Florida Health Insurance Plan High Risk Pool

1. Mercer Oliver Wyman Actuarial Consulting, Inc. October 2006 Florida Health Insurance PlanHigh Risk Pool Karen Bender Milwaukee

2. Florida Health Insurance Plan (FHIP) • 2003 Legislation – start a new high risk program • Engaged Mercer Oliver Wyman U.S. Actuarial Consulting (MOW) to perform feasibility study • One aspect of the feasibility study was to analyze the impact the high risk pool will have on the market (if any)

3. Background Florida Comprehensive Health Association (FCHA) • Formerly known as State Comprehensive Health Association • High Risk Pool • Closed to new enrollment in October 1990 • 1990 Data • Premium $15 million • Claims $47 million • Assessment $34 million

4. Background Unique Circumstances in Florida that Facilitated Impact Analysis • HIPAA Requirements • Florida DOI issued data request • Florida requires rates be filed and approved before using • Florida has certain routine reporting requirements

5. Florida HIPAA Compliance 3 Prong Approach Small Group Carriers Individual Carriers Group Carriers

6. Florida HIPAA Compliance • Carriers in Individual (Nongroup) Market • Applicable only to HIPAA-qualified Individuals leaving Self-funded Plans • Must guarantee issue their two most popular currently marketed plans

7. Florida HIPAA Compliance • Small Group Carriers • Required to guarantee issue to self-employed each August • Premiums cannot exceed 150% of Standard Risk Rates • DOI determines Standard Risk Rates • Based upon average rate charged by nongroup carriers representing 80% of the nongroup market

8. Florida HIPAA Compliance • Group Carriers • Must issue conversion contracts • Benefits determined by Florida regulators • Premiums cannot exceed 200% of Standard Risk Rates • Same Standard Risk Rates (adj. for benefits) as used for G.I. for one-life groups by small group carriers

9. Florida HIPAA Compliance • Individual Carriers • Small Group Carriers • Group Carriers High Risk Pool Would Eliminate These HIPAA Compliance Requirements • What will impact be on rates (if any)?

10. Florida DOI Data Request • Issued to Individual (Nongroup) and Small Group Carriers • Experience for one-life and HIPAA-qualified individuals vs. small group and medically underwritten groups • Impact of removing several requirements • 19 carriers (including HMOs) participated

11. Results • Segregated by HIPAA Compliance • Individual Carriers • Small Group Carriers • Group Carriers • Impact Segregated between Claim Cost and Administrative Costs

12. Results • HIPAA Experience for Individual Carriers

13. Results • HIPAA Experience for Individual Carriers Nongroup Carrier Losses Attributable to HIPAA

14. HIPAA Experience for Individual Carriers • Losses as a % of 2003 Premium • Range 1.2% to 2.2% • Carriers will still incur losses on existing HIPAA individuals unless they would be allowed to immediately transfer them to the high risk pool • Over long run, premiums decrease 1.2% to 2.2%

15. Results • Responses from Carriers If we ignore the carriers that did not provide an estimate, the weighted average (based upon lives) is about a 3% reduction in nongroup premiums.

16. Individual Carrier Responses • Administrative Savings • Carriers indicated would be minimal, 0.0% to 0.5% of premium • Appeared conservative • MOW estimated 1.0% savings

17. Small Group Carriers • GI One-Life Groups Experience vs. Groups 2-50 EEs

18. Small Group Carriers • Incurred Losses Attributable to One-Life Groups Reason losses decreased in 2003, companies allowed to increase rates from 115% to 150% of Standard Risk Rates

19. Small Group Carriers • One-Life Groups • Losses on previous slide understated • Expressed as a % of 2003 Premium Levels for technical reasons • Removing GI for one-life group could reduce small group premiums by 2.0% to 3.0% in the long run

20. Small Group Carriers • Responses from Carriers • Mixed • 9 carriers indicated no change in premiums if G.I. of one-life groups removed • Several indicated they could not determine impact • Some carriers indicated they had insufficient membership to generate credible results • Missed opportunity

21. Small Group Carriers • Administrative Savings • Elimination of open enrollment • Reduced marketing costs resulting from elimination of open enrollment forms, etc. • More streamlined regulatory reporting requirements • Higher administrative costs associated with billing, accounting, customer service of one-life groups

22. Small Group Carriers • Administrative Savings • Carrier’s responses mixed; no numerical estimates • MOW estimated 1% premium savings in the long run

23. Group Carriers • Current HIPAA Compliance Requirement • Conversion Plans • State defined benefits • 200% Standard Risk Rate • Florida DOI has 2002 Group Conversions Statistics: • Actual loss ratio for 8 largest insurance companies – 211% • $58.4 million losses (Assumes 85% breakdown loss ratio) • Losses represent 0.5% of group premium

24. Group Carriers Potential Premium Savings *The reason that Elimination of Group Conversion (0.5% of premium) has what appears to be a greater dollar amount of impact proportionally than the elimination of one-life groups is that elimination of group conversion impacts the premium for all fully insured group sizes, whereas the elimination of one-life groups impacts the premium for only small groups.

25. Conclusions • Impact on Previous Slide • Does not consider impact of assessments • Critical to create broadest base possible for assessments • Self-funded • Provider • Small base for assessments could negate savings

26. FHIP Analysis • Most comprehensive impact analysis MOW has observed • Sources of data critical • Legislation failed • Critical issue was funding