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SOA GHC Exam > Learning Objective 6 - Regulation & Taxation > Flashcards

Learning Objective 6 - Regulation & Taxation Flashcards

1
Q

The “triple aim” (3 goals) of health policy

A
  1. Better care for individuals - the Institute of Medicine lists 6 characteristics of quality health care
  2. Better health for populations - public health initiatives should address the upstream causes of poor health
  3. Lower per-capita costs - the significance of health care within an economy can be measured by health expenditures as a % of GDP. This % is much higher in the US than in other developed countries
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2
Q

Characteristics of quality health care

A
  1. Safe - must avoid injuries to patients
  2. Effective - must provide services based on scientific knowledge to all who could benefit, and refrain from providing services to those not likely to benefit (avoiding underuse and oversue, respectively)
  3. Patient-centered - should be respectful of and responsive to individual patient preferences, needs, and values, and should ensure that patient values guide all clinical decisions
  4. Timely - should strive to reduce wait times and delays that can be harmful for both those who receive care and those who give care.
  5. Efficient - should avoid waster, including waste or equipment, supplies, ideas, and energy
  6. Equitable - should not vary in quality because of personal characteristics such as gender, ethnicity, geographic location, and socioeconomic status.
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3
Q

Causes of poor health and public initiatives to address them

A
  1. Environmental factors that contribute to poor population health:
    a. Lack of sanitized water
    b. Pollution (air and water)
    c. Violence (domestic, street, and gun violence)
    d. Unhealthy living environment
    e. Food-borne illnesses
    f. Lack of access to fresh, healthy foods
  2. Community disease prevention - initiatives include childhood immunization requirements and free flu shots and preventive screenings
  3. Lifestyle (e.g., obesity epidemic) - initiatives include healthy school lunch programs, safe pedestrian walkways, and taxes on unhealthy foods
  4. Smoking and substance abuse - anti-smoking laws have been effective
  5. Socioeconomic factors - income is related to poor health. Social programs such as Medicaid try to address this.
  6. Wellness and disease management solutions - include programs around disease prevention, smoking, diet, fitness, or weight loss
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4
Q

Potential problems in an unregulated insurance market

A
  1. A dishonest company could gain a competitive advantage via:
    a. Misleading marketing materials
    b. Unfair price (only appears to be good value)
    c. Inadequate reserves
  2. Customers do not have the time or expertise to determine which firms are dishonest
  3. Companies could become insolvent with no warning, leaving policyholders without coverage.
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5
Q

Goals of insurance regulation

A
  1. Eliminate policies not providing the benefits expected.
  2. Prevent insolvency
  3. Eliminate policies that provide poor value
  4. solve minor consumer problems
  5. Maintain fair competition
  6. Raise tax money
  7. Promote social goals
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6
Q

The steps of regulation

A
  1. Licensing - the firm agrees to be regulated. Agents ma also be required to get a license.
  2. Information gathering - the purpose is to monitor financial soundness, confirm compliance, provide consumer information, and design new regulatory requirements.
  3. Prior approval - some jurisdictions require prior approval for certain types of insurance. This may include prior approval of policy language, premium rates, reinsurance arrangements, dividends, mergers, and investments.
  4. Enforcement - includes penalties such as fines, legal action, and/or license removal
  5. Receivership - may initially track financial condition, or may take over an insolvent company.
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7
Q

Actions commonly taken by state regulators to help prevent insolvency

A
  1. Capital requirements (such as risk-based capital) - to protect against adverse deviations in experience
  2. Guaranty funds - all companies are assessed to create a fund to protect the insureds of insolvent companies
  3. Reserve requirements - for claim reserves and liabilities, contract reserves, provider liabilities, and premium deficiency reserves.
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8
Q

Types of consumer protection regulation

A
  1. Disclosure - must disclose to a potential customer the key features of the insurance policy. This may include a shopper’s guide, outline of coverage, summary of benefits, or illustration
  2. Reasonableness - includes mandated benefits and prohibited exclusions. Premiums must be reasonable in relation to benefits (loss ratio requirements)
  3. Fairness - includes prohibitions on discrimination even though data may support it. For example, the ACA prohibits different premium rates by gender.
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9
Q

Responsibilities of the insurance commissioner

A
  1. Oversee the operation of the insurance department
  2. Interpret insurance laws
  3. Make regulations implementing insurance laws
  4. License insurance companies, agents, brokers, and consultants
  5. Conduct examinations of licensed insurers, and assess penalties for violations of laws
  6. Review form and rate filings - some states require that the commissioner approve the forms and rates prior to use
  7. Regulate advertising - to protect consumers from unfair, inaccurate, deceptive, and misleading advertisements
  8. Regulate business practices - such as underwriting and claims practices
  9. Enforce prompt payment laws
  10. Regulate insurer solvency - this is the most important duty of the commissioner.
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10
Q

Reasons for an insurance commissioner to assume an insurer’s assets

A
  1. Non-cooperation with examiners
  2. Refusing to remove questionable officers
  3. Charter violations
  4. State law violations
  5. Endangered capital or surplus
  6. Technical insolvency
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11
Q

Standard group contract provisions required by most state insurance laws

A
  1. Grace period - there must be a 31-day grace period for the payment of premium
  2. Incontestability - the validity of the policy cannot be contested after the policy has been in force for 2 years
  3. Application and statements - the application has to be made part of the policy, and statements made by the insured are considered representations (not warranties)
  4. Evidence of insurability - the policy must state when evidence of insurability is required
  5. Misstatement of age provision - a policy must state how premiums or benefits will be adjusted due to misstatement of age
  6. Certificates - the insurer must issue certificates to the policyholder for delivery to each insured
  7. Benefits and Eligibility - the policy must state the benefits and to whom they are payable, and include specific terms of eligibility for coverage.
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12
Q

Additional contract provisions for group health plans

A
  1. Pre-existing conditions - this provision describes the exclusions or limitations that apply to pre-existing conditions
  2. Notice of proof of claims - establishes a time limit for notifying the insurer of a loss
  3. Legal actions - this provision specifies the time period when a legal action may not be brought on a claim (e.g., during the first 60 days or more than 2 years after claim submission)
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13
Q

Additional contract provisions for group life plans

A
  1. There must be a provision identifying the designated beneficiary
  2. Conversion rights - this provision allows the policy to be converted to an individual policy (in certain situations)
  3. Death during the conversion period - if a person dies within the conversion period, the amount available to be converted will be paid as a claim
  4. Disability continuance - active employees that become totally disabled can continue coverage for up to 6 months by paying the premium
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14
Q

Provider protections related to preferred provider arrangements

A
  1. Any willing provider laws - require insurers to accept any provider that meets the insurer’s terms for participation
  2. Limitations on benefit differentials between preferred and non-preferred providers - to limit how much extra coinsurance the member must pay for using a non-preferred provider
  3. Coverage of non-preferred providers (required in some states) - effectively precludes exclusive provider arrangements
  4. Requirements that allied medical practitioners (such as chiropractors, dentists, and optometrists) be included in PPOs - these requirements are not common
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15
Q

Consumer protections related to preferred provider arrangements

A
  1. Insurers must assure reasonable access to covered services and an adequate number of providers
  2. The ACA requires emergency care to be covered at the same benefit level for all providers
  3. Some states have tried to regulate quality assurance (measuring quality is difficult)
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16
Q

Requirements for an HMO to obtain and maintain a certificate of authority

A

An HMO must have this certificate to operate as an HMO:

  1. A description of the HMO’s organization, goverance, and management.
  2. Contracts with providers - including copies of standard forms and contracts between providers, 3rd party administrators, and other 3rd party vendors
  3. Coverage agreements
  4. Financial information - including financial statements and a financial feasibility plan
  5. Provider information - including a map or description of the geographic service area, and a list (with addresses) of all providers
  6. Grievance procedure
  7. Quality assurance program
  8. Insolvency protection measures - HMOs must satisfy minimum net worth requirements, and a deposit of cash or securities is usually required
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17
Q

Advantages of federal qualification of HMOs

A
  1. The equal contribution requirement - employers that offer a federally-qualified HMO cannot financially discriminate against a person enrolling in that HMO
  2. The HMO is allowed to contract as a Medicare or Medicaid carrier
  3. The federal HMO Act preempts all state laws that would prevent the HMO from acting in accordance with the federal HMO Act
  4. Federally-qualified HMOs may be automatically deemed to comply with ERISA’s claim appeal requirements
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18
Q

Disadvantages of federal qualification of HMOs

A
  1. The HMO must establish a separate line of business for any non-qualified HMO business
  2. Minimum coverage requirements of federally-qualified HMOs
  3. Restrictions on the use of anything more than “nominal” copayments
  4. Federal restrictions on rating may be more restrictive than state requirements
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19
Q

Taxation of major insurance benefits

A
  1. Health (medical, dental, vision, and Rx)
    a. Employer receives a current tax deduction for its expenses. There are no tax advantages for prefunding future benefits, except that for retiree medical plans a deduction is allowed for benefits that are funded over employees’ working lives.
    b. The benefit value for the employee and dependents is free from income and employment taxes (includes employer’s contribution to provide coverage and the insurance proceeds)
    c. No limits on the amount of tax-favored benefits
  2. Group term life insurance
    a. Employer receives a current tax deduction for its expenses
    b. The coverage and the insurance proceeds are tax-free for up to a $50K death benefit on the employee (not dependents)
    c. Other coverage amounts are taxed as employee compensation
  3. Disability Insurance
    a. Employer’s expenses are deductible as they are paid
    b. To the extent the value of coverage is taxed, the proceeds paid to disabled individuals are not taxable. But to the extent the value of coverage is not taxed, the proceeds are taxable.
  4. LTC insurance - proceeds under a qualified plan are deemed to be health insurance and receive the same tax-favored treatment
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20
Q

ACA individual and group market reforms

A
  1. Improving coverage - requirements effective in 2010:
    a. Expanded dependent coverage - all plans must cover dependent children up to age 26
    b. Limits on rescissions of insurance coverage - these are prohibited except in cases of fraud
    c. Restrictions on lifetime and annual coverage limits - plans may not impose lifetime limits. And plans may impose annual limits only for non-essential health benefits
    d. Preventive care coverage - services rated A or B by the US Preventive Services Task Force must be covered at 100%
  2. Medical loss ratio (MLR) - plans must provide rebates to consumers if the MLR is below 85% for large groups (101 or more employees) or 80% for SG and individual plans
  3. Premium rate reviews - established a process for reviewing health plan premium increases and requiring plans to justify “unreasonable” increases
  4. Early retiree reinsurance program - set aside $5 billion to partially reimburse employers for high-cost retirees over age 55 who were not yet eligible for Medicare
  5. National high-risk pool - provided subsidized coverage until 2014 for previously uninsured individuals with pre-existing conditions
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21
Q

ACA rating requirements effective in 2014

A
  1. Plans may not impose pre-existing condition exclusions
  2. Rating variation is only allowed based on:
    a. Age (limited to 3 to 1 ratio from highest to lowest age band)
    b. Geographic rating area
    c. Plan design and network relativities
    d. Tobacco use (limited to 1.5 to 1 ratio
    e. Family composition
  3. Individual and SG plans must be offered on a guaranteed issue and renewal basis
  4. Waiting periods for coverage musts not exceed 90 days
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22
Q

Categories of essential health benefits (EHBs) under the ACA

A
  1. ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services
  6. Prescription Drugs
  7. Rehabilitative and habilitative services and devices
  8. Lab services
  9. Preventive and wellness services and chronic disease management
  10. Pediatric services , including dental and vision care
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23
Q

Provisions of the ACA health insurance exchanges

A
  1. Each state will have an American Health Benefit Exchange for individuals and a Small Business Health Options Plan (SHOP) Exchange for businesses with up to 100 employees
  2. Plans in the exchanges must cover EHBs, have an OOP limit at or below the HSA limit, and fall into on of the ACA metal levels (or catastrophic plan)
  3. States have various options for establishing exchanges
  4. Single risk pool - an insurer must combine all of its health plans (other than GF plans) in a given market when setting premiums. All of its individual plans must be pooled together, and all of tis small group plans must be pooled. Some states require the use of a combine risk pool for both markets.
  5. Participating insurers must meet qualification requirements with respect to networks, marketing, reporting, and consumer assistance.
  6. Quality is to be rewarded through market-based incentives
  7. Exchanges may also offer Consumer Operated and Oriented Plans (CO-OPs) and multi-state plans
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24
Q

PPA definition

A

Preferred Provider Arrangement - involves a group health care provider that has contracted with an insurer.

commonly called PPOs, but that’s not as accurate

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25
Q

NAIC

A

National Association of Insurance Commissioners

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26
Q

State HMO laws list the powers granted to HMOs, which typically include:

A
  1. The purchase, lease, construction, or operation of hospitals, other medical facilities, and other property necessary for the conduct of the business.
  2. Transactions (such as loans) with affiliates
  3. Furnishing health care services through providers and provider associations
  4. Contracting with 3rd parties for functions such as marketing, enrollment, and administration
  5. Contracting with license insurance companies, hospitals, or medical service corporations for insurance, indemnity, or reimbursement for the cost of health care services.
  6. Offering of health care services in addition to prepaid basic health care services
  7. The joint marketing of products with a licensed insurer, hospital, or medical service corporation
  8. The ability to engage in non-HMO activities such as PPAs
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27
Q

A SPD (summary plan description) must:

A
  1. Be understandable to the average plan participant
  2. Disclose the benefits available
  3. Disclose the appeal process
  4. Disclose other information regarding the parties responsible for administering the plan.
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28
Q

Cost sharing requirements for non-grandfathered individual and small group plans

A
  1. These plans, with the exception of catastrophic plans, must have an actuarial value that is within 2 % points of one of the metal levels. Actuarial value is the % of total allowed costs covered by the plan.
  2. The metal levels and target actuarial values are:
    a. Platinum - 90%
    b. Gold - 80%
    c. Silver - 70%
    d. Bronze - 60%
  3. Insurers may offer a catastrophic plan to enrollees under age 30
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29
Q

ACA coverage mandates

A
  1. Individual Mandate - beginning in 2014, US citizens and legal residents must have qualifying health coverage or pay a tax penalty, unless an exemption applies. The penalty is the greater of:
    a. A $ amount per person (up to 3 per family): $695 in 2016 (indexed thereafter)
    b. a percent of income: 2.5% in 2016 or later
  2. Employer mandate - beginning in 2015, employers with 50 or more FTE must offer coverage or pay a fee. The fee = $2,000 * (FTEs - 30), but is adjusted based on the # of employees who receive a premium tax credit.
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30
Q

COBRA. Continuation of coverage is available for the following amount of time:

A
  1. Up to 18 months for employees & dependents who have lost coverage due to reduction of hours or termination of employment (except for termination due to gross misconduct)
  2. Up to 29 months for individuals who are disabled for Social Security purposes at the time of termination
  3. Up to 36 months for a child ceasing to be a covered dependent, a covered dependent of a deceased employee, a former covered spouse after a divorce, or a covered dependent when the employee’s coverage ceases due to eligibility for Medicare
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31
Q

COBRA. Continued coverage may cease before the max period is reached in the following situations:

A
  1. When the employer ceases to provide a group health plan
  2. When the qualified beneficiary first becomes covered by another group health plan or becomes entitled to Medicare
  3. When the qualified beneficiary fails to pay the COBRA premium on time.
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32
Q

Administrative functions that health benefit exchanges must provide

A
  1. Certifying and assigning quality ratings to plans
  2. Presenting benefits information in a standardized format
  3. Providing consumers with eligibility determination
  4. Providing certifications for people who are exempt from the individual mandate
  5. Ensuring that all participating health plans satisfy the exchange’s requirements
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33
Q

The Newborns’ and Mothers’ Health Protection Act of 1996

A

requires health plans to provide coverage for at least 48 hours of hospitalization for a normal delivery, and for 96 hours for a cesarean delivery

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34
Q

The Family Medical Leave Act

A

allows eligible employees to take unpaid leave for specific family and personal situations.

~applies to employers with 50 or more employees

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35
Q

Women’s Health and Cancer Rights Act of 1998

A

requires group health plans to cover post-mastectomy reconstructive surgery

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36
Q

The index rate (under the ACA)

A

expected average allowed claims for EHBs for the carrier’s single risk pool

37
Q

Genetic Information Nondiscrimination Act of 2008

A

prohibits group health plans from setting group premium or contribution amounts based on genetic information

38
Q

McCarran-Ferguson Act

A

states have the primary role in regulating insurance

39
Q

taxable status of cafeteria plans

A

Cafeteria plans do not create tax-favored status for any particular benefit, but they prevent the tax-favored status of a benefit from being lost because a taxable benefit was available as an alternative.

ex. without a cafeteria plan, if cash & health benefits were both offered, they would be taxed as cash, even if the employee selected the health benefits.

40
Q

Core components of a SG rate filing for NGF plans

A
  1. Part I - URRT (Unified Rate Review Template)
    a. An excel spreadsheet showing summary values pertaining to the rate increase request
    b. Worksheet 1 provides aggregate data for all benefit plans, including historical experience, credibility information, trend, and other pricing inputs
    c. Worksheet 2 provides the same information by benefit plan, as well as each plan’s metal value, membership projections, and requested rate change.
  2. Part II - written explanation of the rate increase - for products with an average increase of 10% of more, the carrier must provide a plain language narrative explaining the major reasons for the increase
  3. Part III - actuarial memorandum - provides descriptions of the rate review template components and support for assumptions made
  4. Unique plan design supporting documentation and justification - if the plan design contains unique features that cannot be handled by the AVC, then this component is needed to explain any special actuarial adjustments that were made
41
Q

benefits not offered in cafeteria plans, even on a taxable basis

A

LTC insurance

42
Q

fee assessed to employers who do not offer coverage with more than 50 FTE, beginning in 2015 due to the ACA

A

= $2,000 * (FTEs - 30).

The penalty is adjusted based on the # of employees who receive a premium tax credit.

43
Q

ACA revenue offsets

A
  1. HIP fee (Health insurer tax) - collected revenue of $8 billion in 2014 and will grade up to $14.3 billion in 2018, and indexed thereafter. Only 50% of premium is assessed for nonprofit insurers, and certain plans are exempt.
  2. Excise tax for high-cost health plans - beginning in 2018, plans with aggregate values that exceed $10,200 are subject to a tax of 40% of the excess over the threshold
  3. Other tax-related charges - includes imitations to the tax deductibility of unreimbursed medical expenses, limitations to tax-favored allowances for FSAs, and new taxes on certain medical devices
44
Q

Actuaries doing work related to the ACA should be familiar with the following resources:

A
  1. Proposed and final rules released by HHS, implementing certain portions of the ACA
  2. State rules implementing parts of the ACAC
  3. Regulatory guidance from the Center for Consumer Information and Insurance Oversight, which manages and releases the annual Actuarial Value Calculator and Minimum Value Calculator
  4. ASOPs and Academy Practice Notes
  5. Industry and professional research reports.
45
Q

Options for states when establishing exchanges

A
  1. State-based marketplace - the state performs all marketplace functions. Consumers apply for and enroll in coverage through websites maintained by the states.

For the following options, consumers enroll in coverage through healthcare.gov

  1. Federally-supported state-based marketplace - still considered state-based marketplaces, but the states rely on the federally-facilitated marketplace IT platform.
  2. State-partnership marketplace - the state administers in-person consumer assistance.
  3. Federally-facilitated marketplace - HHS performs all marketplace functions.
46
Q

ACA provisions related to Medicare

A
  1. Linking payments to quality outcomes - e.g., providing incentives to hospitals that meet certain performance standards
  2. Establishing a national strategy to improve health care quality
  3. Encouraging development of new patient care models - e.g., the Medicare Shared Savings Program
  4. Medicare plan improvements, such as:
    a. Medicare Advantage plans can receive bonuses or reallocations of rebates based on certain quality measures. These plans are also no subject to MLR requirements.
    b. Fore Medicare Part D, beneficiary coinsurance in the coverage gap will be phased down from 100% to 25% by 2020
  5. Ensuring Medicare sustainability - e.g., temporary adjustment to the calculation of Part B premiums
  6. Health care quality improvements - e.g., establishing community health teams to support patient-centered medical homes
  7. Prevention and wellness provisions - cost sharing for preventive services was eliminated
  8. Creating new demonstration programs
  9. Improving coordination of Medicare/ Medicaid dual eligibles
47
Q

Other ACA health insurance market reforms

A
  1. Essential health benefits - all qualified individual and SG health benefit plans must offer an EHB package
  2. Grandfathering of existing plans - plans in existence when the ACA was enacted are exempt from many ACA requirements. Bust most of the benefit and coverage requirements do still apply.
  3. Premium credits and cost-sharing subsidies for those with low incomes
  4. Small business tax credits
  5. Medicaid - expended to all non-Medicare eligible individuals with incomes up to 133% of FPL. Due to Supreme Court ruling, federal government can’t withhold original Medicaid funding from states who do not expand
  6. Revenue provisions
48
Q

Administrative functions that health benefit exchanges must provide

A

1.

49
Q

Key elements of exchanges that may vary by state

A
  1. State or federal exchange - about 1/3 of states established their own exchange. The rest use the federal government’s exchange.
  2. Governance structure - the exchange could be established within an existing state agency, independently, or through a quasi-government entity
  3. Maximizing exchange participation - approaches include making the exchange attractive and available to more customers, such as by providing value-added services
  4. Some states merged the individual and SG rating pools
  5. Standardized benefit packages - some states require that participating insurers offer a set of standardized benefit plans
  6. Establishing a basic health plan (BHP) - the ACA allows states to create a BHP for residents under 200% of FPL who are not eligible for Medicaid and lack affordable access to comprehensive employer coverage
  7. Controlling which insurers participate in the exchange
  8. Administration expense funding - could be through some combination of premium taxes, insurer assessments, and provider assessments.
50
Q

Approaches for the state to control which insurers participate in the exchange

A
  1. Open market - allowing all plans that meet minimum ACA requirements
  2. Setting additional standards for QHPs
  3. Selective contracting agent - selecting plans based on comparative value
  4. Active purchaser - negotiating premiums with insurers
51
Q

Provisions for controlling antiselections on the exchanges

A
  1. Federal requirements that help control antiselections against the exchange:
    a. Provisions that encourage broad enrollment, such as the individual mandate, low-income subsidies, and tax credits for small employers
    b. requiring all plans to cover EHBs
    c. requiring insurers to offer the same premiums in and out of the exchange.
  2. Federal requirements that help control antiselections among insurers within the exchange.
    a. Risk management tools: reinsurance, risk corridor, and risk adjustment programs
  3. State opportunities to control antiselections
    a. Could require insurers who leave the exchange to wait 5 years before re-entering
    b. Could require that all insurers participating in the exchange offer plans at all benefit tiers
    c. Should ensure consistency of pricing rules in and out of the exchange
52
Q

Requirements to obtain and maintain grandfathered status

A
  1. The plan must have existed on March 23, 2010
  2. The plan must have notified policyholders that it is considered grandfathered
  3. The insurer must have taken appropriate legal action to assert grandfathered status for the plan
  4. The insurer cannot make material changes to the plan
53
Q

Major small group rating requirements from the NAIC model law

A
  1. Certain case characteristics are recognized as allowable rating factors. This means they are not subject to the following premium range limitation tests.
  2. Index rate
    a. The average of the lowest & highest premium rate that could be charged for a given class of business
    b. Calculated only after all rates have been adjusted for all allowable case characteristics and benefit design variations
  3. Rating restrictions between classes - the differential between the different classes’ index rates is limited to 20%
  4. Rating restrictions within a class - all groups must be charged a rate within 25% of the class’ index rate
  5. Rate increase limit for a given group - the increase is limited to the sum of the following:
    a. The % change in the new business rate
    b. 15% annually for the group’s experience
    c. Adjustment due to change in coverage or case characteristics
54
Q

Allowable case characteristics from the NAIC model law

A

These rating factors apply only to GF plans.

  1. Age
  2. Gender
  3. Geographic Area
  4. Family compensation
  5. Group size (max allowable factor spread of 20%)
  6. Some state allow industry (max allowable factor spread of 15%) and tobacco use
55
Q

Core components of a SG rate filing for NGF plans

A
  1. Part I - URRT (Unified Rate Review Template)
    a. An excel spreadsheet showing summary values pertaining to the rate increase request
    b. Worksheet 1 provide
56
Q

Required elements for the actuarial memorandum for a SG rate filing

A
  1. Health status and non-allowed case characteristic changes - description of the financial effect of health status changes and explanations for changes in morbidity
  2. Plan design and coverages - justification for any adjustments made to account for differences in benefit designs
  3. Trend - justification for annual trend, typically broken down between unit cost tend and utilization trend
  4. Documentation of assumptions for administrative costs, taxes, and fees
  5. Profit and risk margins - carriers are typically allowed to include the profit and risk margin they deem warranted, though regulators may object if the value is high.
57
Q

Types of coverage and nondiscrimination tests for cafeteria plans

A
  1. Eligibility test - tests whether the plan discriminates in favor of highly-compensated individuals. Includes a length-of-services test (that no employee be required to complete more than 3 years of employment to be eligible for the plan) and a facts and circumstances determination
    a. Highly-compensated individuals are officers, 5% owners, highly-compensated employees, and their spouses & dependents
  2. Contributions and benefits test - the plan must provide nondiscriminatory contributions and benefits with respect to both benefit availability and actual benefit utilization. For example:
    a. The benefits elected by highly-compensated participants as a % of their compensation must not exceed the benefits elected by non-highly compensated participants as a % of their compensation
    b. The same comparison is done for the employer contributions elected by the 2 groups of participants
  3. Key employee concentration test - nontaxable benefits provided to key employees cannot exceed 25% of the aggregate benefits provided to all employees
    a. Key employees are officers with annual pay greater than $160K, 5% owners, and 1% owners with annual pay greater than $150K.
58
Q

Administrative duties under a cafeteria plan

A
  1. Coordination of benefits during periods of unpaid leave
  2. treatment of new hires
  3. addressing permitted mid-year benefit election changes
  4. claims adjudication and payment of reimbursement
  5. annual enrollment
59
Q

Differences between traditional cafeteria plans and “simple” cafeteria plans introduced by the ACA

A

Simple plans are:

  1. limited to SGs up to 100 employees
  2. must be designed with specific eligibility and contribution requirements.
    a. eligible employees = all employees with at least 1,000 hours of service in the preceeding year (some exceptions)
    b. employer must contribute an amount equal to 2% of each qualified employee’s compensation at a minimum.
  3. exempt from cafeteria plan nondiscrimination testing.
  4. lower admin costs
60
Q

differences between the CMS-HCC & HHS-HCC models

A 
1. prediction year. 
  CMS = prospective
  HHS = concurrent
2. population
  CMS = over 65 or disabled
  HHS = individual & SG markets 
3. types of spending
  CMS = medical spending, excluding Rx
  HHS = med spending, including Rx
61
Q

Risk transfers are intended to bridge the gap between the following plan premium estimates

A
  1. premium with risk selection

2. premium without risk selection

62
Q

Goal of ACA risk adjustment

A
  1. The goal is to compensate health insurers for difference in enrollee health mix so that premiums reflect differences in coverage and other factors, but not differences in health status
  2. This allows plans with more high-risk enrollees to charge the same premium as similar plans with more low-risk enrollees
  3. Therefore, the competitive focus shifts from risk selection to quality, efficiency, and value.
63
Q

Key development issues for ACA risk adjustment

A
  1. New population - the ACA risk adjustment population includes those who previously had coverage and individuals who were previously uninsured. As a newly-constituted population, claims data was not available for calibration a risk adjustment model, so a proxy data source was used.
  2. Cost and rating factors - the ACA allows plans to offer coverage at different coverage levels and to rate based on age, tobacco use, family size, and geographic rating area. This creates the following considerations:
    a. How to preserve premium differences that reflect differences in coverage levels (risk transfers should address risk selection, but should not adjust away actuarial value differences among plans)
    b. How to develop risk scorers that appropriately reflect a given enrollee’s risk when plans pay a different portion of an enrollee’s costs at different coverage levels
    c. How allowed premium rating should be netted out of risk transfers
  3. Balancing risk transfers among plans - a critical part of the risk adjustment methodology was determining how to calculate risk transfers that summed to zero across all plans while preserving permissible premium differences.
64
Q

Components of the ACA risk adjustment methodology

A
  1. HHS-HCC risk adjustment model - this model uses an individual’s demographics and diagnoses to determine a risk score, which is a relative measure of how costly that individual is anticipated to be to the plan
    * HHS = Department of Health & Human Services
    * HCC = Hierarchical condition categories
  2. Risk transfer formula - uses risk scores from the risk adjustment model, combined with other factors, to calculate the funds transferred between plans
65
Q

Feature of the HHS-HCC risk adjustment model

A
  1. Claims data from employer-sponsored insurance was used to calibrate this model since individual market enrollees tend to be similar to enrollees in employer-sponsored insurance.
  2. Prospective vs Concurrent Model
    a. Most risk adjustment models that are used for payment are prospective (use base year diagnoses and demographic information to predict the next year’s spending.) They are favored for their emphasis on the cost impact of ongoing chronic conditions
    b. But a concurrent model (uses current year diagnoses and demographics to predict the current year’s spending) was chosen because no prior year information on health status existed for this population wen the model was developed
  3. Revised clinical classification - this model is a revision of the CMS-HCC clinical classification model
  4. Separate adult (age 21+), child (age 2-20), and infant (age 0-1) models were designed.
    a. Separate models were also developed for each cost sharing level (platinum, gold, silver, bronze, & catastrophic)
  5. Plan liability vs total expenditures - separate risk scores were considered based on total medical expenditures for an individual vs the amount the plan is liable for.
    a. The plan liability risk scores were ultimately chosen for use in the model.
  6. Induced demand due to cost-sharing reductions - a multiplicative adjustment was developed to account for higher utilization among individuals who are enrolled in cost-sharing reduction plans.
66
Q

Risk transfer formula for ACA risk adjustment

A
  1. This formula is used to detrain risk adjustment dollar flows from plan to plan
  2. It measure the difference between a plan’s premium with risk selection and its premium without risk selection
  3. Its purpose is to offset variations in risk resulting from risk selection while preserving the permissible premium differences represented by the cost factors in the formula.
  4. Ti represents the payment (or if negative, the charge)to plan I for each member month of enrollment. The total risk transfer is calculated by multiplying Ti by the plan’s total member months.

T = [ (PLRS * IDF * GCF) / sum(s PLRSIDF*GCF) - (AV * ARF IDF GCF) / sum(s * AV *ARF * IDF * GCF)] * P

  • s is the market shar for the plan
  • P is the statewide enrollment-weighted market average plan premium
  • The summations are across all plans in the risk pool
67
Q

Components of the ACA risk transfer formula

A
  1. plan liability risk score (PLRS)
    a. This score comes form the HHS-HCC risk adjustment model
    b. it includes an adjustment to account for the ACA family rating rules. When the plan average PLRS is calculated, all plan enrollees are counted in the numerator, but only billable plan enrollees (parents and up to the 3 oldest children) are counted in the denominator.
  2. Actuarial Value (AV) - account for relative differences in plan liability due to coverage level
  3. 57 for catastrophic
  4. 6 for bronze
  5. 7 for silver
  6. 8 for gold
  7. 9 for platinum
  8. Induced demand factor (IDF) - reflects differences in spending patterns attributable to differences in the generosity of plan benefits (1.00 for catastrophic and bronze, 1.03 for silver, 1.08 for gold, and 1.15 for platinum)
  9. Allowable rating factor (ARF) - accounts only for age rating based on age rating curve. Each state has a standard age curve that ll plans are required to use. A federal age rating curve (with a 3:1 max adult ratio) operates in states that do not designate their own curve.
  10. Geographic cost facto (GCF) - is used because there are many costs that vary geographically
68
Q

The risk adjustment formula assumes a _______ relationship among the various cost factors.

A

multiplicative

  • If Plan A’s AV is 25% higher and its GCF is 40% higher than Plan B’s, ten its costs would be expected to be 75% greater than plan B’s
    1. 25 * 1.40 - 1 = 75%
69
Q

The risk transfers are scaled by the statewide average premium, as opposed to individual plan premiums, for the following reasons:

A
  1. The statewide average premium reflects an average level of efficiency. So all plans receive a risk payment or charge appropriate for a plan with average efficiency, rather than a higher or lower payment or charge reflecting their won efficiency.
  2. Using the statewide average premium minimizes issuers’ ability to manipulate their transfers by adjusting their own plan premiums.
  3. Scaling all risk transfers to the same premium eliminates the need for any future adjustment of payments and charges to ensure that risk transfers for the entire market sum to 0
70
Q

Without the GCF adjustment in the risk transfer payment formula, risk transfers would subsidize what plans?

A

high-risk plans in low cost areas and low risk plans in high-cost areas.

71
Q

A plan’s transfer payment is its _______ revenue - _______ revenue

A

required revenue - allowable revenue

72
Q

True or False

ACA MLR requirements apply to self-funded plans

A

FALSE

73
Q

special circumstances where ACA MLR requirements don’t apply

A
  1. expatriate plans - policies sold to Americans working abroad may have higher admin
    a. adjustment - multiply the numerator by 2
  2. “Mini-med” plans - annual benefit limits of $250K, typically have low loss ratios because medical benefits are low relative to admin costs
    a. after 2014, annual limits not allowed in most plans
  3. Newer plans - since newer plans tend to have fewer claims in their first year, the ACA allows a one-year deferral for insurers for which new plans represent at least half of their business.
74
Q

Formula for calculating the MLR under the ACA

A

MLR = (claims + quality improvement expenses ) / (premiums - taxes, licensing, and regulatory fees)

  1. To be included as a quality improvement expense, activities must lead to measurable improvements in patient outcomes or safety, prevent hospital readmissions, promote wellness, or enhance health information technology in a way that improves quality. Provider credentialing is included.
  2. Taxes, licensing, and regulatory fees include federal, state, and local taxes & fees. Taxes on investment income and capital gains are not included.
75
Q

premium subsidies under the ACA are heavily distributed toward

A

older people

76
Q

benchmark plan for calculating premium subsidies

A

2nd-lowest silver

77
Q

True or False

The premium subsides are calculated based on a benchmark plan, but can be used on any exchange plan the individual purchases

A

True

78
Q

Premium subsidies under the ACA

A
  1. To be eligible for a premium subsidy, an individual must:
    a. Have income from 100-400% FPL
    b. purchase a plan in an individual exchange
    c. in general, not be eligible for other coverage. Employees with employer coverage of at least 60% AV are not eligible unless their share of premium exceeds 9.5% of income
  2. Subsidy = max( 0, premium for benchmark plan - max contribution)
  3. Benchmark plan is the 2nd lowest cost silver plan in the exchange, but the individual can use the premium subsidy on any exchange plan
  4. Max contribution = FPL amount * FPL level * max contribution % / 12
    a. The FPL amount as of 2013 for an individual was $11,490
    b. The FPL level is the individual’s income as a % of FPL
    c. Max contribution % is based on FPL levels, as follows. Linearly interpolate between these levels.
FPL Level          Max contribution %
100-133%           2%
133%                  3%
150%                 4%
200%                6.3%
250%                8.05%
300-400%        9.5%
79
Q

Cost-sharing subsidies under the ACA

A
  1. These subsidies are available only for individual with incomes below 250% of FPL who select a silver plan in the exchange.
  2. Benefits are adjusted to gross up the actuarial value to:
    a. 73% for incomes form 200-250% of FPL
    b. 87% for incomes from 150-200% of FPL
    c. 94% for incomes from 100-150% of FPL
  3. The federal government reimburses insurers for the difference between the 70% AV for a silver plan and these grossed up values
  4. For 2014, the max OOP limit for individuals is $2,250 for incomes from 100-200% of FPL and $5,200 for incomes from 200-250% of FPL
80
Q

Expected enrollment impact of premium and cost-sharing subsidies on the exchanges

A
  1. Low-income people (below 200% FPL) will overwhelmingly select silver plans to take advantage of the large cost-sharing subsidies available to them
  2. To avoid the age subsidies required of them in the ACA, many high-income young people will elect to stay on their current plan for as long as possible
  3. Middle-income young people are the most likely to go without coverage
  4. High-income young people will likely purchase at least the minimum required coverage. The tax penalty as a % of the lowest bronze premium will be substantial for them
  5. Lower-income older people will be the most likely to enroll in subsidized exchange coverage. The net premium for the lowest-cost bronze plan for them will often be less than the tax penalty would be.
81
Q

Stakeholders who need to understand the impacts of the subsidies

A

1, Issuers - health insurers should perform an analysis to determine the subsidy impacts on various ages and income levels in their markets

  1. Employers - the availability of exchange subsidies has led some employers to drop employee coverage and still more to drop coverage. Understanding the subsidies will help them set health care cost budgets and estimate the potential penalties resulting from their employees joining the exchanges.
  2. Labor unions - they are concerned about being left out of the health benefits procurement process if more attractive options are available directly on the exchanges
  3. States - insurance departments need to understand the impact of their rate reviews on the federal subsidies their consumers will receive (lower rates will lead to lower subsidies)
  4. Federal Government - should model expected future subsidies using simulation models that build off of the data that is now available from current exchange enrollment and gross premiums.
82
Q

Recommended practice for actuaries preparing health filings

A
  1. State the purpose of the filing - including the regulatory requirements that the filing intends to comply with
  2. Understand any applicable laws
  3. Decide what assumptions are needed and select appropriate assumptions
  4. Review the formulas used to calculate premium rates and determine whether they are appropriate.
  5. Understand the business plan, and consider its assumptions hen setting rate filing assumptions
  6. For projecting future results, use past experience that is properly adjusted
  7. Be familiar with rating factors and regulatory requirements for those factors
  8. Consider available data relevant to new plans or benefits
  9. Projections of future capital and surplus should account for any future actions that are likely to have a material effect on capital or surplus.
  10. Projections done to compare future results with a regulatory benchmark should be based on appropriate available information
  11. Assumptions must be reasonable in the aggregate, and for each assumption individually
  12. When relying on data or other information supplied by others, refer to ASOP #23
  13. Prepare and maintain documentation in compliance with ASOP #41
83
Q

Assumptions that may be needed for a rate filing

A
  1. Premium levels and expectations for future rate changes
  2. Projections of covered lives
  3. Levels and trends in morbidity, mortality, and lapsation
  4. Non-benefit expenses, including administrative expenses, commissions, broker fees, and taxes
  5. Investment earnings and time value of money
  6. Health cost trends - when projecting medical expense trends, consider detail by service category or service setting, separated by cost and utilization. Also consider leveraging and changes in benefit provisions and provider contracting.
  7. Expected financial results - consider appropriate methods and assumptions for calculating profit margin
  8. Expected impact of known contractual arrangements with health care providers and administrators
  9. Expected impact of reinsurance and other financial arrangements
  10. Provisions for adverse deviation - consider whether the provisions are sufficient to cover anticipated costs under moderately adverse experience.
84
Q

When using past experience to project future results, adjust for material changes in:

A
  1. Selection of risks
  2. Demographic and risk characteristics of the insured population
  3. Policy provisions
  4. Business operations
  5. Provider contracts
  6. Premium rates, claim payments, expenses, and taxes
  7. Seasonality in incurred claims
  8. Trends in mortality, morbidity, and lapse
  9. Catastrophic claim variability
  10. Administrative procedures
  11. Federal or state regulations
  12. Medical practice
  13. Cost containment procedures or quality improvement initiatives
  14. Economic conditions
85
Q

Documentation needed to support the actuarial certification of compliance with SG rating methods

A
  1. Materials that have been reviewed to certify compliance with requirements for rating methods and underwriting practices, including:
    a. A description of the carrier’s rating methods and underwriting practices
    b. the rating manual and formulas for calculating rates from the manual
    c. some test calculations to verify that the rates charged are in accordance with the rating manual
  2. A written demonstration that the rates are in compliance with applicable regulatory requirements. Should explain how classes of business, average rates, rating bands, and rate increases comply with rating constraints.
  3. A written demonstration supporting the determination of compliance with actuarial soundness.
86
Q

Items to include in an actuarial certification of compliance with SG rating methods

A
  1. Certification that all practices required to be in the certification are in compliance with applicable regulatory requirements
  2. A listing of practices that are covered in the certification
  3. Identification of he time period covered
  4. Changes in rating methods and other practices that have occurred during the time period covered that affect compliance
  5. A description of any subsequent events that could materially affect current or future certifications
  6. Where a qualified certification is given, any actions that are being taken to bring the carrier into compliance
  7. Where a limited certification is given, any sections of the regulatory requirements that are not addressed.
87
Q

Recommended actuarial practices for determining AV and MV (minimum value)

A
  1. The actuary should use the appropriate calculators released by HHS when calculating the AV
    a. AV calculator - for individual and small group plans, in order to determine metal levels of coverage
    b. MV calculator - for employer-sponsored plans that do not meet the safe harbor test, in order to determine whether they meet minimum coverage requirements
  2. Exceptions to use of the calculation - for plans with non-standard plan designs (those that include benefits not reflected in the calculators), the AV should be determined using one of the following options:
    a. Adjust the inputs to the calculator so that results are consistent with the actual coverage
    b. Use the calculator to determine the AV for the plan provisions that are consistent with the calculator’s parameters, and then make appropriate adjustments
  3. When evaluating and adjusting for non-standard plan designs:
    a. the actuary should confirm that the data, methods, and assumptions used are consistent with those underlying the applicable calculator
    b. the assumptions used for making adjustments should be reasonable in the aggregate and for each assumption individually
    c. the actuary should document the results from the calculator and the data and approach used to adjust those results
  4. In some cases, the calculator may produce results the actuary considers unreasonable. The actuary may use these results if required to do so by regulators, but should document why those results are deemed unreasonable.
88
Q

Information required in an actuarial certification related to AV calculations

A
  1. A statement of the actuary’s qualification (meets Qualification Standards, has necessary experience, etc)
  2. A statement describing the actuary’s relationship to the issuer or the employer
  3. The purpose of the certification, including whether it is for an employer-sponsored plan or for a plan offered in the individual and SG markets
  4. The plan year which the certification applies
  5. A statement that the AV was determined in accordance with ASOPs and applicable laws and regulations
  6. The following certifications, with an accompanying memorandum:
    a. For an employer-sponsored plan, a certification that the plan meets the minimum value requirement
    b. For plans offered in the individual and SG markets, a certification that the metal levels were appropriately assigned based on applicable law.

SOA GHC Exam (12 decks)

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