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  #61  
Old 01-15-2015, 09:57 AM
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I think "people were sicker than expected" is being taken as equivalent to "the pricing assumptions for incidence and severity were too low and the actuary failed to test their sensitivity."

Underpricing, either way.
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  #62  
Old 01-15-2015, 10:04 AM
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I think "people were sicker than expected" is being taken as equivalent to "the pricing assumptions for incidence and severity were too low and the actuary failed to test their sensitivity."

Underpricing, either way.
Agreed. If all carriers ended up underwater, then okay, I can see how they were caught off guard. However, I don't think you get to set rates markedly lower than everyone else and claim the population was too sick. In that case the onus is on you.

As for the gov't funding, if they had priced sufficiently, they wouldn't have been getting a risk corridor payment anyhow.

So to recap, if they had priced sufficiently, none of those things would have been a problem (and #2 would have been awesome).

I don't mean to assign blame exactly (well, maybe a little), I'm just pointing out that all three of those things that created the "perfect storm" all had the exact same, straightforward solution.
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Last edited by Locrian; 01-15-2015 at 10:07 AM.. Reason: Tried to make that mess legible, with only some success
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  #63  
Old 01-15-2015, 10:29 AM
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I get how 2) gets caused by underpricing, but I don't see how high enrollment is a problem. Maybe operationally if they didn't have enough people working the phones or something...am I close?
For COOPs, the funds they asked for from the govt were based on a certain enrollment level. If they received more enrollment than expected then they were more likely to not hit their target RBC levels. Even if they priced accurately (which it appears they didn't).
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  #64  
Old 01-15-2015, 10:32 AM
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On the question of whether the actuary was at fault, you would need to know what advice the actuary gave and whether management listened to that advice. Contrary to my comment above, the actuary might have done the right stuff and then been overruled.

I wonder if the ABCD will do an investigation in this case.
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  #65  
Old 01-15-2015, 10:50 AM
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I get how 2) gets caused by underpricing, but I don't see how high enrollment is a problem. Maybe operationally if they didn't have enough people working the phones or something...am I close?
To clarify, we probably agree that high enrollment isn't a problem, so long as you priced correctly. It reduces variability and increases market share and negotiating leverage.

NPR posed it as a problem because having more sick people whose claims you can't pay is worse than having fewer sick people whose claims you can't pay. So they were losing a dollar a widget and then made it up in volume. . .
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  #66  
Old 01-15-2015, 11:56 AM
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Agreed. If all carriers ended up underwater, then okay, I can see how they were caught off guard. However, I don't think you get to set rates markedly lower than everyone else and claim the population was too sick. In that case the onus is on you.

As for the gov't funding, if they had priced sufficiently, they wouldn't have been getting a risk corridor payment anyhow.

So to recap, if they had priced sufficiently, none of those things would have been a problem (and #2 would have been awesome).

I don't mean to assign blame exactly (well, maybe a little), I'm just pointing out that all three of those things that created the "perfect storm" all had the exact same, straightforward solution.
The government changed the rules significantly after rates were already filed by allowing the transitional policies. If the actuaries did their job correctly, they made the assumption that a large portion of the non-GF undewritten market would be part of the 2014 ACA risk pool. When the government allowed transitional policies, this made their previously reasonable assumption completely unreasonable, and caused the policies to be vastly underpriced.

The fact that the other carriers rates were adequate after the the government changed the rules means they were extremely convservative in their assumptions and would have been overpriced had the law not changed.

So yeah, the co-op got burned because as a brand new entrant selling only in the ACA marketplace, they couldn't afford to be extremely conservative to guard against the political risk surrounding ACA. Or because their CEO was a pro-government optimist who wanted to believe the law would be implemented as written. Regardless, I don't think the implications that the actuaries violated standards of practice in setting these rates being made in this thread are remotely appropriate. The posters doing this should delete their posts and/or apologize IMO.
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  #67  
Old 01-15-2015, 12:12 PM
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I think "people were sicker than expected" is being taken as equivalent to "the pricing assumptions for incidence and severity were too low and the actuary failed to test their sensitivity."

Underpricing, either way.
It's also important to note that HHS retroactively adjusted the policy regarding transitional ("grandmothered") plans.

Those likely to keep transitional policies are those who were getting good (underwritten) rates in the pre-ACA market, and so the effect of the policy was that the morbidity level changed significantly (in the "unhealthy" direction) several months after rates were filed.

Somewhat related:
http://us.milliman.com/uploadedFiles...eled-plans.pdf

It's easy to say that actuaries should have anticipated everything that the government could have possibly done retroactively, but since the ACA was implemented in 2010, HHS has stretched the boundaries of "could possibly do" considerably. Other than staying out of the market entirely (which some carriers have done), you have to make your best estimate of assumptions and price something. Yes, market-level morbidity was the place where most actuaries in each market came to different conclusions (typically based on limited data).
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Last edited by DoctorNo; 01-15-2015 at 12:17 PM..
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  #68  
Old 01-15-2015, 12:12 PM
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And to be clear, the blame is on the state insurance commissioner. The federal governement's transitional rules were pure political pandering. Any competant insurance commissioner should have understood that allowing transitional policies in their state would undermine the marketplace and the assumptions upon which carriers priced, and should have disallowed it. The commissioners in the state's where I do business all did...
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  #69  
Old 01-15-2015, 12:41 PM
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Regardless, I don't think the implications that the actuaries violated standards of practice in setting these rates being made in this thread are remotely appropriate. The posters doing this should delete their posts and/or apologize IMO.
Well, I don't have any reason to believe anyone violated SOP, and haven't suggested anyone did. It's entirely possible to follow ASOPs and still be underpriced.

However, if others want to discuss that possiblity, they certainly should be allowed to, and I don't see why they should delete posts or apologize for bringing it up.
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  #70  
Old 01-15-2015, 12:52 PM
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There could easily be more to it than paid to allowed ratio, but my point wasn't about what techniques you would use to determine if a rate was high/low/adequate/inadequate/tasty.

It was that even if techniques to make that determination were known to the regulators, the volume of new filings flooding various DOIs could easily have left them overwhelmed, and then doing just cursory evaluations, checking 3:1 age rating and other simple stuff.
I agree with the bold part. Unless the DOI actuaries have significant industrial experience, they would not be able to identify the underpricing.
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