CONFIDENTIAL/PROPRIETARY Part III - Actuarial Memorandum and Certification I. General Information a. Company Information Company Legal Name: Blue Cross and Blue Shield of Arizona State: Arizona NAIC #: 53589 HIOS Issuer ID: 53901 Market: Individual Effective Date: 01/01/2018 b. Company Contact Information Primary Contact Name: Scott Mack Primary Contact Telephone Number: 602-864-5381 Primary Contact E-mail: [email protected]Responsible Actuary Name: Scott Mack Responsible Actuary Telephone Number: 602-864-5381 Responsible Actuary E-mail: [email protected]c. Filing Information Type of Filing: Revised Type of Plan: HMO, Non-Association, On and Off Exchange, New and In-force Business Latest effective date for which rate increases are being submitted: 12/31/2018 II. Purpose and Assumptions for Proposed Rates 1. Background BlueCross and BlueShield of Arizona (BCBSAZ) closed all of our non-grandfathered, transitional products sold in the Individual market effective 12/31/13, and began marketing our new, Single Risk Pool (SRP) products on 1/1/2014. On March 2, 2017, the Arizona Department of Insurance issued an industry memorandum extending its prior determination regarding transitional policies. The re-determination will allow individuals to renew into their non-ACA transitional plans until 12/31/18. Our SRP population alone averaged 75,349 members during 2016; which we believe is a credible base for the calculations. On page 8, the URRT instructions state that both our SRP and 1
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CONFIDENTIAL/PROPRIETARY
Part III - Actuarial Memorandum and Certification I. General Information
a. Company Information
Company Legal Name: Blue Cross and Blue Shield of Arizona
Type of Plan: HMO, Non-Association, On and Off Exchange, New and In-force Business
Latest effective date for which rate increases are being submitted: 12/31/2018
II. Purpose and Assumptions for Proposed Rates
1. Background
BlueCross and BlueShield of Arizona (BCBSAZ) closed all of our non-grandfathered, transitional products sold in the Individual market effective 12/31/13, and began marketing our new, Single Risk Pool (SRP) products on 1/1/2014. On March 2, 2017, the Arizona Department of Insurance issued an industry memorandum extending its prior determination regarding transitional policies. The re-determination will allow individuals to renew into their non-ACA transitional plans until 12/31/18. Our SRP population alone averaged 75,349 members during 2016; which we believe is a credible base for the calculations. On page 8, the URRT instructions state that both our SRP and
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transitional plans should be included in our experience in order to demonstrate the single risk pool. However, the instructions also state that the projection period should reflect the experience of transitional policies to the extent the issuer anticipates the members in those policies will be enrolled in single risk pool plans during the projection period. Because our transitional plans will continue through the end of 2018 and, we do not expect the members in these plans will be enrolled in single risk pool plans in 2018, we adjusted the experience of the transitional plans to match the SRP experience and, thereby, removed its impact to the projection period, as stated in the instructions. This is described in detail in Section V below. For 2018, we are offering plan options that are very similar to those offered in 2017. Note that this year, some plans have been further broken out by service area or county and assigned separate HIOS Plan IDs, so a total of 36 plans that will be marketed across all service areas in 2018. They are shown in the Unified Rate Review Template (URRT).
2. Explanation of Historical Rate Increases This section explains the Historical Rate Increases for Calendar Year 2 (2014 to 2015), Calendar Year 1 (2015 to 2016), and Calendar Year 0 (2016 to 2017) on Worksheet 2, rows 22 through 24 of the Unified Rate Review Template (URRT). There are three types of plans shown on Worksheet 2 of the URRT:
1. Terminated Plans 2. Plans new to 2018 with members mapped from 2017 3. Plans new in 2017 that are renewing in 2018
There are no original 2014, 2015 or 2016 plans remaining to be sold in 2017. Thus, rate increases for Calendar Year 2 (2014 to 2015) and Calendar Year 1 (2015 to 2016) are all 0%. The historical rate increases for calendar year 2016 and 2017 shown on Worksheet 2 of the URRT will vary:
1. Type 1: Historical rate increases for terminated plans are listed as optional in the URRT instructions and have not been calculated. Instead, they are listed as 0%.
2. Type 2: Since these plans were new in 2018, the plan has not yet experienced an increase. So the historical increases are 0%.
3. Type 3: Since these plans were new in 2017, the plan has not yet experienced an increase. So, the historical rate increases are 0%
3. Reason for Rate Filing (Increase)
The proposed rates for 2018 were developed using 2016 SRP experience and applying trend and other rating factors to calculated necessary rate tables for 2018. The proposed rate tables for 2018 are then compared to current 2017 rate tables to calculate the proposed rate increases shown in Section I, Worksheet 2 of the URRT. The significant factors driving the development of our proposed rate increase are shown below. This is not a comprehensive list of all the factors affecting the rate increase. Each factor is explained in detail in Section V below.
a. Medical Inflation – Includes both cost and utilization trends. Cost trends are based on our known and projected contracting arrangements with providers. Utilization trends incorporate external factors that may impact the trends in our analysis, e.g., Arizona unemployment rate and medical outbreaks (e.g., flu). Our overall annual cost trend is 3.05% and our overall annual utilization trend is 4.67% from 2016 to 2018.
b. Changes in Population Morbidity – We now have three years of experience on the SRP plans, which allows us to better predict the components of this adjustment factor.
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i. Adjustment for Transitional Plan Experience – The URRT instructions explicitly state that transitional plan projections should only be included to the extent that members are enrolled in SRP plans in 2018. Since transitional plans will continue in 2018, an adjustment of 70.10% was made to the population morbidity of transitional plans to match the SRP experience. This effectively eliminates their impact on the projection period, per the URRT instructions.
ii. Adjustment for Individual Mandate - Due to the expected elimination of the individual mandate and associated penalties in 2018, we are projecting an impact of 4.06%. This factor has changed slightly since the prior filing as a result of an adjustment to the calculation subsequent to that filing. This is discussed further in Section V. The overall weighted adjustment for items i and ii is 19.34%.
c. Network Changes – In 2017 we eliminated our Narrow network offerings in favor of broader networks. The same 2017 networks are still in effect for our 2018 offerings. The effective aggregate discounts of the narrow network plans were lower than our broader networks and increased the overall weighted discount. The overall adjustment to remove the narrow network discounts, relative to our 2016 weighted discount, is 11.31%.
d. Changes in Benefits Covered – Our experience period includes transitional plans with benefits different than required EHBs; additionally, the required EHBs in 2018 are different than EHBs in 2016. The overall adjustment for benefit changes is 1.14%.
e. Changes in Expected Benefit Richness – We expect the average benefit plans in 2018 to be slightly higher than 2016. This will result in a benefit richness adjustment to utilization of 3.15%.
f. Changes in Reinsurance Reimbursement – The reinsurance program for Individual plans ended in 2017. No reinsurance recoveries are projected for 2018 and no adjustments were made to 2017 rates for expected changes in reinsurance as per the URRT instructions.
g. Changes in Risk Adjustment Payment/Receivable – We received the CMS interim
Risk Adjustment report for 2016. It indicated that our Risk Adjustment receivable of $34,198,173, or $37.82 PMPM in 2016. This would imply that our population has a higher level of morbidity than the overall market. Given that we are the only carrier in the rural markets in 2017, the new members we enroll should be close to the overall market in risk level, therefore, we expect improved morbidity and a population weighted more heavily towards the Silver and Bronze levels, as evidenced by CMS county level enrollment reporting for 2016 and 2017. As a result, we expect a much smaller receivable in 2018 than in 2016. Based on our projected population, we estimate a receivable of $7.17 PMPM. The overall adjustment for this payable is -0.94% to our 2018 index rates.
These are the significant factors driving the necessary 2018 rates. All of the factors shown are relative to 2016 experience which combine SRP plans and transitional plans. The Cumulative Rate Change shown in Section I of Worksheet 2 compares the proposed 2018 rates to current, 2017 rates for plans that are mapped from 2017. The following details how the Cumulative Rate Change shown in Section I of Worksheet 2 is calculated. Rate Change % (over prior filing): As noted in the above Section II Part 2 regarding the 2016 rate increase, the four types of plans shown on the Worksheet 2 of the URRT include:
1. Terminated Plans
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2. Plans new to 2018 with members mapped from 2017 3. Plans new in 2017 that are renewing in 2018
The rate change (over prior filing) shown on Worksheet 2, Section I, row 26 of the URRT, will vary for these four types of plans. The following is an explanation of how the increases from 2017 to 2018 were calculated. Type 1 Rate Change %: For Type 1, this is not applicable to terminated plans, so this section is shown as 0%. Type 2 Rate Change %: For Type 2, since members will be mapped from 2017, we have calculated an increase for these plans. The following section demonstrates a sample calculation of the rate change % using the EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal). Example calculation for a Type 2 Plan We start with all 2017 plans mapped to the EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal) plan for 2018.
2017 2017 => 2018 2018 Plan Name Action Plan Name
EverydayHealth HMO 4000 - Neighborhood
Network (Service Area: Pinal, Gila)
EverydayHealth HMO 4000
Discontinued Pinal county mapped
to =>
EverydayHealth HMO 4000 - Neighborhood Network,
HIOS ID: 53901AZ1420008 (Service Area: Pinal)
Calculating the increase is a three-step process. Step 1 – 2017 total monthly premium: First we calculate the 2017 monthly premium portion of the 2017 plan this is mapped to the EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal) plan. This is done by developing the 2017 monthly premiums for the Pinal portion of the 2017 plan (EverydayHealth HMO 4000 - Neighborhood Network (Service Area: Pinal, Gila), Pinal county members only) based on a snapshot of March 2017 membership. The EverydayHealth HMO 4000 - Neighborhood Network (Service Area: Pinal, Gila), Pinal county members only, 2017 monthly premium is calculated using 3/17 demographics (age, area, tobacco status) from actual 3/17 Pinal members and the 2017 plan factors for the EverydayHealth HMO 4000 - Neighborhood Network (Service Area: Pinal, Gila), Pinal county members only. The total 2017 monthly premium is $3,763,048. Step 2 - Theoretical 2018 total monthly premium: Next we calculate the theoretical 2018 monthly premium for EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal). This is calculated by applying the 3/17 demographics (age, area, tobacco status) for all 3/17 mapped members (Pinal members only) and the 2018 plan factors for the EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal). The total 2018 theoretical monthly premium for this plan is $3,745,054.
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Step 3 – Calculation of the increase: Thus the rate change % (over prior filing) for the EverydayHealth HMO 4000 - Neighborhood Network, HIOS ID: 53901AZ1420008 (Service Area: Pinal) plan is $3,745,054/ $3,763,048 – 1 = -0.5% as shown on Worksheet 2. Type 3 Rate Change %: For Type 3, the following section demonstrates a sample calculation of the rate change % using the EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai). This methodology is taken from Appendix B of the URRT instructions. Example calculation for a Type 3 Plan We start with all 2016 plans mapped to the EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai) plan for 2017.
2017 2017 => 2018 2018 Plan Name Action Plan Name
EverydayHealth HMO 6500 - Neighborhood
Network (Service Area: Yavapai)
Standard Renewal EverydayHealth HMO 6500 - Neighborhood Network,
HIOS ID: 53901AZ1420018 (Service Area: Yavapai)
Calculating the increase is a three-step process. Step 1 – 2017 total monthly premium: First we calculate the 2017 monthly premium for EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai) plan. This is done by developing the 2017 monthly premiums for EverydayHealth HMO 6500 - Neighborhood Network (Service Area: Yavapai) based on a snapshot of March 2017 membership. The EverydayHealth HMO 6500 - Neighborhood Network (Service Area: Yavapai) 2017 monthly premium is calculated using 3/17 demographics (age, area, tobacco status) from actual 3/17 EverydayHealth HMO 6500 - Neighborhood Network (Service Area: Yavapai) members and the 2017 plan factors for EverydayHealth HMO 6500 - Neighborhood Network (Service Area: Yavapai).The total 2017 monthly premium is $2,353,790. Step 2 - Theoretical 2018 total monthly premium: Next we calculate the theoretical 2018 monthly premium for EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai). This is calculated by applying the 3/17 demographics (age, area, tobacco status) for all 3/17 mapped members and the 2018 plan factors for the EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai). The total 2018 theoretical monthly premium for this plan is $2,320,546. Step 3 – Calculation of the increase: Thus the rate change % (over prior filing) for EverydayHealth HMO 6500 - Neighborhood Network, HIOS ID: 53901AZ1420018 (Service Area: Yavapai) plan is $2,320,546/ $2,353,790 – 1 = -1.4% as shown on Worksheet 2. Please see the attached Exhibit A in the appendix for a mapping document for 2017 plans that were mapped into the 2018 plans for calculation of the rate change %.
4. Allocation of Increase Section II of Worksheet 2, the Average Current Rate PMPM was calculated using a snapshot of the February 2017 average age, average area, and appropriate rate factors for each renewing
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plan and new plan with mapped members. For new plans with mapped enrollment, the Average Current Rate PMPM is the weighted average of the mapped plans per the URRT instructions. The -$10.39 PMPM shown in the total column for the total rate increase is not reflective of the actual increase, since the total rate increase is simply the rate increase by plan weighted with experience period member months, which are largely concentrated in terminated products. Per the URRT instructions, we include expected changes in payments and charges under the risk adjustment and reinsurance in addition to the administrative costs of these programs in the taxes and fees line. For reference, the total average allocation of increase shown in Section II of Worksheet 2 is shown below:
Components of Premium Change (PMPM Dollar Amount above Current Average Rate)
Total
Inpatient ($1.63) Outpatient ($1.51)
Professional ($2.26) Prescription Drug ($0.21)
Other ($1.33) Capitation $0.00
Administration ($4.08) Taxes & Fees ($2.03)
Risk & Profit Charge $2.66
Total Rate Increase ($10.39)
5. PMPM Allocation of Current and Projected Premium The following table illustrates the allocation of the 2017 Projected Single Risk Pool Gross Premium Avg. Rate, PMPM shown on last year’s URRT Worksheet 1, Section III and the current Projected Single Risk Pool Gross Premium Avg. Rate, PMPM shown in the current year’s URRT Worksheet 1, Section III. The 2017 Projected Single Risk Pool Gross Premium Avg. Rate, PMPM can be compared to the total Average Current Rate PMPM shown on row 47 of Worksheet 2, Section II of the current URRT. Differences between the 2017 projected and 2017 actual rates are due to differences in demographics.
Taxes & Fees 35.29 5.3% 76.40 10.1% Single Risk Pool Gross Premium
Avg. Rate, PMPM $663.34 100.0% $759.46 100.0%
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6. Explanation of Varied rate increases among products and plans in same single risk pool
Worksheet 2, Section I, row 26 of the URRT shows the 2018 rate change by plan for all our 2017 SRP plans that will continue in 2018. The rate change varies by plan due to cost sharing changes, which vary by plan; in addition to the recalculation of benefit richness and leveraging by plan. Our negotiated discounts for the different networks offered have also changed. The impact by 2018 plan of cost sharing changes and network discounts is shown in Exhibit B.
III. Experience Period Premium and Claims
This section describes our best estimate of premium and claims for the single risk pool during the experience period and shown in URRT Worksheet 1, Section I. We will provide additional comments on the experience period information on Worksheet 2, Section III when applicable. Paid thru date: 03/31/2017 Premiums (Net of MLR Rebate) in experience period: We are not paying a rebate for 2016. The 2016 premiums are $441,620,028. This value is shown on Worksheet 1, Section I, row 14 of the URRT; the analogous calculation on Worksheet 2 is the Total Premium in Section III, row 57. The Total Premium on Worksheet 2 are those earned in 2016.
Allowed, incurred claims incurred during experience period: Claim costs for the experience period are based on our entire transitional and SRP book of business. The claims were incurred in CY 2016 and paid through 3/31/2017. CY 2016 claim costs include claims that were processed by BCBSAZ, Out-of-State claims that were processed by other Blue Cross and Blue Shield plans, capitated costs, and claims that were processed by a PBM. The table below shows a breakdown of our incurred and paid claims.
Claims Incurred in 2016
Processed Incurred and General Category Paid Through In System Paid Claims Medical Claims Payment thru March 2017 In $346,663,181 Rx Claims Payment thru March 2017 Out $98,287,646 OOS Other BCBS Plans Payment thru March 2017 Out $26,262,936 Capitated Claims Paid in 2016 Out $1,133,651 Total $472,347,414 % of Total Claims processed in the System 73% The above table excludes adjustments due to Reinsurance, Risk Adjustment, and Rx Rebates. We estimate our outstanding claims liability on a monthly basis. To calculate this estimate we use several different methodologies, depending on how much run-out a specific month has. For incurred months with several months of run-out, we use completion factors that we generate from our claim lag tables. For more recent months, we determine outstanding payments by looking at completion factors, inventory and trend. We break our claim lag tables into Inpatient facility, Outpatient facility, Professional and Drug. We exclude individual hospital inpatient claims that paid more than $70,000 from our lag tables and analyze those separately. We do this to eliminate the distorting effect large
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claims can have on lag tables. Once we have developed our claims reserve for these more recent months, we use that to determine our monthly completion factors. Our claim lag tables include payments from all sources listed above, except capitated services. No claims reserve is calculated for those services; the capitation payment is the complete payment for the service. Because completion rates for our allowed claims as compared to our paid claims are not significantly different after 2 months of run-out, we use the same completion factors generated by our paid claims reserve estimate to complete our allowed claims. The table below shows the consistency in run-out for both paid and allowed claims for all services combined. In both columns we are developing the ratio between the payments for a 12 month period with no run-out and 2 months of run-out. The relationship is essentially the same for both paid and allowed claim amounts.
Ratio of 12 Month Periods with no Run-out to 12 Month Periods with 3 Months Run-out
The 12 month average factors are calculated by applying paid completion factors on a monthly basis; for example, the completion factor for our December outstanding incurred outpatient facility claims is 0.954 with 3 months of run-out. We would use that factor to complete both paid and allowed claims that were incurred in December 2016. Our claims data utilized in the experience period has 3 months of run-out. Generally a 12 month experience period with 3 months of run-out is at least 98% complete; therefore our outstanding claims reserve is at most 2% of medical claims. The table below shows the aggregate completion rate for various 12 month periods of time ending during CY 2016 with 3 months of run out, compared to our ultimate expected claims level. To develop this table, completion factors were applied to each incurred month and aggregated for the 12 month period shown. For example, the row labeled Jan-16 covers the incurred period 2/15-1/16 and paid through 3/16 compared to our ultimate expected allowed or paid claims estimate for 2/15-1/16. As shown, the allowed claims for CY 2016 with 3 months of run out are 98.1% complete and our paid claims are 98.1% complete.
Based on our total payments, our outstanding allowed claims are $13,382,340, and our outstanding paid claims are $11,093,607 for CY 2016 as of March 31, 2017. The total allowed claims dollars are $598,010,710 or $449.98 PMPM. This was developed from direct claims costs on an allowed basis and the reserves outlined above. Allowed claims are developed directly from claim records at the allowed level with the outstanding allowed claims adjustment. The actual allowed claims by plan in aggregate and on a PMPM basis are shown on row 16 of Worksheet 1, Section I and on rows 61 and 74, respectively, of Worksheet 2 of the URRT. Included in the transitional claim costs were expenses for non-EHB benefits. The adjustments shown below were applied to our allowed (PMPM) transitional costs to calculate the index rate for the experience period in Section I, on Worksheet 1 of the URRT.
Current Benefits Greater Than EHB Requirements
Estimated Current Benefits are Greater Medical Allowed
Service Than EHB Requirements Applicable Population % Impact Dental Services - Accidental Only
Dental repair due to injury is covered anytime, benchmark only covers within 6 months of injury
Transitional 0.00%
DME Coverage of wigs and TED hose Transitional 0.00% Family Planning &
Contraceptive Services Limit implantable contraceptives to 1 every 5 years
Transitional -0.04%
Hospice Services Respite care coverage Transitional 0.00% Transplants Expenses incurred by a donor when
recipient of organ is covered by BCBSAZ (up to6 months after surgery)
Note that the -0.85% and -0.19% adjustments are applied to medical claims only, excluding prescription drugs and capitated services. Therefore, the total blended allowed claims adjustment is -0.27%. Adjusting the allowed claims, $449.98 PMPM, by -0.27% produces the index rate of the experience period of $448.79, rounded to $449.00 to the nearest dollar.
IV. Benefit Categories We have categorized our claims costs into the categories shown in Section II of Worksheet 1. Below is a description of the criteria we used to classify the claims costs. Inpatient: Utilization based on admits - Includes non-capitated facility services for medical, surgical, maternity, mental health and substance abuse, skilled nursing, and other services provided in an inpatient facility setting and billed by the facility. Outpatient: Utilization based on unique claim count - Includes non-capitated facility services for surgery, emergency room, lab, radiology, therapy, observation and other services provided in an outpatient facility setting and billed by the facility. Professional: Utilization based on unique claim count - Includes non-capitated primary care, specialist, therapy, the professional component of laboratory and radiology, and other professional services, other than hospital based professionals whose payments are included in facility fees. Medical Other: Utilization based on unique claim count - Includes non-capitated ambulance, home health care, DME, prosthetics, supplies, vision exams, dental services and other services. Capitation: Utilization based on number of encounters, or visits - In the experience period, our capitated claims costs consist of mental health services, chiropractic services, costs for a nurse on call service and individual health risk assessments. In our projection period, we are not capitating mental health services.
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Prescription Drug: Utilization based on prescriptions - All retail drug claims filled by pharmacy, whether they are retail or mail order are included in this category. Amounts are net of pharmacy rebates.
V. Projection Factors
The following factors were used to project experience period allowed claims to the projection period. Population/Risk Morbidity Factor
1. Changes in the Morbidity of the Insured Population:
i. Transitional Plans – Adjustment to SRP Only Experience in Projected Period: Per the URRT instructions, we are required to include the SRP plan and transitional plan population, in the experience period sections. However, we are also required to only reflect transitional membership in the projection period to the extent that they exist in projection period SRP plans. Transitional plans have been extended through the end of 2018, as discussed in Section II above. Thus, an adjustment is needed to the transitional experience to reflect the projected SRP experience only. Members enrolled in a transitional plan initially went through medical underwriting and, therefore, on average, have lower morbidity than SRP members who were guarantee issued. The population morbidity was adjusted so that the transitional plan experience would be equivalent to the SRP experience. This was accomplished by removing the transitional plan experience to get to what the overall rate adjustment would be when using only SRP business in the experience period. Then the population morbidity for the transitional plans was adjusted so that the overall projected necessary increase was unchanged. The resulting morbidity adjustment for the transitional plans is 70.10%. This has the effect of removing the experience from the projected period, as directed in the URRT instructions for transitional experience that was not moving into SRP plans in 2018. As discussed above in Section II, we believe the SRP business alone is credible to determine the necessary increase.
ii. Adjustment for Individual Mandate: The IRS has indicated that it will no longer require tax filers to indicate their health insurance status when filing their annual taxes per an executive order directing federal agencies to reduce the ACA’s burden on the American taxpayer. This effectively removes the individual mandate requirement of the ACA. We anticipate that this will drive some healthy, non-subsidized members to drop coverage. Our current non-subsidized 2017 population is approximately 15% of our total 2017 population. Of the 2016 population who was non-subsidized, 78% were healthy, which we defined as having a calendar year loss ratio (prior to risk adjustment) of 50% or less. Thus, we assumed that 78% of the 2017 non-subsidized population, or 15% x 78% = 12% of the total population, would be incentivized to drop coverage due to the removal of the individual mandate requirement. We tested the impact to claims of between 45% - 75% of this population leaving, this resulted in an impact of 4.1% - 7.1% to our claims cost, therefore we believe an adjustment of 4.06% is reasonable.
To determine our overall weighted morbidity impact to claims, we applied the morbidity factors of (1 + 70.10%) x (1 + 4.06%) = 1.770 to the transitional plans, which make up 21.0% of experience period allowed claims, and (1 + 4.06%) = 1.041 to the SRP plans, which make up 79.0% of experience period allowed claims. This resulted in a weighted average factor of 1.770 x 21.0% + 1.041 x 79.0% = 1.193.
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2. Catastrophic Plan Adjustment: We have developed seven different Catastrophic plans (HIOS
Plan IDs: 53901AZ1420029, 53901AZ1420030, 53901AZ1420031, 53901AZ1420032, 53901AZ1420033, 53901AZ1420034, 53901AZ1420035). This population will only contain individuals that are less than 30, and individuals that cannot obtain “affordable” coverage at a Bronze level. Therefore, we expect it to contain a different set of demographics that will have very different utilization patterns. Using claims data from our current IU65 market that reflects utilization patterns for selective markets, we are projecting an additional reduction of 29% in utilization for these members relative to our projections for Gold, Silver and Bronze members. Weighting this by their overall projected 2018 market size of 1.6% produces a reduction to the overall utilization of -0.4%. This corresponds to an adjustment factor of 1 + (-0.4%) = 0.996. The following table shows the components of the Population/Risk Morbidity factor shown on Worksheet 1:
Inpatient Hospital 0.996 1.193 1.188 Outpatient Hospital 0.996 1.193 1.188 Professional 0.996 1.193 1.188 Other Medical 0.996 1.193 1.188 Capitation 0.996 1.000 0.996 Prescription Drug 0.996 1.193 1.188
Total 0.996 1.193 1.188
Other Factor
1. Changes in Benefits: Non-EHB’s were removed from our claims (excluding Prescription Drug and Capitation) as described in Section III. This results in -0.85% adjustment to transitional claims (medical only) and a -0.19% adjustment to SRP claims (medical only). The total blended adjustment for medical only claims is -0.33%. The following changes were made to our claims (excluding Prescription Drug and Capitation) costs to reflect the benefit adjustments needed to provide coverage for the EHB’s. Please note there were no changes to EHB’s for 2016.
Current Benefits are Less than EHB Requirements
Current Benefits are less than EBH Requirements Benefit Year Implemented
Estimated Medical
Allowed % Impact
In-network claims settings with ancillary services provided by out-of-network providers paid as if in-network
2018 0.13%
Add coverage for HIV screening between ages of 15 - 18 2018 0.00%
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Waive in-network cost-share for diabetes and asthma education and training
2018 0.00%
Remove precertification for covering routine services associated with a clinical trial
2018 0.00%
New Procedure Covered for Bariatric Surgery 2017 0.08% Compression Garments covered for Treatment of Lymphedema 2017 0.00%
Expansion of Coverage of Wigs - Primarily for Chemotherapy or Burn patients
2017 0.00%
Cognitive Therapy Rehabilitation 2017 0.00% Hepatitis C Screening 2015 0.10% Tobacco Intervention Among Children 2015 0.05% Breast Cancer Counseling
2015 0.10%
Lung Cancer Screening 2015 0.07%
Gestational Diabetes Mellitus Screening 2015 0.05% Hepatitis B Screening 2015 0.00% Application of fluoride 2015 0.20% Screening for abdominal aortic aneurysm 2015 0.40%
Covering Preventive OON
2015 0.00%
Counseling for personal/family problems 2014 0.15% Marriage counseling 2014 0.00% Intensive outpatient (OP) services for Substance Abuse (SA) 2014 0.01%
Habilitative Services (part of PT/OT/ST visit limits) 2014 1.46% Coverage of Autism Spectrum Disorder 2014 0.00% Coverage (dental services under anesthesia in IP/OP facility) due to diabetes or hemophilia
2014 0.00%
Coverage for hearing aid batteries for cochlear implants 2014 0.00% Coverage for eating disorders, gastrointestinal disorders, and food allergies
2014 0.00%
One hearing exam per member per CY 2014 0.00% One hearing aid per CY (not including cochlear implants) 2014 0.00% Cleaning & repair of hearing aids 2014 0.00% Diagnosis of infertility 2014 0.00% Cover testicular implants following surgical removal of testicles 2014 0.00%
Coverage of 1 comprehensive low vision visit every 5 years. 2014 0.05%
Maternity 2014 5.14% Total (for transitional plans) 8.43%
Total (for Metal Plans) 0.21% Total (Blended) 1.94%
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The total blended adjustment factor is 1+ 1.94% = 1.019, this applies to all non-pharmacy and non-capitated services.
We also have several benefit adjustments that are not related to mandated, EHB changes:
Benefit Changes not related to mandated, EHB changes – Medical Benefit Description Estimated Medical
Allowed % of Impact Coverage of Mental Health benefit in Medical Claims due to removal of Mental Health from capitation (transitional plans only)
0.75%
Telemedicine - Coverage for OOS services and OON services 0.00% Adjustment to sleep study provider reimbursement to be consistent regardless of place of service
-0.01%
Coordination of benefits adjusted to use the primary payer's allowed cost rather than billed charges
-0.10%
Additional precertification required for some outpatient services (specialty drugs being redirected to be administered in a different setting)
-0.15%
Total (blended Transitional and SRP) -0.10%
The blended adjustment factor is 1 + -0.10% = 0.999, this applies to all non-pharmacy and non-capitated services.
Benefit Changes not related to mandated, EHB changes - Pharmacy
Benefit Description Est Pharmacy Allowed % Impact
Pharmacy Network Changes -0.17% Members will pay generic + difference in brand and generic allowed if a generic is available for the brand and a member chooses to purchase the brands (transitional plans only, reflected in SRP compliant experience)
-0.70%
Total (blended Transitional and SRP) -0.32%
The blended adjustment factor is 1 + -0.32% = 0.997, this applies to pharmacy services only.
2. Network Discounts: In 2018 we are no longer offering limited-network HMO products. Because of this change, we no longer expect any discounts to reduce our overall weighted allowed costs. The estimated overall discount in our experience period was -10.2%. Therefore the adjustment factor is (1-0.0%) / (1-10.2%) = 1.113.
3. Capitation: We are projecting a decrease to our overall capitated costs of -29.6%, which is
due to changes in our capitated contracts for our HMO plans. Our HMO capitated rates are tied to the benefits members are enrolled in and the below capitation adjustment factor is based on the projected 2018 enrollment by plan. The adjustment factor is 1-29.6% = 0.704, this applies only to capitated services. Note that this adjustment changed slightly from the original filing to ensure that the capitation PMPM did not change.
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4. Demographic Changes: By demographics, we mean the age and area distributions of our members. We based our projected 2018 membership by plan on our enrollment in SRP plans as of February 2017. Using the Federal Age curve in effect in 2016, the weighted average age factor for members in 2016 is 1.529 and the average age factor for our projected membership (February 2017) is 1.703 (Note: Using the 2016 Federal Age curve). Therefore, we are applying an age adjustment factor of 1.703 / 1.529 = 1.114.
We performed a similar calculation for the expected change in area distribution. The weighted average area factor for our SRP population in 2016 was 1.015 and our projected membership (February 2017) was 1.083. Therefore, we are applying an area adjustment factor of 1.083 / 1.015 = 1.067.
The Federal Age curve will change effective 1/18, with significant increases being applied to the 0-20 age bands, as well as the breakout of the 15-20 age band into single years. Overall we would expect this to increase our average premiums, so normalization is required. We recalculated our projected membership (February 2017) on the new Federal age factor curve, i.e. 1.739. A table is shown below with the calculation of the February 2017 factors before and after the Federal Age curve change. Thus, an adjustment of 1.739 / 1.703 – 1 = -2.1% is necessary to ensure the average premium received is revenue neutral.
Normalization for New Federal Age Curve Age % of Feb-17
Total Average Factor 1.703 1.739 Normalization Factor 1.703 / 1.739 - 1 = -2.1%
The combined demographic adjustment factor is 1.114 x 1.067 x (1 + -2.1%) = 1.164. Additional Utilization for CSR: As indicated in the HHS Notice of Benefit and Payment Parameters for 2016, the members that receive cost sharing reduction subsidization (CSR) are expected to have higher utilization. The permitted Federal utilization adjustments for the impact of benefit richness of these CSR members is provided as follows:
Adjustment Factor for Additional CSR Utilization
Federal Benefit Richness Factor Factor
Projected Membership
Weight
Experience Membership
Weight 138%-200% FPL Silver, Indian Silver 1.120 32.6% 16.0% Indian Bronze 1.150 0.6% 0.3% Indian Gold 1.070 0.0% 0.0% All Other Members 1.000 66.8% 83.7% Total (Projected weights) 1.040 100.0% 100.0% Total (Experience weights) 1.020 Differential 1.020
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These factors are the same factors used by HHS in the development of cost sharing reduction advance payments. As mentioned earlier, we projected market-wide membership by FPL level. We adjusted the utilization for individuals at the above indicated income levels by the indicated factors. The average of the above factors resulted in an overall increase of 2.0% to our projected allowed claims relative to our experience claims. Therefore, we are applying a CSR normalization factor of 1+ 2.0% = 1.020 applied to all services.
5. Changes in Benefit Richness: We expect our average 2018 benefit richness level to be slightly
higher than our experience period SRP benefit level. To quantify the impact the different cost sharing combinations would have on utilization, we calculated the benefit richness adjustment through the use of the Utilization Adjustment Factors tables in the Commercial Rating Structures manual in Milliman’s Health Cost Guidelines. The Utilization Adjustment tables quantify the impact that deductibles, coinsurance and copays will have on the overall utilization of the population based on the benefit design of the plan. Our projections indicate that overall benefit richness of the 2018 projected benefits will increase our utilization by 3.2%. This increase in utilization applies to our non-capitated services and is included in the Other Adjustment column in Section II of Worksheet 1. Therefore, we are applying an adjustment factor for benefit richness of 1 + 3.2% = 1.032.
The total “Other” adjustment factors, including the benefits, demographics, provider network discounts, capitated services and changes to pharmacy costs, by service category, are as follows:
“Other” Adjustment Factor Buildup (as shown on Worksheet 1 of URRT) Benefit Category Remove
Total 0.997 1.016 0.999 1.113 1.000 1.164 1.020 1.032 1.378
Trend Factors (cost/utilization)
The following table shows the cost and utilization trends used to project the 2016 experience period claims to the 2018 rating period. Note that this varies slightly from what is shown on Worksheet 1 of the URRT. To ensure the URRT validated, we were required to round up the cost trend line to 3.8%; without this adjustment, the projected index rate was coming in lower than what is shown on Worksheet 2 due to rounding requirements (to 3 decimal places). To validate appropriately, the projected index rate on Worksheet 1 must be greater than or equal to the projected index rate on Worksheet 2.
Annualized Cost and Utilization Trend Buildup (as shown on Worksheet 1 of the URRT) 2016 2017 Annualized Trend
Claims cost and utilization trends: Because our small group population is more representative of the new, guaranteed issue IU65 market, and has been for many years, we decided it would be a better population to use to estimate cost and utilization trends, due also to the mix of pre-ACA and post ACA business in our individual line. We developed annual trend factors for both 2017 and 2018 based on the combined business for small group’s size 1 – 99 (employees). We included groups sized 51-99 for additional credibility and stability. Groups will often vacillate between 1-50 and 51-99 so the inclusion of 51-99 groups mitigates the impact of those movements. These trends are normalized for changes in age, benefits covered, and other shifts that occur through the year in order to calculate appropriate trend factors. The normalization factors are applied to historical trend data going back to August 2008. The table below shows the normalization factors by month for 2016. The factors are rebased so that the first month of trend adjustment factors (8/2008) is 1.0. Each month of historical experience is multiplied by the factors below so that all months have the same average age/gender and benefits.
The 2017 trends more closely reflect our actual contracting adjustments, and member utilization patterns based on current economic conditions. Our 2018 trends reflect assumptions for changes in contracting, and utilization patterns based on the 2017 economic conditions, without consideration of ACA changes to the small group insurance market. The base small group trends were then adjusted for differences in utilization that are consistent with observed SRP Individual experience. Trends attributed to utilization for the SRP experience have consistently shown to be higher than the observed small group trends; as a result, we have increased the utilization trend by 3%. The resulting trends are as listed above: 3.05% (overall weighted average) cost trend that is consistent with small group trends
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and 4.67% (overall weighted average) utilization trend that is adjusted to be more representative of our SRP Individual experience.
VI. Credibility Manual Rate Development
The average membership for our experience period is 110,748 members. That level of membership meets or exceeds all standards for full credibility; therefore, we have made no adjustments for credibility and consider our claims experience to be the appropriate base to develop the index rate.
VII. Credibility of Experience
Experience is 100% credible.
VIII. Paid to Allowed Ratio
On Exhibit C we have developed our weighted average paid / allowed ratio for each of our Plan Standard Components. Also included on Exhibit C is the plan’s metallic AV as calculated by the AV calculator. The paid / allowed ratios were calculated using our actual experience and, therefore, represent our underlying contracting arrangements, which is different than the experience underlying the AV Calculator. As noted in the URR template instructions, we have reflected the impact of deductible leveraging in our projected paid / allowed ratios The average Paid/Allowed ratio of 0.665 shown on Worksheet 1 includes an adjustment to remove the additional utilization of CSR members. This is done to ensure that our final rates are representative of a standard member’s costs. To allow a comparison with the paid / allowed ratio on worksheet 1, the weighted paid / allowed ratio shown on Exhibit C of 0 0.678 needs to be adjusted by 1 over the CSR normalization factor (Section V part 5, Other Factors) (1/1.020) to remove the impact of the CSR utilization, 0.678 / 1.020 = 0.665.
IX. Risk Adjustment and Reinsurance
Experience Period Risk Adjustment (PMPM) The estimated CY 2016 risk adjustment amount of $34,198,173 was provided in an interim Risk Adjustment report from CMS for CY 2016. We are reflecting their projected receivable with no adjustments. The estimated Risk Adjustment receivable is offset by the 2016 risk adjustment fee of $0.15 PMPM, resulting in a total receivable of $34,066,313. The risk adjustment payment is accounted for on Worksheet 1, Section I row 14 in the experience period premiums and on Worksheet 2, Section III row 71. Experience Period Reinsurance Adjustments (PMPM): The estimated reinsurance payment for 2016 is $18,228,002. For the 2016 reinsurance program, the attachment point is $90,000 and the cap is $250,000, and insurers are supposed to be reimbursed for 50% of what falls in between. It should be noted that collections for this program have fallen short for 2014 and 2015 by 20%. Some published studies indicate it will fall short by at least 20% in 2016. If that is the case and the Treasury gets their portion for 2016, then the total payout to insurers would be no more than a 40% coinsurance rate, depending on the calculated payable reinsurance recoveries. Some published studies indicate it could be as low as 35%, given the potential demand for reinsurance. Therefore our projected payment was based on a 35% coinsurance level. We net the receivable against the CY 2016 reinsurance fee of $2.25 PMPM for an overall receivable of $16,193,593, which is accounted for on Worksheet 1, Section 1 row 15 and Worksheet 2, Section III row 70.
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Projected Risk Adjustments (PMPM): As mentioned in Section V, we expect improved morbidity for 2018 given that in 2017 we are the only carrier in the markets we provide coverage and likely to be the only carrier again in 2018. Additionally, we expect a population weighted more heavily towards the silver and bronze metal levels, as reported by CMS in county level enrollment reporting. Starting with the 2016 PMPM estimates provided by Wakely and adjusting them to reflect the improved morbidity, we estimate our receivable to be $7.31 PMPM, which equates to 0.9% of premium. This payment also reflects the 14% reduction that CMS will make to the 2018 transfer payment to remove the administrative expense component from the state-wide average premium and put it on a claims basis.
Projected Risk Adjustment
Projected Population 2018 Projected Risk Weights Adjustment PMPM
Gold 2.1% $172.28 Silver 51.5% $62.70
Bronze 44.9% ($63.17) Catastrophic 1.6% ($11.95)
Total Wtd for 2018 Expected Population $7.31 The risk adjustment payout will likely be higher due to higher expected average Arizona premium levels in 2018. However, without an understanding of the rate increases filed by the other carriers and the final enrollment distribution by carrier, we have no way of estimating the increase. Therefore, we believe this is a reasonable estimate. Thus, we are projecting a risk adjustment receivable for 2018 of $4,196,189. There is a risk adjustment fee of $1.68 PMPY ($0.14 PMPM) or $80,341, so the net risk adjustment is $4,115,848 receivable or $7.17 PMPM. This is shown on Worksheet 1, Section III row 35 and Worksheet 2, Section IV row 97. Note that the total varies slightly on Worksheet 1 from what is shown in the memo due to rounding. Projected ACA Reinsurance Recoveries Net of Reinsurance Premium: The Reinsurance program ended in 2016, so this is not applicable for 2018. Zeroes have been included in the projected reinsurance sections of Worksheet 1, Section IV row 37 and Worksheet 2, Section IV row 96.
X. Non-benefit Expenses and Profit and Risk
Administrative Expense Load: BCBSAZ uses the Hyperion Profitability and Cost Management system to allocate administrative expense to the appropriate lines of business. All expense transactions are coded to a general ledger account and a cost center. A cost center is a unit wherein similar or identical activities are performed or similar costs are collected. Each cost center is allocated to the applicable lines of business based on its support of each segment. Primary allocation bases are member and claim counts.
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We use this methodology to allocate our administrative expenses by LOB for all of our products. The table below notes the various components of our administrative expense on an average basis. Please note that our administrative expense fees are loaded consistently both on and off exchange. Administrative expenses are loaded uniformly across all products, both on and off exchange.
Network Quality Improvement 1.00% Direct Administrative Expense 3.17% Indirect Administrative Expense 3.76% Broker Fees 1.77% Total 9.71%
Profit (or Contribution to Surplus) & Risk Margin: We are targeting a contribution to surplus and risk margin of 6.0%, this is the normal level of contribution to surplus we would expect from this line of business, given the risk level involved. We believe the risk level has been demonstrated in the volatility of the market from 2014 – 2016. Taxes and Fees: The table below notes the components of our taxes and fees, as well as the allocation basis (% of revenue).
Taxes and Fees Component Fee Basis
Payroll, Property, Income Taxes 1.72% % of Premium Insurer Fee+PCORI Fee 3.03% % of Premium State ins & other taxes 0.05% % of Premium Exchange User Fees 3.33% % of Premium
Premium Tax 1.93% % of Premium Total 10.06%
All of these fees are loaded uniformly across our entire book of business, both on and off exchange. The Risk Adjustment Fees are not included in this section because, per the URRT instructions, they are to be included separately in the incurred claim buildup of Worksheet 1, Section III rows 35 and 37. The exchange user fee assumes 5% off-exchange; as of 2/17, 6.7% of our population was off-exchange. Note that the Insurer Fee is 3.0% for 2018.
XI. Projected Loss Ratio
The 2018 estimated MLR of 86.5% is a three-year calculation using our Individual block of business, which includes SRP, grandfathered, and transitional plans. Per previous requests by the reviewing actuary, we have also provided the 2018 estimated MLR using a one-year calculation for only our SRP block of business, 85.0%.Note that this second calculation is not consistent with how the MLR calculation will actually be completed.
XII. Single Risk Pool (SRP)
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In accordance with 45 CFR part 156, 156.80, the index rate described in Section XIV below, is based on the total combined claims costs for providing essential health benefits within the Individual market in the State of Arizona. Furthermore, the index rate has been adjusted on a market-wide basis based on the total expected market-wide payments and charges under the risk adjustment and reinsurance programs, and Exchange user fees to determine the Market Adjusted Index Rate. The premium rate for all of BCBSAZ’s plans in the Individual market uses the market-wide adjusted index rate, subject only to the plan-level adjustments permitted in paragraph 45 CFR part 156, 156.80(d)(2).
XIII. Index Rate Both the experience period and projected index rates described below were calculated using total combined EHB allowed claims in a single risk pool. The Index rate is NOT adjusted at this level for payments/charges under the risk adjustment and reinsurance programs or for Exchange user fees. Experience Index Rate: In Section I on Worksheet 1, the difference between our allowed claims PMPM and the experience period Index Rate is -0.27%. The experience period allowed claims PMPM is $449.98, and the experience period Index rate is 0.27% lower, at $448.79. The benefits that comprise that amount are shown in Section III of this Memorandum. The allowed claims PMPMs are also shown on Worksheet 2, Section III row 74. The difference is due to non-EHB benefits being included in the total allowed claims and excluded in the Index Rate. Projected Index Rate: Our projected Index Rate per member per month (PMPM) is $857.01, as reflected in Section III on Worksheet 1 of the URRT. This amount equals the PMPM value reflected on Worksheet 2, Section IV row 101. For our Individual market, we will no longer have benefits in excess of EHBs. Therefore, our projected Index rate PMPM of $857.01 is the same as our projected Allowed Claims PMPM of $857.01 as can be seen on Worksheet 2, Section IV rows 101 and 100, respectively.
XIV. Market Adjusted Index Rate
The 2018 average Market Adjusted Index Rate of $878.12 is calculated by applying market level adjustments for Reinsurance, Risk Adjustment and the Exchange user fees to the Index Rate. The market level adjustments reflect the total projected values for Risk Adjustment payments or charges, Reinsurance recoveries, and the projected Exchange user fees for those members projected to buy on the Exchange. All of these elements are spread evenly across the market by including them at the market level.
Reinsurance and Risk Adjustment: As mentioned in Section IX, the reinsurance program is not applicable in 2018. The risk adjustment receivable net of fees is $7.17. The fees are applied as a percent of the Index Rate and divided by the total average paid/allowed factor and exchange user fees. This adjustment is made to gross up the risk adjustment fee to an allowed basis, since the market adjusted index rate is on an allowed claims basis. The final formulas are: Risk Adjustment: -0.94% = -7.17 / (857.01 x (1 + 3.44%) x 0.86) Reinsurance: 0%
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Exchange User Fees: The Exchange represents a weighting of business sold both on and off the exchange. For 2018 we project the weighted fee to be charged on and off exchange business uniformly is 3.33%. The adjustment factor applied to the Index rate is 1/(1 – 3.33%) - 1 = 3.44%. The following table shows the build-up of the Market Adjusted Index Rate for 2018:
Market Adjusted Index Rate Development 2018*
Index Rate $857.01 Risk Adjustment -0.94%
Exchange User Fees 3.44% Market Adjusted Index Rate $878.12
* Example Calculation for 2018 ($857.01 x 0.9906 x 1.0344 =
$878.12)
XV. Plan Adjusted Index Rates
The plan adjusted index rate is calculated by applying the following plan-level modifiers to the Market Adjusted Index Rate: A1. Actuarial value and cost sharing adjustment: This modifier is the combination of the following
four adjustments (see line A1 on Exhibit D): o Paid to Allowed ratio (as applied to the Index rate, which represents allowed values)
by plan: The paid to allowed ratio reflects each plan’s projected benefit level of paid benefits as compared to the total allowed claims expected for the plan. These values are discussed in Section VIII above.
o Utilization adjustments for cost sharing (benefit richness), excluding any health status selection, by plan: To quantify the impact the different cost sharing combinations would have on utilization, we calculated the benefit richness adjustment through the use of the Utilization Adjustment Factors tables in the Commercial Rating Structures manual in Milliman’s Health Cost Guidelines. The Utilization Adjustment tables quantify the impact that deductibles, coinsurance and copays will have on the overall utilization of the population based on the benefit design of the plan. No additional selection factors were included, so we believe these reflect only benefit richness and not health status. These adjustments are made across all plans so the impact in total is 0%. The URRT instructions indicate that an adjustment should not be made in the Catastrophic Plan Adjustment (A4, below) to normalize for the lower utilization expected by catastrophic plan members. However, per a letter sent to the Center for Consumer Information and Insurance Oversight (CCIIO) and the Centers for Medicare & Medicaid Services (CMS) by the American Academy of Actuaries (AAA)1:
1 American Academy of Actuaries: Re: Comments on 2017 Unified Rate Review Template Instructions http://www.actuary.org/files/publications/Acad_cmts_on_2017_URRT_033016.pdf
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The index rate for the projection period, by definition, includes expected catastrophic plan experience, which lowers the index rate from what it would be with metallic plans alone. Allowing an adjustment to reflect the expected catastrophic experience in the catastrophic plans would require an offsetting adjustment to metallic plans in order for the composite catastrophic adjustment to aggregate to 1.0, thereby maintaining the integrity of the index rate and demonstrating overall inclusion of the catastrophic plans in the single risk pool.
Since the index rate is already lowered 0.996, as discussed in above Section V part 2, for the catastrophic plan adjustment, ”prohibiting an adjustment to metallic plan results in the projected experience of catastrophic plans being given double weight in the rates,” which would produce rates inconsistent with the benefits provided. Therefore, since an adjustment is not allowed in the below A4, an adjustment of 1/ 0.996 = 1.004 is applied here.
Therefore the total adjustment is (1 + 0%) x 1.004 = 1.004.
o Adjustment for CSR Variations: A factor to adjust the projected population to the standard
plan levels, such that the additional utilization expected with cost sharing reduction variation members can be removed in order to calculate appropriate rates. As discussed in Section V, the CSR adjustment is 1.020; therefore the adjustment factor is 1 / 1.020 = .980.
A2. Provider network, delivery system and utilization management adjustment (plan
adjustment): As discussed in Section V, we no longer have any narrow network products. For 2018 we are only offering statewide HMO (Neighborhood) products, with in-network-only benefits (these networks are not tiered). Therefore, the adjustment is 1.00, see line A2 on Exhibit D.
A3. Benefits provided under the plan in addition to the essential health benefits: As discussed in Section V, our Individual plans do not have additional benefits, above and beyond EHBs. Therefore, there is no impact and the adjustment is 1.00. See line A3 on Exhibit D.
A4. Administrative costs, excluding Exchange user fees, reinsurance and risk adjustment
fees: Our overall projected costs are 25.8% for administrative expenses, profit and risk load, and taxes and fees, reinsurance and risk adjustment fees, as shown in Section X of this Memorandum. The administrative load is included as a percent of premium for all plans. The calculation for the factors on line A4 of Exhibit D are shown in the following table:
Administrative Costs
Neighborhood HMO Network
Administrative Expense 9.71% (A) Profit and Risk Load 6.00% (B)
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Taxes and Fees (Including Exchange User Fee) 10.06% (C) Total 25.77% (D) = (A) + (B) + (C)
Adjustment for Removal of Exchange User Fee 3.44% (E) From Exhibit D
Multiplicative Factor 1.30 1 / [1 - (D)] / (E)]
A5. Catastrophic Plan Adjustment: As discussed in Section V, members in Catastrophic plans are
expected to have lower utilization by an additional -29%. The URRT instructions indicate adjustment should not normalize for this in the catastrophic plan adjustment, so Catastrophic plans have a factor of 0.71 and other plans have a factor of 1.00 as shown in line A5 on Exhibit D. The overall adjustment for this is then 0.996 as described above in Section V.
Exhibit D shows the buildup of the Plan Adjusted Index Rate for average 2018.
XVI. Calibration The following calibration factors are used to calibrate the Plan Adjusted Index Rates (which are based on the single risk pool) to apply the allowable rating factors (i.e. age and geography) in order to calculate Consumer Adjusted Premium Rates. The factors are calculated and applied uniformly to all plans as multiplicative factors.
B1. Age Calibration: This calibration factor calibrates for the Federal age curve and the family dependent rules. Exhibit E shows the projected membership distribution by age with the number of members beyond 3 dependents shown separately. The projected membership distribution by age was based on SRP membership through February 2017. The ACA does not allow issuers to charge premium for more than 3 dependents; therefore we have used an age factor of 0.0 for those members. Multiplying the Federal age curve (where Age 21 = 1.0) by the projected membership distribution results in an average age factor of 1.739. Thus, the calibration factor is 1 / 1.739 = 0.57. The weighted average factor of 1.739 corresponds to a 49 year old on the Federal Age Curve. B2. Geographic Factor Calibration: This calibration factor calibrates the projected population by geographic area. Exhibit E shows the projected membership distribution by the 7 geographic areas in Arizona. The projected membership distribution by area was based on SRP membership in February 2017. The average rating area factor underlying the average region is 1.083. Thus, the calibration factor is 1 / 1.083 = 0.92. B3. Calibration for Tobacco: A factor to adjust the projected population by tobacco use status to the average 1.0 non-tobacco factor, such that appropriate rates can be developed. Our projected population includes approximately 5.47% of the population that uses tobacco. This is based on our February 2017 individual population that has been identified as tobacco users. The tobacco loads are shown below.
The weighted average tobacco rating factor is 1.076 . The average factor for tobacco use and non-tobacco status is, therefore, 1.076 x 5.47% + 1.000 x (1 - 5.47%), or 1.004 . Thus, the adjustment factor to adjust to a non-smoker rating factor of 1.0 is 1 / 1.004 = 0.996.
XVII. Consumer Adjusted Premium Rate Development The Consumer Adjusted Premium Rate is the final premium rate for members based on their age and geography using their age and geographic area factors and the calibration factors applied to the Plan Adjusted Index Rate. Only the allowable rating factors and calibration factors are used, as follows: a. Age Calibration described in Section XVI b. Member-specific Federal Age factor (shown on Exhibit E) c. Area Calibration described in Section XVI d. Member-specific area factor (shown on Exhibit E) e. Member-specific Tobacco factor (shown on Exhibit E) Exhibit F shows how consumer adjusted premium rates are calculated using the above factors for two example contracts who renew or are sold in 2017.
XVIII. AV Metal Values
The AV Calculator was used to determine the actuarial value of each of the products shown on Worksheet 2. A justification form as required with the QHP application for on-exchange products has been included with this filing. We have plans with unique plan designs in 2018, specifically: 53901AZ1420004, 53901AZ1420005, 53901AZ1420006, 53901AZ1420007, 53901AZ1420003, 53901AZ1420002, 53901AZ1420001, 53901AZ1420011, 53901AZ1420012, 53901AZ1420013, 53901AZ1420014, 53901AZ1420010, 53901AZ1420009, 53901AZ1420008, 53901AZ1420018, 53901AZ1420019, 53901AZ1420020, 53901AZ1420021, 53901AZ1420017, 53901AZ1420016,53901AZ1420015. The above plans are unique due to having coinsurance added to the Tier 3 pharmacy cost share. The new cost share for Tier 3 drugs will be the maximum of the Tier 3 pharmacy copay and 60% coinsurance, after the applicable pharmacy deductible. Using our entire group population, for enhanced credibility, we calculated equivalent co-pays for the coinsurance with minimum copays for pharmacy Tier 3. The resulting equivalent copays were tested in the AV calculator for the metal level requirements for compliance. In the actuarial modeling only in-network cost sharing was considered. The cost share and the calculated equivalent co-pays for the Tier 3 pharmacy benefit are the following:
• EverydayHealth 6500 Bronze Plan (HIOS plan ID 53901AZ1420018, 53901AZ1420019, 53901AZ1420020, 53901AZ1420021, 53901AZ1420017, 53901AZ1420016, 53901AZ142005): Cost Share: Coinsurance = 60%, Minimum Copay = $200 Calculated Equivalent Copay = $216.91
The development of the actuarial value is based on one of the acceptable alternative methods outlined in 156.135(b)(2) or 156.135(b)(3) for those benefits that deviate substantially from the parameters of the AV calculator and have a material impact on the AV. The analysis was (i) Conducted by a member of the American Academy of Actuaries; (ii) Performed in accordance with generally accepted actuarial principles and methodologies.
XIX. AV Pricing Values
The AV Pricing Value represents the cumulative effect of adjustments made by the issuer to move from the Market Adjusted Index Rate to the Plan Adjusted Index Rate. The AV Pricing Values for each plan are shown on Worksheet 2 Section I of the URRT and also in Section A of Exhibit D. The portion of the AV Pricing Value that is attributable to each of the allowable modifiers to the Index Rate is shown on Lines A1-A5 of Exhibit D for each plan. An adjustment was made for utilization reductions expected based on cost sharing (benefit richness) differences. To quantify the impact the different cost sharing combinations would have on utilization, we calculated the benefit richness adjustment through the use of the Utilization Adjustment Factors tables in the Commercial Rating Structures manual in Milliman’s Health Cost Guidelines. The Utilization Adjustment tables quantify the impact that deductibles, coinsurance and copays will have on the overall utilization of the population based on the benefit design of the plan. Similar to last year the services that measure the impact of utilization reductions are expanded to include emergency services as well as radiology and pathology services. No additional selection factors were included, so we believe these reflect only benefit richness and not health status.
XX. Membership Projections
Our total enrollment projections (shown on Worksheet 2 of the URRT) are based on our calendar year 2016 Individual, SRP membership distribution and the plan mapping provided in Exhibit A with projected changes. For purposes of modeling the impact of cost sharing subsidy members, we also projected membership in cost sharing reduction plans. We used the distribution of Cost Sharing Reduction membership through February 2017 in SRP plans to project the distribution of membership in 2018 by plan and network type. Exhibit G shows the resulting projected membership by plan for CSR enrollment.
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XXI. Terminated Products
We entered transitional terminating products under the HIOS Product ID 53901AZ055 on Worksheet 2 as terminating products, as these plans were no longer marketed or available for sale beginning 12/31/13. The table below contains the HIOS product ID’s and market names for 2016, SRP plans that are terminated. These are included on Worksheet 2.
Exhibit A contains the HIOS product ID’s and market names for all 2016, 2017, and 2018 plans.
XXII. Plan Type
The plan types identified by plan in Worksheet 2 describe the plan types appropriately.
XXIII. Uniform Modification
All 2018 plans proposed for filing meet the uniform modification requirements, and are filed from the same issuer (Blue Cross Blue Shield of Arizona) and plan type (HMO) as the 2017 plans.
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Due to changes in the methodology used by the 2018 Actuarial Value Calculator compared to the 2017 calculator, for selected EverydayHealth plans it was necessary to change the Emergency Room cost-share type from a copay to deductible/coinsurance for the EverydayHealth plans in order to meet the metal level tier requirements described in sections 1302(d) and (e) of the Affordable Care Act. All other cost-sharing structures were consistent with the 2017 plans. 2018 plans will be available to customers in the same geographic areas as 2017, except for Pima County where the existing offered plan is being discontinued. However, BCBSAZ will be: 1) Splitting the single 2017 service area (which included Gila and Pinal Counties) into two service areas for 2018 (one for Gila and one for Pinal), and 2) Splitting the Statewide Except Maricopa and Pima Counties service area used in 2017 into the seven existing service areas in 2018. The service area splits will not change plan availability. Benefits added, modified or removed to comply with changes in the essential health benefits requirements as noted in Section V above impact the plan-adjusted index rate by less than 1%.
XXIV. Warning Alerts
There are no warning alerts on Worksheet 2.
XXV. Anything Additional Necessary to Effective Rate Review
Effective Rate Review Information: BCBSAZ’s Total Capital and Surplus as reported in the annual Statutory Financial Statements as of 12/31/2016 is $1,084,384,556. There were no additional or unusual reserves needed on any of these policy forms for the upcoming policy period. Additionally, we chose the experience period for our rate calculation to have enough run-out to minimize the impact of the incurred but not paid claims reserve.
XXVI. A. Reliance
I, Scott Mack, in forming my opinion on impacts of benefit changes, network discounts, calculation of actuarial values, calculation of rates, Incurred but not reported claims reserves, estimated rebates, estimated MLR, cost and utilization trends, capitated expense projections, unique plan design calculated equivalent copays/coinsurance, removal of medical loads and other items presented in this actuarial memorandum, relied upon data prepared by others. We have attached the appropriate reliance statements at the end of the Memorandum.
XXVI. B. Additional Arizona Law Requirements
The Arizona Anticipated Loss Ratio (ALR) as prescribed in R20‐6‐607(C), (H)(1) is: (Present value of expected benefits in 2018) / (Present value of expected premiums in 2018)
318,838,575 / 429,505,146 = 74.2% R20‐6‐607(C), (H)(1) The Arizona Anticipated Lifetime Loss Ratio as prescribed in R20‐6‐607(H)(2) is:
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CONFIDENTIAL/PROPRIETARY
(Accumulated benefits from effective date of form (1/1/2014) to effective date of revision (1/1/2018) + present value of expected benefits in 2018) / (accumulated premiums from effective date of form (1/1/2014) to effective date of revision (1/1/2018) + present value of expected premiums in 2018)
1,571,797,784 / 1,525,714,602 = 103.0% R20‐6‐607(H)(2) The time value of money is not a significant factor because the projection period is relatively close to the present. Therefore, we did not make present value or accumulated value adjustments to the projections. Both of these Loss Ratios meet the minimum Arizona requirement of 55%.
XXVII. Actuarial Certification
Identification: I, Scott Mack, Director of Actuarial Services, am an employee of Blue Cross Blue Shield of Arizona and am a member of the American Academy of Actuaries. I meet the Academy qualification standards for rendering this certification. I certify that, based on the assumptions used to develop the index rate, the projected index rate:
• Was developed in compliance with all applicable State and Federal Statutes and Regulations (45 CFR 156.80(d)(1)),
• Was developed in compliance with the applicable Actuarial Standards of Practice, • Is reasonable in relation to the benefits provided and the population anticipated to be
covered, and • Is neither excessive nor deficient.
I certify that the index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2) were used to generate plan level rates. I certify that the percent of total premium that represents essential health benefits included in Worksheet 2, Sections III and IV were calculated in accordance with actuarial standards of practice. I certify that the geographic rating factors reflect only differences in the costs of delivery (which can include unit cost and provider practice pattern differences) and do not include differences for population morbidity by geographic area. I certify that the AV Calculator was used to determine the AV Metal Values shown in Worksheet 2 of the Part I Unified Rate Review Template for all plans with the exception of unique plan designs noted above, and that the alternative methods used for the unique plan designs were appropriate and are described above. A copy of the actuarial certification required by 45 CFR Part 156.135 is included at the end of this memorandum, and the values were developed in accordance with generally accepted actuarial principles and methodologies. The Part I Unified Rate Review Template does not demonstrate the process used by the issuer to develop the rates. Rather, it represents information required by the Federal regulation to be provided in support of the review of rate increases, for certification of qualified health plans for federally facilitated exchanges and for certification that the index rate is developed in accordance with federal regulation and used consistently and only adjusted by the allowable modifiers.
30
CONFIDENTIAL/PROPRIETARY
Signature: ASA, MAAA
Scott Mack, ASA, MAAA Director Actuarial Services
Blue Cross and Blue Shield of Arizona
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Exhibit A: Plan Mapping and New Plans (2016 - 2018)
Gila County Gila County Discontinued, mapped to => 53901AZ1420002 EverydayHealth HMO 1500 - Neighborhood Network HMOPinal County Pinal County Discontinued, mapped to => 53901AZ1420001 EverydayHealth HMO 1500 - Neighborhood Network HMOApache CountyCoconino CountyMohave CountyNavajo CountyCochise CountyGraham CountyGreenlee CountySanta Cruz CountyYavapai County New Plan 53901AZ1340017 EverydayHealth HMO 1000 - Neighborhood Network HMO 53901AZ1420006 EverydayHealth HMO 1500 - Neighborhood Network HMOYuma County New Plan 53901AZ1340020 EverydayHealth HMO 1000 - Neighborhood Network HMO 53901AZ1420007 EverydayHealth HMO 1500 - Neighborhood Network HMOLa Paz County New Plan 53901AZ1340008 EverydayHealth HMO 1000 - Neighborhood Network HMO 53901AZ1420003 EverydayHealth HMO 1500 - Neighborhood Network HMO
Gila County Discontinued, mapped to => 53901AZ1420023 Portfolio HMO 6550 - Neighborhood Network HMOPinal County Discontinued, mapped to => 53901AZ1420022 Portfolio HMO 6550 - Neighborhood Network HMOApache CountyCoconino CountyMohave CountyNavajo CountyCochise CountyGraham CountyGreenlee CountySanta Cruz CountyYavapai County Discontinued, mapped to => 53901AZ1420027 Portfolio HMO 6550 - Neighborhood Network HMOYuma County Discontinued, mapped to => 53901AZ1420028 Portfolio HMO 6550 - Neighborhood Network HMO
La Paz County Discontinued, mapped to => 53901AZ1420024 Portfolio HMO 6550 - Neighborhood Network HMO
La Paz County New Plan 53901AZ1410001 TrueHealth 7150 HMO - Neighborhood Network HMO Standard Renewal 53901AZ1420036 TrueHealth HMO - Neighborhood Network HMO
Pima CountyPortfolio 3250 AND
EverydayHealth HMO 4000Discontinued, NOT Mapped
Apache CountyCoconino CountyMohave CountyNavajo CountyGila County Gila County Discontinued, mapped to => 53901AZ1420009 EverydayHealth HMO 4000 - Neighborhood Network HMO
Pinal County Pinal County Discontinued, mapped to => 53901AZ1420008 EverydayHealth HMO 4000 - Neighborhood Network HMOCochise CountyGraham CountyGreenlee CountySanta Cruz County
Final Base Rates - 2018 $551.02 $551.02 $551.02 $551.02 $551.02 $551.02 $551.02 $450.78 $450.78 $450.78 $450.78 $450.78
36
Metal LevelService Area
DeductibleCoinsurance
Copay (PCP/Spec)
Index Rate PMPM - Average 2018
Market-Wide AdjustmentsRisk Adjustment Payments and Charges MultiplyReinsurance Recoveries MultiplyExhange User Fees Multiply
Market-Wide Adjusted Index Rate
Plan Level ModifiersMarket-Wide Adjusted Index RateA. AV Pricing Value Product of A1 - A5
A1: Actuarial Value and Cost Sharing §156.80(d)(2) (i) Paid to Allowed Ratio §156.80(d)(2) (i) Normalization for Benefit Richness §156.80(d)(2) (i) Normalization for CSR variations §156.80(d)(2) (i)A2: Provider Network and Delivery System §156.80(d)(2) (ii)A3: Benefits in addition to EHBs §156.80(d)(2) (iii)A4: Administrative Costs §156.80(d)(2) (iv)A5: Catastrophic Plans Adjustment §156.80(d)(2) (v)Plan Adjusted Index Rate
B. Calibration Factors Product of B1-B3B1: Normalization for Demographics MultiplyB2: Normalization for Geographic Area MultiplyB3: Normalization for Tobacco Multiply
Final Base Rates - 2018
Confidential and Trade SecretExhibit D: Development of Plan-Specific Base Rates from Index Rate
Market-Wide AdjustmentsRisk Adjustment Payments and Charges MultiplyReinsurance Recoveries MultiplyExhange User Fees Multiply
Market-Wide Adjusted Index Rate
Plan Level ModifiersMarket-Wide Adjusted Index RateA. AV Pricing Value Product of A1 - A5
A1: Actuarial Value and Cost Sharing §156.80(d)(2) (i) Paid to Allowed Ratio §156.80(d)(2) (i) Normalization for Benefit Richness §156.80(d)(2) (i) Normalization for CSR variations §156.80(d)(2) (i)A2: Provider Network and Delivery System §156.80(d)(2) (ii)A3: Benefits in addition to EHBs §156.80(d)(2) (iii)A4: Administrative Costs §156.80(d)(2) (iv)A5: Catastrophic Plans Adjustment §156.80(d)(2) (v)Plan Adjusted Index Rate
B. Calibration Factors Product of B1-B3B1: Normalization for Demographics MultiplyB2: Normalization for Geographic Area MultiplyB3: Normalization for Tobacco Multiply
Final Base Rates - 2018
Confidential and Trade SecretExhibit D: Development of Plan-Specific Base Rates from Index Rate
SimpleHealth HMO NeighborhoodTrueHealth
HMO Neighborhood
Total
Catastrophic Catastrophic Catastrophic Catastrophic Catastrophic Catastrophic Catastrophic BronzeNorthern Southeast Yavapai Southwest Southwest Central Central La Paz
