Objective 5 (C): Regulation and Taxation

Question 1

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

Answer 1

1) Better care for individuals - the Institute of Medicine lists six 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 percentage of GDP. This percentage is much higher in the US than in other developed countries.

Question 2

Characteristics of quality health care (6)

Answer 2

From the Institute of Medicine:

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 overuse, 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 waste, including waste of 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

Question 3

Causes of poor health and public initiatives to address them (6)

Answer 3

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 and 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 preventions, smoking, diet, fitness, or weight loss

Question 4

Potential problems in an unregulated insurance market (3)

Answer 4

1) A dishonest company could gain a competitive edge via:
a) Misleading marketing materials
b) Unfair price (only appears to be a 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

Question 5

Goals of insurance regulation (7)

Answer 5

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

Question 6

The steps of regulation (5)

Answer 6

1) Licensing - the firm agrees to be regulated. Agents may 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

Question 7

Actions commonly taken by state regulators to help prevent insolvency (3)

Answer 7

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 against the insureds of insolvent companies
3) Reserve requirements - for claim reserves and liabilities, contract reserves, provider liabilities, and premium deficiency reserves

Question 8

Types of consumer protection regulation (3)

Answer 8

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.

Question 9

Responsibilities of the insurance commissioner (10)

Answer 9

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 requires 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 pay laws
10) Regulate insurer solvency - this is the most important duty of the commissioner

Question 10

Reasons for an insurance commissioner to assume an insurer’s assets (6)

Answer 10

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

Question 11

Standard group contract provisions required by most state insurance laws (7)

Answer 11

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 two 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

Question 12

Additional contract provisions for group health plans (3)

Answer 12

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)

Question 13

Additional contract provisions for group life plans (4)

Answer 13

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 six months by paying the premium

Question 14

Provider protections related to preferred provider arrangements (4)

Answer 14

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

Question 15

Consumer protections related to preferred provider arrangements (3)

Answer 15

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)

Question 16

Requirements for an HMO to obtain and maintain a certificate of authority (8)

Answer 16

An HMO must have this certificate in order to operate as an HMO

1) A description of the HMO’s organization, governance, and management
2) Contracts with providers - including copies of standard forms and contracts between providers, third-party administrators, and other third-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

Question 17

Advantages of federal qualification for HMOs (4)

Answer 17

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

Question 18

Disadvantages of federal qualification for HMOs (4)

Answer 18

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

Question 19

Taxation of major group insurance benefits (4)

Answer 19

1) Health (medical, dental, vision, and prescription drugs)
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 provider 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 $50,000 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

Question 20

ACA individual and group market reforms (5)

Answer 20

1) Improving coverage - requirements effective in 2010:
a) Expanded dependent coverage - all plans must cover dependent children up to age 26
b) Limits on recessions 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.
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 small group 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

Question 21

ACA rating requirements effective in 2014 (4)

Answer 21

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

Question 22

Categories of essential health benefits (EHBs) under the ACA (10)

Answer 22

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) Laboratory services
9) Preventive and wellness services and chronic disease management
10) Pediatric services, including dental and vision care

Question 23

Provisions of the ACA health insurance exchanges (7)

Answer 23

1) Each state will have an American Health Benefit Exchange for individuals and a Small Business Health Options Program (SHOP) Exchange for businesses with up to 100 employees
2) Plans in the exchanges must cover EHBs, have an out-of-pocket limit at or below the HSA limit, and fall into one of the ACA metal levels (or the 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 grandfathered plans) in a given market when setting premiums. All of its individual plans must be pooled together, and all of its small group plans must be pooled. Some states require the use of a combined 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 (CO-OPs) and multi-state plans

Question 24

Options for states when establishing exchanges (4)

Answer 24

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

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

Question 25

Cost sharing requirements for non-grandfathered individual and small group plans (3)

Answer 25

1) These plans, with the exception of catastrophic plans, must have an actuarial value that is within two percentage points of one of the metal levels. Actuarial value is the percentage of total allowed costs covered by the plan.
2) The metal levels and target actuarial values are:
a) 90% for platinum plans
b) 80% for gold plans
c) 70% for silver plans
d) 60% for bronze plans
3) Insurers may offer a catastrophic plan to enrollees under age 30

Question 26

Premium stabilization programs in the ACA (3)

Answer 26

These are also referred to as the three Rs

1) Risk adjustment - permanent program that began in 2014
a) Designed to allow a health insurer to price products without factoring the health status of the individuals purchasing these products
b) Insurers whose pools have lower-than-average risk scores will transfer funds to those whose pools have higher-than-average risk scores
c) Applies to individual and small group products

2) Reinsurance - was in effect from 2014-2016
a) Applies to individual reinsurance only
b) Is funded by assessment paid by commercial insurers and self-funded plans
c) The 2014 benefit will be 80% of claims between $60,000 and $250,000 for a given individual

3) Risk corridor - was intended to be in effect from 2014-206
a) Designed to provide some protection against variability in claims costs
b) Applies to individual and small group products

Question 27

ACA coverage mandates (2)

Answer 27

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 dollar amount per person (up to 3 per family): $695 in 2016 (indexed thereafter)
b) A percent of income: 2.5% in 2016 and later

2) Employer mandate - beginning in 2015, employers with 50 or more full-time employees must offer coverage or pay a fee. The fee = $2,000 * (FTEs - 30), but is adjusted based on the number of employees who receive a premium tax credit.

Question 28

ACA provisions related to Medicare (9)

Answer 28

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 re-allocations of rebates based on certain quality measures. These plans are also now subject to MLR requirements.
b) For 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

Question 29

Other ACA health insurance market reforms (6)

Answer 29

1) Essential health benefits (EHBs) - all qualified individual and small group 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, but 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 - expanded to all non-Medicare eligible individuals with income up to 133% (really 138%) of FPL. Due to Supreme Court ruling, federal government can’t withhold original Medicaid funding from states who do not expand.
6) Revenue provisions

Question 30

Material changes to the risk adjustment program since 2014

Answer 30

1) Allowing certain high cost pharmaceuticals to influence risk scores for certain conditions
2) Risk adjustment is no longer systematically overstated by transferring approximated non-claim related costs
3) Adjustments were made for short duration members (these members have a disproportionate share in costs)
4) A reinsurance model was embedded within the risk adjustment program. It shares 60% of all persons’ claims that exceed a $1 million threshold
5) In 2018, risk scores have been updated with new weights based on condition-cost and prior risk score data
6) CMS granted states the right to cut the transferred percentage to as low as 50% of what it would have been

Question 31

Guardrails that must be met for a Section 1332 waiver to gain federal approval (4)

Answer 31

1) Comprehensiveness - must provide coverage that is at least as comprehensive as without the waiver
2) Affordability - must not reduce the affordability of coverage
3) Coverage - must provide coverage to at least a comparable number of residents as would be without waiver
4) Federal deficit - must not increase the federal deficit

Question 32

Concerns for allowing insurance companies to sell across state lines (5)

Answer 32

1) Provider network inadequacy
2) Level playing field for insurers’ operational requirements
3) A race to the bottom in terms of benefits and/or state
4) Ensuring premiums are reasonable in relation to benefits
5) Does not address underlying issues of high health costs

Question 33

Changes in the ACA that affect rate setting (5)

Answer 33

1) The child age gender factor was initially set exceptionally low and it is transitioning to a higher factor
2) CMS changed the MLR requirements to allow for further quality improvement expenses
3) CMS allows state regulators to petition for a reduction in the federal MLR threshold for their state
4) Starting in 2019, CMS moved the premium increase that triggers a rate review from 10% to 15%
5) If an enrollee attempts to rejoin the individual market with the same carrier, the carrier may collect any past due premium owed from the past 12 months if it is in the contract language

Question 34

Plan design, covered services, and operational rule changes / proposals to the ACA (6)

Answer 34

1) In plan year 2018, metal level plans have wider ranges of acceptable actuarial values
2) Starting in 2020, states have more flexibility in selecting EHB benchmarks
3) Starting in 2018, carriers must count out-of-network cost sharing towards the in-network out-of-pocket maximum if the consumer has accessed those services at an in-network setting
4) Starting in 2018, CMS requires that carriers must sell silver and gold plans in order to be allowed to sell via the exchange
5) The Trump administration expanded the types of employers that can opt out of providing contraception benefits
6) Allowing carriers to reject premium payments from third party payers that may be offering self-interested advice to the enrollee

Question 35

Functions provided by the federal small group exchange (SHOP) for 2018 and beyond (5)

Answer 35

The federal government will no longer operate SHOP as it had in the past. This is a list of what functions remain, with all other current functions being terminated.

1) Showcasing plans and prices
2) Performing plan certifications
3) Providing a call center
4) Processing employer appeals
5) Assisting with small business tax credits

Question 36

Premium subsidies under the ACA (4)

Answer 36

1) To be eligible for a premium subsidy, an individual must:
a) Have income from 100%-400% of federal poverty level (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% actuarial value are not eligible unless their share of premium exceeds 9.5% of income
2) Subsidy = max(0, premium for benchmark plan - maximum contribution)
3) The benchmark plan is the 2nd-lowest-cost silver plan in the exchange, but the individual can use the subsidy on any exchange plan
4) Maximum contribution = FPL amount * FPL level * maximum contribution % / 12

Question 37

Federal poverty level (FPL) maximum contributions

Answer 37

The FPL amount as of 2013 for an individual was $11,490. The FPL level is the individual’s income as a percentage of FPL. Maximum contribution % is based on FPL levels, as follows. Linearly interpolate between these levels.

100-133%: 2.00%
133%: 3.00%
150%: 4.00%
200%: 6.30%
250%: 8.05%
300-400%: 9.50%

Question 38

Cost sharing subsidies under the ACA (4)

Answer 38

1) These subsidies are available only for individuals 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 from 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% actuarial value for a silver plan and these grossed up values
4) For 2014, the maximum out-of-pocket limit for individuals is $2,250 for incomes from 100-200% of FPL and $5,200 for incomes from 200-250% of FPL

Question 39

Expected enrollment impact of premium and cost-sharing subsidies on the exchanges (5)

Answer 39

1) Low-income people (below 200% of 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 ACA plans, 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 percentage 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.

Question 40

Stakeholders who need to understand the impacts of the subsidies (5)

Answer 40

1) Issuers - health insurers should perform an analysis to determine the subsidy impacts on various ages and income levels in their markets
2) Employers - the availability of exchange subsidies has led some employers to drop employee coverage and still more to drop dependent coverage. Understanding the subsidies will help them set health care cost budgets and estimate the potential penalties resulting from their employees joining the exchanges
3) 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
4) 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)
5) 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

Question 41

How the ACA risk adjustment program plays a critical role in the market (3)

Answer 41

1) Reducing the potential for adverse selection
2) Promoting a level playing field
3) Promoting stability and affordability for consumers

Question 42

Important findings from various reports on the premium stabilization programs (6)

Answer 42

1) Transitional reinsurance and permanent risk adjustment programs are functioning smoothly
2) Paid claims were strongly correlated with risk scores, risk adjustment, and risk transfers
3) Smaller and larger insurers received similar risk adjustment transfers on average as a percentage of premium
4) The risk adjustment program compressed loss ratio differences among insurers
5) The program redistributed funds from plans with lower-risk members to plans with higher-risk members
6) Virtually all insurers successfully submitted the data necessary to calculate the risk adjustment payment transfers

Question 43

Potential changes to the risk adjustment model (4)

Answer 43

1) Incorporating prescription drug data
2) Better reflecting the cost of partial year enrollees
3) Recalibrating the model risk weights to better reflect the experience in the exchange
4) Making adjustments to the payment transfer formula

Question 44

Requirements to obtain and maintain ACA grandfathered status (4)

Answer 44

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

Question 45

Major small group rating requirements from the NAIC model law (5)

Answer 45

1) Certain case characteristics are recognized as allowable rating factors. This means the are not subject to the following premium range limitation tests.
2) Index rate
a) The average of the lowest and highest premium rate that could be charged within 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 percentage change in the new business rate
b) 15% annually for the group’s experience
c) Adjustment due to change in coverage or case characteristics

Question 46

Allowable case characteristics from the NAIC model law (6)

Answer 46

These rating factors apply to grandfathered plans. ACA-compliant plans can only use rating factors allowed under the ACA.

1) Age
2) Gender
3) Geographic area
4) Family composition
5) Group size (maximum allowable factor spread of 20%)
6) Some states allow industry (maximum allowable factors spread of 15%) and tobacco use

Question 47

Core components of a small group rate filing for non-grandfathered plans (4)

Answer 47

1) Part I - 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 this 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% or 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 Actuarial Value Calculator, then this component is needed to explain any special actuarial adjustments that were made

Question 48

Required elements for the actuarial memorandum for a small group rate filing (5)

Answer 48

1) Health status and non-allowed 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 trend 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

Question 49

Types of health care accounts (2)

Answer 49

1) HSA
a) Must accompany a high-deductible health plan with a minimum deductible ($1,200 individual, $2,400 family) and maximum out-of-pocket limit ($5,950 individual, $11,900 family) (year 2011 amounts, indexed for inflation)
b) Can be used to pay for qualified medical expenses, health insurance premiums in limited circumstances, LTC premiums, and LTC services
c) Owned by the employee, who gets to keep the unused balance upon terminating employment

2) FSA
a) Can be used to pay for qualified medical expenses
b) The contribution amount must be specified at the beginning of the period, and the employee can use the full amount at any time in the coverage period
c) Funds not used by the end of the period are forfeited

Question 50

Comparison of key features of health care accounts (5)

Answer 50

1) Who can set up account
   HSA: Individuals and employees covered by HDHP and no other health insurance
   FSA: Only employers
2) Who can contribute
   HSA: Employers and employees
   FSA: Employers and employees
3) Contribution limits
   HSA: $3,050 for individuals and $6,150 for families (year 2011, indexed)
   FSA: Through 2012: no limit; 2013: $2,500 (indexed)
4) Carryover of unused balances
   HSA: Yes
   FSA: No
5) Portability
   HSA: Yes
   FSA: No

Question 51

Types of coverage and nondiscrimination tests for cafeteria plans (3)

Answer 51

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 three 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 and 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 percentage of their compensation must not exceed the benefits elected by non-highly-compensated participants as a percentage of their compensation
b) The same comparison is done for the employer contributions elected by the two 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 $160,000, 5% owners, and 1% owners with annual pay greater than $150,000

Question 52

Prescribed benefit classifications for MHPAEA (Mental Health Parity and Addiction Equity Act) (6)

Answer 52

When parity testing mental health / substance use disorder (MH/SUD) benefits the minimum prescribed benefits classification levels that must be used:

1) Inpatient, In-network
2) Inpatient, Out-of-network
3) Outpatient, In-network
4) Outpatient, Out-of-network
5) Emergency care
6) Pharmacy

Question 53

Steps to show Quantitative Treatment Limitations (QTL) satisfy parity requirements for MH/SUD benefits (5)

Answer 53

1) Determine if the QTL applies to “substantially all” (at least two-thirds) of the medical/surgical benefits
2) Apply the “predominant test”
3) If a single level of QTL applies to over half the benefits subject to the QTL in that classification, it is considered the “predominant” benefit level and the MH/SUD benefit must be richer than that level
4) If there is no single level that applies to more than half of the medical/surgical benefits subject to the QTL in a benefits classification, the health plan can combine levels to get over half of the benefits
5) After combining benefits, the QTL that is the least restrictive will be the “predominant” benefit level used to test the MH/SUD benefits

Question 54

ASOP #8 - Regulatory Filings for Health Benefits, Accident & Health Insurance, and Entities Providing Health Benefits

Recommended practices for actuaries preparing health filings (13)

Answer 54

1) State the purpose of the filing - including the regulatory requirements with which the filing intends to comply
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 when 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

Question 55

ASOP #8 - Regulatory Filings for Health Benefits, Accident & Health Insurance, and Entities Providing Health Benefits

Assumptions that may be needed for a rate filing (10)

Answer 55

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

Question 56

ASOP #8 - Regulatory Filings for Health Benefits, Accident & Health Insurance, and Entities Providing Health Benefits

When using past experience to project future results, adjust for material changes in: (14)

Answer 56

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

Question 57

ASOP #26 - Compliance with Requirements for the Actuarial Certification of Small Employer Health Benefit Plans

Documentation needed to support the actuarial certification of compliance with small group rating methods (3)

Answer 57

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

Question 58

ASOP #26 - Compliance with Requirements for the Actuarial Certification of Small Employer Health Benefit Plans

Items to include in an actuarial certification of compliance with small group rating methods (7)

Answer 58

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 the time period covered
4) Changes in rating methods and other practices that have occured 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

Question 59

ASOP #50 - Determining Minimum Value and Actuarial Value under the ACA

Recommended actuarial practices for determining actuarial value (AV) and minimum value (MV) (4)

Answer 59

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 calculators - 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.

Question 60

ASOP #50 - Determining Minimum Value and Actuarial Value under the ACA

Information required in an actuarial certification related to AV calculations (6)

Answer 60

1) A statement of the actuary’s qualifications (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 small group markets
4) The plan year for 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 actuarial 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 small group markets, a certification that the metal levels were appropriately assigned based on applicable laws