ACA pricing during COVID uncertainty

Vermont’s insurers filed their initial rates on Monday, May 11. Blue Cross and Blue Shield is asking for a 6.3% average increase.  MVP Health wants an average of a 7.3% increase.  Those two are fairly tightly clustered in the initial asks.  I was more curious about how they dealt with COVID.

MVP makes a lot of assumptions that are facially plausible:

Line 17- Adjustment for COVID-19 Immunization Cost
MVP is assuming that a vaccine to prevent the novel coronavirus (COVID-19) will be tested and widely available in 2021. To account for the costs an immunization would add to claim cost, MVP is assuming that an immunization would be covered in full at the cost of $75 per dose. MVP is also assuming that 80% of the population would obtain the vaccine (based on an analysis published by Wakely Consulting), which corresponds to a PMPM claim cost of $5.00 PMPM ($75 per dose times 80% utilization PMPY divided by 12 months). This adjustment is reflected on line 17 of Exhibit 3.

Line 18- Adjustment for COVID-19 Pent-up Demand
As a result of the COVID-19 pandemic, elective surgeries and associated services have been postponed for effectively all of MVP’s service area. As of the time of the filing, both Vermont and New Hampshire have announced that they are allowing the ramp up of elective procedures again. Therefore, MVP is assuming that 2 months of elective surgeries have been canceled in 2020.

MVP analyzed its entire commercial population for 2019 and found that the claim cost related to elective services was $45.09 PMPM. To value what the delay of these elective services will be worth in 2021, MVP made the following assumptions:

• – Resumption of a normal level of elective services will begin in mid-May 2020
• – Twenty percent (20%) of elective services deferred during the 2 months will be eliminated
• – In order to recoup lost revenue, beginning in August 2020 providers will perform 110% of their prior elective service volume until deferred services were fully performed.

These assumptions combine to add $4.51 PMPM in claim cost for the time period of January to April 2021 (at which point all deferred services will be made up and providers will return to normal utilization levels). MVP is reflecting $1.50 PMPM ($4.51 PMPM for 4 months, converted to an annual PMPM) in this filing to account for the increased utilization.

To translate this from actuary speak, MVP thinks that COVID is going to cost them about $10 per member per month (PMPM) in 2021. That is facially not bizarre!

Now let’s take a look at what Blue Cross and Blue Shield are thinking:

The various impacts of the COVID-19 pandemic will impact 2021 costs, and they will do so in both an upward and a downward direction. Based on information currently available, it is difficult to so much as predict an overall directional impact, particularly because future government actions will drive the timing and magnitude of many of the above considerations.
We believe that it is entirely reasonable to forecast that the ongoing pandemic will increase 2021 claims costs beyond the levels projected within this filing. However, because of the margin
guidance provided in Attachment C (as discussed in section 3.8.7.2), the addition of a COVID related factor of any magnitude would be offset by a reduction in CTR of equal and opposite
magnitude, resulting in no change to the premiums presented herein. Furthermore, based on information known at the time of filing, we see no reason to believe that the best estimate of
the pandemic impact is a decrease in 2021 claims costs. We therefore include a COVID-19 impact of zero within the 2021 premium rates.

BCBS-VT is attributing no part of their rate increase to COVID. They expect COVID to have no material impact (up or down) on premiums for 2021. And it is not a crazy assumption.

What we are seeing is two sets of actuaries looking at an incredible amount of known unknowns and probably several unknown unknowns and making good faith guesses (they call them projections as that justifies their hourly rate). BCBS-VT is systemically making a slightly more optimistic projection than MVP. BCBS could be right, they could be wrong. Given how ACA subsidies are structured, BCBS-VT optimism is giving them a slight pricing advantage and thus enrollment gain compared to a universe where there is a mandated set of uniform assumptions or a universe where the BCBS actuaries were as pessmistic as the MVP actuaries.

$10 Per Member Per Month is real money if BCBS is wrong and MVP is right. But it is not lose the company wrong.

I expect that more information will emerge over the summer and one way or another, the COVID rate setting assumption will converge to a closer level of optimism or pessimism.