1

Employer Mandate Rules

and

Minimum Value and the MV Calculator within the Affordable Care Act

July 16, 2013

“PLAY OR PAY”

AND

“PLAY AND PAY”

EMPLOYER MANDATE

RULES

OVERVIEW

COVERED EMPLOYERS

HOW DOES AN EMPLOYER

“PLAY”

IN ORDER TO AVOID THE

“PLAY OR PAY”

PENALTY?

WHAT IS THE

“PLAY OR PAY”

PENALTY THAT

BECOMES

EFFECTIVE

ON

JANUARY 1, 2015

WHAT IS THE

“PLAY AND PAY”

PENALTY THAT BECOMES

EFFECTIVE ON

JANUARY 1, 2015

TRANSITION RELIEF FOR

FISCAL YEAR PLANS

Minimum Value

and

the MV Calculator

within the Affordable Care Act

9

Objectives

� Introduction to the Minimum Value (MV)

�What is behind the Minimum Value

�Using the MVC for more than just compliance

�HSA/HRA and their impact on the MV

� Actuarial Certifications

�Demonstration/discussion of the Minimum Value Calculator

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Minimum Value Why is it so Important?

• Individual Mandate - Affordable Care Act requires nonexempt individuals to have “minimum essential coverage” in place or pay a penalty

• Minimum essential coverage includes:– Coverage under certain government-sponsored plans (Medicaid, CHIP . . .)

– Employer-sponsored plans, with respect to any employee

– Plans in the individual market

– Grandfathered health plans

– Any other health benefits coverage recognized by the HHS Secretary

• Employer Mandate - Employers with 50+ FT employees must offer coverage that is "affordable" and provides minimum value or face penalties– Be affordable (Not more than 9.5% of income), and

– Meet a 60 percent minimum value test

• On May 3, 2013, the IRS published a proposed rule intended to clarify:– Minimum Value

– Affordability for PTC eligibility

– Safe Harbor, etc.

• Therefore, rules are not yet final – Comments were due by July 2, 2013

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Proposed RulePage 25,909 of Fed. Reg.

Intended to clarify the definition of Minimum Value (MV)– 4 options:• MV Calculator - available at:

http://cciio.cms.gov/resources/regulations/index.html• Proposed plan designs meeting Safe Harbor:

• $3,500 integrated medical and drug deductible, 80% plan cost-sharing, and a $6,000 MOOP

• $4,500 integrated medical and drug deductible, 70% plan cost sharing, a $6,400 MOOP, and a $500 employer contribution to an HSA;

• $3,500 medical deductible, $0 drug deductible, 60% plan medical expense cost-sharing, 75% plan drug cost-sharing, a $6,400 MOOP, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs

• Plans with nonstandard features that are incompatible with the MV Calculator or a safe harbor, may determine MV through an actuarial certification from a member of the American Academy of Actuaries

• In the small group market, any metal plan

• Minimum Value - A health plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee is at least 60 percent

• Debate: Non-small group health plans are not required to cover EHBs – Should MV be based on cost of all EHBs (even if not covered)

– Should MV be based only on the categories of EHBs covered by the plant

• The IRS rule proposes (Fed Register):MV percentage—(1) In general. An eligible employer-sponsored plan’s MV percentage is—

(i) The plan’s anticipated covered medical spending for benefits provided under a particular essential health benefits (EHB) benchmark plan described in 45 CFR 156.110 (EHB coverage) for the MV standard population based on the plan’s cost-sharing provisions;

(ii) Divided by the total anticipated allowed charges for EHB coverage provided to the MV standard population; and

(iii) Expressed as a percentage.

• Covered other issues related to Affordability, HSA/HRA, Wellness. . .

Proposed Rule (Continued)

The Minimum Value Calculator• The Excel spreadsheet consists of three components:

– A “User Guide” (high level)– The actual “MV Calculator” worksheet– Continuance tables (3)

• Plus, there is a document which explains the Methodology used to develop the MVC

• The only worksheet that allows input and testing of MV is the MV Calculator

• Edits and Screen Controls (shading) are imbedded

• A continuance table(s) describes the distribution of claims spending for a population – Medical – Rx– Combined Medical and Rx

Building the MV Calculator• To validate that a benefit plan meets the 60% minimum, rather than allowing (or

requiring) each plan to develop or purchase its own data and develop their own formulas to determine the actuarial value of a plan, it was decided to develop a publicly available MV calculator that all plans would use to determine MV

• This approach is nearly identical to the Actuarial Value calculator, proposed by the American Academy of Actuaries for use in determining AV for QHPs

• CMS developed a single set of data and assumptions for population, utilization patterns, average unit prices and health care pricing to determine the plan value

• The HHS Minimum Value Calculator is that tool

• Plans with the same cost-sharing design would have the same MV (regardless of plan discounts or utilization estimates) – The group’s cost will likely be different

• It is expected that the vast majority of plan designs would fit into the MVC – but not all. Where the MVC does not accommodate needed variations -

– Groups can adjust plan designs to fit into the calculator logic– The MVC can be used for the major plan provisions with actuarial adjustments for plan designs

elements that cannot be handled by the MVC – accompanied by an actuarial certification– Use Safe Harbor plans

• The calculator can be used as a tool to assist in the design of health plans (BUT, it should only be a tool for broad estimates/direction as group-specific demographics and utilization are not reflected in the calculator)

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• The MV Calculator generally uses the same logic and methodology as the actuarial value (AV) Calculator; however, the MV Calculator uses a different standard population and continuance tables.

• Since large employer plans are not required to cover EHBs in each of the 10 categories, the MV Calculator allows for the exclusion of service(s) by so indicating within the MVC– Calculator creates a new distribution of claims spending

(continuance table) with adjustments to the numerator of the MV– The denominator of the MV calculation does not change in any

way

• Does not allow for a de minimis range of -/+ 2% points

Building the MV Calculator(continued)

Building the MV Calculator(continued)

• Per an HHS report (November 2011), approximately 98 percent of individuals covered by employer-sponsored plans have an actuarial value of at least 60 percent using methods and assumptions similar to those used for determining minimum value

• The report also concludes that four core categories of benefits and services account for the majority of a health plan’s actuarial value:– Physician and mid-level practitioner care - Pharmacy benefits

– Hospital and emergency room services - Laboratory and imaging services

• Benefits and services beyond these four core categories generally have only a limited impact on the plan’s actuarial value

• For example, a plan without coverage for rehabilitative services, DME, acupuncture and chiropractic services and home health services may have an actuarial value that is only 5% less than a plan that includes those services

Continuance Tables• The MV calculator contains multiple continuance tables which

reflect a typical self-insured population

• Continuance tables summarize the claim experience and utilization

• A health insurance continuance table is a distribution of annual paid claims arranged in a format that shows the amount of claims paid at each increasing level of expenditure, adding up to the total amount of expenditures of a covered population

• These costs can be modeled as probability distribution table

• Table allows actuaries to assess the impact of various plan design features (cost-sharing)

• Tables can represent all types of medical services combined or just one (e.g. inpatient hospital, RX)

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Constructing the Continuance Tables• 2009 data from MarketScan Commercial Claims and

Encounters Database

• Started with nearly 50 million enrollees in 215 plans

• Several enrollment restrictions to ensure that the data represent a full year of utilization experience in a single plan for enrollees

• Sample of restrictions– Self-insured employer-provided data– Only PPO enrollees– Full year of enrollment– Did not change plans during the year– Must have drug costs >5% and <55% of total spending

• After restrictions, database contains 1.3 million enrollees and 70 plans

Data Detail used in the MVCSpending and claims information is provided in the database both for total services and for each of the following medical and drug service categories:• Emergency Room Services• All Inpatient Hospital Services (including mental health and substance use disorder services)• Primary Care Visit to Treat an Injury or Illness (exc. Preventive Well Baby, Preventive, and X-rays)• Specialist Visit• Mental/Behavioral Health and Substance Abuse Disorder Outpatient Services• Imaging (CT/PET Scans, MRIs)• Rehabilitative Speech Therapy• Rehabilitative Occupational and Rehabilitative Physical Therapy• Preventive Care/Screening/Immunization• Laboratory Outpatient and Professional Services • X-rays and Diagnostic Imaging • Skilled Nursing Facility • Outpatient Facility Fee (e.g., Ambulatory Surgery Center) • Outpatient Surgery Physician/Surgical Services • Drug Categories

– Generics

– Preferred Brand Drugs

– Non-Preferred Brand Drugs

– Specialty Drugs

• To appropriately apply cost-sharing the database is used to break down select service categories into

– Outpatient surgery - Physician/surgical services - Outpatient facility fees

• Service Categories that are split:– Mental/behavioral health and substance use disorder outpatient services– Imaging (CT/PET Scans, MRIs)– Rehabilitative speech therapy– Rehabilitative occupational and rehabilitative physical therapy– Laboratory outpatient and professional services– Unclassified (medical)

• Not all potential variations are available within the calculator

• Empirically, the majority of the variation between the MVs of group health plans is captured by a finite number of variables/characteristics

• The calculator includes only these key characteristics that have a significant effect on actuarial value

• The user inputs a combination of cost-sharing features, and the MV Calculator uses these inputs and the continuance tables to produce a MV figure for the plan

Data Detail used in the MVC (Continued)

Cost Sharing within the MVC

• Primary drivers within the MVC - Deductibles, general rates for coinsurance and out-of-pocket maximums

• Allows for either – Integrated deductible - applies to both medical and prescription expenses, or – Separate deductibles for each type of spending

• Allows for either – Integrated MOOP or– Separate MOOPs for medical and drug spending.

• Coinsurance rate can vary for medical and drug spending

• Some variance for grandfathered plans (option)– MOOP up to a limit of $20,000 is allowed vs. $6,500– Variance allowed on Preventive Care (can input cost sharing)

• No data or indicators for In Vs. Out-of-Network– Empirical analysis shows that in total, the out-of-network impact is immaterial to the results– Therefore, only in-network cost-sharing parameters are input

• Other drivers – specific coinsurance rates, copayments and whether a category of seriviceis subject to the deductible

– These have a lesser effect on actuarial value

The MVC - Benefit Detail Examples of variance for Cost Sharing within benefit/service category

• For inpatient and skilled nursing facility services– Default - copays and coinsurance are per stay– Option – Copay per day

• Can specify for only a set number of days (1-10)

• Primary care visits– Copay only after a number of visits (1-10)– Copay Plus Deductible/Coinsurance after a number of visits (1-10)

• Four tiers of prescription drugs: – Generics– Preferred brand drugs – Non-preferred brand drugs– Specialty high-cost drugs

• Enrollee pays the lesser of either coinsurance or $X

• For example, if Primary Care office visits are not subject to the deductible and have a $20 copay, but X-rays are subject to the deductible and general coinsurance, a Primary Care office visit that includes an X-ray will be split into two services, a Primary Care office visit and an X-ray.

HSA and HRA ContributionsProposed Rule

• All employer contributions to an HSA for the current plan year are taken into account in determining the MV

• Current-year employer contributions to an HRA can be counted toward the MV if the HRA:– is integrated into a group health plan

– can only be used for cost-sharing; and

– cannot be used for premiums.

• Example: – The MVC handles a $1,000 HSA employer contribution as if a plan with a $1,500

deductible is reduced to $500

– The $1,000 does not get added directly to the numerator of the MVC because the calculation looks at expected spending for a standard total population, not for an individual

– If HSA/HRA contribution exceeds the deductible, the amount can still be accommodated by using an actuarial certification

• (Handled as first-dollar spending for covered services in MV Calculator)

Wellness ProvisionsProposed Rule

• Addresses the handling of cost-sharing reductions under wellness programs in determining minimum value

• Recognizing that “certain individuals inevitably will face barriers to participation [in wellness programs] and fail to qualify for rewards,” the proposed rule does not count reduced cost-sharing as part of wellness programs toward MV calculations - e.g. Health Risk Assessments, Cholesterol screening

• Except for non-discriminatory programs aimed at the prevention or reduction of tobacco use which allows for the assumption that everyone satisfies the program – thus the CSR is allowed

Actuarial Certification • Employers sponsoring plans with non-standard features can

use a combination of the calculator and an actuarial certification.

• The actuary must use the MV Calculator to determine the plan's MV percentage for coverage the plan provides that is measurable by the MV Calculator.

• The actuary may perform an actuarial analysis of non-standard features that are not compatible with the MV Calculator.

• The actuary may certify the plan's MV percentage based on the MV percentage that results from use of the MV Calculator and the actuarial analysis of the plan's coverage that is not measured by the MV calculator.

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Non-Compatible Feature

Benefit not Compatible with CALCULATOR: X-rays and Diagnostic Imaging

Why benefits are not compatible:

• Copays vary by tier assignment of the facility as select tiers have lower copays relative to standard tiers, and by place of service as an X-ray taken at doctor's Office will have differing copays. Plans A & B have coinsurance instead of copays for the standard tiers. CALCULATOR does not handle multiple cost sharing structures,

• CALCULATOR's tier level functionality assumes utilization mix is homogenous across types of benefit, while the company utilization is variable, and

• CALCULATOR assumes each tier is subject to a separate deductible and MOOP. The company’s tiers do not have a separate deductible and MOOP.

Process used to develop AV:• Using the company’s outpatient claims incurred in 2012 and paid through

04/30/2013, an equivalent copay was developed as shown below.

• The data were deemed credible as approximately 500,000 lives were included in the dataset.

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Non-Compatible Feature (Continued)

Equivalent Copay = %XrayDO x XRayDOCopay + (1- %XrayDO) x {%OPF$Select x OPFSelectCopay + (1- %OPF$Select) x [OPF$StdCopay + OPFStdCOIN x $PerSrvcNonSurgClm x (1+ Trend)^2]}

Where:

• %OPF$Select = % of total OPF allowed dollars reflecting a select tier,

• %XrayDO = % of total X-ray allowed dollars incurred in a doctor's office,

• XrayDOCopay = copay associated with an X-ray taken in a doctor's office,

• OPFSelectCopay = copay associated with a OPF select tier,

• OPF$StdCopay = copay associated with a OPF standard tier,

• OPFStdCOIN = member share coinsurance with OPF standard tier,

• $PerSrvcNonSurgClm = allowed cost per service of OPF non-surgical claims incurred

• Trend = annual cost trend.

Determine values for each of the variables above – calculate the Equivalent Copay for various plans

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Introduction to UHAS• United Health Actuarial Services, Inc. (“UHAS”) was founded 13 years ago by Karl G.

Volkmar, FSA, MAAA, FCA

• UHAS serves a diversified range of clients nationwide.

• Staff – Credentialed actuaries - 8 FSA/MAAAs;

– Professional underwriters; and,– Experienced actuarial and systems support staff.

• Comprehensive Expertise – Health insurance (i.e., all types); – Life insurance; and,– Employee benefits.

• We provide actuarial, underwriting and management consulting services to the following types of entities:

– Health and life insurance and reinsurance companies;– Employers and employer groups;– Federal, state and local governments and agencies;– Marketing and sales organizations;– Third-party administrators; and,– Brokers and benefits consultants.

• We have considerable experience with self-insured health insurance programs that involve the rating, underwriting, and financial management.

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Services for Self-Insured Plans• Rate manual development.

• Full-service underwriting.

• New business rating strategy and process development.

• Renewal rating strategy and process development.

• Actuarial opinion & certification of benefits and reserves.

• Financial reporting.

• Risk management & stop-loss consulting/support.

• Projections/forecasting (i.e., multiple years).

• Board meeting support and presentations.

• Ad hoc analyses and support (e.g., for all program partners).

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Discussion of Fees

• UHAS usually works either on a lump-sum basis (i.e., by project) or based on hourly rates and actual time spent.

• Due to our relatively small size and structure, our fees are generally very competitive.

• Our standard hourly rates range from $120 per hour for actuarial students to $410-$440 for Senior Consulting Actuaries.

• A typical assignment averages out to an hourly rate between $200-$250 per hour.

Further InformationIf you have any questions, would like a list of references or to discuss anything further, please contact:

Karl Volkmar, FSA, MAAA, FCA

Principal & Senior Consulting Actuary

kvolkmar@uhasinc.com

317-575-7672

John Ames, FSA, MAAA

Consulting Actuary

james@uhasinc.com

817-416-9300

Website: www.uhasinc.com

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And Finally . . .

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Demonstration of the

Minimum Value

Calculator

Refer to provided Materials

MVC 1

MVC 2

$7.1 Billion in total claims

MVC 3

MVC 4

MVC 5

Safe Harbor Case #3

69.6%

Case #1 = 65.5%

Case #2 = 67.9%

Note: Shading

in the Ded,

Coins, MOOP

MVC 6

Value with all services covered = 68.6382%

Without Therapy and SNF = 68.0877%

MVC 7

Note: Checking the Grandfathered box allows

higher MOOP and cost sharing for preventive

MVC 8

How to value a plan that has no

MOOP for prescription drugs

MVC 9

Plan with a narrow network and

different cost sharing provisions

MVC 10

Plan with copays for the first 4 PC visits then

balance to ded/coins; plus per visit ER copay and

per admission copay for IP Hosp. then ded/coins

Questions?

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Don’t forget to read the User’s Guide

Thank you for your time

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John Ames, FSA, MAAA

Consulting Actuary

james@uhasinc.com

817-416-9300