Probably Tested Lists

Question 1

Sources of internal data

Answer 1

1. Medical claim systems data - billed claims, eligible claims, allowed amts, and paid amts
2. Pharmacy benefit manager data - organizations that use third-party PBMs to administer prescription drug claims will need to collect this data from them
3. Premium billing and eligibility data - includes exposure information that is needed to convert claims data into a per member or employee basis
4. Provider contract system data - includes files of contractual reimbursement rates

MC PB PB PC (Skwire Ch 21)

Question 2

Steps in developing claim costs for use in a rate manual

Answer 2

1. Collect data
2. Normalize the data for important rating variables
3. Project experience period costs to the rating period

(Skwire Ch 21)

Question 3

Important rating variables when normalizing data for use in the rate manual

Answer 3

1. Age and gender
2. Geographic area
3. Benefit plan
4. Group characteristics
5. Utilization management programs
6. Provider reimbursement arrangements
7. Other risk adjusters - these may eventually become the primary method of risk adjustment

(Skwire Ch 21)

Question 4

Methods of adjusting manual rates for specific benefit plans

Answer 4

1. Claim probability distributions

2. Actuarial cost models

Question 5

Data fields included in pharmacy data files

Answer 5

1. Age, gender, and DOB
2. Fill date
3. Claim ID
4. Prescribing provider ID
5. Pharmacy provider ID
6. Drug name
7. Tier
8. NDC
9. Days supply
10. Units
11. Allowed amts
12. Refill indicators
13. Member and plan cost
14. Therapeutic class
15. Other types of drug codes
16. Average wholesale price and wholesale acquisition cost

(Skwire Ch 23)

Question 6

Steps for calculating premiums for pharmacy benefits

Answer 6

1. Develop allowed cost trend including
   - unit cost trend
   - utilization trend
   - mix change
2. Calculate adjustment factors for important rating variables not included in trend
3. Estimate member cost sharing
4. Calculate net plan liability and premium
   - projected allowed amount = base period allowed amount * trend factor * other adj factors
   - net plan liability = projected allowed amount - member CS - rebates
   - premium = net plan liability + expenses + profit margin

(Skwire Ch 23)

Question 7

Important rating factors for pharmacy benefits

Answer 7

1. Demographics
2. Area
3. Benefit design
4. Formulary
5. Contracting
6. Other factors

(Skwire Ch 23)

Question 8

Components of gross premiums

Answer 8

1. Claim costs
2. Admin expenses
3. Commissions and other sales expenses
4. Premium taxes
5. Other taxes and assessments
6. Risk and profit charges
7. Investment earnings

(Skwire Ch 20)

Question 9

Considerations in developing admin expense assumptions

Answer 9

1. How expenses are allocated to the product:
   - activity based allocation
   - functional expense allocations
   - multiple allocation methods
2. how admin expenses should be allocated to groups
3. What the competition includes as expenses in its pricing

(Skwire Ch 20)

Question 10

Types of bases used for allocating expenses

Answer 10

1. Percent of premium
2. Percent of claims
3. Per policy
4. Per employee
5. Per member
6. Per claim administered
7. Per case

(Skwire Ch 20)

Question 11

Common rating characteristics included in manual rates for group health insurance

Answer 11

1. Age
2. Gender
3. Health status
4. Rating tiers
5. Geographic factors
6. Industry codes
7. Group size
8. Length of premium period

(Skwire Ch 20)

Question 12

Common rating tiers for group insurance

Answer 12

1. One tier
2. Two tiers: employee only, family
3. Three tiers: employee only, employee with one dependent, family
4. Four tiers: employee only, employee with one dependent, employee with children, family
5. Five tiers: employee only, couple, employee with child, employee with children, family

(Skwire Ch 20)

Question 13

Common purposes for trend analysis

Answer 13

1. Financial reporting
   - be done on a retrospective basis
   - be done at the enterprise level, as well as the division or market level
   - for statutory reporting, include a provision for adverse deviation; for GAAP be on a best-estimate basis
2. Pricing: trend may be calculated on:
   - eligible charges
   - covered charges
   - net paid claims
3. Experience analysis

(Skwire Ch 34)

Question 14

Components of medical trend

Answer 14

1. Core cost trend (incl)
   - unit cost trend
   - severity
   - change in mix of services
2. Core utilization trend
3. One-time changes:
   - a significant change then return to normal
   - a sustained change
4. Expected population shifts
5. Structural changes
6. Capitation
7. Margin

(Skwire Ch 34)

Question 15

Key questions to ask when analyzing trends

Answer 15

1. How accurate were the original projected trend and PMPM estimates
2. Which assumptions were driving any variation
3. How can the process be modified to achieve greater accuracy
4. What other factors, expected or unexpected, drove the trends?

(Skwire Ch 34)

Question 16

Factors that may influence future trends

Answer 16

1. The impact of exchanges
2. Cost savings initiatives
3. The economy

(Skwire Ch 34)

Question 17

Actuarial standards for the use of data

Answer 17

1. Data that is perfect is usually not available, so the actuary should use available data that allows the actuary to complete the analysis
2. Considerations in selecting data
3. The actuary should review the data for reasonableness, unless such a review is not necessary or practical
4. The actuary should use appropriate data
5. The accuracy of information provided to the actuary is the responsibility of those who supply it. The actuary should disclose reliance
6. The actuary should handle confidential data consistent with Precept 9 of the Code
7. The actuary is not required to audit data or determine whether provided data is intentionally misleading

(ASOP #23)

Question 18

Considerations in selecting data to use in an actuarial analysis

Answer 18

1. Scope of the assignment and intended use
2. Desired data elements and alternatives
3. Whether the data is appropriate and current
4. Whether the data is internally consistent
5. Whether the data is reasonable given relevant external information that is readily available
6. The degree to which the data is sufficient for analysis
7. Any known significant limitations
8. The availability of alternative data, and benefit/practicality of obtaining it
9. Sampling methods used to collect the data

LAUDS SCAR

(ASOP #23)

Question 19

Categories of appropriateness of data in an actuarial analysis

Answer 19

1. The data is of acceptable quality
2. The data requires enhancement before the analysis can be performed, and it is practical to obtain corrected data
3. Judgmental adjustments or assumptions can be applied to the data, or the analysis results, to allow the actuary to perform the analysis
4. The data is likely to have significant defects
5. The data is so inadequate that it cannot be used to satisfy the purpose of the assignment

(ASOP #23)

Question 20

Required documentation related to data quality

Answer 20

1. The source of the data
2. Any limitations due to uncertainty about data quality
3. Whether the actuary reviewed the data, and limitations due to data not reviewed
4. A summary of unresolved concerns about the data values
5. A summary of significant steps the actuary has taken to improve the data
6. A summary of significant judgmental adjustments/assumptions the actuary applied to the data/result
7. The existence of results that are highly uncertain or potentially biased due to quality of the data
8. The extent of the actuary’s reliance on data supplied by others
9. Disclosures in accordance with ASOP #41

BARD COILS

(ASOP #23)

Question 21

Individuals eligible for Medicare coverage

Answer 21

1. Aged - 65 + and eligible for SS or RR Ret. benefits
2. Disabled - entitled to SS or RR Ret disability bens for at least 2 years
3. End-stage Renal Diseas (ESRD) - insured workers with ESRD incl spouses and children with ESRD
4. Other aged and disabled individuals who pay premiums

(Skwire Ch 9)

Question 22

Types of Medicare Coverage

Answer 22

1. Part A - Hospital insurance (HI)
2. Part B - Supplementary Medical Insurance (SMI)
   - requires a monthly premium
   - beneficiaries can decline coverage, but a premium penalty of 10% per year applies if coverage is elected at a later date
3. Part C - MA
   - Alternative to A & B, offered by private plans who receive a capitation from Medicare
   - Lower cost sharing plus coverage for services not covered under Medicare
4. Part D - provided through private insurers
5. Med Sup - private insurance to cover out of pocket cost and some other benefits not covered by Medicare

(Skwire Ch 9)

Question 23

Services covered by Medicare Part A

Answer 23

1. IP Hospital - semi-private room and ancillary services
2. SNF
3. Home Health Agency - following discharge from hospital or SNF
4. Hospice care - provided to terminally ill with < 6 months to live

(Skwire Ch 9)

Question 24

Medicare Part A cost sharing and coverage limits

Answer 24

1. IP Hospital: deductible per benefit period
   - 1 level of coverage for days 61-90, another level for 91-150 (these come from a reserve)
   - limit of 60 lifetime reserve days
2. SNF - coverage for days 21-100, no coverage after day 100
3. HHA - no CS, 100 visit limit
4. Hospice - no CS, no coverage limit
5. Blood - first 3 pints not covered, no limit

(Skwire Ch 9)

Question 25

Services covered by Medicare Part B

Answer 25

1. OP Hospital
2. Medical care by qualified practitioners
3. Initial preventative care visit & yearly wellness visits
4. Ambulance
5. Clinical lab & radiology
6. PT and OT
7. Speech pathology
8. OP Rehab
9. Radiation therapy
10. Transplants
11. Dialysis
12. Home health care beyond Part A coverage
13. Drugs and biologicals that cannot be self-administered
14. Certain preventative services

THiRD DROP PAST LiP

(Skwire Ch 9)

Question 26

Part B Cost Sharing

Answer 26

Calendar year deductible, coinsurance after ded (usually 20%)

(Skwire Ch 9)

Question 27

Drug types excluded from Part D coverage

Answer 27

1. Drugs covered by Part A or B
2. Anorexia and weight loss drugs
3. Fertility drugs
4. Cosmetic drugs (including hair loss)
5. Drugs used to relieve cough and cold symptoms
6. Vitamins and minerals (exc. prenatal vitamins and fluoride)
7. OTC drugs

(Skwire Ch 9)

Question 28

Funding sources for the Medicare program

Answer 28

1. Medicare is funded on a pay-as-you-go basis
2. SMI
   - Part B is financed through contributions from the general fund of the Treasury (75%) and premiums (25%)
   - Part D is financed through a separate account in the SMI trust fund, from gen rev (74.5%) and prem (25.5%)
3. HI (Part A)
   - Payroll tax is 1.45% of all earnings (not capped) with a matching employer tax
   - ACA added an additional .9% payroll tax and 3.8% tax on investment income for high-income taxpayers

(Skwire Ch 9)

Question 29

Approaches for improving Medicare solvency

Answer 29

1. Increase taxes
2. Reduce or eliminate some covered services
3. Increase Medicare cost sharing through higher deductibles and copays
4. Raise the eligibility age for benefits to age 66 or 67
5. Adjust reimbursement to providers of care
6. Encourage new initiatives and expand existing initiatives that lower trend

(Skwire Ch 9)

Question 30

Medicare provider reimbursement

Answer 30

1. Hospitals - reimbursed using DRG methodology
2. Physicians - use a complex fee schedule to assign relative values to services, equal to the sum of area-adjusted unit values multiplied by a nationwide conversion factor, with unit values based on
   - work value
   - practice expense
   - malpractice value
3. OP services - reimbursed on ambulatory payment classification methodology

(Skwire Ch 9)

Question 31

Categories of Medicaid-eligible individuals

Answer 31

1. Categorically-eligible groups
   - children, caretakers with dependent children, pregnant women, individuals with disabilities, and seniors
   - Individuals in these categories must also meet income and asset requirements (set by government)
2. Medically-needy individuals - qualify when medical expenses reduce their income below defined limits
3. State Children’s Health Insurance Program (CHIP) allows states to expand coverage to uninsured children from low-income families not eligible for Medicaid, typically with an upper limit of 200% of the FLP
4. The ACA expanded eligibility to everyone under 65 with income up to 138% of FPL (in states that chose to expand)

(Skwire Ch 9)

Question 32

Workers in the US not covered by Social Security

Answer 32

1. Federal employees hired before 1984
2. 1/4 of state and local government workers (covered by plans comparable to Social Security)
3. A small number of people who object to receiving governmental benefits on religious grounds
4. Certain agricultural and domestic workers
5. Railroad employees, who are covered by a program similar to Social Security

(Skwire Ch 9)

Question 33

Requirements for insured statuses under Social Security

Answer 33

1 credit is earned for each $1200 in wages (2014, indexed) up to a max of 4 per year. All four can be earned at any time during the year

1. Disability-insured status - requires between six credits to 40 credits
   - For those required to have 20 or more credits, 20 credits must be from the last 40 quarters
   - For those required to have more than 6 and less than 20 credits, at least half must have been earned after age 21
   - for those required to have 6 credits, all must be from the last 12 quarters
2. Fully-insured status - requires credits equal to the worker’s age minus 22, with a minimum of 6 and a max of 40
3. Currently-insured status - requires 6 credits in the 13 calendar quarters ending with the quarter of death

(Skwire Ch 9)

Question 34

Eligibility and benefit amounts for Social Security disability and survivor benefits

Answer 34

1. Disabled-worker benefits
   - eligibility - must be disability-insured and fully-insured and be unable to engage in any substantial gainful activity because of a physical or mental impairment than has lasted or is expected to last for 12 months or to result in death
   - benefit amounts - calculated using essentially the same procedures used for retired-worker benefit amounts, using an assumed age of 62 and no early-retirement reduction factor
2. Survivor benefits
   - eligibility - family members may receive survivor benefits if the worker was either fully-insured or currently-insured at the time of death
   - benefit amounts - worker’s primary insurance amount (PIA) is calculated using the standard procedures and assuming an age of 62. Survivors receive a percentage of the PIA
   > 75% for eligible children
   > grading linearly from 71.5% at age 60 to 100% at normal retirement age for eligible widows or widowers
   > 82.5% for an eligible surviving parent, or 75% each for two parents
   > family max of 175%

(Skwire Ch 9)

Question 35

Impact of regulations on the Medicare Advantage program

Answer 35

1. Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 - authorized Medicare program to pay HMOs on a capitated basis, resulting in a rise in HMOs
2. Balanced Budget Act (BBA) of 1997 reduced health plan payments, resulting in half of beneficiaries exiting over the next few years
3. The Medicare Modernization Act (MMA) of 2003
   - created the Medicare Part D drug benefit
   - created regional MA PPOs
   - Created SNPs
   - Increased payment for MA plans
   - Introduced competitive bidding and risk-adjusted payments
4. The ACA
   - Cut MA plans by $136 B over 10 years
   - Implemented a new payment methodology, reducing county benchmark rates to between 95% and 115% of FFS medicare
   - Introduced bonus payments for plans with at least 4 stars under the star rating system
   - Implemented a MLR of 85%

(Kongstvedt Ch 24)

Question 36

Types of MA plans

Answer 36

1. Coordinated care plans
   - use a network of providers approved by CMS
   - beneficiaries must use in-network providers except in emergencies
2. Private FFS plans
   - enrollees can self-refer to any Medicare provider willing to accept the plan’s coverage rules
   - providers paid on a FFS basis at Medicare fee schedule rates and do not accept financial risk
3. Medical savings account plans
   - combine a high-deductible MA plan and medical savings account
   - similar to HSAs, but only Medicare may deposit

(Kongstvedt Ch 24)

Question 37

Types of MA coordinated care plans

Answer 37

1. HMOs - can offer POS option to cover OON services
2. PPOs - like commercial PPOs
   - Local PPOs - can choose the counties to operate in
   - regional PPOs - must serve all counties w/in the region, given flexibility in meeting access standards
3. SNPS
   - dual SNPS
   - Institutional SNPS
   - Chronic care SNPS
4. Religious and Fraternal Benefit Society plans
5. Senior housing facility plans

(Kongstvedt Ch 24)

Question 38

Payment calculations for MA plans

Answer 38

1. MA Plans submit bids to CMS each year, representing their projected covered costs to cover A&B services, net of CS + admin and profit
2. The bid amount is normalized to a risk score of 1 and then compared to the benchmark.
3. If the bid exceeds the benchmark, the plan charges beneficiaries a monthly premium to cover the difference
4. If the bid is less than the benchmark, the plan receives a percentage of the savings as a rebate and must use this to provide additional benefits or pay B or D premiums
   - 70% for plans with a rating of 4.5 or 5 stars
   - 65% for plans with a rating of 3.5 or 4 stars
   - 50% for plans with a rating below 3.5 stars
5. CMS may require changes to the bid if
   - Beneficiary costs are increasing at an unacceptable rate
   - Proposed profit margin is too high
   - Benefit design is discriminatory
   - CS design is not as generous as FFS Medicare

(Kongstvedt Ch 24)

Question 39

Payment calculations for Medicare Part D plans

Answer 39

1. PD plans submit bids representing costs net of CS + admin and profits
2. CMS calculates
   - national average monthly bid
   - base beneficiary premium (natl avg *.255/(1-proj reins/proj total claim))
   - direct subsidy (nat’l avg - BBP)
3. CMS makes the following payments to plans
   - risk-adjusted direct subsidy
   - LIPS and LICS
   - reins (80% of costs beyond cat threshold)
   - risk corridor (50% of costs between 5% and 10%, 80% of amounts exceeding 10%)
4. Plan charges a premium equal to the difference between the bid and the direct subsidy

(Kongstvedt Ch 24)

Question 40

Federally-mandated services that Medicaid programs must cover

Answer 40

1. Physicians’ services
2. Hospital services (IP & OP)
3. Lab & X-Ray Services
4. Early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under age 21
5. Federally-qualified health center and rural health clinic services
6. Family planning services and supplies
7. Pediatric and family nurse practitioner services
8. Nurse midwife services
9. Nursing facility services for individuals 21 and older
10. Home health care for persons eligible for nursing facility services
11. Transportation services

(Medicaid: A Primer)

Question 41

Optional services that are commonly offered by Medicaid programs

Answer 41

1. Rx
2. Clinic services
3. Care furnished by other licensed practitioners
4. Dental services and dentures
5. Prosthetic devices, eyeglasses, and DME
6. Rehab and other therapies
7. Case management
8. Nursing facility services for individuals under age 21
9. Intermediate care facility services for individuals with intellectual disabilities
10. Home and community-based services
11. Inpatient psychiatric services for individuals under age 21
12. Respiratory care services for ventilator-dependent individuals
13. Personal care services
14. Hospice services

(Medicaid: A Primer)

Question 42

Adjustments to base period data when calculating Medicaid managed care capitation rates

Answer 42

May be needed to reflect changes that occurred during the base period (retroactive), between the base period and rating period (interim), or in the rating period (prospective)

1. Missing data adjustment
2. Incomplete data adjustment
3. Population adjustment
4. Funding or service carve-out adjustments
5. Retroactive eligible adjustments
6. Program, benefit, or policy adjustments
7. Data smoothing adjustments
8. Claim cost trends
9. Managed care adjustments

(ASOP #49)

Question 43

Criteria for Medicaid managed care capitation rates to be considered actuarially sound

Answer 43

1. They were developed in accordance with generally accepted actuarial principles and practices
2. They are appropriate for the populations to be covered and the services to be furnished
3. They have been certified as meeting the requirements of 42 CFR 438.6(c) by actuaries who meet the Qualification Standards established by the AAA

(ASOP #49)

Question 44

Formula for Gordon constant growth model

Answer 44

1. P/D = 1/(k-G)
   - P = price
   D = dividents one year from now
   k = required rate of return
   G = growth rate of dividends

(Skwire Ch 41)

Question 45

Formula for sustainable growth rate

Answer 45

1. Sustainable growth rate = earnings retention rate * ROE
2. ROE = Net Income / Shareholder Equity
3. Earnings Retention Rate = 1 - dividends/earnings
4. If there are no dividends, ROE = sustainable growth rate
5. For the company to grow faster than ROE, it would need access to external equity

(Skwire Ch 41)

Question 46

Components of ROE (DuPont Formula)

Answer 46

• ROE = Net Income/Shareholder Equity = ROA *T otal Leverage Ratio = Total Asset Turnover * Net Profit Margin * Total Leverage Ratio
  ROA = Net Income/Total Assets = Total Asset Turnover * Net Profit Margin
  1. Total Asset Turnover = Revenue/Total Assets - explains how much total investment is required to meet the needs of the business
  2. Net Profit Margin = Net Income/Revenue - Explains what percent on sales becomes profit
  3. Total Leverage Ratio = Total Assets/Shareholder Equity - Explains to what degree the business can be operated by leveraging investors’ money

(Skwire Ch 41)

Question 47

Common income statement ratios for health insurers

Answer 47

1. Administrative expense ratio = admin expenses / revenue
2. Health benefit ratio = health benefit expenses / premium revenues
3. For simple insured businesses Operating Profit Margin = Operating Profits/Revenues = 1 - Health Benefit Ratio - Admin Expense Ratio
4. Net margin = net income/revenues
   - net income = operating profits + investment income - interest expense - income taxes

(Skwire Ch 41)

Question 48

Adjustments needed when preparing the same-size income statement

Answer 48

1. Reinsurance - should count reinsurance recoveries as offsets to health care costs
2. Commissions - count as an admin expense
3. Investment income - count as non-operating income
4. ASO products - look at financial reports separately for each product type

Question 49

Effects of ACA provisions on health insurer financial statements

Answer 49

1. Increased level of uncertainty in financial statements - due to the need to estimate the impact of risk-adjustment provisions, reinsurance benefits, and the seasonal pattern of incurred claims in light of significant plan design changes
2. Issues with year-to-year comparability of the balance sheet
3. Issues with year-to-year comparability of the income statement
4. Issues with issuer-to-issuer comparability

(FR Implications under the ACA)

Question 50

Premium stabilization programs in the ACA

Answer 50

The 3 Rs

1. Risk adjustment - permanent began in 2014
   - designed to allow a health insurer to price products without factoring in the health status of the individual purchasing them
   - Insurers whose pools have lower-than-avg risk scores will transfer funds to those whose pools have higher-than-avg risk scores
   - applies to individual and small group products
2. Reinsurance - will be in effect from 2014 to 2016
   - applies to individual insurance only
   - is funded by assessment paid by commercial insurers and self-funded plans
   - the 2014 benefit will be 80% of claims between 60K and 250K for a given individual
3. Risk corridor - 2014-2016
   - designed to provide some protection against variability in claims costs
   - applies to individual and small group products
   - Payment is 50% of amount between 5% and 8% of target and 80% of the amount > 8% of the target
   - calculation is done after accounting for amounts transferred as a result of the RA and reins programs

(FR Implications under the ACA)

Question 51

Differences between the ACA and MA RA programs

Answer 51

1. ACA uses concurrent model (current year data used) and MA is based on retrospective model (PY data used)
2. MA RA is performed as a single national program, ACA is by state, market, and risk pool
3. MA plans have stable membership, individual and SG plans will be less stable
4. Payment for MA RA allows insurers to develop relatively accurate estimates of their ultimate settlement amounts

(FR Implications under the ACA)

Question 52

Elements of the ACA RA that may lead to uncertainty in an insurer’s financial statemtns

Answer 52

1. Uncertainty as to the risk score - because it is based on concurrent data
2. Uncertainty as to other insurers’ risk scores
3. Uncertainty as to member exposure - due to 90-day premium grace period
4. Granularity of the calculation - ACA risk adjustment requires separate calculation for various cells
5. Implications of data review - data validation could lead to payment adjustments

(FR Implications under the ACA)

Question 53

Aspects of the ACA reinsurance program that can increase uncertainty in financial statements

Answer 53

1. Accrual for reinsurance on unpaid claims
2. Magnitude of reinsurance recovery accrual
3. Potential valuation allowance on reinsurance recoverable
4. Potential for denied reinsurance claims

(FR Implications under the ACA)

Question 54

New health insurance taxes and fees due to the ACA

Answer 54

1. HIP fee - companies not subject to federal icome tax only count half of premiums
2. Reinsurance contribution - $5.25 PMPM in 2014
3. Patient Centered Outcomes Research Institute fee - October 2012 - September 2019 - $1 PMPY for the first year, indexed thereafter
4. Risk adjustment user fee - $0.96 PMPY in 2014
5. Federally-facilitated exchange user fee - 3.5% of premium in 2014
6. Excise tax for high-cost health plans (beginning in 2018)
7. Limitations to tax-favored allowances for FSAs
8. New taxes on medical devices

(FR Implications under the ACA)

Question 55

Impact of ACA on actuarial liabilities

Answer 55

1. Claim liabilities
2. Contract reserves
3. Due and unpaid premium asset
4. Premium deficiency reserve

(FR Implications under the ACA)

Question 56

ACA Individual and group market reforms

Answer 56

1. Improving coverage (effective 2010)
   - expanded dependent coverage to children up to age 26
   - limits on rescission of coverage - except in cases of fraud
   - no lifetime limits, annual limits only for non-EHBs
2. MLR - must provide rebates to consumers if MLR is below 85% for large groups (101+ EEs) or 80% for SG and Ind
3. Premium rate reviews - plans must justify unreasonable increases
4. Early retiree reinsurance - $5 B to reimburse employers for high-cost retirees who were over 55 and not eligible for Medicare yet
5. National high-risk pool - provided subsidized coverage until 2014 for previously uninsured individuals with pre-existing conditions

(Skwire Ch 18)

Question 57

ACA rating requirements effective in 2014

Answer 57

1. Plans may not impose pre-existing condition exclusions
2. Rating variation is only allowed based on
   - age (3:1 ratio)
   - geographic rating area
   - plan design and network relativities
   - tobacco use (1.5:1 ratio)
   - family composition
3. Ind and SG plans must be offered on gteed issue and renewal basis
4. Waiting periods for coverage must not exceed 90 days

VIEW

(Skwire Ch 18)

Question 58

Categories of EHBs under the ACA

Answer 58

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. MH/SUD services
6. Rx
7. Rehab and habilitative services and devices
8. Lab services
9. Preventative and wellness services and chronic DM
10. Pediatric services including dental and vision

RL HEMP PRAM

(Skwire Ch 18)

Question 59

Provisions of the ACA exchanges

Answer 59

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

(Skwire Ch 18)

Question 60

Options for states when establishing exchanges

Answer 60

1. State-based marketplace - state performs all functions, consumers apply for and enroll in coverage through websites maintained by the states
   (all other options: consumers enroll via Healthcare.gov)
2. Federally-supported state-based marketplace - still considered state-based, but the states rely on the federally-facilitated marketplace IT platform
3. State partnership marketplace - state administers in-person consumer assistance, HHS performs the remaining functions
4. Federally-facilitated marketplace - HHS performs all mktplce functions

(Skwire Ch 18)

Question 61

Cost-sharing reqs for non-grandfathered ind and SG plans

Answer 61

1. Must have an AV w/in two percentage points of one of the metal levels
2. Metal levels and target AVs are
   - 90% for platinum
   - 80% for gold
   - 70% for silver
   - 60% for bronze
3. Insurers may offer a catastrophic plan to enrollees under 30

(Skwire Ch 18)

Question 62

ACA coverage mandate

Answer 62

1. Individual - beginning in 2014, US citizens and legal residents must have qualifying health coverage or pay a tax penalty, unless an exemption applies. Penalty is greater of:
   - A dollar amount per person (up to 3/family): $695 in 2016 (indexed)
   - 2.5% of income in 2016 and later
2. Employer mandate - beginning in 2015, employers with 50+ FT EEs must offer coverage or pay a fee = $2000*(FT EEs - 30), adjusted based on the # of EEs who receive a premium tax credit

(Skwire Ch 18)

Question 63

ACA provisions related to Medicare

Answer 63

1. Linking payments to quality outcomes
2. Establishing a national strategy to improve health care quality
3. Encouraging development of new patient care models
4. Medicare plan improvements, e.g.
   - MA plans can receive bonuses or re-allocation of rebates based on quality measures
   - MA plans are subject to MLR reqs
   - PD coverage gap will be closed (from 100% to 25% coinsurance)
5. Ensuring Medicare sustainability
6. Health care quality improvements
7. Prevention and wellness provisions
8. Creating new demonstration programs
9. Improving coordination of duals

(Skwire Ch 18)

Question 64

Other ACA health insurance market reforms

Answer 64

1. EHBs - all qualified ind and SG health benefits 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 ben and covg reqs do still apply
3. Premium credits and CS subsidies for low income inds
4. small business tax credits
5. Medicaid expanded to all non-medicare eligible individuals with incomes up to 138% of FPL (if state opts in)
6. Revenue provisions

GET SMaRt

(Skwire Ch 18)

Question 65

Administrative functions that health benefit exchanges must provide

Answer 65

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

(Skwire Ch 19)

Question 66

Key elements of exchanges that vary by state

Answer 66

1. State or federal exchange (1/3 state, 2/3 fed)
2. Governance structure - established w/in an existing agency, independently, or through a quasi-government entity
3. Maximizing participation
4. Merging of ind and SG pools
5. Standardized benefit packages
6. Establishing a BHP - for residents under 200% of FPL
7. Controlling which insurers participate in exchange
8. Admin expense funding

(Skwire Ch 19)

Question 67

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

Answer 67

1. Open market - all plans that meet ACA reqs
2. Additional standards for QHPs
3. Selective contracting agent - selecting based on comparative value
4. Active purchaser - negotiating with insurer

(Skwire Ch 19)

Question 68

Provisions for controlling antiselection on the exchanges

Answer 68

1. Federal reqs that help control antiselection against the exchange
   - Provisions that encourage broad enrollment
   - requiring all plans to cover EHBs
   - requiring insurers to offer same premiums in and out of exchanges
2. Federal reqs to control antiselection among insurers w/in the exchange (3 Rs)
3. State opportunities to cover antiselection
   - Could require insurers who leave to wait 5 years before re-entering
   - Could require all insurers offer plans at all tiers
   - Should ensure consistency of pricing rules in and out of exchange

(Skwire Ch 19)

Question 69

Premiums subsidies under the ACA

Answer 69

1. To be eligible for a premium subsidy, an individual must
   - have income from 100-400% of the FPL
   - Purchase a plan in an individual exchange
   - 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, prem for benchmark plan - max contribution)
3. Benchmark plan is the 2nd lowest silver plan in the exchange
4. Max contribution = FPL amount * FPL level * max contribution/12

(Implications of Individual Subsidies in the ACA)

Question 70

Cost-sharing subsidies under the ACA

Answer 70

1. Only available for individuals with incomes below 250% of FPL who select silver plans
2. Benefits adjusted to gross up the actuarial value to:
   - 73% for incomes from 200-250% of FPL
   - 87% for incomes from 150-200% of FPL
   - 94% for incomes from 100-150% of FPL
3. The federal government reimburses insurers for the difference between 70% AV for a silver plan and the grossed up values

(Implications of Individual Subsidies in the ACA)

Question 71

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

Answer 71

1. Low-income people (below 200% of the 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 most likely to go without coverage
4. High-income young people will likely purchase at least minimum required coverage, due to the tax penalty
5. Lower-income older people will be the most likely to enroll in subsidized exchange coverage.

(Implications of Individual Subsidies in the ACA)

Question 72

Stakeholders who need to understand the impacts of the subsidies

Answer 72

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 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 = 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

(Implications of Individual Subsidies in the ACA)

Question 73

Reasons for offering a retiree group benefit plan

Answer 73

1. Retiree group benefits are a [t]ax-effective means of providing retirement financial security
2. Retiree benefits are a [v]aluable benefit for those currently receiving the coverage or who are soon to retire
3. The benefits can support workforce [p]lanning and growth opportunities for employees
4. Providing ongoing health care coverage is a [s]ocial responsibility of the employer
5. Retiree health care benefits help provide a [c]ompetitive package of total compensation
6. The current cash costs are [n]ominal relative to the total spending on benefits
7. Retiree benefits are often at the top of the list of [u]nion demands

(Potential Cost and Value will STUN retirees)
(Skwire Ch 8)

Question 74

Methods for coordinating benefits with Medicare

Answer 74

C = covered expense
M = Medicare payment
% = application of employer’s benefit provisions
1. Standard coordination of benefits: plan payment = lesser of C% or C - M
2. Exclusion: play payment = (C-M)%
3. Carve-out: play payment = C% - M
4. Supplemental plans (Medigap)

(Skwire Ch 8)

Question 75

Plan design changes to control retiree medical plan costs

Answer 75

1. Introducing or slightly increasing retiree ccontributions
2. Adopting policies that set retiree contributions as a fixed percentage of plan costs
3. Changing the method of coordinating benefits with Medicare
4. Making eligibility requirements more stringent
5. Introducing service-related benefits (varying employer CS based on length of service)
6. Adjusting retiree contributions based on EE’s age at retirement
7. Setting employer subsidy as a fixed dollar amount rather than % of plan cost
8. Providing an account-based employer subisdy

(Skwire Ch 8)

Question 76

Characteristics of the ideal vehicle for prefunding the retiree benefits

Answer 76

1. Company tax deduction - for contributions that adequately fund retiree health benefits
2. Tax-free or tax-deferred savings mechanism for employees
3. Tax-sheltered investment earnings
4. Tax-free benefits for retirees
5. There is no impact on plan design
6. Funds are counted as an asset in applicable accounting standards
7. Assets are revocable without penalty if the obligation decreases

(Skwire Ch 8)

Question 77

Vehicles used to prefund retiree benefits

Answer 77

1. Welfare benefit fund - such as VEBAs or continuance funds held by an insurance company
2. 401(h) funding in a qualified pension trust
3. Incidental account in a profit sharing plan
4. Employee-purchased group annuities
5. Employee Stock Ownership Plans with a money purchase plan account
6. Qualified retirement trust funds - pension plan or 401(k) profit sharing plan

(Skwire Ch 8)

Question 78

Underwriting considerations for retiree medical plans

Answer 78

1. Pre-age 65 retirees cost much more than active employees and their dependents
2. Post-age 65 retirees normally have Medicare coverage, so they may cost less than active employees
3. Post-age-65 claims can be more difficult to process because of coordination of benefits, leading to more manual adjudication of claims
4. Retirees have a higher number of claims so they use more claims and customer service resources
5. The choice of coordination type has an enormous financial impact on retiree plans
6. While pharmacy costs may be 15-20% of total health costs for active employees, they are typically 40-60% of benefits paid for retirees
7. Due to selection issues, retiree plans that are subsidized may cost far less than plans that are not subsidized
8. The existence of the individual insurance exchange expands retirees’ options to obtain affordable health insurance coverage

(Skwire Ch 8)

Question 79

Procedures for measuring group retiree benefit obligations and determining program cost and contributions

Answer 79

1. Identify the [p]urpose of the measurement
2. Identify the measurement [d]ate
3. Develop a [m]odel that represents the plan provisions, the covered population, and the current benefit costs
4. Evaluate the quality and consistency of [d]ata used in the model and make appropriate adjustments
5. Identify administrative [i]nconsistencies and make appropriate adjustments
6. Obtain from the principal [o]ther information necessary for measurement
7. Select actuarial [a]ssumptions
8. Evaluate retiree group benefits [a]ssets
9. Consider how to measure accrued or [v]ested benefits
10. Consider how to measure market-consistent [p]resent values
11. Reflect how assets as of the measurement date are [r]eported
12. Select an actuarial cost [m]ethod
13. Select a cost [a]llocation procedure or contribution allocation procedure
14. Assess the [i]mplication of the contribution allocation procedure or plan sponsor’s funding policy
15. Consider the use of [a]pproximations and estimates
16. Review results for [r]easonableness
17. Evaluate [p]rescribed assumptions and methods set by another party

(I AM A PRO, MAPping Decisions In Detail About Valuing Retiree Plans)
(ASOP #6)