Minnesota DHS Actuarial Analysis of

New Home Care Benefit Embedded In

Medicare Supplement Plans in Minnesota

by Constance D. Rogers, FSA, MAAA

Clark Heitkamp, FSA, MAAA, LTCP

November, 2017

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TABLE OF CONTENTS

Project Report .......................................................................................... 1

Goal of Product ..................................................................................................... 1

Product Benefits .................................................................................................... 1

Benefit Triggers ..................................................................................................... 2

Incorporation into Existing Medicare Supplement Products .......................... 2

Lifetime Benefit Tracking .................................................................................... 3

Issues Related to PCA Services ........................................................................... 3

Estimated Monthly Premiums ............................................................................. 3

Antiselection and How to Mitigate It .................................................................. 4

Community Rating Impacts ................................................................................. 6

Consistency Checks ............................................................................................... 6

Considerations for Future Study ......................................................................... 7

Concerns and Caveats .......................................................................................... 8

Actuarial Appendix ................................................................................. 1

Sources of Claim Costs ......................................................................................... 1

Assumed Claim Costs ........................................................................................... 1

Severity .................................................................................................................................... 1 Continuance ............................................................................................................................. 2 Average Cost per Claimant...................................................................................................... 3 Claim Incidence ....................................................................................................................... 3 Estimated Per Member Per Month Claim Costs ...................................................................... 4

Reductions in Other Claims ................................................................................. 4

Additional Pricing Assumptions .......................................................................... 5

Projection Model ................................................................................................... 7

Estimated Monthly Premiums ............................................................................. 7

Sensitivity to Pricing Assumptions ....................................................................11

Data Reliance and Caveats.................................................................................11

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Project Report

Goal of Product Through its Continuing Care for Older Adults Administration, the Minnesota Department of Human Services (“MN DHS”) is researching the feasibility of embedding a home care benefit in all Medicare supplement (i.e., Medicare Advantage, Medicare Cost Plans, and Medigap) plans issued or renewed within the state of Minnesota (“MN”). The MN state government currently funds a program called Essential Community Services which offers home-care services to enable seniors to remain in their homes longer. The focus of the program is seniors who have low medical and low financial need, but whose ongoing health could benefit from home-based support services. The MN DHS contracted with United Health Actuarial Services Inc. (“UHAS”) to provide actuarial services in support of its efforts. Specifically, UHAS was charged with estimating product premiums for the DHS to use in discussions with focus groups. The leader of this project was Constance D. Rogers, FSA, MAAA, a UHAS consulting actuary with more than 25 years’ experience with Medicare related insurance. UHAS Senior Consulting Actuary Clark Heitkamp, FSA, MAAA, LTCP contributed his expertise from more than 15 years’ experience with long-term care insurance and also served as peer reviewer. Additional peer review was provided by UHAS Senior Consulting Actuary Mark E. Shaw, FSA, MAAA, CERA. The proposed embedded home care benefit is referred to as the Enhanced Home Care package of benefits (“EHC package”), and the purpose is to extend home-based support services to the entire Medicare-eligible population (or at least those age 65 and older) within MN by embedding coverage for such services in all Medicare supplement policies and/or plans within the state. Although there are a few significant differences between the current MN Essential Community Services (“MN ECS”) program and the EHC package, the goal is the same: To provide middle-income seniors in relatively good health at home with financial access to support services which can help them remain in that desirable state, preventing hospital readmissions and, it is hoped, delaying the need for long-term care (“LTC”) services.

Product Benefits The proposed benefits of the EHC package include the following:

Personal Emergency Response System (“PERS”), Homemaker Services, Chore Services, Training and Education of Family Caregivers, Home Delivered Meals, Adult Day Care Services, Service Coordination, and, Personal Care Assistance.

All of the above are currently provided by the MN ECS program, except for Personal Care Assistant (“PCA”) services. The MN DHS was concerned that including PCA services would place the needed premium for the EHC package beyond the affordability point for seniors. Therefore, much of our modeling and pricing work was done “with PCA” and “without PCA” services included. The proposed maximum daily benefit is $100. The maximum pool of benefits was initially assumed to be $36,500 but was later extended to be $50,000. The benefit as initially configured has no vesting period

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and no elimination period, although we examined how adding vesting and/or elimination periods would impact cost. The benefit would be portable within the state; that is, if a member used some of the pool of benefits with one Medicare supplemental plan and then transferred to a different plan, the pool of benefits available under the new plan would be reduced by the amount of benefits used previously.

Benefit Triggers Essential to accurately estimating claim costs (i.e., expected paid benefits) and premiums for the EHC package is a correct understanding of the benefit triggers. Whereas the MN ECS program can currently be accessed based solely on a doctor’s recommendation, the EHC benefits are triggered only when a member is Medicare-approved to receive home health services. Medicare’s home-health eligibility requirements are summarized below, although the reader is referred to the Centers for Medicare and Medicaid Services for more exhaustive information.

The member must be under the care of a doctor and must be receiving services under a plan of care established and reviewed regularly by a doctor.

The member must have a doctor-certified need for one or more of the following: o Intermittent skilled nursing care (beyond just drawing blood); o Physical therapy, speech-language pathology, or continued occupational therapy services,

when such services are specific, safe and an effective treatment for the member’s condition.

o The member’s condition must be expected to improve in a reasonable period of time, or the member must need a skilled therapist to safely effect a maintenance program for the member’s condition.

The member must be doctor-certified to be homebound.

Personal Care Assistance services are covered only to provide help with day-to-day activities (Activities of Daily Living, or “ADLs”) for which the need for assistance is temporary, incidental, and integral to the medical need for which the member has been Medicare-approved to receive home health care. It is not intended that PCA services will be covered to support members with chronic, ongoing deficiencies with ADLs. Such coverage is beyond the scope of the EHC package and, if included, would be expected to dramatically increase the cost of providing the EHC package of services.

Incorporation into Existing Medicare Supplement Products The EHC package is intended to become a mandatory part of every Medicare supplemental product within the state of MN. (Again, Medicare supplemental products include both Medigap and Medicare Advantage plans.) Indeed, the assumption that every member will have this coverage is foundational to our pricing estimates, and offering the coverage on an optional basis would be expected to increase the average cost, since only those individuals who reckon themselves most likely to use the coverage would be likely to purchase it. For Medicare Advantage (“MA”) (which, hereafter, will include Medicare Cost Plans or “MCPs”), adding the coverage to existing plans would be fairly easy, as such plans typically renew annually. Incorporating the EHC benefits into Medigap policies would be more difficult, as such policies are guaranteed renewable for the life of the insured. However, we believe it would be possible to require all Medigap carriers to add the EHC benefits to existing policies either via rider or via amendment, and that legal hurdles could be overcome with the support of the Commissioner of Insurance. We, ourselves, are not attorneys or compliance experts, so we leave it to legal/compliance practitioners of suitable training and experience to look into these matters more closely. For MA plans, the agreement and support of the Centers for Medicare and Medicaid Services (“CMS”) will be required.

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Lifetime Benefit Tracking As noted above, the lifetime maximum is portable from one supplemental plan/policy to another. For example, if Mr. Smith, on a Medigap policy with Insurer XYZ, uses $10,000 of EHC benefits, his remaining maximum EHC benefits will be $40,000 whether he remains on the XYZ Medigap policy or transitions to a different Medigap policy or, indeed, an MA plan. Tracking lifetime benefits used will introduce administrative complexities to Medigap and MA plans. We have not explored specific administrative solutions, as that was beyond the scope of our project.

Issues Related to PCA Services Personal Care Assistance services include the following:

Activities of daily living (e.g., eating, toileting, dressing, bathing, transferring, mobility, and positioning);

Complex health-related functions;

Instrumental activities of daily living (such as meal preparation, managing finances, shopping for essential items, performing essential household chores); and

Observation and redirection of behavior. We have some concerns that coverage for PCA services will create induced demand for such services, as this is a common dynamic related to insurance coverages. Without PCA coverage, Mrs. Adams’ family members may have been quite willing to assist her with bathing while she recovers from surgery at home. But once EHC is added to Mrs. Adam’s Medigap policy, her family members may reason, “If the insurance company is going to pay for it, we will let a professional come in.” Thus, PCA services may be used more often and more intensely than such usage has been exhibited in the experience of existing MN government programs. (Please see the Actuarial Appendix for additional information on data sources.) If that is the case, Medigap and MA costs for PCA services may be significantly higher than we have assumed.

Estimated Monthly Premiums We developed estimated monthly premiums by reviewing historical claim experience from existing government programs as well as from relevant insured products. Premiums were estimated by dividing expected claim costs by target loss ratios (75% for Medigap and 80% for Medicare Advantage). Additional information is available in the Actuarial Appendix for those who have interest. Estimated monthly premiums are shown below. We were charged with producing premiums for the “Base” coverage (0-day elimination period, $100/day, $36,500 portable lifetime maximum, no vesting required) for the EHC package both with and without coverage for PCA services. In addition, we were asked to produce premiums for several alternatives: with one-year vesting required; with three years vesting required; with elimination periods of 90, 120, and 180 days; and with a $50,000 portable lifetime maximum. Finally, we were asked to provide premiums assuming that the EHC package is available to all Medicare-eligible ages, or only to those age 65 and older. Premiums are shown separately for Medigap and MA plans due to anticipated claim cost differences in the two product types.

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Monthly Premiums for Coverage for All Medicare-Eligible Ages Coverage Scenario

Medigap Medicare Advantage

Without PCA With PCA Without PCA With PCA Base $8.49 $21.38 $6.79 $17.09

1 Yr Vesting $7.82 $19.74 $6.22 $15.71 3 Yr Vesting $6.58 $16.73 $5.21 $13.26 90-day EP $7.66 $19.26 $6.13 $15.40 120-day EP $7.42 $18.64 $5.93 $14.90 180-day EP $6.97 $17.51 $5.57 $13.99

$50,000 pool $8.54 $23.00 $6.83 $18.39 We also considered a coverage options in which the plan would pay 75% or 50% coinsurance, with the member paying 25% or 50%, respectively, for PCA services only. Premiums for all considered options are included in the Actuarial Appendix. The premiums in the above chart may appear lower than what some may expect, and there are several contributing reasons, which are summarized in the following list. Each of the items listed below is further discussed in this document and the Actuarial Appendix.

Members must be Medicare-approved to receive in-home medical care services in order to qualify for EHC benefits. This limits members’ ability to receive covered services on demand. (For example, Mrs. Jones can hire someone to come change her lightbulbs, but this would not be a covered Chore Service unless she is receiving Medicare-approved medical services in her home.)

Premium rates are calculated on a community basis. This means that younger members would pay a premium significantly higher than their expected claims, while older members would pay a premium significantly lower than their expected claims.

Premiums for the EHC package would be embedded in the full Medigap or MA plan, and we have assumed that all Medigap and MA plans would include this coverage. This limits members’ opportunity to select the EHC package only if they think they will use it (“antiselection”). This also means that members will pay the EHC portion of premium as long as they are in the plan – even after they may have exhausted their EHC benefit.

Expected service utilization is based on the actual use of these services in current Minnesota state programs. As noted in the Actuarial Appendix, some of the services are utilized less than may be intuitively anticipated.

Antiselection and Design Features to Mitigate this Risk As noted above, there is justifiable concern about antiselection for this type of coverage. As discussed above, the availability of coverage for non-medical home support services may induce utilization – both frequency and intensity – of such services. Several coverage eligibility and benefit parameters were discussed and considered as antiselection-mitigating strategies.

Coverage eligibility for Medicare beneficiaries under age 65: Individuals who are disabled or have End Stage Renal Disease (“ESRD”) are eligible to enroll in Medicare. The state of MN requires that all Medigap carriers issue coverage to disabled/ESRD beneficiaries on an open

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enrollment basis within 6 months of their enrollment in Medicare Part B, but outside of that window Medigap carriers may decline to issue coverage to disabled/ESRD beneficiaries. Medicare Advantage plans are also required to enroll disabled/ESRD beneficiaries during the annual open enrollment period. So, although such individuals come with higher morbidity risks in general, extending the EHC coverage to disabled/ESRD beneficiaries enrolled in a Medicare supplement plan would be consistent with regulations which are already in place. The limited, (generally) one-time, open enrollment window limits antiselection risk for Medigap plans; and the annual open enrollment window limits antiselection risk for MA plans, although not as significantly as a one-time open enrollment window would achieve.

Benefit trigger: The benefit trigger is Medicare approval to receive home-based medical care, and benefit eligibility terminates with the termination of Medicare approval. Although Medicare home-health care approval standards have been loosened in recent years, this benefit trigger remains a significant threshold and is anticipated to mitigate antiselection.

Vesting: We considered whether requiring an individual to have been continuously enrolled in the same Medicare supplement plan for a 1-year or 3-year period would help reduce antiselection. We believe that it would. Vesting would also allow the Medicare supplement plan to collect premiums for the EHC coverage for a period of time before claim incurrals would begin. However, we recognize that continuous enrollment in a given MA plan may be complicated by the more transient nature of those plans (particularly the Medicare Cost Plans, which may be terminating entirely in the near future due to Federal action), and this may require additional consideration.

Elimination Periods: We do find that benefit elimination periods would help control antiselection. However, it is our opinion that long elimination periods are contrary to the stated purpose of the EHC coverage: keeping people healthy at home. If an individual, for example, would be advantaged by received home-delivered meals, but chose to forgo such services for the first 90, 120, or 180 days, the individual’s health may be comprised by sub-optimal nutrition during that period. In such a case, the elimination period would actually subvert the overarching goal of the EHC coverage. Therefore, although we provided monthly premiums for coverage with elimination periods, we believe pursuing this option is not consistent with the plan design and purpose. As noted in the “Considerations for Future Study” section below, we think elimination periods measured in days, rather than months, may be more feasible and could be explored in the future.

Member Cost-Sharing: We considered whether requiring members to be responsible for some portion of covered charges, either by way of a dollar-value copay or a percentage of charges, would control over-utilization. In general, we thought that cost-sharing for most EHC services would feel like “nickel-and-diming” the member. However, the idea of an initial deductible has some appeal, as does the idea of a percentage cost-share for PCA services (for which we believe there is the greatest risk of antiselection). We produced monthly premiums for the EHC package with 25% or 50% cost-sharing on PCA services, and those premiums can be found in the Actuarial Appendix.

Portability of Lifetime Maximum Benefit: The one fixed lifetime maximum is key to mitigating antiselection, in our opinion. Without this coverage element, for example, a member who exhausts his/her lifetime maximum benefit in one health plan could easily enroll in a different MA plan at the next annual open enrollment window, thereby gaining access to an additional $36,500 (or $50,000) of benefit. Naturally, members making such a move would be those most likely to use the full maximum benefit. Therefore, although we recognize the administrative

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challenges presented by this requirement, we believe that it is essential to maintain reasonable pricing for the EHC package.

Community Rating Impacts The state of Minnesota requires, via statute 62A.31 Subd. 1h., that all Medicare-related coverages in the state be community-rated on the basis of age. Thus, a member at age 67 would pay the exact same premium as a member at age 87. Clearly, anticipated claims for an 87-year-old are significantly higher than anticipated claims for a 67-year-old. Each Medicare supplement plan (which refers in this report to both Medigap and MA plans) in Minnesota must estimate what proportion of members will enroll at each age, and insurance companies set their premiums based on that estimation. If the plan’s actual enrollment has younger members than originally estimated, their premiums are likely to be more than adequate. Conversely, if the plan’s actual enrollment has older members than originally estimated, their premiums are likely to be inadequate. In the insurance industry, this is referred to as a “distribution risk.” For medical coverage, claims for an 87-year-old are typically about twice claims for a 67-year-old. For home-care services designed in the EHC program, however, this claim ratio is dramatically higher. We anticipate that EHC claims for an 87-year-old are nearly 16 times the EHC claims for a 67-year-old without coverage for PCA services, and nearly 19 times the EHC claims for a 67-year-old with PCA coverage. The higher range of claims ratios by age for the EHC package amplifies the risk that a Medicare supplement plan may not estimate their enrollment-by-age accurately. Our reading of the cited regulation does not indicate that gender-specific rating is prohibited, but it is our understanding that gender-specific rating is generally not allowed in Minnesota. This, too, adds additional distribution risk to community-rated premiums, and especially so for EHC services because the expected cost is typically higher for females than for males. Because of the risk of having older or more female members than estimated in pricing in Minnesota’s community rating environment, Medicare supplement plans may be more conservative in pricing the EHC package than we have assumed in our work. In our opinion, the additional conservatism is justified by the additional risk posed by the community rating requirement. To help address the risk of age and gender, the EHC program could add an initial one to three-year delay before eligible members are able to receive benefits when the initial program starts, which would allow the companies to refine premiums during this time period to account for the appropriate distribution. It should be noted that, in a comprehensive Medigap or MA plan, the distribution risk of the EHC package will be diluted (but not eliminated) by the relatively small value of EHC benefits compared to the much larger value of medical benefits in the full Medigap or MA plan. While this reduces the distribution risk compared to pricing the EHC package alone, it increases the risk compared to pricing current Medigap and MA plans in Minnesota.

Consistency Checks Throughout this project, we met frequently with DHS staff and consultants to discuss the work in progress, our assumptions, and our findings as they emerged. We spent considerable time discussing the PCA services coverage specifically – what services would be covered and under what circumstances. We also reviewed the scripts and handouts to be used for the consumer and health-plan focus groups. Therefore, we are confident that the premiums we have provided are consistent with the EHC package envisioned by the state.

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Considerations for Future Study In the course of our work, several issues emerged which were outside the scope of the current project but which have (or may have) bearing on pricing for the EHC package.

Reduction in Other Claims: It feels intuitive that the available of home supports services may reduce medical claims. Access to home-delivered meals, for example, may keep members generally healthier during recovery by virtue of receiving more consistent and more nutritive meals. Similarly, having an assistant to perform household chores or even to provide an informed review of the household layout (e.g., presence of tripping hazards) may prevent falls or other injuries and thereby avoid ambulance and/or emergency room claims and hospital admissions. The reader is referred to the Actuarial Appendix for additional discussion of this topic.

Shorter Elimination Periods: In our recent discussions with the MN DHS staff, shorter elimination periods (e.g., 2, 5, or 7 days, rather than 90, 120, or 180 days) were discussed as a preferable option for this product. The current budget and timeline do not support the exploration of this idea, but we believe it has merit and should be given further consideration. Having the first initial days paid by the member would not likely reduce the overall expected claims by a large amount, but it may be an effective approach to reduce antiselection with some initial cost sharing.

Legal/Compliance Issues: As noted above, our professional expertise does not extend to the specifics of contract law. Therefore, we leave it to legal and/or compliance professionals to address the question of whether the EHC coverage may be, by state mandate, embedded in existing Medigap policies and, if so, how best to accomplish it.

Feasibility of Vesting in MA Plans: As noted above, we recommend additional conversation with Minnesota MA plans regarding whether requiring vesting (i.e., requiring a member to participate in the MA plan for one to three years before becoming eligible to receive EHC benefits) is feasible in their environment.

Increased Lifetime Maximum: The present project considered lifetime maximum benefits of both $36,500 and $50,000. In conversations with consumer focus groups, it was felt that a higher lifetime maximum – of perhaps $100,000 – would have greater appeal. This is a suggested topic of future analysis.

Additional Considerations: The following were listed in the project Request for Proposal as being of interest if the timeframe and budget permitted. They did not fit into the current budget or timeline, but the MN DHS continues to be interested in exploring these questions.

o What would be the cost impact of the following: Managed Care trigger (at discretion of insurer via care manager); 5-year Vesting; Annual, versus lifetime, maximum benefit; or, Other caregiver related benefits or services.

o Provide total costs for MA and Medigap recipients, including average premiums, dollar-copays or percent-coinsurance, and deductibles.

o What, if any, is the impact on premiums if Medicare Cost Plans are eliminated by the Federal government in the near future?

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o What would be the total and average premium costs of this program if it were offered as a state-sponsored benefit either for all Medicare beneficiaries or all beneficiaries age-65 and older?

o What would be the cost of incorporating the EHC benefits in Medicare versus embedding the benefits in Medicare supplement plans.

Concerns and Caveats It is customary and appropriate for an actuarial report to include a list of concerns and caveats about the work product. Doing so ensures that the report clearly delineates any limitations to the application of the reported results. The following should be interpreted in light of that professional standard and, conversely, should not be understood to indicate a lack of confidence in the work performed or the results reported herein. Our concerns with regard to possible antiselection and regarding induced utilization of PCA services in particular are well documented above, and we will not repeat those concerns here. Suffice to say that the monthly premiums presented above and in the attached Actuarial Appendix are based on the specific assumptions stated in the Appendix and are not appropriate for use with materially different assumption sets. Please note the following caveats and limitations with respect to the estimated premiums and this report:

UHAS has performed the work assigned and prepared this report assuming it will be utilized by

persons technically competent in the areas addressed and for the stated purpose. Judgments should be made only after studying this report in its entirety. We are available to explain and/or amplify anything presented in this report, and it is assumed that the user of this report will seek such explanation and/or amplification regarding any matter in question.

Nothing included in this report is to be used in any filings with any public body, such as the

Securities and Exchange Commission or State Insurance Departments, without prior written approval from UHAS. Any distribution of this report must also be with the prior written approval of UHAS, and, if approved, the report must be distributed be in its entirety.

We relied on data and information supplied by MN DHS personnel. We have not audited or

independently verified the information furnished to us. Although we have no reason to suspect the integrity of the underlying data, to the extent that the data are materially flawed, the results of our analysis may be materially impacted. The principal items/materials relied upon include:

o Claim data from the MN ECS program. o Claim data from the MN Elderly Waiver program. o Claim data from the MN Alternative Care program. o Documentation related to the MN programs listed above.

The assumptions underlying the projection results summarized in this document and attachments

are based on program data and experience, industry data and experience, discussions with MN DHS staff and consultants, and informed judgment. We believe the assumptions used are reasonable individually and in the aggregate based on the data/information we have and based on our experience. However, future experience will invariably be different from the projected experience, and other knowledgeable individuals could have different opinions about the appropriateness of any or all of the assumptions used.

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All pricing assumptions are “best estimate” values. That is, we added no margin for possible induced utilization, antiselection, or other contingencies. We expect that actuaries pricing this product for their companies or health plans will include some such margin.

The validity of our projections and the estimated premiums depends on how actual future

experience compares to the pricing assumptions. Assumptions for morbidity, persistency, and target loss ratios are based upon our evaluation of recent relevant experience and anticipated future trends. Actual experience could be more or less favorable. To the extent that actual experience differs from the assumptions underlying this report, actual results will differ from the projection results presented in this report.

In preparing this report, we have complied with all relevant Actuarial Standards of Practice and

any other relevant documents published by the American Academy of Actuaries. As indicated previously, this report is not meant to serve as complete actuarial documentation.

Much additional relevant data/information is available for distribution and can be provided upon request.

The estimated premiums resulting from this project are not applicable at the national level because MN specific assumptions were used, as well as because the MN community rating requirement may not exist in other states.

The materials presented herein are for information purposes only without warranty of any kind, express or implied. UHAS and its parent, Risk Strategies Corporation, assume no liability for damages incurred directly or indirectly as a result of errors, omissions or discrepancies contained in these materials.

We are available to answer any questions related the specific information above, the detailed information in the Actuarial Appendix, or the project in general. Constance D. Rogers, FSA, MAAA Clark Heitkamp, FSA, MAAA, LTCP Consulting Actuary Senior Consulting Actuary Phone: (815) 547-5622 Phone: (605) 271-4714 Email: cdrogers@uhasinc.com Email: cheitkamp@uhasinc.com

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Actuarial Appendix Purpose This appendix is intended to provide background and technical details beyond the information provided in the main body of the report. It is assumed that readers of this appendix will chiefly be actuaries and/or others who will, by training or experience, have sufficient expertise to understand the information and concepts as presented.

Sources of Claim Costs United Health Actuarial Services Inc. (“UHAS”) reviewed the following data sources to develop claim cost assumptions for the Minnesota (“MN”) Enhanced Home Care (“EHC”) project.

Minnesota Essential Community Supports program data provided by the MN DHS;

Minnesota percentage of population with LTC coverage;

Minnesota Elderly Waiver program data from the MN DHS;

Minnesota Alternative Care program data from MN DHS;

Detailed claims data from UHAS data pool;

Medicare home health care data from the Medicare 5% and 100% data files; and,

Medicare Trustees’ Report from 2016 and 2017.

Assumed Claim Costs

Severity UHAS reviewed relevant data from three current MN programs (the Essential Community Supports program, the Alternative Care program, and the Elderly Waiver program) which cover some or all of the benefits in the EHC package. In addition, we reviewed costs for similar benefits covered by public and/or private LTC insurance policies for which UHAS has detailed data. The following severity values are shown as the average monthly cost per service for claimants who utilize that service. In addition, the table below includes the relative frequency of utilization; that is, the frequency of use among the population which uses the benefits of the MN programs referenced.

Table 1

Service Severity per

Month Relative

Frequency PERS* - initial $16.67 8.0% PERS* - ongoing $30.00 45.0% Homemaker Services $105.00 60.0% Chore Services $35.00 7.0% Family Training $20.00 60.0% Home-Delivered Meals $65.00 30.0% Adult Day Care Services $165.00 6.0% Service Coordination $40.00 50.0% Personal Care Assistance $960.00 20.0%

*Personal Emergency Response System

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Combining the above, the expected monthly cost for a claiming client is $141.68 without the PCA coverage and $333.68 with the PCA coverage. These costs are somewhat higher than the actual experience of the MN Essential Community Supports (“ECS”) program. However, the MN ECS experience data do not reflect true exposure, and it is likely that the costs-per-claimant drawn from that experience therefore overstate exposure and thus understate the monthly cost per enrollee.

Continuance UHAS developed a table of claim continuance probabilities based on industry experience on Home Health Care (“HHC”) coverages from the UHAS data pool. Where the UHAS data were not fully credible, the claim termination rates were blended with claim termination rates reported in the 2011 Society of Actuaries (“SOA”) LTC Industry Study. For this purpose, full credibility was defined as 1082 or more claimants at day-0 for each gender / age-band cell. The resulting credibility-weighted claim termination rates for each gender / age-band cell were then combined across genders and age bands using an assumed distribution derived from MN ECS program data (Table 2).

Table 2 Distribution by Gender and Age Band

Age Band Female Male 0 – 65 9.6% 3.4% 66 – 75 26.6% 9.4% 76-85 27.4% 9.6% 86-90 6.7% 2.3% 91+ 3.7% 1.3%

All Ages 74.0% 26.0% The following table (Table 3) summarizes the claim continuance assumption used in our claim cost estimates. The table actually used was more granular, varying by each single day on claim, and with all significant digits retained for the percent continuing (i.e., not rounded or truncated).

Table 3 Continuance

Days on Claim

Percent Continuing

Days on Claims

Percent Continuing

0 100.0% 330 57.59% 5 97.78% 365 55.34% 10 95.50% 545 47.39% 15 94.09% 730 40.46% 20 92.71% 1,095 29.69% 30 88.35% 1,460 21.67% 45 85.59% 1,825 15.82% 60 82.93% 2,190 11.27% 90 79.36% 2,555 7.87% 120 75.05% 2,920 5.85% 150 71.62% 3,285 4.40% 180 68.35% 3,650 3.17% 210 66.04% 4,015 1.95% 240 63.82% 4,380 1.41% 270 61.67% 4,745 0.95% 300 59.59% 5,110+ 0.61%

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It should be noted that the average daily claim for a claimant in one of the MN programs is significantly lower than the $100 daily maximum benefit for the EHC package. This creates a much higher than usual amount of salvage in the benefit. Thus, the maximum pool of benefits goes much farther than the one-year benefit period. Additional impacts of the very high salvage are dampening the impact of reducing the daily benefit (such as to $75 or $50, as included in the MN DHS Request for Proposal documents) and altering the claim cost relationships by elimination period compared to what is usually seen in Home Health Care “(HHC”) insurance.

Average Cost per Claimant Using the assumed average monthly cost for the EHC benefit package (with and without coverage for PCA services), the claim continuance table referenced above, and a 4.0% annual interest rate for discounting, we estimate the following average lifetime cost per claimant for the core community supports benefit (0-day elimination period, $100 maximum daily benefit, lifetime maximum as shown below). Additional elimination period and lifetime maximum options were also priced as part of this project.

Table 4 Estimated Average Lifetime Cost per Claimant

Elimination Period

without PCA Services

with PCA Services

$36,500 Maximum Lifetime Benefit 0 day $5,882 $12,258

90 days $5,306 $11,044 120 days $5,137 $10,690 180 days $4,824 $10,038

$50,000 Maximum Lifetime Benefit 0 days $5,338 $11,882

Given that the assumed monthly claim cost ($141.68 without PCA services and $333.68 with PCA services) is substantially less than the $3,041.67 maximum monthly benefit ($100 maximum daily benefit x 365 days/year / 12 months/year), we find that restricting the maximum daily benefit to $75 ($2,281/month) or even to $50 ($1,521/month) has no value in reducing estimated average lifetime claim costs for the community supports benefit. Similarly, reducing the PCA service reimbursement to 50% or 75% of the daily maximum benefit has no appreciable value in reducing estimated average lifetime claim costs.

Claim Incidence Members of Medigap and MA plans would be eligible to receive the EHC package benefits upon their eligibility to receive Medicare HHC benefits. This is a very low threshold of benefit trigger compared to the HIPAA LTC benefit trigger. Per the 2013 Medicare data, incidence of HHC benefit use was 11.3% nationwide and 5.9% in MN. We used the latter assumption since we estimated claim costs for the MN population specifically, and there is a reasonable, culture-related justification for lower incidence among the MN population. However, it should be kept in mind that this is one of many assumptions which would need to be reevaluated if pricing for the EHC package of benefits were extended to the nationwide population.

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The HHC incidence rate within the UHAS industry data rounds to 1.0% for the distribution of members by attained age and gender shown above. This lower claim incidence (compared to Medicare HHC incidence) reflects the HIPAA benefit trigger, which is a higher threshold of claim trigger.

Estimated Per Member Per Month Claim Costs Based on the experience data reviewed, the assumptions detailed above, and an estimated 7.5-year effective product lifetime, we estimate that including the EHC benefits in a Medicare-related policy would increase expected per-member per-month claim costs by $3.73 without the PCA benefit and by $7.76 with the PCA benefit, on average. We anticipate significant variation for the benefit cost in a Medigap policy compared to the same benefits in a MA policy, due to induced utilization in the former (original Medicare plus Medigap coverage is typically richer than coverage under a MA plan) and advantageous network price agreements in the latter. In general, we would anticipate the following relationships:

Medigap 13% higher than aggregate MA / MCP 7% lower than aggregate for individual coverage

MA / MCP 2% higher than aggregate for group coverage Although members in MCPs have a “back door” to seek services from providers outside the MCP network (i.e., they can receive care outside the MCP network, in which case Medicare reimbursements and copayments will apply), we believe that in general the experience of members in MCPs will be roughly similar to that of members in MA plans. The estimated benefit costs shown in the paragraphs above assume that under-age-65 members are included in the coverage mandate.

Reductions in Other Claims It has been posited that the availability of home support services may help Medicare beneficiaries remain healthier and in their own homes longer, thereby reducing claims for inpatient hospital services, skilled nursing services, and LTC facility services. While we agree that this is a plausible hypothesis, we believe it would be unreasonably optimistic to ascribe firmly quantified assumed savings absent relevant data. As of the date of this report, we are aware of only two relevant studies, and we will address each in the paragraphs which follow. In 2013, the consulting firm Univita (now known as the LTCG) conducted a study of the impact of long-term personal care on end-of-life medical care costs. The study was conducted in the context of a large public employee benefits program which includes both LTC coverage and retiree medical coverage. The study found that, in the last year of life, access to personal care benefits reduced medical costs by 14%, reduced pharmacy costs by 13%, and reduced inpatient hospital admission costs by 34%. Somewhat offsetting these savings, skilled nursing costs increased by 16%. The personal care benefits in the Univita study would have been in the context of more intensive medical care than is likely to be the context of the MN EHC benefits. Therefore, we believe that the MN EHC benefits may have a positive effect on medical and skilled nursing costs, but we do not anticipate that the effect would be as large as was demonstrated in the Univita study. In November of 2015, a report on the Massachusetts Senior Care Options program was released. Senior Care Options (“SCO”) is an integrated Medicare/Medicaid managed care program offered to elderly Massachusetts residents who are dually eligible for Medicare and Medicaid. The program was

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initiated in 2004. MassHealth (the Massachusetts Medicaid carrier) and the Federal agency CMS contract with qualified managed care plans to provide SCO enrollees with a unified benefits package that includes the full range of Medicaid and Medicare services plus additional, program-determined, non-medical care and support services. The SCO report documents results from a study of the SCO plan (2004 through 2011) in which it was found that SCO enrollees exhibited fewer and shorter nursing facility entries (12% reduction in nursing facility residency months) and lower mortality (17% risk reduction in death rate) compared to non-enrollees. The report concludes that the morbidity and mortality improvements may be due to the care improvements brought about by integrating Medicare and Medicaid services and adding special service types based on enrollee need. Thus, the study quantitatively supports the hypothesis that a package of coordinated medical care and geriatric social support services can reduce or delay nursing home admissions and shorten stays. The results of the SCO program and study are encouraging. While it is true that, like the Univita study, the program is not directly parallel to the MN EHC benefits package, and both study populations have higher morbidity in general than the anticipated population of EHC service users, these studies are nonetheless directionally and thematically consistent with the goals of the EHC program. We note that any reduction in inpatient hospital (“IPH”) or skilled nursing facility (“SNF”) claims would be proportionately much greater for MA plans than for Medigap plans, given the relative nature of those coverages. The MA plans pay claims in place of original Medicare, so they would be expected to realize cost savings equal to roughly 80% of the forgone IPH or SNF approved charges. Medigap, however, pays only supplementary to original Medicare, so Medigap plans would be expected to realize cost savings equal to only about 20% of the forgone IPH or SNF services (plus, if covered, the IPH deductible). This also means that any assumed IPH or SNF claim reduction is more significant for the EHC value analysis for MA plans than for Medigap plans.

Additional Pricing Assumptions The following assumptions were used in developing the estimated premiums. Except as otherwise noted, all assumptions were based on the assumptions UHAS typically uses for pricing Medigap products. In our opinion, these assumptions are generally appropriate for MA plans as well, although the pricing method for MA differs significantly from the method typically used for Medigap. Distribution by Entry Age

Entry Age % Policies Entry Age % Policies < 65 2.00% 77 2.94% 65 14.70% 78 2.45% 66 7.35% 79 2.45% 67 7.35% 80 2.45% 68 6.37% 81 2.45% 69 5.88% 82 2.45% 70 5.39% 83 1.96% 71 4.90% 84 1.96% 72 4.90% 85 1.96% 73 3.92% 87 1.45% 74 3.92% 88 0.98% 75 3.92% 89 0.98% 76 2.94% 90+ 0.00%

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Annual Claim Trend 4.5%

Annual Premium Trend 4.5%

Distribution by Gender Female 55.0% Male 45.0% MN is a unigender state.

Mortality: 2017 CSO Loaded Ultimate ALB (gender-blended using Male 45%)

Voluntary Lapses Pol Year <75 75-84 85+

1 0.1850 0.1800 0.1500

2 0.1300 0.1250 0.1250

3 0.1150 0.1100 0.1000

4 0.1050 0.1000 0.0800

5 0.0950 0.0900 0.0800

6 0.0950 0.0850 0.0800

7 0.0950 0.0850 0.0800

8 0.0950 0.0850 0.0800

9 0.0950 0.0850 0.0800

10 0.0900 0.0850 0.0800

11 0.0850 0.0800 0.0800

12+ 0.0800 0.0800 0.0800

Selection Factors by PY and Underwriting Category

PolYr UW OE GI 1 0.900 1.050 1.050 2 0.950 1.025 1.025 3 0.975 1.000 1.000

4+ 1.000 1.000 1.000

Underwriting Selection Factors

Entry Age % UW % OE % GI

65 0% 100% 0%

66 40% 45% 15%

67 50% 35% 15%

68 60% 25% 15%

69 70% 15% 15%

70 75% 10% 15%

71+ 85% 0% 15% It should be noted that the selection factors and underwriting selection distribution assumptions are relevant for Medigap only, since MA policies are non-underwritten during the annual open enrollment period.

These voluntary lapse rates are appropriate for MedSupp plans and may be appropriate for Medicare Advantage plans, but they would be too high for a typical Home Health Care policy. Therefore, we conducted sensitivity tests on this assumption to consider the range of impact if actual voluntary lapse rates are significantly less than shown.

UW = underwritten OE = open enrollment GI = guaranteed issue

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Antiselection: We assumed no antiselection related to including EHC benefits in Medigap or MA plans, since (a) the expected value of EHC benefits is small compared to the value of the full medical package, and (b) the EHC package would be embedded in all Medigap/MA plans. Providing coverage to all Minnesota residents that have Medigap or MA plans reduces consumers’ ability to antiselect against any particular plan. Expenses: For purposes of estimating premiums for the MN EHC package, we have ignored expenses. The ECS benefits will be added to existing Medigap and MA plans, and it is assumed that any non-marginal expenses associated with such plans are already covered by the base premiums for those plans. To account for marginal expenses related to the home supports benefits, we calculated gross premiums as net premiums divided by target loss ratios of 75% for Medigap and 80% for MA. We have assumed, based on industry experience, that an 80% loss ratio is roughly equivalent to the 85% Minimum Loss Ratio required for MA plans, given that the 85% standard includes adjustments which the 80% loss ratio does not include. Please note that we anticipate that each new home-care claim will incur claim adjudication expenses which exceed the typical adjudication expenses for medical claims, and this may mean that profit margins are somewhat narrower for the EHC coverage itself.

Projection Model The projection model is a tool developed by UHAS as a modification of its standard Medigap pricing and projection model. Modifications include appropriate adjustments to the pricing assumptions, a change from attained-age to community-age rating, and appropriate adjustments to the outputs. The model projects expected earned premiums and incurred claims for 30 policy years for each entry-age cell. That is, each entry age (under-65, and 65 through 99) cell is projected individually, and the values for each entry age are aggregated by summing across all age cells. The model also has the capability to project expense items and profits, but the capability was not used for the MN EHC project. As noted above, premiums for the EHC package were derived based on a target loss ratio, so expenses are not relevant to the effort. Since expenses were not modeled, the resulting “profits” output from the model are not meaningful, so that output was also omitted.

Estimated Monthly Premiums The following estimated premiums are calculated on a monthly basis. In the table below, the premium columns have the following meaning:

Without PCA: Coverage excludes Personal Care Assistant (“PCA”) services;

With PCA: Coverage includes PCA services;

With PCA @75%: Coverage includes PCA services but with a 75% coinsurance applied (i.e., the health plan pays 75% and the member pays 25% of all PCA charges up to the maximum daily benefit); and,

With PCA @50%: Coverage includes PCA services but with a 50% coinsurance applied (i.e., the health plan pays 50% and the member pays 50% of all charges up to the maximum daily benefit).

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Table 5.1 Monthly Premiums for EHC Benefits

Coverage for All Medicare-Eligible Ages

Aggregate

Scenario Without

PCA With PCA

With PCA @75%

With PCA

@50%

Base $7.52 $18.92 $16.07 $13.22

1 Yr Vesting $6.92 $17.47 $14.83 $12.20

3 Yr Vesting $5.82 $14.81 $12.56 $10.32

90-Day EP $6.78 $17.04 $14.48 $11.91

120-Day EP $6.56 $16.50 $14.01 $11.53

180-Day EP $6.16 $15.49 $13.16 $10.83

$50,000 Pool $7.56 $20.35 $17.15 $13.96

Medigap

Scenario Without

PCA With PCA

With PCA @75%

With PCA

@50%

Base $8.49 $21.38 $18.16 $14.93

1 Yr Vesting $7.82 $19.74 $16.76 $13.78

3 Yr Vesting $6.58 $16.73 $14.20 $11.66

90-Day EP $7.66 $19.26 $16.36 $13.46

120-Day EP $7.42 $18.64 $15.84 $13.03

180-Day EP $6.97 $17.51 $14.87 $12.24

$50,000 Pool $8.54 $23.00 $19.38 $15.77

Individual MA

Scenario Without

PCA With PCA

With PCA @75%

With PCA

@50%

Base $6.61 $16.64 $14.14 $11.63

1 Yr Vesting $6.06 $15.30 $12.99 $10.68

3 Yr Vesting $5.21 $13.26 $11.25 $9.24

90-Day EP $5.97 $14.99 $12.74 $10.48

120-Day EP $5.78 $14.51 $12.33 $10.15

180-Day EP $5.42 $13.63 $11.58 $9.53

$50,000 Pool $6.65 $17.91 $15.09 $12.28

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Group MA

Scenario Without

PCA With PCA

With PCA @75%

With PCA

@50%

Base $6.97 $17.54 $14.90 $12.25

1 Yr Vesting $6.38 $16.12 $13.68 $11.25

3 Yr Vesting $5.49 $13.97 $11.85 $9.73

90-Day EP $6.29 $15.80 $13.42 $11.04

120-Day EP $6.09 $15.29 $12.99 $10.69

180-Day EP $5.72 $14.36 $12.20 $10.04

$50,000 Pool $7.01 $18.87 $15.90 $12.94

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Table 5.2 Monthly Premiums for EHC Benefits Coverage for Entry Ages 65+ Only

Aggregate

Scenario Without

PCA With PCA

With PCA @75%

With PCA @50%

Base $7.26 $18.23 $15.48 $12.74

1 Yr Vesting $6.70 $16.87 $14.33 $11.78

3 Yr Vesting $5.65 $14.34 $12.17 $10.00

90-Day EP $6.55 $16.42 $13.95 $11.49

120-Day EP $6.34 $15.89 $13.51 $11.12

180-Day EP $5.95 $14.93 $12.68 $10.44

$50,000 Pool $7.30 $19.61 $16.53 $13.46

Medigap

Scenario Without

PCA With PCA

With PCA @75%

With PCA @50%

Base $8.20 $20.60 $17.50 $14.40

1 Yr Vesting $7.57 $19.06 $16.19 $13.31

3 Yr Vesting $6.38 $16.21 $13.75 $11.30

90-Day EP $7.40 $18.56 $15.77 $12.98

120-Day EP $7.17 $17.96 $15.26 $12.56

180-Day EP $6.73 $16.87 $14.33 $11.80

$50,000 Pool $8.25 $22.16 $18.68 $15.21

Individual MA

Scenario Without

PCA With PCA

With PCA @75%

With PCA @50%

Base $6.39 $16.05 $13.63 $11.22

1 Yr Vesting $5.86 $14.77 $12.55 $10.32

3 Yr Vesting $5.06 $12.84 $10.89 $8.95

90-Day EP $5.77 $14.46 $12.28 $10.11

120-Day EP $5.58 $13.99 $11.89 $9.79

180-Day EP $5.24 $13.14 $11.17 $9.19

$50,000 Pool $6.43 $17.26 $14.56 $11.85

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Group MA

Scenario Without

PCA With PCA

With PCA @75%

With PCA @50%

Base $6.74 $16.91 $14.37 $11.82

1 Yr Vesting $6.18 $15.57 $13.22 $10.87

3 Yr Vesting $5.33 $13.53 $11.48 $9.43

90-Day EP $6.08 $15.23 $12.94 $10.66

120-Day EP $5.88 $14.75 $12.53 $10.32

180-Day EP $5.53 $13.85 $11.77 $9.69

$50,000 Pool $6.78 $18.19 $15.34 $12.49

Sensitivity to Pricing Assumptions UHAS considered the sensitivity of premiums to each of the preceding pricing assumptions.

Distribution by Entry Age and Gender: Since the premiums are provided (as required in MN) on a community-age and unigender basis, the estimated premiums are very sensitive to the assumed distribution by age and gender.

Claim and Premium Trend: The estimated premiums have little sensitivity to the assumed trends.

Morbidity: With regard to assumed claim costs and assumed morbidity-related variables (e.g., distribution by underwriting category, selection factors and pattern), the premiums are naturally very sensitive.

Persistency: It will be noted that the voluntary lapse assumptions assumed are similar to those typically used in a Medigap and MA market, and they are much higher than those used in pricing LTC/HHC insurance. We believe this is appropriate, since the EHC benefits will be a small portion of the total coverage of a Medigap or MA policy. In testing the sensitivity of premiums to persistency, we found that the estimated premiums are not very sensitive to the voluntary lapse assumption. When we reduced the voluntary lapse assumptions to 10% in policy year 1 grading to 1% in policy year 10, and 1% thereafter, we found that premiums would need to increase by less than 1% in order to achieve the originally targeted loss ratios.

Data Reliance and Caveats The foregoing proposed claim costs are based on a review of data received from the Minnesota Department of Human Services in addition to Medicare data and LTC industry data. Except for the LTC industry data within UHAS’ data bases, we have relied on the source of each data set to have appropriately reviewed and audited the data for accuracy. We reviewed the data for general reasonableness as well as for relevance for use in the context of this project, but we made no attempt to audit or review the accuracy of the data. Although we have no reason to suspect the accuracy or integrity of the data supplied to us, to the extent that the data are flawed, the results of our analysis may be materially impacted. In our opinion, the data used are relevant and appropriate for use in the context of this project and the assumptions stated above are reasonable both individually and in aggregate. However, future experience

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may be materially different from past experience, and other knowledgeable individuals may have different opinions about the reasonableness of any or all assumptions. Please see the full list of caveats in the main body of the report, as those cautions apply to the entire report, including this Appendix.