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April 2013

Actuarial Aspects of Massachusetts Health Reform. April 2013. Ian Duncan FSA FIA FCIA MAAA. History and accomplishments of Massachusetts Reform Actuarial Implications of Massachusetts Reform Massachusetts Under the ACA. Agenda. Introductions. Ian Duncan, FSA, FIA, FCIA, MAAA

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April 2013

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  1. Actuarial Aspects of Massachusetts Health Reform April 2013 Ian Duncan FSA FIA FCIA MAAA

  2. History and accomplishments of Massachusetts Reform • Actuarial Implications of Massachusetts Reform • Massachusetts Under the ACA Agenda

  3. Introductions Ian Duncan, FSA, FIA, FCIA, MAAA • Vice President and Head of Clinical Research, Walgreen Co. (Chicago). • Board member, Massachusetts Health Insurance Connector Authority. • Professor of Actuarial Statistics, University of California Santa Barbara, and Research Prof., Dept. of Healthcare Administration, Georgetown. • Author of several books and peer-reviewed studies on healthcare management and predictive modeling • Principal investigator of a multi-year actuarial analysis of Massachusetts Reform. • Board member, Society of Actuaries.

  4. Commonwealth of Massachusetts Population: 6.5 million Second highest average per capita income in the US ($51,500 in 2010). Home to 65 universities and colleges (Harvard; MIT; BU; BC; etc.) Home to many famous medical facilities: Mass General; Brigham & Womens; Dana-Farber Cancer Institute, etc. Prior to passage of reform in 2005, Massachusetts had the lowest rate of uninsured in the US (9%)

  5. High income state. Strong base of employer coverage. Relatively low rate of uninsurance. ~20% of state economy is health care. Uninsured (prior to reform) ~9%. Long history of bi-partisan efforts to expand insurance coverage and introduce reforms. Expansive Medicaid program with 1115 waiver. Well-funded safety net. Strong advocacy groups. Earlier reforms of individual and small group insurance market. Medicaid waiver pays for approximately half of the additional cost of coverage (~ $1 billion). Commonwealth of Massachusetts The Most Democratic Legislature in the United States

  6. History and Accomplishments

  7. History and Accomplishments 1. Less than 3% uninsured (reduced disparities, improvements in access) 2. 97%compliance (taxpayer filings) 3. More employers offering coverage (76% in 2009), and more than 95% of employers are doing their fair share 4. 59% - 75% voter approval rating 5. Net new state costs ~ 1% state budget 6. Heightened focus on cost containment

  8. Comparison of Massachusetts and ACA reforms

  9. Subsidize insurance for low and moderate income Medicaid expansions (mostly for children) Commonwealth Care(for adults up to 300% FPL) Flow of funds: Massachusetts Commonwealth Care Trust Fund=> Connector Authority => insurers Reform the individual health insurance market Merge individual and small group markets Health Insurance “Connector”/Exchange Commonwealth Choice Products (Gold, Silver, Bronze and Young Adult Plans) Dependent coverage to age 26. Flow of funds: employer (or insured) => insurer. Funds do not flow through the Connector (Connector charges between 2.5% and 3% administrative fee for enrollment/marketing services). Require adults to have insurance if it’s affordable Or pay state income tax penalties (between $240 and $1,272 in 2013). Major components of Massachusetts reform

  10. Massachusetts Connector (Exchange) The “Travelocity” of Health Insurance Individual Market Small Group Market Subsidized CommCare Small Employers Unsubsidized Unsubsidized CommChoice

  11. Household income <300% federal poverty level No employer coverage available Sliding scale premium 5 private health insurers Benefits comparable to MassHealth (Medicaid) Run by the Connector Subsidized insurance: Commonwealth Care 300% FPL - $34,476 for individual; $58,596 for family of three

  12. One Stop Shoppingat www.mahealthconnector.org

  13. Mass 2.0: Standardized Products

  14. Affordability Schedule for Single Person: Monthly Premium Same as Commonwealth Care Premium Schedule

  15. Individual Mandate: The Tax Penalties ACA Penalty: $95

  16. Results 3.4% 2011 Source: U.S. Census Bureau, Current Population Survey, 2012 Annual Social and Economic Supplement. Source: Massachusetts Division of Health Care Finance and Policy, 2010 Household Insurance survey

  17. Results As of December 2010: 412,000 More People Have Health Insurance Than in June 2006 Source: Division of Health Care Finance and Policy

  18. Results: Coverage Types Medical Security +32,000 Private Coverage +7000 (Individual +34,000 and Employer -27,000) Bridge Program +21,000 Medicaid +193,000 Commonwealth Care (+159,000 ) Source: Division of Health Care Finance and Policy

  19. “Crowd-Out” Has Not Occurred:No Evidence of Decline in Proportion of Employers Offering Health Insurance Sources: DHCFP and KFF annual survey

  20. Remaining Uninsured Details of Uninsured from Mass Tax Filings: 2010

  21. Remaining Uninsured: Mostly young men

  22. Commonwealth Fund-SOA-Georgetown Study • I am the principal investigator for a study, funded by Commonwealth Fund and the Society of Actuaries to explore the financial and utilization implications of reform. • Five years of data assembled: all commercial, Medicaid and Connector insured lives, between 2005 and 2010. Attempting to fill in with safety-net (uncompensated care) data pre-reform. • To enable answers to questions such as: • What was the profile of the previously-uninsured? • How does their cost and utilization compare with previously-insured? • Where do they seek care? • …and any other questions you can think of.

  23. Actuarial Aspects: Massachusetts

  24. Actuarial Implications of Reform: the 3 Rs • Many of the early and continuing actuarial issues in Massachusetts are focused on attempts to address the unpredictable risk that Connector-sponsored plans faced in assuming nearly 200,000 previously-uninsured lives. As experience has emerged on these lives, risk management centered around more traditional risk-transfer mechanisms. • The initial risk imposed by members without prior experience has been managed by a gainsharing mechanism. • Ongoing risk has been managed with Risk Adjusted revenue transfers between plans. • Ongoing losses are managed with stop-loss pool. • => The 3 Rs: Risk-adjustment, Risk-Transfer and Reinsurance.

  25. Gainsharing (Risk Corridors) • The Connector has operated different corridors/gainsharing arrangements in different years. • Recognize that the newly-insured lives represented an unknown risk; Risk Adjustment, while useful for addressing selection between MCOs, did not provide additional revenue to offset a revenue shortfall if claims should exceed the actuarial rate estimates. • The Connector also implemented a stop-loss pool to which all participating plans contributed. It is essentially a self-insured arrangement (no new revenue is involved). Claims on (and contributions to) the pool are applied before gainsharing. • Only the gain-sharing mechanism involves additional revenue; Reinsurance and Risk-adjustment move existing revenue between health plans.

  26. Gainsharing (Risk Corridors) • Gainsharing limits and terms have changed since 2006, but the principles remain fundamentally the same. The most recent gainsharing arrangement works as follows: • Aggregate risk sharing corridors apply to all Commonwealth Care Health Plans: • Aggregate risk sharing corridors of 4% apply above and below the target medical capitation rate (“Health Plan Full Risk Corridor”); • The Connector Authority shares 50% above and below the Health Plan Full Risk Corridor; and • The Health Plans return to 100% full risk at 50% above and below the medical capitation revenue (closed-end risk sharing).

  27. Gainsharing (Risk Corridors) (contd.) Health Plan Liability Health Plan Payments Health Plan Payments $638.50 $540.60 $442.70 Health Plan Full Risk Corridor $425.67 $408.64 $212.84 $212.84 $408.64 $425.67 $442.70 $638.50 2011 Target Capitation Rate

  28. Stop-loss (Reinsurance) The Connector operates a stop-loss pool to which all Commonwealth Care Health Plans must contribute. No state money is included (i.e. the pool is entirely self-insured). Health Plans fund the pool at 1.25% of the capitation rate and the pool pays 75% of incurred claims above a $150,000 attachment point. Experience-rating also occurs if the pool runs a surplus or deficit.

  29. Risk Adjustment • Risk Adjustment is just one of the techniques used by The Connector to manage the selection risk of the Commonwealth Care program. • The Connector does not fund the Commonwealth Choice program. The number of Connector Commercial members is small and so direct risk mitigation is not an issue; nor is the Connector able to influence pricing or underwriting of Commercial individual and small-group insurance. • Initially, lacking claims data, risk adjustment was applied based on age and sex of enrolling members. The relative age-sex factor adjusted the base (Connector established) premium rate. • As experience developed claims-based risk factors (using DxCG Medicaid Model) were developed and apply in the most recent year to members with more than 6 months of experience. New entrants continue to be age-sex adjusted. • Adjustment calculations are performed by the Connector Authority staff using data provided by MassHealth (Medicaid), the enrollment and billing administrator.

  30. Risk Adjustment The PMPM capitation rate to be paid to the Health Plan is equal to: Target PMPM x RFHP + Admin. Where: Target = Statewide Medical only Target for the Commonwealth Care Program = $394.00 PMPM[1] (before any adjustment for hospital tax, but includes pharmacy costs) Total Members RF j HP = Σ (Geoi x Plani x Disci x Riski) / (Total Members) i= 1 Where: Geo i,j = Geographic (region) factor for Health Plan j Member i. [2] • Plani,j = Plan Type factor for Member i in Health Plan j. • Riski,j = Risk factor for Member i in Health Plan j. Disci is a factor that represents a discount offered by the Health Plan. It does not apply in FY 2012. [1] This capitation amount includes prescription drugs, but does not include any adjustment for Health Safety Net (Uncompensated Care) hospital assessment. [2]Note that in Massachusetts, health plans serve multiple geographic regions and offer different plan types. This calculation develops a plan-wide adjustment factor.

  31. Risk Adjustment Example of calculation of overall adjustment factor Example (Member #2): RFi,2 = (1.0619)(0.9468)(0.9970) = 1.0024 Although the payment to this Health Plan in the first quarter of Fiscal Year 2011 was initially $431.58, the payment is retroactively adjusted for the increased Total Average Rating Factor and becomes: $393.67 x 1.0242 + $32.00 = $435.20

  32. 3 Rs: Results (contd.) • Risk-adjustment (Q1 2012): • Net risk adjustment in Q3 2012 is 3.9%, amounting to a net transfer to the participating plans of $6.8 million. • The method of risk-adjustment chosen by the Connector does not result in budget neutrality; in 2012, there has been an influx of older and more risky members which has resulted in an increasing trend in the average risk factor (e.g. the + 3.9% in Q3 2012). • The concurrent, budget-neutral approach of the ACA does not allow for this change in the underlying risk profile of the covered population.

  33. 3 Rs: Results • Reinsurance (Stop-loss) experience: • Cumulatively the pool has generated a surplus which has been experience-rated back to the plans. • Risk Corridor: Gainsharing has operated according to different parameters in different years. Aggregate net payments/(receipts) over the last few years have been in the range 1%-2% of premiums. • Gainsharing results for individual plans have been larger, with several plans being reimbursed by the state between 3% and 5%, and on occasion plans reimbursing the state double-digit percentages.

  34. Massachusetts Under the ACA

  35. Massachusetts Risk Adjustment Under the ACA • Massachusetts has been approved by CMS to operate its own risk-adjustment model. Features of the Massachusetts model: • Customized model for Massachusetts, calibrated to state-specific data. • Separate model for catastrophic plan, based on bronze experience. • Expanded set of CCs (162 vs. 127 Federal HCCs). • Adjustment for partial-year eligibility. • Incorporation of induced utilization for higher-level plans. • Single merged model (parallels the merged market). • Avoid unintended consequences (e.g. expand eligible providers). • Concurrent model; R2 47% - 53%.

  36. Massachusetts Risk Adjustment Under the ACA • Induced demand: • Risk adjustment needs to take account of three factors: • Health Status (the focus of the HCCs). • Benefit design: lower cost-sharing induces higher utilization. • Non-group selection: unlike group plan participants, individual participants can choose their own plan design (and opt out if they wish). • Massachusetts will use the Federal induced demand factors but supplement them with special factors for a proposed wrap-around low-income subsidy silver plan. • A comparison of the ratio individual plan costs/average risk score between individual and small group plans shows evidence of selection in the high-level plans, which the methodology proposes to recognize.

  37. Closing Thoughts • Massachusetts reform was passed in 2006 after many years of negotiation, trial-and-error, with bi-partisan (political) support and support of employers, advocates, providers and payers. • Cost control continues to be a challenge, 7 years into reform. • Massachusetts reform has been affordable (financially) to the state because of significant subsidies from the US Treasury and from diversion of uncompensated care funds from (direct) payment to hospitals to payment to insurers. • After 7 years (and considerable success) we are still discovering ways to improve it. • Massachusetts’ reform was less administratively complicated than ACA, but still requires a $50 million administrative budget. • Converting from the State Connector to the ACA-compliant Exchange is supported with $181 million in Federal grants.

  38. Ian Duncan FSA FIA FCIA MAAA Adj. Assoc. Professor Dept. of Statistics & Applied Probability University of California, Santa Barbara (860) 614-3295 duncan@pstat.ucsb.edu Ian.duncan@walgreens.com

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