Our Independence & ACA Fireworks
“Well she lit up the sky that fourth of July
By the time that the firemen come
They just put out the flames, and took down some names
And sent me to the county home
Now I ain't sayin' it's right or it's wrong
But maybe it's the only way
Talk about your revolution
It's Independence Day”
-?“Independence Day”, Martina McBride (1994)
Author’s note: It is never my intention to repeat a seemingly random analogy in professional articles, but I confess I have used a fireworks theme before. I believe the three potential outcomes and considerations of resulting implications are a useful way to think about this subject.
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As a boy, I had a healthy fear of quicksand. As a man whose livelihood depends on a more accurate assessment of risk, I recognize that a greater respect for fireworks would have been a more prudent concern related to potential personal harm.
There are generally three outcomes associated with fireworks. Ideally, they do what they are designed to do and fly vertically to a safe height before creating a light and/or noise show. The potential negative consequences of children playing with lighters and gunpowder doesn’t require explanation, though things can go sideways in other fashion, like a horizontal trajectory into dry pine straw, and also lead to adverse, albeit less severe, outcomes. The third outcome is what we call a “dud”; either the firework gets wet, was poorly manufactured, or some other mishap happens, and the result is a nonevent; you might say “we are prematurely excited about nothing” and experience a letdown.
We are about to have an Affordable Care Act (ACA) fireworks show, I can guarantee that, but this third outcome is a significant possibility and I want to be clear that I am not overpromising excitement.
ACA Rating Compliance
Rating compliance diversity in ACA marketplaces has evoked a spirited discussion since 2016 when claims experience data first confirmed uneven profitability across metal levels. While this is a holistic concern (e.g. bronze induced demand factors higher than platinum), an initial market understanding of premium misalignment (premium rate relationships not in compliance with the ACA’s single risk pool requirement) is usually two income-based risk pools bifurcated at 200% of the federal poverty level (FPL). Income is a primary driver of metal level selection as enrollees below 200% of the FPL are eligible for generous cost-sharing reduction (CSR) subsidies if they select a silver plan, and enrollees above 200% of the FPL are financially incented to select non-silver plans (beginning in 2018) because of premium/benefit relationships.
Stan Dorn records that actuaries recognized the profitability differential in 2016 was driven by risk-adjusted claims experience, proclaiming that “CSRs are Key to Success” and resulting in ACA issuers “aggressively underpricing silver, the obvious strategy for attracting profitable CSR consumers, whose low incomes make them sensitive to small premium differences”.?As some stakeholders have advocated deviating from ACA rating rules to account for claims experience differences, they have sometimes inaptly characterized these deviations as resulting from the impact of risk adjustment rather than claims experience or health status, presumably to have the appearance of ACA compliance in spirit.
This idea that plan level adjustment factors should be derived from risk adjustment results is, of course, reverse ordering of the ACA framework. KFF acknowledges that risk adjustment and rating rules are complementary, but it is the risk adjustment mechanism, not the rating factors, which the ACA designed to be dependent on the other: “The ACA’s risk adjustment program is intended to reinforce market rules that prohibit risk selection by insurers. Risk adjustment accomplishes this by transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees. The goal of the risk adjustment program is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees.”
Falling short of this goal does loosen the financial incentive to comply with ACA rating rules, but it does not loosen the requirement. A pertinent professionalism discussion arises when rating rules are not enforced and competitors deviate from the law’s prescribed requirements, and this dilemma is played out in this article through dialogue from an award-winning professionalism session at the 2021 Society of Actuaries ImpACT meeting; otherwise, for our purposes, advocacy of ACA rating compliance enforcement pertains to market compliance, not uneven rating compliance within a marketplace and resulting issuer-level consequences.
Changing Premium Relationships
With issuers rapidly exiting marketplaces from 2016 to 2018, the leverage of states to enforce strict rating compliance regressed and premium relationships shifted to reflect plan and metal level claims experience rather than “differences in generosity of plan coverage”. Unbalanced premium relationships resulted in price-driven plan migration and by 2017, 71% of ACA consumers were enrolled in silver plans, one of the four metal levels on ACA exchanges.
As the marketplace environment improved and issuer participation increased with a change in silver plan level actuarial value, a minority of states instituted specific rules to better enforce compliance with federal law. Through this transition to a patchwork of enhanced state-driven compliance, the federal government deliberately remained deferential to states with an “effective rate review” process and government leaders confirmed they “certainly don’t expect to change that broad view”. The result has been uneven enforcement of federal law and different degrees of consumer value by state with increasing awareness among states of other state compliance efforts.
This placid surface environment could remain the same in 2024, and that would be the referenced firework “dud” of continued federal deference and a mishmash of rating practices across the country. The fireworks show is the 2024 Notice of Benefit and Payment Parameters (NBPP), which is the annual ACA governing regulation expected to be published this month. A critical mass of states has implemented rules to enforce ACA compliance and that has catalyzed a significant increase in calls for broader federal action from parties both supportive and apprehensive about stronger rating compliance.
The increased attention to aligning premiums through enhanced ACA rating compliance enforcement, which was somewhat predictable, puts some pressure on the federal government but it also something the government can decide to ignore. I have long been on record stating that the Department of Health and Human Services (HHS) only has two "firework" options here: it can enforce stronger rating compliance or it can remain deferential to states; the agency cannot actively contradict federal law. A call to deviate from the single risk pool requirement and use “specific experience” of plan or metal level enrollees in the development of plan adjustment factors would clearly be contrary to federal law, and perhaps more profoundly, contrary to the foundational consumer protection ideal of the ACA itself. I have recently modified my view on practical HHS limitations, and I’ll get to that.
While the rating compliance discussion has been long-lived but perhaps wonky and not closely followed by a wide audience, the attention of peripheral stakeholders had been captured by the recent rancor of some non-compliance advocates mispresenting ACA rating compliance as non-actuarial, policy-driven reasons to manipulate subsidy dynamics as part of a clear effort to try and deflect the conversation to contrived confusion around the ostensible and extra-legal purpose of an artificially-constructed rating factor not recognized by the ACA.
While some stakeholders (exclusively noncompliance advocates) continue their aim of obfuscating this conversation, the content is really not difficult to understand. The fundamental question remains, “Should premium relationships between benefit plans be based on benefit design / coverage generosity or should there be consideration of the different populations which select each benefit plan?”. Only the former is consistent with the single risk pool requirement as recognition of subpopulations for rating purposes, by definition, creates multiple risk pools. To be clear, the entire purpose of the single risk pool requirement is to prevent the 'different population' consideration. As you should easily recognize, advocates of ACA rating compliance are transparent and point back to the law's requirement while a minority of advocates for relaxed rating compliance have constructed additional rules, methodologies and purposes while trying to weave a tangled web to obfuscate transparent understanding of a straight-forward concept they seemingly previously understood.
The second potential firework outcome deserves recognition here. Earlier I noted that HHS only had two choices, enforcing ACA rating compliance or deferring to states. Close observers of the litigation around the constitutionality of the shared responsibility payment recognize that courts have consistently ruled the "individual mandate" unconstitutional; the matter has reached the Supreme Court twice. In 2012, it was ruled unconstitutional as a 'mandate' but constitutional as a 'tax', i.e. a choice provided by Congress of procuring qualified coverage or paying a tax for not doing so. In 2021, two years after the tax penalty had been removed, it was dismissed before the merits were reviewed as the plaintiffs did not have standing to challenge.
The reason I now believe that the second outcome (direct federal encouragement of relaxed single risk pool compliance) has potential is increased boldness of the federal government, the Biden administration in particular, to adopt questionable legal interpretations with little expectation or regard for being challenged. The well-known example is the "family glitch", which President Biden did not question during his time as Vice President, in alignment with Presidents Trump and Obama. But as president, President Biden's interpretation is that there is no 'family glitch' and the prior interpretations were wrong; few people in the legal community agree with him, but many see a substantive challenge unlikely due to standing grounds of potential plaintiffs.
When HHS received a September 2022 letter from the American Academy of Actuaries advocating for incorporation of the "difference in specific experience for CSR enrollees and for non-CSR enrollees" in plan adjustment factors (sometimes referred to in letter as "CSR loads" used to develop plan adjustment factors), single risk pool advocates in the legal community mobilized to consider if action should be taken. After gaining an understanding of the mathematical dynamics of this position, they assured themselves that this letter was of little concern outside the actuarial community. The fascinating part of their conclusion is that their opinions were not grounded on the belief that such action would be contrary to federal law (which they believed), but that it would be harmful to ACA consumers and therefore contrary to the policy goals of the Biden administration.
I'm not so sure. The stakeholders who understand ACA dynamics best are the ones who separate ascribed political goals from policy and implications. In fact, impact outside the actuarial community has already occurred. Several states have delayed strengthening ACA rating compliance in light of the letter and are awaiting federal response.
Why might the Biden administration elect the second outcome? There are clear operational advantages to the status quo and some actuaries have alluded to a potential "unholy alliance". Perhaps the most prominent criticism HHS has received from the actuarial community regarding the ACA is imprecision and inequity of the risk adjustment model. In fairness, designing budget-neutral risk adjustment methodology for the ACA population (individual and small group markets) is a monumental undertaking and it's impossible to perfect; there will always be winners and losers, and HHS is naturally going to hear more from the losers.
If single risk pool compliance is relaxed and actuaries can develop premium rates based on post-risk adjustment claims experience, the risk adjustment results are more accurate by default, not because they were accurately constructed, but because permitted flexibility in rating practices reverse-engineers the process so the methodology provides a more accurate adjustment for risk, much like moving a dartboard after a dart is thrown. At least that is how it appears; in reality, risk adjustment results have become just another input into actuarial experience rating formulas in this environment and we have no claim to the usual platitudes of adherence to the consumer protections supposedly afforded by the ACA.
I have promised you a fireworks show and outlined the three potential outcomes. I am not speculating on what will happen, but the dialogue will be energized with any of the three. Through the years, I have contributed significantly to the ACA rating compliance discussion. I have left little unsaid and you should hear from other voices. The remainder of this article is a chronological compendium of comments about ACA rating compliance and related concerns (e.g. actuarial professionalism, Biden administration actions, health equity impact, etc.). For clarity and completion, relevant responses from me to such comments are also included. After compiling this list and reviewing it for flow, it struck me that there is a consistent theme among relaxed compliance advocates that compliance is a surefire recipe for ACA issuers losing money, while at the same time resulting in “excessive premiums”.
As you will see, there are clearly rational and efficacious reasons against strict ACA rating compliance; my opinion is that these considerations provide valuable insights and should be heard, but actuaries do not have this flexibility in practice and should not generally advocate for relaxed regulatory enforcement while perhaps others should. This spirited debate has been occurring for years on a professional level with respected recognition of differing viewpoints and shared learning, but you may have missed it. Only recently have baseless claims surfaced that compliance advocates and states enforcing rating compliance are acting out of artificial and nefarious motives unrelated to rating compliance. That is a separate concern but worthy of mention here as it has brought more attention to this discussion. As we await the 2024 NBPP, I hope this historical dialogue provides helpful background as we prepare for the ACA rating compliance fireworks show.
ACA Rating Compliance Voices
Implications of CSR Defunding and Advocacy of ACA Rating Compliance: “The result would be a new distribution of consumers across Marketplace health plans, with silver plans likely enrolling only those individuals eligible for the two highest CSR tiers. Without enrollees at the 70 and 73 percent AV levels, silver plans would have to be priced even higher to cover insurers’ costs. Specifically, with all enrollees entitled to 87 or 94 percent AV coverage, the new average AV in silver plans would be about 90 percent, and plans would have to be priced accordingly.” -Department of Health and Human Services (2015) ASPE_IB_CSRs.pdf (hhs.gov)
Acknowledgment of ACA Rating Compliance prior to premium misalignment becoming commonplace. Deemed "outdated" at award winning 2021 actuarial professionalism session. "Actuarial Value and Cost Sharing Adjustment
The actuary considers the following items with respect to the AV and cost-sharing adjustments:
Paid-to-allowed adjustment to reflect the fact that the market adjusted index rate reflects allowed PMPM values, and ultimate premium rates need to reflect the value of the cost sharing component of the plan design.
Benefit richness adjustment to reflect variation in utilization across different plan designs. This adjustment does not include any estimates of variation in costs due to selection of a plan design by members (sometimes called utilization due to selection). The actuary provides discussion on how this value was developed and how it does not include any adjustment due to selection or differences in health status." - Actuarial Practice Note, 'Actuarial Practices Relating to Preparing,?Reviewing, and Commenting on?Rate Filings Prepared in Accordance with?the Affordable Care Act', Premium Review Work Group of the American Academy of Actuaries (2015) RRPN_120315.pdf (actuary.org)
Projection of results consistent with ACA Rating Compliance: "We find that premiums for silver Marketplace plans would increase $1,040 per person on average. This premium increase would, on average, make silver plan premiums higher than those of gold plans (plans with 80 percent actuarial value)." -Linda J. Blumberg and Matthew Buettgens, Urban Institute (2016) The Implications of a Finding for the Plaintiffs in House v. Burwell (urban.org)
Concern regarding ACA rating non-compliance: “Health risk is not supposed to influence the rate spread between metal levels.
The other common concern that I have is the spread of rates between metal levels…I’m concerned about that based on last year’s filings. I have seen a widening of the metal levels that is concerning to me.
Some of the carriers aren’t widening their differences but some are, and so it might create an unfair competitive advantage.
If you look between individual and small group markets for the same carrier, you can see that sometimes there’s a difference in the spread which indicates that they are putting some adverse selection in their rates, because induced demand really is an entity unto itself regardless if it should be a small group product or an individual product.“
-Regulatory Actuary Kristi Bohn (2016) SOA Podcasts - Society of Actuaries: Health Section: Rate Reviews (libsyn.com)
Acknowledgment that single risk pool requirement should be followed and pooling of all enrollees is required: "The Affordable Care Act (ACA) requires that insurers use a single risk pool when developing premiums. The single risk pool incudes all ACA-compliant plans inside and outside of the marketplace/exchange within a state. In other words, insurers must pool all of their individual market enrollees together when setting the prices for their products. This means that the costs of the unhealthy enrollees are spread across all enrollees." -American Academy of Actuaries (2017) Risk Pooling: How Health Insurance in the Individual Market Works | American Academy of Actuaries (actuary.org)
Acknowledgment of non-compliant health status rating by metal levels in ACA marketplaces: “For gold plans in the marketplaces, the agencies project that gross premiums would be modestly lower under the policy because those plans would attract a larger share of healthier people who, under the baseline, would have bought silver plans. Under the baseline, gold plans tend to attract less healthy people who expect to have high health care expenditures, whereas silver plans attract healthier people as well. Federal risk-adjustment payments—which are made under the baseline and would be under the policy as well—aim to compensate insurers whose plans cover less healthy people, but the payments can address the risk only imperfectly. As a result, CBO and JCT anticipate that the greater share of healthy enrollees in gold plans under the policy would contribute to the modest reduction in premiums for those plans even though risk adjustment payments would be made.” -Congressional Budget Office, (2017) The Effects of Terminating Payments for Cost-Sharing Reductions (cbo.gov)
Presumption of ACA Rating Compliance after CSR Defunding, consistent with the Health and Human Services 2015 comments: "We can assume that some payers will respond to CSR defunding by significantly raising rates on their exchange silver plan premiums. For the purposes of this illustration, we have assumed that payers would price their silver plans using a weighted average of the 94 and 87 percent CSR plans—an actuarial value (AV) of roughly 91 percent." -Actuaries Dianna Welch?and?Kurt Giesa?(2017)
Risk Adjustment Modification reflective of ACA Rating Compliance: "Beginning for the 2018 benefit year, we intend to propose to apply the platinum metal tier risk adjustment model coefficients for the 87 percent and 94 percent cost-sharing reduction plan variants. For the risk adjustment transfer formula, we intend to propose considering the 87 percent and 94 percent silver plan variants (as well as the limited cost-sharing and zero cost-sharing variants) to have plan metal level actuarial values of 0.9 in order to account for the higher relative actuarial risk associated with these plans. We would also propose to apply the platinum level induced demand factor of 1.15 for these same variants in the transfer formula." -Health and Human Services (2017) Information on Risk Adjustment Methodology and Rate Filing Deadlines (cms.gov)
Affirmation that CSR Defunding resulted in an actuarial value?change and did not change the single risk pool requirement: “Issuers that have elected to distribute the CSR load on silver level plans only can make a plan level adjustment based on actuarial value and cost-sharing design of the plan related to loading.” -Department of Health and Human Services (2018) Offering Plans Not QHPs Without CSR Loading (cms.gov)
Permitted non-compliance: "We’re not going to enforce the law…but they can’t go too far. We’re not going to force carriers to lose money.” –Prominent state official (2019)
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Acknowledgment of non-compliant rating environment, Rating Compliance Advocacy and policy efficacy of ACA rating compliance: “Circumstances vary by state and carrier, but these national findings suggest possible market failures. The consequences are serious, raising premium costs and lowering coverage value for many premium-tax credit (PTC) beneficiaries by cutting PTC amounts…A relatively straightforward application of common-sense actuarial principles, with all carriers playing by the same rules, offers the prospect of making individual-market coverage substantially more affordable and stable. In much of the country, that would be a meaningful win for consumers, carriers, and markets.” -Stan Dorn, Families USA, Letter to State Insurance Regulators (2019)
Rating Compliance Advocacy: "Something else going on that I think goes really to the heart of the ACA's insurance reforms - the protection of people with pre-existing conditions and the prohibition of discrimination. When you charge premiums, you shouldn't be looking at the risk level of that individual consumer signing up for coverage. You should not be looking at the risk level of the people enrolled in a particular plan. You should be looking marketwide at what the risk level is."-Stan Dorn, Families USA (2020) Webinar: Improving Affordability and Coverage in the Individual Market - Families Usa
Professionalism Advocacy and Self-Regulation Privilege Considerations: "Governments may rely on a profession to regulate itself because of its specialized knowledge and understanding of standard practices,?provided that the self-regulation assures competent and ethical services...Speak up when questionable strategies are being considered, and speak often about the professional responsibilities of actuaries....By showing that the profession holds its members accountable for their professional and personal conduct, actuaries can help earn and maintain the trust of the public every day...For the U.S. actuarial profession to maintain its status as a self-regulated profession, every actuary must demonstrate the high standards for which the actuarial profession is known. Successful self-regulation imposes specific responsibilities on individual actuaries and on the profession as a whole. If you, as an actuary, do your work every day, you will continue to build and support the solid, long-standing reputation of the actuarial profession and our privilege to remain self-regulated." -'Self Regulation and the Actuarial Profession', American Academy of Actuaries (2020) SelfRegulation.pdf (actuary.org)
Strengthened Rating Compliance Enforcement: "The Commissioner may adopt rules designed to assure premium pricing that complies with the requirements in the federal act for modified community rating." -Colorado Legislation 10-16-107. Rate filing regulation - benefits ratio - rules.(2020) 2020a_215_signed.pdf (colorado.gov)
Rating Compliance Advocacy: "If you want to protect people with pre-existing conditions, you need to ensure:
1. No denial based on health.
2. Community rating.
3. Benefit requirements.
4. No pre-existing condition exclusions.
5. No annual or lifetime limits.
6. Subsidies to encourage healthy people enroll.
We’re going to hear a lot of candidates say they will protect people with pre-existing conditions. The question is whether they will regulate insurers sufficiently to make it a reality and provide subsidies to make coverage affordable and prevent premiums from skyrocketing" -Larry Levitt, KFF (2020) https://twitter.com/larry_levitt/status/1292109236424413185?s=20
Transparency Advocacy: "What we should learn from all this is to stop talking about ACA w/ catch phrase 'pre-ex conditions' & talk about its substance. People don't like pre-ex protections, they like subsidies that make such protections tolerable, regardless of what surveys say." -Actuary Greg Fann (2020) https://twitter.com/greg_fann/status/1291925952428040192?s=20
Health Equity Advocacy: "It’s also important to consider not just each of these questions in isolation, but also the combined effects of multiple factors—for instance, the interactions between risk pooling, risk adjustment, and premium rating factors. In what ways can the methods of pricing plan benefits, developing premiums, and paying plans contribute to health disparities related to access to coverage, coverage affordability, and health outcomes? In what ways can they help mitigate disparities?" -'Health Equity from an Actuarial Perspective', American Academy of Actuaries Health Equity Work Group (2021) Health_Equity_Discussion_Brief_3.21 (actuary.org)
Acknowledgment of non-compliant rating environment and advocacy of strengthened rating compliance enforcement: “Premium rate relationships are misaligned in the individual market in New Mexico, primarily due to various methodologies utilizing nonprescriptive development of rating factors. To ensure that ACA rules are being followed and a level regulatory playing field exists in the ACA individual market, OSI is prescribing pricing guidance to clarify rules and eliminate subjective variability in pricing factors and the use of other plan adjustments.” -New Mexico Office of the Superintendent of Insurance, (2021) OSI-2022-Rate-Guidance-Final-05282021.pdf (state.nm.us)
Advocacy for relaxed rating compliance, argument for policy efficacy of unenforced rating compliance, and related risk of enforced rating compliance and concerns about ACA rating rules' cross-subsidization impact: “If risk adjustment is not addressing disequilibrium, then pricing that differentiation is better than forcing rate spirals, insolvency, or risk selection...The impact of disequilibrium on insurance markets is not new. I don’t think we need to wait for more insolvency and death to realize selling at a loss only works if you sell the other product at enough of a profit to offset the loss.” -Gabriel McGlamery, Health Policy Person (2021)?https://twitter.com/jgmcglamery/status/1395515740241993736?s=20
Refutation of fears of enforced rating compliance: “The prophesied disaster did not happen in states that asked all insurers to follow the law. Consumer costs fell and more customers bought insurance. People shifted from lower-value bronze and silver to higher-value gold, which kept them in the market.” -Stan Dorn, Families USA (2021) https://twitter.com/standorn/status/1395558752250646531?s=20
Non-compliant rating environment, acknowledgment of resulting consumer harm and ACA rating compliance advocacy:?“Because we have some rates that are misaligned, premiums are misaligned among the different metal tiers (platinum, gold, silver, bronze), it’s resulting in increasing costs for plans other than silver plans.“ -Texas Senator Nathan Johnson (author of ACA rating compliance legislation) in Legislative Session (2021) Senate Committee on Business & Commerce - Apr 13th, 2021 (granicus.com)
Acknowledgment of non-compliant rating environment, recognition of resulting consumer harm and ACA rating compliance advocacy: “There is an analysis that was done by actuaries we hired that showed that silver level premiums are underpriced in the Texas market, and if they were priced appropriately relative to the bronze and the gold plans for the value that they actually offer, that would increase the amount of federal subsidies coming into Texas.“ –Charles Miller, Texas 2036 Senior Policy Advisor in Legislative Session, in support of ACA rating compliance legislation (2021) Senate Committee on Business & Commerce - Apr 13th, 2021 (granicus.com)
Non-compliant rating environment and rating compliance advocacy: “TDI (Texas Department of Insurance) should develop and issue clear guidance to accompany the rule that directs health plans offering products in the individual ACA market to use appropriate and consistent rating factors and assumptions, as other states have. Useful state models include successfully implemented rate review provisions in?Pennsylvania?and?New Mexico.” Texas 2036 (2021) The Fruits of Objective Actuarial Communication - The Actuary Magazine
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Single risk pool deviation advocacy based on metal level claims experience: “While the 87% and 94% variants do have higher actuarial value, they also have significantly lower risk transfer payables compared to the other CSR variants and Bronze plans. Because BHC anticipates enrolling a large portion of CSR members within those variants, the total silver CSR induced demand factor is projected to be lower than the bronze factor.” -New Market Entrant response to Actuarial Rate Review objection question (2021) Microsoft PowerPoint - MAAC Presentation.pptx - Read-Only (squarespace.com)
Single risk pool deviation advocacy based on metal level claims experience: "Members in silver plans behave fundamentally different from members who choose gold metal level. Therefore, even though CSR variant plans have richer benefit cost structure, members from this plan will be very different from the gold from the gold population. Thus, the silver induced demand factor is lower than the gold induced demand factor...Despite similar plan design and benefits, induced demand may not be alike. CSR plan's eligibility depends on income level and member's sensitivity to cost sharing is likely to vary with member's income." -Existing Market Issuer responses to Actuarial Rate Review objection questions (2021) Microsoft PowerPoint - MAAC Presentation.pptx - Read-Only (squarespace.com)
Single risk pool deviation advocacy based on metal level claims experience: "While the AV may provide a very general sense of the relative value of a specific plan, we do not use it for the development of plan level rates. Instead, modeled benefit relativities and standard utilization assumptions, as well as post risk adjustment and reinsurance experience are used to set plan level rating factors. Our approach incorporates actual experience by metal level in the determination of the utilization adjustment among plans in the Individual marketplace. The experience is reviewed after applying the impact of risk adjustment and reinsurance."
-Existing Market Issuer response to Actuarial Rate Review objection question (2021) Microsoft PowerPoint - MAAC Presentation.pptx - Read-Only (squarespace.com)
Purported harm of ACA rating compliance, advocacy of state laws overriding ACA requirements, advocacy of single risk pool deviation, characterization of ACA rating compliance as 'forced increase in subsidies' and advocacy of lower-value plans being priced higher than higher-value plans to discourage enrollment in lower-value plans: Enforced rating compliance actions “have an adverse impact on the public and on the actuarial community, and result in: ‘Excessive premiums, which conflict with the laws in most states and with the ASOPs’ and ‘Excessive payments from the federal government due to forced increases in subsidies’…some consumers may be able to purchase gold plans for zero net premiums due to the higher federal premium subsidy that would be available. This may encourage consumers who are eligible for cost sharing subsidies (which are available only on silver plans) to choose comparatively leaner gold plans due to the zero premiums and then are faced with unexpected out of pocket expenses.” -Actuary (2021)
Single Risk Pool Deviation Advocacy: "Rate regulation is really loose...We need to be sure we compete with Metalball at the right metal levels...We need to change our premium slope to align with Metalball Health...The people we answer to know about the actuarial value calculator, they know about medical loss ratios, they know about metal level profitability, they support the ACA and everything it stands for. They are not bad people and they want to do the right thing, but they have never heard of the Unified Rate Review instructions. That's an actuarial problem that we can deal with ourselves on the back end. I can't go to them with a bad business decision with a URR rationale...Experience rating on a post-risk adjustment basis is not community rating per se, but it's also not directly rating for health status which it was what the ACA was trying to avoid...Some states have passed their own laws and implemented specific ACA enforcement guidelines which they would not be doing if strict compliance already reflected actuarial practice. In states without such specific prescription, it's a Metalball environment where premiums are scrambled away from pure actuarial value to reflect financial results after risk adjustment. Until the state tells us otherwise, we need to align our premiums with competitors in the marketplace." -Award Winning Professionalism Session at SOA ImpACT Conference (2021) https://cdn-https://cdn-files.soa.org/pd/mtg20211900virtual/pd_2021_10_impact_session_14c.mp4
?ACA Rating Compliance, Professionalism Advocacy, and Self-Regulation Considerations: "We have rules that are not open to interpretation...Our orders contain no ambiguity. Our premium slope is developed based on the ACA's single risk pool guidelines which require premium rates to vary in accordance with the actuarial value of their benefits...This kind of recklessness is expressly why my actuarial certification as a pricing actuary is required. It requires my independent statement that the rates comply with ACA rating rules...Might I remind you that the URR instructions mirror the exact language in the law and require that plan premium differences reflect the actuarial value and cost-sharing design of the plan, not the populations expected to enroll in each plan...You’re wanting to attract certain enrollees, those with incomes which provide financial incentives to choose silver plans and overcharging everyone else. This is targeting enrollment of a specific population. That is contrary to the ACA both in spirit and the letter of the law, and it doesn't represent the profession well...I don't need a state to spell out for me what the ACA rules are. The law is clear. We are a self-regulating profession. I'm proud to be an actuary. It's my professional duty to do what is right, not what I can get away with until regulators step in and stop me."
-Award Winning Professionalism Session at SOA ImpACT Conference (2021) https://cdn-https://cdn-files.soa.org/pd/mtg20211900virtual/pd_2021_10_impact_session_14c.mp4
Single Risk Pool Compliance, Professionalism and Health Equity Advocacy: "Differences in metal level premiums are clearly the result of actuaries taking liberty to apply adjustments that are not allowed, for the purpose of mitigating risk. The implication of these adjustments is a gross misalignment of premium relationships based on a benefit generosity assessment, with silver premiums being lower and other metal level premiums being higher. This has resulted in an unintended dampening of federal premium subsidies in ACA marketplaces. From a consumer equity standpoint, the population group between 200% to 400% of FPL is most adversely impacted by premium misalignment. From a broader concern, a marketplace of misaligned premiums exposes reputation risk for the actuarial profession...Regarding premium pricing, the first serious step toward this mission is reversing the inequity which actuaries have helped create." -Actuary Greg Fann, Response Letter to the American Academy of Actuaries Health Equity Workgroup (2022) (2) Health Equity and Actuaries: Our Fundamental Responsibility | LinkedIn
Temporary single risk pool deviation advocacy and acknowledgment of market harm resulting from President Biden's deviation from ACA rules: While not a legal deviation per se, President Biden departed from the integrity of the law’s core framework of a limited annual open enrollment period soon after taking office. "The state of the exchanges is getting fragile again. The Biden administration had opened the enrollment window in 2021 in a significant way that we know created industry losses. It might make sense to do some of these types of regulatory inventions, to create better deals for consumers in a market that’s more stable…There are only so many disruptions to the market that can you create." -Nick Zornosa, CIGNA Business Finance Officer (2022), SOA Podcasts - Society of Actuaries: Health Section: Heavy Metal Music on Apple Podcasts
Acknowledgment of ACA rules creating cross-subsidization concerns and Single Risk Pool Deviation Advocacy: “The difficulty I am having though is that it is precisely that risk adjustment is imperfect that you have to have experience rating. Without experience rating (let’s say on metal slopes) then certain plans will collect an aggregation of favorable or unfavorable risk post RA. If plans cannot rate for that on a post RA basis, they have no way of addressing the deficiencies or excesses they have accumulated and they either are uncompetitive, exit or have to pay refunds. So maybe that is what you are saying just in another way. In other words, we are doing the former so let’s just call it that. The latter produces the situation I described and I've never been of the opinion that pure, strict community rating or modified community rating is good for the health of markets. I think the system we have may be the right balance. I think improvements to the accuracy of RA are also important in the future to bridge this gap; the more accurate RA the better off the markets will function.” -Actuary Fritz Busch (2022) https://www.dhirubhai.net/posts/greg-fann-37a02227_actuaries-and-other-interested-stakeholders-activity-6841462575419539456-Y2m-/
Acknowledgment of inherent risk adjustment limitations and Single Risk Pool Deviation Advocacy: “Risk adjustment is imperfect in many ways (ex. the same factors are used for both Individual and Small Group, the AV calculator gets neglected and recycled, IDFs don’t appear to have reviewed or altered since 2014, etc.) and to ignore that feels like inadequate pricing, absent a regulatory requirement to pretend it’s perfect.
Even setting aside the accuracy of risk adjustment, I think there’s a separate argument to be made that, especially in the Individual market, induced demand is not solely a function of benefits but also the incremental price people pay to get those benefits. Lowering the buy-up from Silver to Gold could also reduce the need for people to ‘get their money’s worth’ from the buy-up (pretending we can fully disconnect that from health status) and reduce the induced demand on the richer benefits.” -Actuary Kevin Hurley (2022) https://www.dhirubhai.net/posts/greg-fann-37a02227_actuaries-and-other-interested-stakeholders-activity-6841462575419539456-Y2m-/
Single risk pool and professionalism advocacy: “I don't like the idea of actuaries being put in the position of assessing how well a law works and being tasked with subjectively determining the resulting degree of variance that is allowed and warranted. When we do that, we start with varied interpretations and regress to the largest interpreted deviancy.” -Actuary Greg Fann (2022) https://www.dhirubhai.net/posts/greg-fann-37a02227_actuaries-and-other-interested-stakeholders-activity-6841462575419539456-Y2m-/
Disclosure: While these comments are on their own behalf, Mr. Busch and Mr. Hurley are members of the American Academy of Actuaries Individual and Small Group Markets Committee and their opinions may also be included in the committee’s comments.
ACA Rating Compliance Advocacy: "This Act is intended to enable the State to study possible misalignment in the Illinois health insurance marketplace that would produce increased premium or cost sharing for some consumers and drive some consumers into lower value qualified health plans or out of the marketplace altogether." -Illinois Legislation, Amendment to House Bill 836 (2022) 10200HB0836sam001 (ilga.gov)
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Walk back of ACA Rating Compliance Advocacy: Retraction of "Clarification that plan level adjustments should follow single risk pool guidelines and should not reflect the enrollees specific to the plan or metal level" from the 2023 Unified Rate Review Instructions, Centers for Medicare & Medicaid Services (2022) 2023 PY URR Instructions (cms.gov)
Single Risk Pool Deviation Advocacy: "Actuaries are typically required to follow laws, regulations, and guidance provided by government authorities. However, as financial stewards of our public and private insurance systems, actuaries aim to produce accurate estimates of revenues and liabilities associated with various risks. With regard to CSR loads, this obligation requires actuaries to use actuarially sound methods when such methods are available." -American Academy of Actuaries Individual & Small Group Markets Committee (2022) Academy_CSR_Load_Letter_09.08.22 (actuary.org)
Acknowledgment of rating noncompliance, ACA Rating Compliance Advocacy and policy efficacy argument: “We believe that by clarifying existing statutory protections — particularly, the ACA’s single risk pool requirement — and enforcing a consistent adherence by insurers to those rules, the Department of Health and Human Services (HHS or the Department) can significantly reduce the burdens of high cost-sharing while also discouraging gaming in the premium rate-setting process.
The single risk pool requirement is a core protection of the ACA, designed to prevent discrimination in premium rate-setting. It does this, in part, by prohibiting insurers from adjusting plan-level premiums except as needed to account for plan-specific differences, including differences in actuarial values and cost-sharing designs. This means, among other things, that more generous plans should have higher premiums than less generous ones, and insurers cannot adjust premiums based on assumptions about the kinds of people it expects will enroll in each type of plan.
Nevertheless, it appears broadly to be the case that premium rate-setting in the individual market has strayed from these rules. The upshot is that plan premiums and plan benefits are often badly misaligned: the premium price of a plan routinely does not reflect the value of the coverage being offered. Silver plans are aggressively underpriced, while gold and bronze plans cost more than they should — more than is actuarially justified or permitted by law.” -Letter to HHS, Partnership to Protect Coverage (2022)
Acknowledgment of President Biden potentially deviating from ACA rules without concern of legal challenge: “This is the kind of issue where even if it turns out that what they have done is totally illegal I think it's actually pretty hard to sue and fix it because generally speaking our legal system requires that if you want to sue to overturn a law you have to demonstrate that you have been harmed by that law and I think in this case it's very hard to understand who is the harmed party here the person basically who is harmed by this is the taxpayer because what's going to happen is that more people are going to get this subsidized coverage who might have paid the full price themselves before or whose employer might have paid a substantial share of their coverage price before but you don't really get to sue as a taxpayer in general the courts don't usually consider those to be valid grounds for lawsuits and so I think there is an element of like ‘we dare you’ within this strategy.” -Margot Sanger-Katz, New York Times (2022) https://twitter.com/KHNews/status/1580666752283074560?s=20
How can you not be romantic about ACA rating compliance advocacy? “If ACA Rate Stabilization was available, I’d marry it. 2023 Bronze and Gold premiums are down in Texas! Subsidies went up. Open Enrollment starts Nov 1! Let’s go!” -Jenny Chumbley Hogue, Prominent Texas Insurance Broker (2022) https://twitter.com/kgmom219/status/1585253660681916417?s=20
ACA Rating Compliance Advocacy: “First NM, now TX. How weird. When you make insurers follow the ACA's single risk pool rule, life gets a lot better for a lot of people. Who knew?” -Stan Dorn, Families USA (2022) https://twitter.com/standorn/status/1585467093474021378?s=20
In response to “You’re promoting violating single risk pool compliance as solution rather than improving risk adjustment methodology”, https://twitter.com/greg_fann/status/1585819003787755520?s=20
Policy efficacy of unenforced rating compliance and risk of enforced rating compliance: “I think *regulators* have a responsibility to choose among enforcement strategies based at least in part on their consequences. In my view, risk adjustment is the policy tool that is most likely to ensure single risk pool compliance, with least risk of unintended consequences.” -Matt Fiedler, Senior Fellow, USC-Brookings Schaeffer Initiative for Health Policy, Brookings Institution. Former Chief Economist for Council of Economic Advisers (2022) https://twitter.com/MattAFiedler/status/1585986984740196352?s=20
ACA Rating Compliance and Health Equity Advocacy: “Good policy outcomes cannot justify federal legal violations. But in this case, the law and the good align:?strictly enforcing ACA pricing requirements can yield significant savings for consumers, especially in communities of color.?To prevent gaming, regulators should require all carriers to estimate market-wide demand using the same population-wide relationships between AV and demand, such as the CCIIO-approved ratios used in New Mexico and Texas.” -Stan Dorn and Timothy Jost (2023) ACA Metal-Tier Mispricing: Improving Affordability By Solving An Actuarial Mystery | Health Affairs
ACA Rating Compliance and Health Equity Advocacy: “In Illinois, racial and ethnic disparities in health insurance coverage and access are reflected in people of color being more likely to be uninsured and more likely to go without care due to cost. In other states, premium realignment has been a helpful tool for lowering cost sharing for low income people. Illinois is currently considering a premium realignment strategy -- which we see as a race equity and health equity issue to bring out-of-pocket costs down for low income people and people of color.” -Stephani Becker, Associate Director of Healthcare Justice,?Shriver Center on Poverty Law (2022) Health Equity and Actuaries: Our Fundamental Responsibility | LinkedIn
ACA Rating Compliance and Professionalism Advocacy: “Given this widespread violation of ACA law, states have enacted regulations?that seek to bring carriers into compliance to preserve the single risk pool requirements which in the end positively impacts consumers, the intended beneficiaries of the single risk pool requirements….The AAA letter may serve to create more confusion and could influence actuaries to violate ASOP 12, Section 3.3.3 by asserting an ability to use characteristics of the population expected to enroll in a plan when developing actuarial value and cost sharing adjustments to the market adjusted index rate. This is a serious concern that should be addressed by the American Academy of Actuaries. As a concerned actuary I am requesting that the AAA letter be revised to include a direct discussion of the applicable federal law and related regulations or be retracted entirely.” -Actuary Daniel Cruz Response Letter to the American Academy of Actuaries Letter - CSR Loading | LinkedIn?(2023)
Self-Regulation Considerations: "Daniel Cruz on the actuarial profession – a systemic failure of self-regulation?" -Descant Podcast, Actuaries Gayle Brekke and Daniel Cruz (2023) https://www.descant.info/podcast/episode/7aa219f5/daniel-cruz-on-the-actuarial-profession-a-systemic-failure-of-self-regulation
I suspect you heard both agreeable and disagreeable perspectives and some where you don't have strong opinions. More importantly, I suspect this compendium brought a better understanding to a subject which has been mischaracterized by agenda-driven comments more prominent in the public domain. Regardless of your personal viewpoints, I hope these comments provide valuable insights about what others have said about ACA rating compliance.
The 2024 ACA Rating Environment
Following their support of ACA rating compliance advocacy, New Mexico and Texas have joined other states in strengthened rating compliance enforcement through prescriptive state rules designed to enforce compliance with federal law. Unfortunately, these state compliance actions have been mischaracterized and maligned as “prioritizing affordability of subsidized exchange coverage over actuarial principles—artificially increasing the cost of unsubsidized silver coverage on the exchange and eroding the actuarial soundness of premium rates”.
On the contrary, whether you are a supporter or detractor of ACA rating compliance, you should acknowledge that these actions reinforcing the single risk pool requirement are intended to specifically prioritize the law’s mandate that plan level adjustments are “based only on the following actuarially justified?plan-specific factors…” and directly prohibit the use of artificial factors and methodology apart from prescribed ACA allowances. This recognition had been readily accepted among advocates of relaxed ACA compliance; their arguments were centered on good policy outcomes of unenforced law, not novel arguments (12 years after law was effective) intended to interpret current rating practices as being in alignment with the law's requirements. This public disparagement of state's enforcing federal compliance has resulted in other states delaying their own compliance action and awaiting the federal fireworks show with the rest of us.
From an actuarial perspective, the fireworks show may impact the transparency of this necessary dialogue. As I said last year, “many actuaries wish to preserve anonymity due to ongoing employment/consulting relationships and necessarily compromised actuarial practices which raise professionalism unease, but their dispirited voices should be heard”. While we like to pride ourselves on our independence, the practical reality is that many of us feel constrained (or directly told not to talk about ACA rating compliance) by our professional relationships and more recently through proclamations about 'obligations' from seemingly authoritative actuarial organizations contrary to their professional beliefs and convictions.
Clarity from the federal government that 'plan level adjustments should follow single risk pool guidelines' not succeeded by a quick retraction might be the catalyst which unleashes the chains of quiet, concerned voices who begin to speak publicly and boldly of their long-held support of ACA rating compliance. The ACA fireworks show could very well turn out to be a dud, but then again, HHS might light up the sky and it could be Independence Day for health actuaries.