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Actuarial Analysis: Impact of the Affordable Care Act (ACA) on Small Group and Individual Market Premiums in Oregon

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Actuarial Analysis: Impact of the Affordable Care Act

(ACA) on Small Group and Individual Market Premiums in

Oregon

Prepared on July 31, 2012

Prepared for:

The State of Oregon

Prepared by:

Wakely Consulting Group 9777 Pyramid Court

Suite 260

Englewood, CO 80112 Tel 720.226.9800 Fax 720.226.9820 Julie Peper, FSA, MAAA

Luke Rodgers, ASA, MAAA Julia Lambert, FSA, MAAA Kelsey Stevens, FSA, MAAA Ross Winkelman, FSA, MAAA

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TABLE OF CONTENTS

1.

EXECUTIVE SUMMARY... 1

2.

ANALYSIS OF THE OREGON INDIVIDUAL MARKET ... 13

2.1 Summary of Individual Analysis ... 13

2.2 Current Regulations and Market Composition ... 13

2.3 Data Received ... 17

2.4 ACA Impact on Individual Market ... 18

2.5 Premium Tax Credits and Cost Sharing Subsidies ... 35

2.6 Additional Requirements and Considerations ... 39

2.7 How to Reduce Churning between the Individual Exchange and Medicaid? ... 41

3.

ANALYSIS OF THE OREGON SMALL GROUP MARKET ... 46

3.1 Summary of Small Group Analysis ... 46

3.2 Current Rating and Underwriting Rules in Oregon ... 46

3.3 Current Coverage and Costs in the Oregon Small Group Market ... 47

3.4 ACA Impact on Small Group Market Summary ... 54

4.

INDIVIDUAL AND SMALL GROUP MERGER ... 74

5.

IMPORTANT CAVEATS ... 76

APPENDIX A – ACA IMPACT ON PORTABILITY

APPENDIX B – ACA IMPACT ON OMIP/FMIP

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1.

EXECUTIVE SUMMARY

Wakely was retained by the state of Oregon to analyze the impact of the Affordable Care Act (ACA) on Oregon’s individual and small group markets in 2014. This report presents the results of Wakely’s work. All estimates presented in this report are specific to the state of Oregon and will likely be different for other states. The following components are discussed in this report:

1. Current Oregon regulations and market composition for the individual (non-group) and small group markets.

2. Analysis of the impact of the ACA reforms on the various Oregon markets, including the impact on benefit plan offerings, rating and underwriting, as well as the impact due to newly insured individuals and premium tax credits and cost sharing subsidies under ACA. This analysis was completed for the following markets:

a. Individual b. Portability

c. Oregon Medical Insurance Pool (OMIP) and Federal Medical Insurance Pool (FMIP) d. Healthy KidsConnect (HKC)

e. Small Group

f. Small Groups currently in associations 3. Impact of merging the various markets:

a. Individual submarkets, which include the current individual market, OMIP/FMIP, portability and HKC.

b. Small group submarkets, which include the current small group market and small groups currently in associations.

c. Resulting new individual and small group markets. 4. Churning between the individual exchange and Medicaid. 5. Impact of increasing small group to 100 members.

For the individual, portability, OMIP/FMIP, Healthy KidsConnect and small group markets, we received data from the largest eight insurers in the state. The data received includes: summarized plan benefit packages, premiums, claims, underwriting, non-benefit expenses, commissions, and current members’ demographic information. We supplemented this information with publicly available rate filings and survey information, data from other states, and information provided by the Oregon Department of Consumer and Business Services, Insurance Division (the Department). We reviewed this information

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for reasonability, but did not audit the information. Any errors in this data may materially impact the results of our analysis.

The following describes key results of the analysis. The full report should be referenced to fully understand the assumptions, approach and results.

Individual

1. Wakely estimates that premiums for a combined individual, portability, OMIP/FMIP and HKC market will increase by approximately 24% (on average) due to the ACA changes, before premium tax credits are considered. However, approximately 7% of this increase will result in lower out of pocket benefit and cost sharing payments. In addition, the ACA offers premium tax credits and cost sharing subsidies. Therefore, Wakely’s best estimate of ACA changes is a 23% decrease in individual market member out of pocket costs (premiums plus cost sharing). The table directly below details the premium impact to the average individual/portability/OMIP/ FMIP/HKC member.

Table 1: Individual Market Average Member Impact on Out of Pocket Costs

Average Member Impact 2014 Best Estimate

ACA Requirements 24%

Premium Tax Credits -27%

Net Premium Impact -10%

Out of Pocket Reductions

Essential Health Benefits -5%

Minimum Bronze -2%

Cost Sharing Subsidies -8%

Total Out of Pocket Reductions -14% Overall Change in Member Costs -23%

2. Premium tax credits will offer premium relief to approximately half of the currently insured market and almost 75% of the uninsured who are expected to enroll in the individual market in 2014.

3. Before consideration of premium tax credits, Wakely estimates that average individual market premiums will increase by 27% to 55%. This increase is comprised of 2% to 30% due to ACA requirements and another 20% to 24% due to the addition of portability, high risk pool, and Healthy KidsConnect members into the individual market. Wakely estimates that out of pocket costs will decrease by 6% to 11% due to increased benefit and cost sharing coverage, prior to

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any cost sharing subsidies. This results in a net average estimated cost change to the average member of 20% to 40% prior to any premium tax credits or cost sharing subsidies.

4. The impact of the ACA changes will vary greatly by individual enrollee. It is difficult to predict how these changes in premium rates will affect individual's choices regarding coverage options. Small Group

1. Wakely estimates that the range of average small group premium changes will be from a 5% decrease to a 16% increase due to the ACA reforms and merging of small groups currently in associations. Most of the uncertainty in this range is due to the inherent difficulty in estimating the number of healthy groups that may leave the market because of larger rate increases. 2. The impact of the ACA changes will vary significantly by group. The groups receiving the largest

increases will have a disproportionate share of young, healthy employees. Individual / Small Group Merger

1. If the individual and small group markets are merged, Wakely estimates that premiums for the new small group market would decrease by approximately 4% and premiums for the new individual market would increase by approximately 4%.

Because the ACA will increase the number of insured people, hospitals and physicians will be less likely to shift costs from individuals who cannot pay (‘uncompensated care’) to the privately insured. The ACA also reduces federal payments available to hospitals for the Disproportionate Share Hospital (DSH) program. Therefore, the DSH program reductions provide a somewhat offsetting impact to the increase in insured individuals and groups. However, the overall expected impact of the ACA is an increase in provider funding. This increase may result in a decrease in provider payment rates, since some providers may not need to subsidize uncompensated care to the same degree they have historically. Results for each component of the analysis are included below. Please see individual sections of the report for descriptions of our methods, assumptions, data and inherent limitations with our estimates. Estimates of the impact of healthcare reform provisions are inherently uncertain because of the large number of forces affecting the insurance market, including actions by consumers and health plans. Also, many structural decisions regarding the exchange and the insurance market have not been decided by the state and federal regulations and guidance are still pending; such decisions, regulations and guidance may significantly impact premiums and product offerings.

A summary of the results and conclusions is listed below. Detailed results and discussion begin in Section 2 of this report.

1.1 Overview - Individual Market under ACA

Under the ACA the current individual market, OMIP/FMIP, portability, and Healthy KidsConnect are expected to comprise the new individual insurance market. Throughout the report the impact of the

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ACA requirements to each submarket will be separately discussed, followed by the impact of merging the submarkets into one larger market.

Individual Market

Estimated changes to individual market premiums due to ACA regulatory reforms, as compared to the current Oregon market (as of 2011) are shown in Table 2 below. Each of the ACA changes included in Table 2 is discussed in detail in this report. Note that Table 2 below represents the estimated 2014 impact; Table 3 provides a comparison of best estimates, by year, from 2014 to 2016. As shown in Table 3, the estimated impact of some of these changes, such as reinsurance, vary considerably by year. The best estimate of the increase in premiums is approximately 38% above what it would be without the ACA changes. This reflects the change in the premium required to cover the health risks of the expected population after the ACA changes and changes in costs including benefit changes required under the ACA. It can also be viewed as the expected change in the “filed” rates of an insurer. The following table shows the components of this change:

Table 2: Individual Market Premium Impacts under ACA (2014 compared to 2011)

Individual Premium Impacts Average Premium Impact

ACA Requirement Low Best Estimate High

Essential Benefits Requirement 5% 6% 7%

Bronze Minimum Act. Value (includes Max OOP limit) 1% 2% 3%

Minimum Loss Ratio = 80% -2% -1% 0%

Morbidity Change (due to new insured/uninsured) 10% 15% 25%

Age Slope Limited to 3:1 0% 0% 0%

Provider Fee 1% 1% 1%

Reinsurance Program -9% -8% -7%

Elimination of OMIP Assessment -2% -1% 0%

Subtotal (ACA Requirements) 2% 13% 30%

Individual Submarket Merger 24% 22% 20%

Total Premium Impact 27% 38% 55%

As shown above, we estimate that average individual market premiums will increase significantly due to the ACA reforms and the influx of newly insured individuals. The increase in premiums is mostly driven by benefit increases and the morbidity (or population risk) changes from newly insured individuals entering the market. Some of the impacts, such as age factors, have no overall expected impact but the impact to a particular insured can be significant. The impact from merging the individual submarkets is

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also significant; this impact is discussed below in the subsection titled Combining the Individual Submarkets.

The component “Morbidity Change (due to new insured / uninsured)” in the table above reflects the average risk change to the current individual market due to the migration of some members out of the individual market and into Medicaid, as well as migration from the uninsured and small group market into the individual market.

The impact of the risk corridor provision is not included in the estimates above. While the risk corridor provision will clearly affect plans and insurers differently, it is impossible to predict this impact in advance.

While many of the changes increase premiums, they also decrease out of pocket expenses for individuals. For example, while the essential benefits requirement is expected to increase premiums by 6%, this increase will be offset by a decrease in out of pocket expenses as these additional benefits will be covered post-ACA. Excluding changes that decrease out of pocket expenses, since these have offsetting effects, results in a range of overall health cost impacts of 20% to 40%, with a best estimate of 27%. This is prior to any further relief due to premium tax credits and cost sharing subsidies.

Table 3: Individual Market Premium Impacts under ACA (2014 – 2016)

Individual Premium Impacts Average Premium Impact

ACA Requirement 2014 2015 2016

Essential Benefits Requirement 6% 6% 6%

Bronze Minimum Act. Value (includes Max OOP limit) 2% 2% 2%

Minimum Loss Ratio = 80% -1% -1% -1%

Morbidity Change (due to new insured/Uninsured) 15% 15% 15%

Age Slope Limited to 3:1 0% 0% 0%

Provider Fee 1% 1% 1%

Reinsurance Program -8% -4% -2%

Elimination of OMIP Assessment -1% -1% -1%

Subtotal (ACA Requirements) 13% 19% 21%

Individual Submarket Merger 22% 20% 18%

Total 38% 42% 42%

As shown in Table 3, the estimated impact of reinsurance varies significantly by year, from approximately -8% in 2014 to an estimated -2% in 2016. The provider fee also varies by year but by a small amount that is not seen due to rounding.

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Portability

Coverage through the portability market is relatively rich. The ACA requirements will not impact members in this submarket as much as it does members in the current individual market. Wakely estimates that 2014 portability premiums will increase from 42% to 59% due to ACA changes, with a best estimate of a 50% increase (excludes the impact of any premium tax credits). The primary driver of the estimated premium changes is the current subsidization of portability premiums. Since the portability market is subsidized and many insurers experience loss ratios above 100%, these members would likely experience premium increases due to more appropriate pricing. However, the submarket merger (discussed below) is estimated to decrease premiums to portability members by a best estimate of 39%, which offsets these increases. After the submarket merger, portability members are estimated to have an overall premium impact of an 8% decrease.

The change in the age slope will not impact average premiums significantly, but will have a large impact to some individual members. Current age slopes vary by insurer, with one insurer varying rates by gender. Most insurers use premium age slopes that vary by less than the 3:1 ACA requirements for portability coverage. Assuming these members join the individual market starting in 2014 which will be subject to a 3:1 age ratio limit, many portability members will see premium impacts opposite of what the current individual market will experience (outside of other changes, older portability members will see a rate increase while younger ones will see a decrease due to ACA age ratio limits).

Oregon Medical Insurance Pool/Federal Medical Insurance Pool

Similar to the portability market, OMIP/FMIP plans have relatively rich benefits and cost sharing. Therefore, impacts due to ACA requirements are nominal. The impact of ACA regulatory reforms on OMIP/FMIP premiums is estimated between +100% and +159%, with a best estimate of +141%. Elimination of the OMIP/FMIP assessment is the primary driver of the estimated premium changes with potential offset due to the submarket merger. The submarket merger is estimated to decrease OMIP/FMIP premiums by 67%, for a resulting overall premium decrease between 12% and 38% with a best estimate 21% decrease.

Also similar to the portability market, the change in the age slope will likely not have an overall premium impact, but expected changes in the age slope under the ACA will have the largest member impact. Current age slopes for OMIP/FMIP premiums are close to 2:1, so the expansion to an assumed 3:1 in a combined individual market will decrease rates for the younger members and increase rates for the older members.

Healthy KidsConnect Market

It is not known if the HKC members will migrate to the Medicaid or individual market (likely some of each). For discussion purposes, we have assumed they will move to the new individual market.

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Healthy KidsConnect premiums are expected to decrease between 12% and 5% due to the ACA changes, with a best estimate of a 9% decrease. Overall, most of the regulatory requirements should have very little impact on average premiums. The most impactful requirements are reinsurance (especially in 2014) and the minimum loss ratio. HKC benefits encompass almost all of the essential health benefits requirements, including pediatric dental. Age slope requirements should not impact this market. The submarket merger is estimated to have minimal impact on the HKC market resulting in an overall premium decrease of 14% to an increase of 3% with a best estimate of a 5% decrease.

Combining the Individual Submarkets

The merging of the current individual market with the portability, OMIP/FMIP and Healthy KidsConnect markets will create a larger individual market; hereinafter, this combined market will be referred to as the new individual market. To understand the impact of merging these markets we compared the normalized allowed (before cost sharing) costs for the various submarkets, all adjusted for the impact of ACA requirements, including the migration from the uninsured into the current individual market. Costs were further normalized to account for any differences in age, geographic concentrations and other rating variables.

We estimate that merging these submarkets into the new individual market will change post-ACA premiums as follows:

1. the current individual market will increase by 22%, 2. post-ACA portability premiums will decrease by 39%, 3. post-ACA OMIP/FMIP premiums will decrease by 67%1, and

4. Healthy KidsConnect premiums will increase by 4%.

A shown above in Table 2, combining the merging of the individual submarkets with the impact of ACA requirements results in the following (2014) post-ACA premium changes: the current individual market will increase by 38%, post-ACA portability premiums will decrease by 8%, post-ACA OMIP/FMIP premiums will decrease by 21% and Healthy KidsConnect premiums will decrease by 5%.

Premium Tax Credits and Cost Sharing Subsidies

Beginning in 2014, some lower income individuals and families will be eligible to receive premium tax credits and cost sharing subsidies to make health insurance more affordable. It is estimated that the

1 Since OMIP/FMIP and portability premiums are currently subsidized, the premium impact shown is related to the

full premiums that would need to be charged to cover expenses rather than the impact to the currently subsidized premiums.

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premium tax credit subsidies would result in an average premium decrease of 10% for the combined individual market. This impact is based on the following assumptions:

1. Best estimate assumptions;

2. The new individual market which includes the current individual market, Portability, OMIP/FMIP, and Health KidsConnect;

3. An estimate for the second lowest silver plan premium; and

4. An assumption that individuals and families with incomes less than or equal to 133% of the Federal Poverty Level (FPL) will not be enrolled in the health insurance exchange.

The impact to any one member or family is significantly affected by the income of that member or family. Therefore, while premiums are expected to decrease 10% on average, the premium impact on any given member or family will vary from this value, potentially significantly.

While our primary focus is on the premium change to the currently enrolled members, it should be noted that the average premium and cost sharing subsidies vary significantly when looking at the currently enrolled and the newly enrolled. The newly enrolled population is expected to have lower incomes and thus receive higher premium tax credits (on average).

Individuals who qualify for premium credits and are enrolled in a silver plan in the exchange will also be eligible for assistance in paying their cost sharing. Using similar assumptions as those listed in this section (above), it is estimated that the cost sharing subsidies will decrease the cost sharing in a silver level plan by an average of 23%, which translates to an estimated 8% decrease to average premium.

1.2 Overview - Small Group Market under ACA

Small Group Market

Table 4 below includes estimates of ACA changes to small group market premiums (on a PMPM basis) beyond current legislation in-force in Oregon. The impact of the ACA requirements that have already gone into effect, such as the dependent definition expansion to age 26, are not included in the table below. The impacts below do not vary significantly from 2014 to 2016 with the annually decreasing reinsurance assessment the key driver of any differences.

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Table 4: Changes to Small Group Market Premiums under ACA (2014 compared to 2011)

Average Premium Impact Range of Group Impact

ACA Requirement Low Estimate Best High Low High

Compliance with MOOP, deductible 0% 0% 0% Varies Varies Essential Benefits Requirement 1% 2% 3% 1% 3% Bronze Minimum Act. Value 0% 0% 1% 0% 6% Removal of OMIP and Portability

Assessment -3% -2% -1% -3% -1% Minimum Loss Ratio = 80% 0% 0% 0% -6% 0% Age / Gender Slope 1, 5 0% 0% 0% -10% 50%

U/W - Participation 1,2 0% 0% 0% -14% 8%

U/W - Contribution 1,3 0% 0% 0% -7% 4%

U/W - Health Status 4 0% 1% 3% -5% 5%

Morbidity Change -5% 0% 5% N/A N/A

Provider Fee 0% 1% 1% 0% 1%

Reinsurance Assessment 1% 1% 1% 1% 1%

Subtotal (ACA Requirements) -5% 3% 14% -37% 95%

Submarket Merger 0% 1% 2% 0% 2%

Total -5% 4% 16% -37% 99%

1 Premium changes due to the potential impact of selection are not included in this analysis.

2 Two carriers were unable to provide distribution data. They have been excluded from this analysis,

though results could be material. Additionally, one carrier does not consider employee participation in rating.

3 Four carriers do not consider employer contribution in rating.

4 Two carriers were unable to provide data. They have been excluded from this analysis, though results

could be material. Additionally, one carrier does not consider health status in rating.

5 This reflects moving from a 5:1 to a 3:1 age/gender slope. Using one insurer’s data, for example, 85%

of groups fall between -5% and 10%.

As shown above, we estimate that small group market premiums will increase as a result of the ACA requirements by approximately 3% under best estimate assumptions, with a range shown for the most uncertain estimates and overall results. Employer behavior in light of the significant market changes that will take effect in 2014 creates the most uncertainty with respect to our estimates. Some of the impacts, such as age factors, have no overall impacts but the impact to a particular group can be significant. Due to the law of large numbers, the smallest groups will experience the most significant premium impacts. Each of the requirements outlined in Table 4 are discussed in detail throughout this report.

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Small Group in Associations

All of the ACA requirements expected to impact small groups will also impact small groups currently being covered through associations. Under current law association groups are permitted to use experience rating techniques. Since these rating techniques will no longer be permissible under the ACA, these groups may experience more significant impacts to premium levels. As mentioned for the traditional small group market, the smallest of these groups will experience the most drastic premium changes.

Combining the Small Group Submarkets

Under the ACA, the current small group and the small group association markets will merge, thereby equalizing premium levels. To understand the impact of merging these markets we compared the normalized allowed costs for the two submarkets, adjusting each for the impact of ACA requirements. Costs were further normalized to account for any differences in age, geographic concentrations and other rating variables.

We estimate that merging these submarkets into one new small group market will change post-ACA premiums as follows: the current small group market premiums will increase by 1% and post-ACA small group association premiums will decrease by 6%.

1.3 Overview - Merger of the Individual and Small Group Markets

Using the best estimate normalized post-ACA allowed costs for the new individual and small group markets, premiums for the new small group market are estimated to decrease by approximately 4% and premiums for the new individual market would increase by approximately 4% if these markets were merged. Note that if the high estimate premiums are used for the new individual market then the post-ACA premiums for the new small group would decrease by approximately 1% and the premiums for the new individual market would increase by approximately 1% (assuming the two markets were merged). These estimates should be viewed as a comparison to if the markets were not merged post-ACA, rather than a comparison to the current rates in the markets. These results are based on enrollment projections showing the new small group market would make up just over half of the merged individual and small group market.

This impact accounts only for the differing morbidity of the markets. The pricing assumptions applied to administrative loads and the net impact of reinsurance will affect the actual results. These factors are discussed in more detail in the report.

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1.4 Overview - Important Caveats

Estimates of future premiums and programs over three years into the future under a set of changes as sweeping as the ACA are inherently uncertain. The following issues were most notable in creating this uncertainty:

1. Our analysis was completed with 2011 market information. Even in the absence of ACA changes, the market will change significantly over the course of three to six years (2011 to 2014/ 2016). 2. Important decisions have yet to be made regarding the health insurance exchange (HIX), including

how active of a purchaser the state will be, oversight responsibilities, adverse selection avoidance strategies, risk adjustment methods, and others. These decisions will all affect competition among carriers, carrier rate setting methods and assumptions, and member behavior.

3. Pending guidance and regulations from the federal government may affect the appropriateness of our estimates.

4. Rates, especially in 2014 through 2016, depend on how health plans think costs will change under the ACA reforms and population expansions, not necessarily on how costs actually change. Results and information as presented in analyses such as this are important to communicate with the health insurance carriers. Feedback from these carriers on information they will find useful (e.g., state rules around rate review, information on the uninsured population, risk adjustment simulations, and others) will be critical to avoid irrational pricing.

5. Rate changes in the small group market and other financial incentives may drive employers to make unanticipated decisions around coverage.

6. The currently uninsured population will likely represent a significant portion of the individual insurance market in 2014. While migration assumptions were made, a more detailed “Who Goes Where” analysis should be completed based on current ACA requirements to better understand expected migration under the ACA. Shifts in enrollment may occur differently than what has been projected if the rate changes in the small group market and other financial incentives drive some employers to drop coverage.

7. Pent up demand has been shown to significantly increase costs in the first year of enrollment for those previously uninsured. Our estimates do not reflect estimates for pent up demand in 2014, since the effect is uncertain and may be offset by reduced utilization as members may not fully understand new or increased coverage.

8. Due to the limited scope of our work and timing requirements, we requested and received summary level market information from the carriers, rather than detailed data which would have allowed more validation and refined estimates. We did not audit the data supplied.

9. The behavior of individual members and employers is difficult to predict.

10. It is difficult to predict the number and impact of grandfathered plans. The more individuals and small groups that stay enrolled in grandfathered plans, the less of an impact the ACA guaranteed issue rules will have. However, the more grandfathered plans that remain, the higher the absolute level of non-grandfathered rates since grandfathered plans are assumed to have favorable risk

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pools. Further, the impact of merging the individual and small group market could be skewed if the proportion of enrollment in grandfathered plans is very different between individual and small group.

11. Any adjustment to costs and premiums resulting from revised contracting post ACA was not considered. Reduced contract costs might result from eliminating the level of uncompensated care for uninsured residents or increases in contracting may be necessary because of provider capacity limits.

12. We did not attempt to model the impact of state mandatory benefits above and beyond the federal requirements of essential benefits, including how they will be reflected in the small group and individual markets after implementation of the ACA.

13. We have assumed that associations consisting of small employer groups will become part of the new small group market.

14. We have assumed that Oregon will move forward with Medicaid expansion despite the recent Supreme Court decision which no longer makes this expansion mandatory.

15. We have assumed that the Healthy KidsConnect members will become part of the new individual market.

16. There may be additional assessments, such as an assessment by the Health Insurance Exchange to fund the operation of the Exchange.

17. Some individuals may enroll in catastrophic plans, which have less restrictive cost sharing requirements. The impact of these plans on the estimates of the ACA changes is not expected to be significant, but would lower the premium increase estimates.

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2.

ANALYSIS OF THE OREGON INDIVIDUAL MARKET

The following sections focus on the analysis of the current individual market. Comments specific to the other individual submarkets (OMIP/FMIP, portability and Healthy KidsConnect) can be found in Appendices A, B and C. At the end of section 2.4, the impact of merging the individual submarkets is discussed. Section 2.5 (Premium Tax Credits and Cost Sharing Subsidies) is based on the entire new individual market.

2.1 Summary of Individual Analysis

We expect ACA provisions to produce the following current individual market changes for 2014 compared to 2011:

1. Overall increase of 13% to individual premiums due to ACA, with possible outcomes ranging from 2% to 30%. Incorporating the impact of the submarket merger, the overall premiums are expected to increase 27% to 55%. The impact to each individual will vary significantly based on the benefit plan and type of rate they currently have with an insurer, and will vary as a result of premium tax credits that the individual may be eligible to receive.

2. Qualified low income individuals may also be eligible to receive cost sharing subsidies to offset out of pocket costs beyond the premium, if they enroll in a silver plan through the exchange.

3. A compression of rates due to changes in the maximum age rate difference. The current market has age ratios greater than the 3:1 ratio permitted under the ACA. While this change will not have an overall impact on the total premiums, at the individual member level it will cause rates for younger members to increase and rates for older member to decrease.

4. The individual market will see a significant influx of new enrollees coming mostly from the current uninsured population. While the estimated impact of this change contains the most uncertainty, it drives the majority of the overall expected change in premiums.

While the rating approaches for the seven largest insurers analyzed are relatively similar, currently enrolled individuals will be impacted differently based on their insurer, as well as the variables noted above.

2.2 Current Regulations and Market Composition

Market Composition

Seven insurers make up approximately 90% of the Oregon individual market. There are other smaller insurers in the market but our analysis focused on the seven insurers with the largest market share.

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Table 5: Insurers and Members in the Oregon Individual Market

2011 Average Members Market

Enrollment Individual Portability OMIP/FMIP

Healthy

KidsConnect Total % of Total

FMIP - - 901 - 901 0% Health Net 3,914 1,019 - - 4,933 3% Kaiser 10,018 4,884 - 1,002 15,904 8% ODS 26,304 504 - - 26,808 14% OMIP - - 12,697 - 12,697 7% PacificSource 12,871 497 - 3,008 16,377 8% Premera / LifeWise 23,903 322 - - 24,225 12% Providence 10,898 1,582 - - 12,480 6% Regence 55,325 5,883 - - 61,208 32% United - 194 - - 194 0% Other * 15,915 2,615 - - 18,530 10% Total 159,149 17,500 13,598 4,010 194,257 100% % of Total 82% 9% 7% 2% 100%

* Other is based on historical percent of members not covered by the largest seven insurers. Table does not include the Uninsured which are estimated to be around 636,000. Most of these uninsured will be eligible for other coverage (e.g. Medicaid).

Comparing the detail data provided by the insurers to the overall market enrollment listed on the Department’s website, the analysis presented in this report represents approximately 81% of the individual market, approximately 79% of the portability market and 100% of OMIP/FMIP and HKC. Note that the results of this analysis assume the remaining market and rating characteristics are similar to the insurers included in this analysis. Any variations could significantly impact the results.

According to research conducted by the Kaiser Family Foundation, in 2009-2010, approximately 6% of the Oregon population was insured through the individual market, while 17% were uninsured, 49% were covered under group coverage, and 27% were insured through public programs (Medicaid and Medicare). 2 Note that the Kaiser Family Foundation also states that the number of individuals insured

through the individual market was approximately 236,700 in 2009-2010. This enrollment is consistent

2 Oregon: Health Insurance Coverage of the Total Population, states (2009-2010), U.S. (2010),

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with the Department’s 2009 estimates for individual, portability and the Oregon medical insurance pool combined.

A summary of individual market benefits, commissions and loss ratios (for 2011) is provided below. 1. Benefits – Benefits are separated into the benefits covered and the actuarial value (AV), which

reflects the relative richness of the plan design. The AV is calculated by dividing the insurer’s expected claims cost by the total covered amount of health care expenditures under ACA, including any essential benefits.

Maternity is a mandated benefit in Oregon and thus, there is no impact to this benefit being an essential health benefit (EHB) under ACA. Not all insurers currently cover prescription drugs and mental health/substance abuse (MH/SA) services in the individual market. Approximately 23% of members are in plans with no drug coverage while an additional 3% are in plans with limited “generic only” coverage. For MH/SA, 18% of members are in plans with no MH/SA coverage, another 18% have no MH but have SA coverage, 39% have coverage but with limited hospital days and office visits. Only 18% of the market has full parity MH/SA benefits.

No plans currently cover pediatric dental and vision to the level required under ACA.

AVs for the current plans range from minimal coverage of 37% to as much as 92%, after accounting for the addition of essential benefits that must be covered under the ACA.

2. Broker/Sales Commissions – Overall, all of the insurers included in our review are reflecting 2011 commissions on their individual book of business that are 2-6% of premium.

3. Loss Ratios – 2011 actual loss ratios (paid claims over premium) for the individual market were fairly similar for five of the seven insurers. Five insurers had a loss ratio of around 68 – 74%, one insurer’s individual book of business had a loss ratio that is already around the ACA minimum Medical Loss Ratio (MLR) of 80% and one insurer had a loss ratio greater than 80%. After adjusting for taxes and the OMIP assessment, the loss ratio range for the five insurers increased to 72 – 79%.

Note that none of the insurers is fully credible under the ACA rules and thus, only a portion of any calculated rebate would need to be refunded.

Regulations

Oregon currently only allows rate variation based on age, family size and region. In general, there are no rate variations on individual premium for gender and health status. The following highlights current regulations in the Oregon market.

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1. Underwriting – medical underwriting is used in the Oregon individual market, with a denial rate of approximately 25% in the fourth quarter of 2011.3 This relatively high rejection rate indicates that

the members accepted into the current individual market are likely to be significantly healthier than the average individual. As mentioned above, Oregon does offer a high risk pool via the OMIP/FMIP program.

2. Mandatory Benefits – Oregon requires coverage for many benefits including, but not limited to, the following: clinical trials, contraceptives, hearing aids for children and dependents, HPV vaccine, mastectomy-related services, oral anticancer medications (if cancer chemotherapy is covered), services to treat pervasive developmental disorder in children, pregnancy and childbirth, non-FDA approved drugs (if prescription drug coverage), medically necessary prosthetic and orthotic devices, and tobacco cessation programs. A more comprehensive list can be found on the state’s website.4

3. Rate Filings – Rating actions are required to be filed and approved by the state prior to implementation.

4. Rating Variables – two rating variables are used in the Oregon individual market (discussed below). Other rating variables are not allowed in the individual market, including, but not limited to: pre-existing condition exclusions, rate-ups for substandard health and smoking status, and durational variations.

a. Demographic Rating – the individual rating variables are gender-neutral in Oregon. The insurers rate based on age. The current age ratio of rates varies significantly by insurer. In the individual market, the oldest to youngest adult insured ratio is between 3.3:1.0 and 5.2:1.0.

b. Geographic Rating –Two insurers use geography factors to rate individual premiums. The ratio of most to least costly region varies between 1.09:1.0 and 1.2:1.0.

All rating variables noted above that are currently used will be allowed under ACA but these variables will have limits around the factors that may be utilized. While smoking factors are not currently utilized in the Oregon individual market, they will be allowed under ACA. Because of challenges associated with self-reported data and the cost of testing for smoking, it is not clear if issuers will employ a smoking adjustment.

3 Oregon Department of Consumer & Business Services: Health Insurance Quarterly Enrollment Reports. 4 http://www.cbs.state.or.us/external/ins/sehi/mandated_health_provisions.pdf

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2.3 Data Received

The analysis in this report is primarily based on data provided by the insurers and the state. This information includes but is not limited to:

1. Detailed benefit plan information for plans representing at least 80% of the individual, portability and Healthy KidsConnect books of business, as well as 100% of the OMIP/FMIP program. The detailed information includes:

a. 2011 earned premiums, allowed and paid claims, and member months by benefit plan. The same data elements were also provided in aggregate for the balance of the remaining plans in the insurer’s small group book of business.

b. High level cost sharing and covered services information for each benefit plan.

2. Summary of member months, premium, claims and allowed cost experience by line of business (small group, individual, portability, Healthy KidsConnect, OMIP/FMIP, 51-100 size groups) and product type.

3. Rating factors by age band, gender, family size/status and line of business. 4. Member months by gender and age band.

5. Administrative loads, by admin component, as a percent of premiums.

While most of the data received were for plans that are open, (currently accepting new enrollment) approximately 22% of the individual market is in a grandfathered plan. Only three insurers have grandfathered individual plans with over 70% of each insurer’s members currently in grandfathered plans. For the insurers with grandfathered plans, two of the three have higher loss ratios in their grandfathered plans while the other has lower. The actuarial values are similar within the insurers, with one insurer’s grandfathered plans having slightly less rich cost sharing than its non-grandfathered counterparts. Combining the data for the three insurers, loss ratios and actuarial values are both lower in the grandfathered plans than non-grandfathered plans.

For the purpose of this report we have assumed all grandfathered plans will be impacted by the ACA. That is, it is assumed these plans will make all necessary changes to be ACA compliant, whether or not they are grandfathered. This assumption is conservative and any variance from this assumption will lessen the number of individuals who are impacted by the ACA requirements. To the extent insurers offer and sell new plans in 2012-2013 that incorporate some or all aspects of ACA, this would also lessen the number of members impacted as well as the magnitude of the impact.

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2.4 ACA Impact on Individual Market

The ACA includes a provision for states to develop an exchange through which individuals can purchase health insurance. The ACA also includes significant new underwriting and rating requirements for the individual market. The purpose of this section is to analyze the estimated impact of these new requirements on current individual premiums. Since the ACA dictates that rates need to be the same for insurers who offer insurance both in and out of the exchange, the focus of the analysis is on premiums in the overall individual market, in or out of the exchange.

The following discusses the premium impact of the ACA requirements on the current individual market. Separate premium impacts for the portability, OMIP/FMIP and Healthy KidsConnect markets can be found in Appendices A, B and C.

Overall current individual premiums are estimated to increase by 38%, 13% due to the ACA’s underwriting and rating requirements and an additional 22% due to the submarket merger. This change is not uniform over all individuals, as some enrollees could see their premiums decrease slightly while others could see their premiums more than double before taking into consideration premium tax credits. The table below shows the overall projected change for each of the requirements. As can be seen in the table, the most significant requirement to the Oregon individual market, as measured by overall impact to premium, is the morbidity change (driven by new entrants in the market). While the age slope limitation has no overall impact, its impact to individual enrollees may be significant. The overall premium impacts (gross of premium tax credits) by ACA requirements are shown in the following sections.

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Table 6: Changes to Current Individual Market Premiums under ACA (2014 compared to 2011)

Requirement Description Best Estimate Impact

($ PMPM)

Best Estimate Impact (%)

2011 Average Individual Monthly Premium $202

Essential Benefits Requirement $12 6 %

Bronze Minimum Act. Value (includes Max OOP limit) $5 2%

Minimum Loss Ratio = 80% -$1 -1%

Age Slope Limited to 3:1 $0 0%

Morbidity Changes (due to new insureds) $30 15%

Provider Fee $2 1%

Reinsurance Program $-17 -8%

Elimination of OMIP Assessment $-2 -1%

Subtotal New Average Premium (2011 Dollars) $230 13%

Submarket Merger $49 22%

New Average Premium (2011 Dollars) $279 38%

The above table does not include the impact of pent up demand or other rating requirements. See the Additional Requirements and Considerations section for information on these topics. Also note that due to rounding the individual components in the above table will not add to the total.

Figure 1 below shows the various estimated premium changes and the corresponding percent of members affected. Enrollees receiving the greatest premium increases are likely to be younger individuals, who are currently in catastrophic benefit plans. Conversely, enrollees receiving the largest premium decreases are likely older enrollees.

The premium changes included in this section reflect the average premium change from the perspective of the insurer. They do not take into account the impact of the premium tax credits that will be available to lower income individuals. The impact of premium tax credits and cost sharing subsidies is discussed later after all ACA impacts and member migrations have been considered.

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Figure 1: Estimated Premium Changes and Percent of Members Impacted

Premium Impact

Essential Benefits

The ACA requires that all benefit plans cover services for essential health benefits, some of which are often excluded in the current individual market. Based on the services enumerated in the ACA, the essential health benefits will include, but are not limited to, the following categories:

1. Ambulatory patient services 2. Emergency services

3. Hospitalization

4. Maternity and newborn care

5. Mental health and substance use disorder services, including behavioral health treatment 6. Prescription drugs

7. Rehabilitative and habilitative services and devices 8. Laboratory services

9. Preventive and wellness services and chronic disease management, and 10. Pediatric services, including oral and vision care

Currently, all individual insurers in Oregon cover maternity. Approximately 82% of the current individually insured market is in a plan with at least some mental health and substance abuse coverage. 77% of members are enrolled in a benefit plan with prescription drug coverage. The impact of adding mandatory coverage, for those services defined above, as part of the essential benefits is estimated to

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coverage and MH/SA to the plans that currently do not cover it to the extent required and adding pediatric vision and oral services. The required pediatric oral benefits are comprehensive, covering most services with the exception of non-medically necessary orthodontics. A high level estimate for the impact of adding habilitative services has also been included but this benefit still remains undefined. The figure below shows the range of impact by members for all essential benefits. The overall impact of adding these essential benefits to the current benefit plans is approximately 6%. Plans that currently do not have prescription drug coverage are usually plans with high cost sharing and the least covered benefits, and the combined impact of adding all essential benefits increases these plans’ premiums by as much as 20%.

Figure 2: Impact of Essential Benefits Requirement

Maximum Out of Pocket Limits

Starting in 2014, the maximum out-of-pocket (MOOP) amount cannot be greater than the HSA limit ($5,950 for individual policies and $11,900 for family policies in 2011, indexed annually). The percent of individually insured members in current plans that will be affected by this requirement is roughly 65%. The impact of this change has not been explicitly determined but is included in the Bronze Requirement impact (discussed below).

Bronze Requirement

Beginning in 2014 there will be four primary levels of plan designs that may be offered, varying by their actuarial value. The four plans are: Bronze at 60% AV, Silver at 70%, Gold at 80% and Platinum at 90%. While not all of the specifics of this requirement have been finalized, all insurers participating in both

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the individual market and the exchange will be required to offer one plan at the Silver level and one at the Gold level. In addition, most states will mirror these requirements in the market outside of the exchange (assuming such a market is allowed by the state). The table below shows the current distribution of plans and members by various AV levels. These AVs have been adjusted to include any essential benefits that may not currently be covered.

Table 7: Current Member Distribution by AV Individual

Actuarial Value Range

% of Members <45.0% 0% 45.0%-55.9% 14% 55.0%-64.9% 27% 65.0%-74.9% 35% 75.0%-84.9% 20% 85.0%-94.9% 3% 95.0% or higher 0% Total 100%

Given that the individual market tends to offer less rich benefit plans than the group market, it is likely that most insurers will also offer the least rich benefit plan allowable, or the Bronze level, in addition to the required Silver and Gold plans. We have assumed Bronze is the minimum benefit plan members could purchase through the exchange. For our analysis it is assumed all benefit plans would at a minimum need to meet the 60% Bronze AV level. Note that while catastrophic plans will allow some members to enroll in plans with a lower AV, it is difficult to know what portion of members will enroll in these plans. The impacts shown assume no catastrophic plan enrollment and are therefore conservative estimates. Figure 3 below shows the various impacts for members enrolled in plans that currently do not meet the Bronze requirement.

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Figure 3 Impact of Bronze and MOOP Requirement

Medical Loss Ratio (MLR) Requirements

Effective January 1, 2011 insurers are required to maintain a minimum loss ratio of 80% (for the individual market) or the insurer must pay rebates back to the enrollees. It is expected that loss ratios under the ACA will be higher than traditional MLR calculations (incurred claims divided by earned premiums) given the allowable adjustments under the ACA.

The calculated MLR will also be subject to credibility adjustments. Credibility adjustments will be made to account for random statistical fluctuations that are inherent when an insurer has a smaller member base. Statistical fluctuations are also possible when an insurer has higher deductible plans since more of the insurers liability resides with catastrophic claims.

By 2014, for MLRs in plan years 2011 to 2013, the number of members in the calculation will be the sum of the average members in each of the previous three years. Credibility adjustments will apply to insurers that have over 1,000 but less than 75,000 members. If an insurer has less than 1,000 average members, the insurer is essentially exempt from any rebate payments. If the insurer has 75,000 or more average members, their experience is deemed to be fully credible and thus the calculated MLR will determine what, if any, rebate must be paid to their members. For plans that are partially credible (members over 1,000 but less than 75,000), an additive adjustment to their calculated MLR will be made based on the number of members. An additional adjustment may be made if the average deductible in their block of business is $2500 or greater. These adjustments will increase their calculated loss ratio, lessening the likelihood that they will owe a rebate or if they do, decreasing the amount of rebate owed.

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To assess the impact of the MLR requirement, loss ratios for the current book of business were reviewed. The incurred claims we received were not reported using the NAIC guidance for reporting medical costs in 2011. As a result, we expect that the loss ratios will increase for the disease management, quality and fraud and abuse expenses that will be allowed as medical costs. As a check of reasonability, the loss ratios provided were compared to the non-claim expense loads documented in the rate filings, if available.

2011 loss ratios were calculated by insurer, adjusting for estimated taxes, OMIP assessments and a high level estimate of additional adjustments. The loss ratios were also adjusted for credibility and deductible levels as outlined above. The change in premium was then calculated to determine what decrease in administrative expenses, if any, was needed to comply with the minimum 80% loss ratio. Based on the data of the seven insurers, the overall average impact is expected to be a 1% decrease to premiums in the individual market. After all adjustments, only two of the seven insurers were under the required loss ratio and by less than 4%. Thus, we estimate that members may see between 0% to 4% rate decreases as a result of the MLR requirements.

Individual market premiums may also experience premium decreases due to administrative expenses that will likely be lower under ACA due to a decrease in insurer expenses such as underwriting and commissions. The impact of this potential impact has not been incorporated into the analysis.

Demographic Factors

Two significant changes will be required in 2014 for any demographic adjustments to rates. Under the ACA, rates can not differ based on gender and the maximum ratio of the highest to lowest adult rate is 3 to 1. Since gender rating is not currently utilized in Oregon, the gender-neutral requirement will not have an impact on premiums. The 3:1 age slope constraint will, however, affect premium rates in the Oregon individual market. While it is unknown what age factors the insurers will implement in 2014, and each insurer will likely develop their own factors that meet the requirement5 , an assumption was

made for this analysis after reviewing current demographic factors and incorporating the new requirements. Since child rates do not fall under the 3:1 requirement, no explicit requirement was applied to child rating factors.

Currently, individual insurers have adult rate ratios that vary from 3.3:1.0 and 5.2:1.0 (depending on the insurer). The overall impact of the demographic changes is expected to be premium neutral; however, the member impact is significant. The largest premium increase due to age slope changes is an 81% increase while the largest decrease is 25%. The younger enrollees will see large premium increases and

5 We expect that final rating regulations may allow states to prescribe specific factors, although doing so may limit

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the older enrollees will see premium decreases. The proportion of members impacted and the corresponding impact of the age changes are in Figure 4 below.

Figure 4 Impact of Age Ratio Changes

Underwriting Factors

Underwriting factors are designed to allow insurers to vary premiums such that they would be more in line with an individual’s expected costs. This enables insurers to accept more applicants by accepting higher risk individuals at a higher premium level. Under ACA, underwriting factors or classes will no longer be allowed. Since the Oregon individual market does not rate with underwriting factors, this requirement will not impact rates.

Under the ACA, tobacco factors will be allowed with a maximum premium ratio of 1.5 to 1.0 (that is, health insurers may charge tobacco users as much as 50% more than non-tobacco users for a given health plan). Since no individual insurers and only one small group insurer currently use tobacco rating, it is assumed that this rating variable will not be used in the post-ACA individual market.

Durational Factors

Durational factors, which capture the impact of underwriting decreasing or “wearing off” as an individual’s enrollment span continues, are not used in the Oregon individual market. Since such factors are not currently used, the ACA requirement prohibiting durational factors will not have an impact in the Oregon market.

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Elimination of OMIP Assessment

In the current market, insurers pay an assessment for the purposes of funding the OMIP/FMIP program. Assuming OMIP/FMIP are folded into the new individual market under ACA, it is assumed this assessment will be eliminated. On average, it is estimated that the elimination of this assessment will decrease current individual premiums by approximately 1%.

Morbidity Changes

The morbidity change in the individual market will be driven by the large number of new entrants in the individual market. Some of these new currently uninsured members will enroll due the guarantee issue provision which does not allow insurers to deny a member based on their health status. To ensure not just those in need of health care enroll, the ACA requires all individuals obtain minimum essential coverage or face a tax penalty.6 This individual mandate to maintain health coverage will help mitigate

increases to the overall risk level of the individual market (assuming the penalties are sufficient to influence individuals’ behavior). For individuals below 400% of FPL, subsidies will be available to cover a portion of the premium if premiums under the second lowest silver plan for that individual are greater than a particular threshold set as a function of income.

The individual market will see migration not only from the uninsured but also from the small group market where members may also enter the exchange, without employee or employer penalty, if they are eligible for premium tax credits.

In order to determine the impact of the incoming population we analyzed a base set of data from Current Population Survey (CPS) for a benchmark state and corresponding risk adjustment factors for a similar population. The CPS information provides insight into self-reported health status. It was seen that the uninsured tend to categorize themselves as being in worse health than the population already in the individual market. The benchmark state data was used to quantify differences in health status. Given the high denial rate (25%) in the current individual market, it is expected that current market premiums reflect a relatively healthy population and the overall premiums will need to be increased in order to cover the higher risk of both the uninsured and migrating group members. While a detailed migration analysis is needed to understand the anticipated movement of the entire insurance market, some high level assumptions were made to provide a general understanding of the potential impact of member migration into the individual market. Our high level assumptions include the following:

6 People may apply for an exemption from the individual mandate based on lack of affordable health insurance

(i.e., premiums are more than 8.0% of a person’s modified adjusted gross income), religious beliefs, or personal hardship.

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1. Migration will only come from the uninsured and the small group market. No large group or Medicaid migration is assumed.

2. The existing members in the individual market will remain except for a subset of members who will be eligible for Medicaid based on CPS data. Note that if there is migration from the current group market, these members are likely to be less healthy than those in the current individual market since the small group market is already guaranteed issue.

The resulting migration in and out of the individual market is summarized in the table below. The table represents best estimates of 2014 and 2016 migration and does not include the impact of the merger of the various individual submarkets (e.g. OMIP/FMIP). Wakely used varying assumptions by year and under different scenarios to develop our ranges of impacts.

Table 8: Expected Individual Member Migration

Individual Migration 2014 Best Estimate 2016 Best Estimate

Current Market 159,149 159,149

Medicaid Eligible -17,266 -17,266

Small Group 15,000 20,000

Uninsured 58,929 101,021

Total 215,812 262,904

3. Nationally, subsidy-eligible individuals, who constitute the majority of the uninsured, tend to have a higher risk profile than non-subsidy-eligible individuals. As a result, the more subsidy-eligible individuals that migrate to the individual market, the more likely premiums will increase. For Oregon, these uninsured individuals reported health that is slightly less favorable than the national average. The Oregon subsidy-eligible, uninsured individuals consistently reported a similar or less favorable health status than their non-subsidy-eligible counterparts. The Oregon individually-insured, subsidy-eligible reported a similar or more favorable health than their non-subsidy-eligible counterparts.

See the table below for a comparison of self-reported health status for Oregon and nationally by income level. Note also that across all income levels and insured status, Oregon self-reports slightly less healthy than the national average. Even though the Oregon data is similar to the national data, a blend of national and Oregon data were used to develop morbidity factors for subsidy and non-subsidy eligible individuals in both the insured and uninsured markets.

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Table 9: Self-Reported Health Status Comparison

Ultimately, an aggregate 15% increase in rates is expected due to the influx of new individuals. This impact varies by year and based on the migration and morbidity assumptions used. The overall impact is expected to be 10% to 30% for all years, with a range of 10% to 25% and a best estimate of 15% in 2014. This assumption is not only the most significant, but also contains the most uncertainty. As a result, it is important to fully understand the implications of this assumption.

In 2014, migration to the individual market is expected to be less than the ultimate migration due to smaller penalties and the newness of the reform. In 2014, we expect that 5-15% of currently uninsured residents will enroll in the individual market. In 2016, this increases to an expected 10-25% of the currently uninsured. While fewer uninsured members are expected to migrate in 2014, those uninsured that do migrate are likely to be less healthy and have a higher morbidity than those who choose not to enroll. Thus, lower migration numbers are offset by higher morbidity factors. As a result, the overall expected morbidity impact, taking into account the number and health status of the new enrollees, increases only slightly over the three years.

Tables 10 and 11 below show the expected impact of morbidity changes due to the new entrants into the individual market. Table 10 shows two scenarios assuming a lower migration assumption, which is more likely in the first year or two. The two scenarios use different morbidity factor assumptions since the actual health status of the new enrollees is largely unknown. Table 11 also provides two different morbidity factor scenarios but assumes a higher uninsured migration, which is more likely in 2016. Note that the morbidity factors for the uninsured are lower in the high migration table. This is due to the assumption that the less healthy are more likely to enroll in the individual market in the initial years compared to their healthier counterparts who may be willing to pay the penalty rather than the cost of insurance. Subsidy Eligible (FPL < 400%) Non-Subsidy Eligible (FPL > 400%) Subsidy Eligible (FPL < 400%) Non-Subsidy Eligible (FPL > 400%)

Insured-Individual Good, Very Good or Excellent 94% 97% 97% 93%

Insured-Individual Fair or Poor 6% 3% 3% 7%

Uninsured Good, Very Good or Excellent 88% 93% 84% 91%

Uninsured Fair or Poor 12% 7% 16% 9%

Combined Good, Very Good or Excellent 89% 95% 86% 92%

Combined Fair or Poor 11% 5% 14% 8%

National Oregon

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Table 10: Morbidity Changes with Low Migration Assumption

Table 11: Morbidity Changes with High Migration Assumptions

Pre-existing Condition Limitations

As noted above, Oregon does not allow insurers to exclude coverage for certain conditions that are pre-existing at the time a person applies for insurance (called pre-pre-existing condition limitations). Since the Individual market in Oregon does not use pre-existing limitations, the ACA requirement prohibiting this exclusion will not impact premiums.

The Health Insurance Provider Fee

The insurer fee applies to for profit health insurance companies’ commercial and public program enrollees. The insurer fee does not apply to third party administrators.

The insurer fees to be collected by year according to the ACA are as follows:

Current st at us Subsidy-eligible 2010 Average Members % Migrat ion

Fut ure Ind Market Enrollment Morbidit y Fact or % Migrat ion

Fut ure Ind Market Enrollment

Morbidit y Fact or

Uninsured Subsidy-eligible 567,850 10% 56,785 1.35 10% 56,785 1.90 Uninsured Not subsidy-eligible 68,150 5% 3,407 1.25 5% 3,407 1.80 ESI Subsidy-eligible 816,335 1% 10,000 1.10 1% 10,000 1.40 ESI Not subsidy-eligible 1,050,365 0% - 1.10 0% - 1.40 Individual Subsidy-eligible 100,832 83% 83,690 0.99 83% 83,690 0.99 Individual Not subsidy-eligible 58,317 100% 58,317 1.02 100% 58,317 1.02 212,200 10% 212,200 27% Morbidity change to current insured individual market

Low Morbidit y Assumpt ions High Morbidit y Assumpt ions

Current st at us Subsidy-eligible 2010 Average Members % Migrat ion

Fut ure Ind Market Enrollment Morbidit y Fact or % Migrat ion

Fut ure Ind Market Enrollment

Morbidit y Fact or

Uninsured Subsidy-eligible 567,850 25% 141,963 1.20 25% 141,963 1.50 Uninsured Not subsidy-eligible 68,150 15% 10,222 1.10 15% 10,222 1.40 ESI Subsidy-eligible 816,335 2% 20,000 1.10 2% 20,000 1.40 ESI Not subsidy-eligible 1,050,365 0% - 1.10 0% - 1.40 Individual Subsidy-eligible 100,832 83% 83,690 0.99 83% 83,690 0.99 Individual Not subsidy-eligible 58,317 100% 58,317 1.02 100% 58,317 1.02 314,193 10% 314,193 26% Morbidity change to current insured individual market

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Table 12: Insurer Fee National Contribution Requirements Year Statutory Insurer Fee Amount

(in $B) 2014 $8.0 2015 $11.3 2016 $11.3 2017 $13.9 2018 $14.3 2019 $14.3 2020 $14.3 2021 $16.5 2022 $19.1 2023 $22.1

The insurer fee will be assessed equally as a percentage of applicable premiums (besides excluding not for profit companies, the first $25 million of premium, and 50% of premium from $25 to $50 million for an organization is not assessed). The insurer fee is not a tax deductible expense for federal corporate tax purposes.

Wakely developed estimates of the insurer fee and its impact on premiums. Because the average impact of the insurer fee on premium rates depends on the proportion of not for profit and tax exempt premiums, and Oregon has a high proportion of not for profits, the impact of the insurer fee on premium rates in Oregon is less than the national average.

The following table shows the best estimate impact of adjusting the national average values to Oregon: Table 13: Wakely Estimates of Oregon Premium Impact by Year

Provider Fee Insurer Type Distribution

of Members

2014 2015 2016

For Profit 41.3% 1.96% 2.53% 2.34%

Not for Profit 58.7% 0.00% 0.00% 0.00%

Total 100.0% 0.81% 1.05% 0.97%

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Table 14: Wakely Estimates of National Insurer Fee by Year Year Insurer Fee as %

of Total Premiums Insurer Fee as % of Premiums Subject to Fee 2014 1.55% 1.96% 2015 1.99% 2.53% 2016 1.83% 2.34% 2017 2.14% 2.74% 2018 2.09% 2.67% 2019 1.98% 2.53% 2020 1.87% 2.39% 2021 2.05% 2.62% 2022 2.24% 2.86% 2023 2.46% 3.13%

The first column of estimates (Insurer Fee as % of Total Premiums) represents an estimate of the increase in average premiums by year due to the insurer fee. The second column of estimates (Insurer Fee as % of Premiums Subject to Fee) represents the assessment insurers will pay on premium that is subject to the fee (premiums subject to the assessment are reduced for tax exempt and smaller insurers, and eliminated for non-profit insurers).

The estimates in the first column of the table above for the insurer fee are lower than the estimates developed by Oliver Wyman.7 Our estimates are very similar to estimates developed by Milliman.8 We

believe that the difference between our estimates and the Oliver Wyman estimates is likely a different assumption regarding the portion of total members who are covered under self-funded plans, since that is the assumption most likely to produce such a large difference.

The model includes baseline estimates of enrollment, per capita premium and total premium by state for the following six key business segments using the Urban Institutes HIPSM:

7 Carlson, Oliver Wyman, October 31, 2011, “Estimated Premium Impacts of Annual Fees Assessed on Health

Insurance Plans”

8 Meerschaert & Doucet, January 31, 2012, “PPACA Health Insurer Fee Estimated Impact on State Medicaid

Programs and Medicaid Health Plans”,

References

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