presenters: kenneth l. clark, fsa, maaa robert e ......presenters: kenneth l. clark, fsa, maaa...

Session 85PD, MACRA Implications on Medicare Supplement

Moderator/Presenter: Traci L. Hughes, ASA, MAAA

Presenters: Kenneth L. Clark, FSA, MAAA

Robert E. Himmelstein, ASA, MAAA

SOA Antitrust Disclaimer SOA Presentation Disclaimer

https://www.soa.org/legal/antitrust-disclaimer/https://www.soa.org/legal/presentation-disclaimer/

MACRA IMPLICATIONS ON MEDICARE SUPPLEMENTSociety of Actuaries – 2018 Health MeetingJune 25-27, 2018

Kenneth L. Clark, FSA, MAAA

Principal and Consulting Actuary – Milliman, Inc.

2

Caveats and Limitations

This presentation is intended solely for informational purposes regarding Medicare Supplement. It may not be appropriate, and should not be used, for other purposes.

This presentation may not be relied upon by any parties as representative of the expectations of a particular entity. Under no circumstances is this presentation intended to promote or encourage the violation of antitrust laws. This presentation contains my opinions alone and do not necessarily reflect the opinions of Milliman or others within Milliman.

In preparing this presentation, I relied on information from various sources I believe to be reliable and accurate. However, while I reviewed data and underlying results for reasonableness, I did not audit the underlying source data. If that information is incorrect, my estimates are likely to be inappropriate.

These slides should not be relied upon without benefit of the discussion that accompanied them.

3

Plan F vs. Plan G

"Today" (Pre-MACRA)EnrollmentType Plan F Plan GOpen Enrollees Yes YesUnderwritten Yes YesGuarantee Issue Qualified Yes No

2020 + (MACRA)EnrollmentType Plan F Plan GOpen Enrollees No YesUnderwritten Yes YesGuarantee Issue Qualified Yes Yes

4

Plan F vs. Plan G

What is the incremental “value” to an insured of Plan F vs. Plan G? 2018 - $183 (Part B Deductible) Future: ?

What is the incremental “cost” of Plan F vs. Plan G? A more difficult question to answer but the short answer based on review of typical carrier

schedules is much more than $183 Why is this the case? Carrier expense / profit loads Simplistic pricing Less than one year of exposure in many cases Experience driven

5

Plan F vs. Plan G

What is the overall morbidity difference?

Benefit difference alone expected to be approximately 90% Therefore, rough estimate of morbidity relativity = .63/.9 = 70% What will the Plan G morbidity be relative to Plan F benefits under MACRA? Remember the 3 yesses

6

Quantifying Potential MACRA Implications

Looking at the math─ What will MACRA do to the market?

─ What will MACRA do to your company?

─ What will drive overall experience in 2020 and later?

• Total experience will reflect the relative distribution of Plans F and G which will change over time

• Don’t confuse profit margin with profit dollars

─ What kind of numbers are we really talking about?

7


Projection Model of the Medicare Supplement Market─ Modeling results developed for Plans F and G issues in 2020 and beyond

─ Objective: Provide insight on the key change drivers, get a sense of directional impact and overall potential scale

Underlying Data Sources─ Health Coverage PortalTM by Mark Farrah Associates. Medicare Supplement Insurance Experience Exhibit data

as filed in NAIC Annual Statements (2017 version)

─ 2017 Medicare Trustees Report

─ Milliman Health Cost Guidelines – Ages 65 and Over

─ CMS – Medicare 5% Sample claims and enrollment data

─ Industry rate tables

8

Quantifying Potential MACRA Implications Projection Model Methodology

─ Project sales, inforce, premium, and claims by:

Plan

Age

Gender

Issue Status (Open Enrollees, Guarantee Issue, Underwritten)

Calibrate to current market levels and project future enrollment

─ Lots of assumptions

Distribution by issue status, age, gender and relative morbidity levels

Underwriting impact

Future Sales by Plan

Others (Claims trend, rate increases, aging, persistency, etc.)

9

Quantifying Potential MACRA Implications Projection Model Methodology (continued)

─ Develop “Status Quo” projection / simulation of Plans F and G sales in the market starting 2020. Status Quo means MACRA doesn’t exist.

─ Duplicate Status Quo model and apply MACRA restrictions which result in a shift in sales from Plan F to Plan G at a granular level.

─ Model results ignore market reaction (i.e., rate action) to counter impact of MACRA.

─ Model various reasonable assumption scenarios.

Look for consistent patterns

Understand differences and key drivers

10


Model results presented─ Based on a plausible and realistic set of assumptions

─ Certainly other sets of plausible and reasonable assumptions exist. Actual future results will differ from projection assumptions

─ Provide insight on the key change drivers, get a sense of directional impact and overall potential scale

─ Specific carrier experience and reaction to MACRA will certainly vary

1110th National Medicare Supplement Summit, June 12-14, 2018 #medsupp2018

Projected Membership (million) – 2020 and later issuesStatus Quo

1.1 2.0

2.9 3.7 4.5 5.1

0.6

1.2

1.7 2.2

2.6 3.0

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

11

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

1.0512865201

0.6161347242

2.0162475371

1.1803513946

2.9005763533

1.6963068255

3.7114408168

2.1684847613

4.4554538772

2.6010024348

5.1399693371

2.9983737617

Sheet1

Plan FPlan GColumn1

20201.10.6

20212.01.2

20222.91.7

20233.72.2

20244.52.6

20255.13.0

To resize chart data range, drag lower right corner of range.


Projected Membership (million) – 2020 and later issuesMACRA

0.6 1.1 1.51.9 2.1 2.31.0

2.13.1

4.05.0

5.9

0.01.02.03.04.05.06.07.08.09.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

12

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

0.630771912

1.0366493323

1.1372918929

2.0593070388

1.5392934804

3.0575896985

1.8566974368

4.0232281413

2.0980727542

4.9583835578

2.27204644

5.8662966588

Sheet1

Plan FPlan GColumn1

20200.61.0

20211.12.1

20221.53.1

20231.94.0

20242.15.0

20252.35.9



Projected Premium ($ billion) – 2020 and later issuesStatus Quo

2.44.9

7.410.0

12.615.3

0.8

1.6

2.5

3.4

4.2

5.1

0.0

5.0

10.0

15.0

20.0

25.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

13

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

2.3925889987

0.8125987358

4.8657895293

1.6470174138

7.4059511978

2.4943151269

10.015425149

3.3623037931

12.6388638863

4.2326930349

15.3395555981

5.1219244602

Sheet1

Plan FPlan GColumn1

20202.40.8

20214.91.6

20227.42.5

202310.03.4

202412.64.2

202515.35.1



Projected Premium ($ billion) – 2020 and later issuesMACRA

1.5 3.04.2 5.4 6.5

7.41.3

2.74.3

6.07.7

9.6

0.0

5.0

10.0

15.0

20.0

25.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

14

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

1.5440472244

1.30094016

2.9636376002

2.7377555981

4.2457562659

4.2913431423

5.4373531704

5.9563498273

6.4966352655

7.7039575262

7.43815849

9.5686163017

Sheet1

Plan FPlan GColumn1

20201.51.3

20213.02.7

20224.24.3

20235.46.0

20246.57.7

20257.49.6



Projected Claims ($ billion) – 2020 and later issuesStatus Quo

1.83.7

5.77.7

9.811.8

0.6

1.2

1.9

2.6

3.3

4.0

0.02.04.06.08.0

10.012.014.016.018.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

15

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

1.8190874137

0.589127675

3.7282867428

1.2248455583

5.7277856362

1.9035312233

7.7342646879

2.5848562129

9.7554456592

3.2705422232

11.7986638594

3.9627814293

Sheet1

Plan FPlan GColumn1

20201.80.6

20213.71.2

20225.71.9

20237.72.6

20249.83.3

202511.84.0



Projected Claims ($ billion) – 2020 and later issuesMACRA

1.1 2.23.2 4.1

5.0 5.71.0

2.13.4

4.76.1

7.5

0.02.04.06.08.0

10.012.014.016.018.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

16

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

1.1007398561

0.9878933125

2.16679224

2.1098634702

3.1985826096

3.3582485246

4.1348258049

4.673911429

4.9765252295

6.0622626904

5.7213674997

7.5307711177

Sheet1

Plan FPlan GColumn1

20201.11.0

20212.22.1

20223.23.4

20234.14.7

20245.06.1

20255.77.5



Projected Retention ($ billion) – 2020 and later issuesStatus Quo

0.61.1

1.72.3

2.93.5

0.2

0.40.6

0.8

1.0

1.2

0.0

1.0

2.0

3.0

4.0

5.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

17

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

0.5735015851

0.2234710607

1.1375027865

0.4221718555

1.6781655617

0.5907839036

2.2811604612

0.7774475801

2.8834182271

0.9621508117

3.5408917387

1.1591430309

Sheet1

Plan FPlan GColumn1

20200.60.2

20211.10.4

20221.70.6

20232.30.8

20242.91.0

20253.51.2



Projected Retention ($ billion) – 2020 and later issuesMACRA

0.4 0.81.0 1.3 1.5

1.70.3

0.60.9

1.31.6

2.0

0.00.51.01.52.02.53.03.54.04.55.0

2020 2021 2022 2023 2024 2025

Plan GPlan F

18

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Plan F

Plan G

0.4433073683

0.3130468474

0.7968453602

0.627892128

1.0471736564

0.9330946177

1.3025273655

1.2824383983

1.5201100359

1.6416948358

1.7167909903

2.037845184

Sheet1

Plan FPlan GColumn1

20200.40.3

20210.80.6

20221.00.9

20231.31.3

20241.51.6

20251.72.0



Projected Loss Ratios – 2020 and later issuesPlan F

19

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Status Quo

MACRA

0.76

0.713

0.766

0.731

0.773

0.753

0.772

0.76

0.772

0.766

0.769

0.769

Sheet1

Status QuoMACRAColumn1

202076.0%71.3%

202176.6%73.1%

202277.3%75.3%

202377.2%76.0%

202477.2%76.6%

202576.9%76.9%



Projected Loss Ratios – 2020 and later issuesPlan G

20

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Status Quo

MACRA

0.725

0.759

0.744

0.771

0.763

0.783

0.769

0.785

0.773

0.787

0.774

0.787

Sheet1


202072.5%75.9%

202174.4%77.1%

202276.3%78.3%

202376.9%78.5%

202477.3%78.7%

202577.4%78.7%



Projected Loss Ratio – 2020 and later issuesPlans F and G

21

Chart1

20202020

20212021

20222022

20232023

20242024

20252025

Status Quo

MACRA

0.751

0.734

0.761

0.75

0.771

0.768

0.771

0.773

0.772

0.777

0.77

0.779

Sheet1


202075.1%73.4%

202176.1%75.0%

202277.1%76.8%

202377.1%77.3%

202477.2%77.7%

202577.0%77.9%


22

Quantifying Potential MACRA Implications Takeaways

─ Overall market projection requires aggregate assumptions.

─ Impact on specific carrier experience will vary based on various factors. Key among them are:

Rate Structure and pre-MACRA rating relativities between Plans F and G

Level of underwriting

Sales demographics and distribution

─ Impact will be greater for strictly underwritten business and vice versa.

─ Impact will be greater for business sold predominately to open enrollees and vice versa.

─ Impact will be smaller for companies currently selling a significant amount of Plan G relative to Plan F.

Kenneth L. Clark, FSA, MAAA

Thank you

[email protected]

Proprietary and Confidential | © General Reinsurance Corporation

Society Of Actuaries2018 Health MeetingJune 25 - 27, 2018

MACRA Implications on Medicare Supplement

Robert HimmelsteinActuarial Vice President, ASA, MAAA


The material contained in this presentation has been prepared solelyfor informational purposes by Gen Re. The material is based onsources believed to be reliable and/or from proprietary datadeveloped by Gen Re, but we do not represent as to its accuracy orits completeness. The content of this presentation is intended toprovide a general guide to the subject matter. Specialist adviceshould be sought about your specific circumstances.

Proprietary Notice

MACRA Implications On Medicare Supplement | Robert Himmelstein, Actuarial VP, ASA, MAAA | June 26, 2018 2


• Medicare Access and CHIP Reauthorization Act of 2015Public Law 114-10—Apr. 16, 2015; 129 Stat. 87.

Congressional Record. Vol. 161 (2015). https://www.congress.gov/114/plaws/publ10/PLAW-114publ10.pdf

SEC. 401. (Of Title IV Subtitle A):

LIMITATION ON CERTAIN MEDIGAP POLICIES

FOR NEWLY ELIGIBLE MEDICARE BENEFICIARIES.

What Is MACRA?


https://www.congress.gov/114/plaws/publ10/PLAW-114publ10.pdf


• Repealed the Sustainable Growth Rate

• Extended federal funding for the Children’s Health Insurance Program

• Prohibits first dollar Part B coverage on

Medicare Supplement plans- to "newly eligible" Medicare Beneficiaries

- Plan D replaces Plan C and Plan G replaces

Plan F within regulations

• In addition- Extended the dates on certain Medicare Advantage benefits

- Adjusted income related premiums for Medicare and Medicaid programs

- Established studies and actions aimed at reducing waste and fraud

What does MACRA do?



• Part B Deductible- Perceived to increase overall Medicare Claim Costs

- Tried to convey the seniors need

- Does deductible coverage lead to higher utilization or

- Do sicker people just buy the fuller plans

• Medicare Supplement is Guaranteed Renewable- Changes try to Grandfather Existing Policies

- 1990 (OBRA) – 1992 Standardized Plans

- 2003 (MMA) – Removed Drug Benefits

- 2008 (MIPPA) – Changed Medicare Benefits – 2010 Modernized

Why do MACRA do what it do?



• For Medicare Supplement - Part B – Physician Services

- Deductible

- Plans C and F only

- $183 in 2018

• With Removal Of Part B Deductible- Plans C & F become redundant with Plans D & G

- Plans C & F are no longer to be sold to newly eligible

- By Regulation Plan D replaces Plan C and Plan G replaces Plan F

- Addition of new Plan G High Deductible

What is “first dollar Part B coverage”?



• Anyone Who- Attains age 65 on or after January 1, 2020

- First becomes eligible for Medicare benefits on or after January 1, 2020

- Age

- Disability

- End-Stage Renal Disease

• On the flip side, current enrollees- Can continue with their Plan C or Plan F,

including F High Deductible

- May continue to buy Plans C and F

beyond January 1, 2020

Who is “newly eligible”?



• They Don’t

Do Plans C & F change?



• They Don’t

• Is it really that simple?

• Who is buying?- People switching from other companies

- Upgrades within a company

- GI from losing Medicare Advantage,

leaving employment & 5 other reasons

• Currently companies underwrite approximately 40-70% of policies

• High Deductible Plan F- Same changes as Plan F

- Already High Deductible

Do Plans C & F change?



• They Do

• Plans D and G will be deemed to be treated as Plans C and F- What that means is now Guaranteed Issue eligible

- New Plan G High Deductible

- Has to be offered whenever C and F was

• This might be able to be considered a

new underwriting class

• If new plans or new series- Price based on current, adjusted?

- Price from basics?

Do Plans D & G change?



• Plans C & F- Better business mix

- Lower rates?

- Develop organically?

- Rate reductions?

- Seven GI States

How will companies adjust rates?



• Plans D & G- Worse business mix

- Raise rates?

- Develop organically?

- Rate Increases?

- Current inforce

- New series – like 2010

- New underwriting class

- Adjust organically

- Apply for prospective increases

- Game of chicken?




• 2003 logic: When Drug Plans were no longer available for sale- Policy Holders with Plans H, I & J could keep them as is

- Or keep them as H’, I’, J’ or some variation

- Sales did not continue

• 2010 logic: Modernized, new forms replace old- Brand new series

- Just Plans D & G? Also C & F? All plans?

- Actuarial equivalence varied greatly by state

- Original rates?

- Rate Increases? with the same Plan letter




• Within each type of policy, an issuer is permitted up to five policy forms - Variations based on inclusion of innovative benefits, marketing methods,

underwriting methods, and eligibility for Medicare (aged versus disabled)

• Predictive rate increases vs Experience based rate increases- Many companies filed higher rate increases Plans C & F

- 13% Increase in Part B Deductible 2016;

- 10% Increase in Part B Deductible 2017

- Not as successful in 1990s with Medicare+Choice

- Intro & Company pull out

- Effects, not as obvious

- Mix of business, new and old




• Plans A & B are unchanged and still subject to Guarantee Issue

• Plans K, L and M are unchanged, and still not subject to GI, but who cares

• Plan N is unchanged and still not subject to GI

• Waiver States have to stop Part B Deductible sales, same eligibility rules - MA, MN, WI

- Usually as rider

- 7% of total sales premium

- Not in graph

So what about the other plans?


Mkt Share A & BC & F

D & G

K, L, M

N

C & F

D & G

N

Plans no longer sold E (ACA); H, I, J (MMA)


• Why do agents sell so much Plan F- Plan F far most popular

- Commissions not paid on “Part B Deductible”

• In IL, for a 70 y/o female, rates on average are $350 more for a Plan F- Illinois is representative of a state where a lot of companies are marketing

- Its rates close to the Nationwide Average

- There isn’t a huge disparity between the high and low cost areas

- Ken will cover more of actuarial why as to the difference later

- But, to the insured, the difference is still $183

- Seniors want the most they can afford?

How will sales change?



• With expected better experience- Will companies still have a focus on Plan F?

- Too small to care?

- Short term?

- Pursue replacements?

• Plan G sales should dominate

• Will Plan N increase popularity?

• Rate Differential- Not just an academic question

- Will need to justify to state

- New rate

- Rate increases

How will sales change?



QUESTIONS



• Do Plans C and F need to be offered?

• What will states allow?

• Premium Refunds- Raised as an issue with the NAIC guidelines changing

- Refund calculations are made at the “type” level

- F & Hi F together

- H & H’, I & I’, J & J’

- Standardized and Modernized?

- Life years key component

Questions



Visit genre.com for more info.

Thank youRobert Himmelstein, Actuarial VP, ASA, MAAA (203) [email protected]/in/rhimmelstein


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