to health plans with very rich benefits, starting in 2018

Question 3

Impact of the ACA exchanges on large group underwriting

Answer 3

1. The availability of exchange subsidies changes the equation for employees who are comparing costs between individual plans and group plan options
2. Some employers have dropped dependent coverage and transitioned non-Medicare retirees to public exchanges
3. The existence of subsidized individual coverage may create more early retirees
4. COBRA enrollment will decline
5. Dependents from low income families are more likely to enroll in exchange coverage due to subsidies

Question 4

Description of ACA risk adjustment program

Answer 4

1. Applies to individual and small group markets
2. Risk adjustment is needed because the ACA requires guaranteed issue and limits the rating variables in these markets, which creates an incentive for a health insurer to select a lower-cost portfolio of individuals
3. The purpose of ACA risk adjustment is to mitigate antiselection between health insurers and also between the markets inside and outside the exchanges
4. Insurers that attract a lower-than-average risk will pay into the pool while insurers that attract a higher-than-average risk will be paid from the pool
5. Risk adjustment is administered by the state or HHS for state-run exchanges, or by HHS for the federal exchange

Question 5

Risk transfer formula for ACA risk adjustment

Answer 5

This formula is used to calculate risk transfers for all plans in a market.

T_i=[PLRS_i*IDF_i*GCF_i/SUM_(i)(s_i*PLRS_i*IDF_i*GCF_i) -

AV_i*ARF_i*IDF_i*GCF_i/SUM_(i)(s_i*AV_i*ARF_i*IDF_i*GCF_i)] *P_s

1. T_i = Transfer payment to plan i
2. P_s = State average premium
3. PLRS_i = Plan i’s plan liability risk score
4. IDF_i = Plan i’s induced demand factor
5. ARF_i = Plan i’s allowable rating factor
6. AV_i = Plan i’s actuarial value
7. GCF_i = Plan i’s geographic cost factor
8. s_i = Plan i’s share of state enrollment
9. The denominator is summed across all plans in the risk pool in the market in the state

Question 6

Risk mitigation programs in the ACA

Answer 6

• These are also referred to as premium stabilization programs or the “three Rs”*
  1. Risk adjustment - permanent program began in 2014
  2. Reinsurance - only in effect 3 yrs (2014-2016)
  a) Applies to individual only, both within and outside the exchanges
  b) Administered by the state or HHS for state-run exchanges, or by HHS for the federal exchange
  3. Risk corridor - only if effect for 3 yrs (2014-2016)
  a) Applies to quality health plans sold through an exchange and similar plans offered by the same insurer off the exchange
  b) Administered by HHS

Question 7

ACA initiatives that promote health care access and consumer choice

Answer 7

1. Prohibtions on pre-existing condition exclusions
2. Restricting the use of lifetime maximums
3. Prohibiting annual benefit maximums on essential benefits
4. Requiring most groups to offer coverage to dependents up until age 26
5. Creating a health insurance exchange that is both guaranteed issue and without pre-existing condition exclusions

Question 8

Impact of the ACA on actuarial liabilities

Answer 8

1. Claim liabilities - claim payment patterns and PMPM claim cost levels will change at the beginning of 2014 due to required plan design changes, the addition to the risk pool of many individuals who were previously uninsured, changes in claim operations, and other effects of the ACA. This will make it challenging to set reserves using typical reserving methods.
2. Contract reserves - some insurers have held contract reserves in the individual market to account for the effect of underwriting wear-off. These will no longer be appropriate beginning in 2014 because underwriting will not be allowed
3. Due and unpaid premium asset - this asset will be affected by the 90-day premium grace period provision that must be given to those who receive premium subsidies through the exchanges
4. Premium deficiency reserve - enhanced reviews of rate increase filings could result in needed rate increases being denied, which could result in the need for a PDR. Also, insurers will need to decide whether to treat exchange products as separate blocks of business for PDR purposes

Question 9

Small group insurance rating factors allowed by the ACA

Answer 9

1. Age - rating factors are set by regulation and were determined based on a range limitation of 3:1 for adults. A separate factor applies for children and does not vary by age
2. Geographic area - each state has defined a set of allowable rating zones, which address differences in provider payments, managed care programs, and competition
3. Benefit plan - rates may differ by the amounts attributable to plan design, but not amounts due to the expected health status of groups who select the benefit plan
4. Managed care and negotiated discounts - benefit plan factors may account for network arrangements and care management protocols
5. Family composition
   a) The federal composite premium methodology prescribes that the composite premium is calculated based on separate enrollee premiums for age 21 and older and for ages under 21
   b) The premium for a given family composition equals the sum of the average enrollee premium amounts for each family member covered, but counting no more than three children under 21
6. Tobacco use - premiums are allowed to use a tobacco use rating factor load of up to 50%

Question 10

ACA requirements that may change the availability of small group medical insurance

Answer 10

Requirements that may increase availability:

1. Small groups with 50 or more employees are required to offer coverage or pay a fee
2. Small groups with under 50 employees are offered temporary tax credits for providing coverage

Requirement that may decrease availability:

1. The availability of guaranteed coverage in the individual market leads to some employers not seeing a need to offer employer coverage

Question 11

ACA mechanisms for controlling antiselection

Answer 11

1. Coverage mandates and premium subsidies to encourage participation
   a) Premium subsidies - available to lower income individuals to make coverage more affordable
   b) Employer mandate - requires employers with 51 or more employees to offer affordable insurance coverage that meets a minimum coverage level, or pay a penalty
   c) Individual mandate - requires all individuals to obtain insurance that provides minimum essential coverage, or pay a penalty that is the greater of:
   i) A flat per-person fee of $95 in 2014, $325 in 2015, $695 in 2016, and increasing with inflation thereafter. The household fee is limited to three times those amounts, and each child counts at 50% of those amounts
   ii) A percentage of all income over the tax filing threshold. The percentage is 1% in 2014, 2% in 2015, and 2.5% in 2016 and thereafter
   * The total penalty for a household cannot exceed the national average premium for a bronze qualified health plan*
2. Aligning market rules on and off the exchanges - the subsidies offered in the exchanges will attract a different health risk to the exchanges. To mitigate this selection impact, regulations impose certain requirements
3. Open enrollment periods - to limit the opportunity for antiselection by only allowing members to enroll or change coverage during a set time period (except when there is a qualifying life event). The ACA established a single open enrollment period in the individual market each year
4. Minimum benefit levels - individual and small group policies must cover all essential health benefits and provide at least a bronze actuarial value (except for catastrophic plans for certain individuals). There is also a cap on out of pocket spending and there must be no cost sharing for preventive services
5. Premium stabilization programs (the three Rs) - the reinsurance, risk corridor, and risk adjustment programs are perhaps the most direct tools used by the ACA to confront antiselection