AMERICAN ACADEMY OF ACTUARIES Drivers of 2017 Health

AMERICAN ACADEMY OF ACTUARIES Drivers of 2017 Health Insurance Premium Changes Cori E. Uccello, MAAA, FSA, FCA, MPP Senior Health Fellow American Academy of Actuaries Alliance for Health Reform Washington, DC July 15, 2016 © 2016 American Academy of Actuaries. All rights reserved.

Premium Components • Who is covered – the composition of the risk pool • Projected medical costs • Other premium components—administrative costs, taxes, profit • Laws and regulations © 2016 American Academy of Actuaries. All rights reserved.

Major Drivers of 2017 Premium Changes • Underlying growth in health care costs • Sunset of reinsurance program • Changes in the risk pool composition and insurer assumptions © 2016 American Academy of Actuaries. All rights reserved.

Major Driver: Medical Trend • Underlying growth in medical spending • Medical trend is expected to rise slightly faster than in previous year, but remain low relative to historical levels • Prescription drug spending is expected to continue to outpace growth in other medical spending © 2016 American Academy of Actuaries. All rights reserved.

ACA Risk-Sharing Provisions • Risk adjustment is used to transfer funds between insurers based on the relative risk of plan participants • Reinsurance is used to reimburse insurers for the cost of individuals who have unusually high claims • Risk corridors are used to mitigate the pricing risk insurers face when they lack data on health spending for potential enrollees © 2016 American Academy of Actuaries. All rights reserved.

Major Driver: Sunset of Reinsurance Program • By law, the reinsurance program funds are reduced over time: − − $10 b in 2014 $6 b in 2015 $4 b in 2016 $0 in 2017+ • From 2014 -2016, the reinsurance program offsets claims, thereby lowering premiums • Annual reduction in program gradually lowers offset to claims corresponding increase in premiums • Final premium impact will occur in 2017 © 2016 American Academy of Actuaries. All rights reserved.

Reinsurance Program Parameters 2014 2015 2016 2017 $10 billion $6 billion $4 billion $0 Attachment Point $60, 000 (subsequently lowered to $45, 000) $70, 000 (subsequently lowered to $45, 000) $90, 000 NA Reinsurance Cap $250, 000 NA Coinsurance Rate 80% (subsequently raised to 100%) 50% (subsequently raised to 55%) 50%* NA Program Funds * Coinsurance rates may be changed retroactively depending on actual claims relative to program funding. © 2016 American Academy of Actuaries. All rights reserved.

Major Driver: Changes in the Risk Pool Composition and Insurer Assumptions • Premiums reflect expectations regarding characteristics and health spending of the enrollee population • Premium changes reflect changes in those underlying assumptions, including: − Expectations regarding how enrollee risk profiles in 2017 will differ from those in 2016 − How experience to date differs from assumptions underlying prior premiums © 2016 American Academy of Actuaries. All rights reserved.

Major Driver: Changes in the Risk Pool Composition and Insurer Assumptions (cont. ) • Insurers have information regarding their 2014 and 2015 enrollee demographics and health spending • Unlike previous years, insurers also have information regarding the 2014 market-wide risk profile, including payments/receipts under the risk-sharing programs • Risk adjustment data suggest some insurers may have set 2014 premiums low relative to market-wide risk profile • Risk corridor data reveal that for many insurers 2014 premiums were too low relative to actual claims • 2017 premiums could increase to the extent these results were not already factored into prior premium increases © 2016 American Academy of Actuaries. All rights reserved.

Second-Lowest Silver Premium Percent Change from Previous Year Providence, Rhode Island Indianapolis, Indiana 1% -13% -9% -4% Albuquerque, New Mexico 4% 7% 5% Burlington, Vermont Seattle, Washington -10% 6% 6% Richmond, Virginia Denver, Colorado 5% Las Vegas, Nevada 2% Portland, Maine Washington, DC Portland, Oregon 32% 10% 9% 10% 2016 2017 12% -1% 13% 6% Baltimore, Maryland New York, New York 9% 10% Average of 14 Cities Hartford, Connecticut 9% -1% 15% 16% 18% 23% Source: Kaiser Family Foundation , 2016 Notes: 2017 premiums are not final and subject to review by the state. The second lowest silver plan in one year may be different than the second lowest silver plan in the next year. © 2016 American Academy of Actuaries. All rights reserved.

Premium Change Variations • 2017 premiums have not yet been finalized • Premium changes vary across states and among insurers within a state • Premium changes for particular consumer will reflect: Particular plan Increase in age Any changes in geographic location or family status Changes in subsidy eligibility • Consumers can potentially find a lower-premium plan by shopping around © 2016 American Academy of Actuaries. All rights reserved.

Related Academy Publications • Drivers of 2017 Premium Changes (May 2016) http: //www. actuary. org/files/publications/IB. Drivers 5. 15. pdf • Insights on the ACA Risk Adjustment Program (April 2016) http: //actuary. org/files/imce/Insights_on_the_ACA_Risk_Adjustment_Program. pdf • Drivers of 2016 Premium Changes (August 2015) http: //www. actuary. org/files/Drivers_2016_Premiums_080515. pdf • Drivers of 2015 Premium Changes (June 2014) http: //www. actuary. org/files/2015_Premium_Drivers_Updated_060414. pdf • How Will Premiums Change Under the ACA? (May 2013) http: //www. actuary. org/files/Premium_Change_ACA_IB_FINAL_050813. pdf © 2016 American Academy of Actuaries. All rights reserved.