 Cross projects that it'll get 16.6 million back in tax refunds from the federal government in 2019, right, late 2019, right? Yes. Okay, and then another 7.9 million in 2020, right? We're just more familiar with the numbers than I am, but yes, that sounds great. Okay, and another 3.6 million in 2021, right? Yes. And another 2.8 million in 2022. Right. Okay, could you turn to page exhibit 5 in your rate filing, which is page 16 of the rate filing, page 80 of the PDF? I'm there. Okay. Could you tell the board where, and that's the index rate calculation for 2019. Yes, that's great. Could you tell the board there where on that whole page where they calculate the index rate? Where is the 16.6 million dollars for 2019? I can't tell you that because it's not part of the index rate. CTR is part of the adjustments that are made subsequently to the buildup of the index rate. So when you say CTR, I understand CTR is part of the adjustments. Yep. So, and don't dispute that, but then what, any relationship does that, does the CTR have to the 16.6 million that you'll get in 2019? Late 2019. I can answer that the CTR, as Ruth testified, was reduced from 2% to 1.5% to reflect tax reform. To reflect that 16.6 million? Well, it does not reflect the 16.6 million because we haven't received it yet. Okay. Well, could you turn to the unified rate review temple? These were just page 48 of TVI. Almost a disaster. We're there? We're there. Okay. And so you're saying that the 16.6 million, I believe you said that you reduced your CTR from 2.0 to 1.5 based on the change in the tax laws, based on the benefit that you received by the tax laws. We, management's direction, we reduced our CTR from 2% to 1.5% management rotating memo that was included as part of our filing that addresses a number of issues including the AM&T credits. Okay. Could you look then at the line? It's about 60% away down the page and pretty small print that says profit and risk load. Yes. You see that? Okay. And then across from that, it says profit and risk load is equal to 1.60%. You see that? Yes. Okay. And by the way, what you guys call CTR is what the federal government calls profit and risk load, right? Well, no, it's not profit. It's contributions to policy order reserves. Okay. I'm not interested in what it is or isn't. I'm just saying what I want to make clear is what the federal government characterizes there as profit and risk load is what you characterize as contribution to reserves. That's where we put our CTR in this federal template. Yes. Say it again? That's where we put our CTR in this federal template. Yes. In profit. Excuse me. You're talking over each other, so please start your question again. Sorry. You put your CTR in profit and risk load in the URRT. Correct. That's correct. Okay. And so that profit and risk load equals the 1.5 that you characterize as a contribution to reserves plus 0.1 verbatim debt. Correct. Okay. So that's equal to how much in dollars? That 1.5 or 1.6 profit and risk load is equal to how much in dollars? The projected period in total on the URRT is $5.9 million. Okay. So that 1.5%, so that means that a point is how much? A point of CTR? A point is around a little shy of $4 million. Okay. So a point is a little shy of $4 million. So the Trump tax bill gives you more than $16 million in 2019 alone. But you're reducing because of that $16 million. You're reducing your CTR only from 2 to 1.5, which is just $2 million. Aren't you? Let me be specific. We're reducing our contribution to reserves from 2% to 1.5% to reflect the fact that moving forward, the AMT has been abolished and we will no longer pay 20% federal taxes. You will note that a reduction of 2% to 1.5% is a 25% reduction. Our tax rate was 20%. So based on management guidance, we were produced from 2 to 1.5% because of our change of our tax status. The $16 million that we will receive in 2019, who's green testified that when that money comes in, we will use it for a number of things, including re-establishing our reserves for the defunding of CSR. We will take a look at where our reserves are at that time, and if they are adequately within our target range, we will provide additional rate relief to Vermonters at that time. Then you're saying that the $16 million they could get in refunds, you're not reflecting that at all in the 2019 rates, but rather you're saving it for a rainy day. You'll decide what to do with it in the future, but you're not reflecting that in any way in this filing. If I can answer that question. If you don't mind my question, Mr. Schultz. One of the things I would like to point out, we didn't choose and discuss this panel discussion because not every person on this panel will have the correct answer. So while you may direct this to Mr. Schultz, if he does not have the answer, if you choose, we can maybe get that answer from another witness and it would be more efficient. We tried to do this for efficiency, and I just want to remind you that there are some answers that you may not get from the person you choose, but you may get the answer elsewhere on the panel, and we have discussed that. So please proceed. As the answer I have, I believe Mr. Schultz was qualified to provide that answer, but if he believes it's not, he's not unhappy. Let's try the question again and we'll see. Do you mind me saying the question? Mr. Schultz, do I understand you correctly to say that the $16.6 million that Blue Cross will receive in 2019 is not reflected in the rate for 2019? As the actuary who prepared this filing, I received a memorandum from senior management instructing me to file a 1.5% contribution to reserves for 2019. That memorandum discusses a number of issues, including the ANP credit. So the decision to file a 1.5% was not mine, and I believe Ms. Green would be able to give you more details about that decision if you carry the record question to her. Yes, I know, but before I get to that, I just want to make sure that you, as the actuary then, are assuring me that the $16.6 million is nowhere to be found. That is, the $16.6 million that you will receive as a result of the contract until 2019 is nowhere reflected in your rate filing. I will reiterate that it was part of the management process in considering what CTR to file for this rate filing and what's part of the consideration. Excuse me, can I just say yes or no on that? Was that included in the filing? I'm trying to follow this also. Mr. Angoff seems to be implying that he should be able to find a line item that says negative $16 million. We won't find that line item, but the ANP credits were considered in deciding what CTR to file in this filing. Well, I would like to know, is the $16 million included in this rate for the year? And if it's more appropriate that Ms. Green answers that, I will direct it, but is it yes or no, I would be interested in hearing that. I would like to answer, if I may, we testified that our CTR philosophy takes a long-term view on what the right CTR is to sustain reserves over time given fluctuations. We outlined that in pages 180 to 182 in the rate filing. Paul is correct that the move from 2% to 1.5% was due to no longer being subject to corporate income tax. The AMT credit, should it come to us in late 2019, is projected at this point in time to be $16 million. Our guidance to Paul was to include a long, stick with our long-term CTR assumption of 1.5% given that there are a lot of, there's a lot of uncertainty and volatility in the federal environment right now, some which are reducing our reserves and the AMT, which when it gets to us will increase reserves. So in light of all of that, we recommended a 1.5% consistent with our long-term assumption. We didn't increase when we lost the CSR funding and we didn't decrease because of the estimated $16 million that we might receive in late 2019. So the $16 million makes it more likely that in the future you'd be able to prosper with a 1.5 rather than a 2. Right. Very good. And we agreed on what we, Mr. Schultz, that a point of what you all call CTR and what the federal government calls profit, profit, is worth about $4 million. Yes. By the way, either Mr. Schultz or Ms. Green, do you know how this provision got into the law, that is how the provision that gives Blue Cross this refund got into the law? No. And could you explain for the board what the AMT is, either one of you? So you've shared with the board when the tax law change became known of some of the background, but it goes back to laws that are in place, tax laws that are in place for Blue's plans and there's special provision for our tax provision. And if you met certain requirements, you didn't pay any federal income taxes, but if you did, you'd have to pay taxes under this alternative minimum tax. And so Blue Cross was shown for months and many years did pay corporate federal income taxes under the AMT law. Okay. And are there other Blue Cross plans in the country that also get this benefit, do you know? There are my understandings that some do, some don't. In order to have to have paid taxes in the past, there's a threshold that tests whether or not Blue's plan has excessive reserves. And if they do, then they are required to pay regular corporate income taxes. And it's only under the alternative tax that we were required to pay taxes because our reserves well below the threshold for the full tax. And the other benefit that the tax bill gives Blue Cross is it repeals the federal tax going forward, the federal income tax going forward, correct? Right. Okay. And in the past couple of years, that's varied between four or five million down to nothing. In fact, I think in one year you've got to go back. Is that right? When we lose money, we don't pay taxes. We tend to get a refund. Okay. So in calculating and reducing the CTR or profit, whatever you want to call it, from 2% to 1.5%, you did that based on the fact that you were not paying tax, you knew you wouldn't be paying federal income tax in 2019. Right. Okay. And did you, in this filing, did you make any assumption, did the fact that you will get more tax refunds in succeeding years affect this filing at all? More tax refunds. Yeah, it will get a 7.9 million in 2020, 3.6 million in 2021, 2.8 million in 2022. Were those amounts incorporated in this filing? I don't get any way. It was incorporated in our decision to submit 1.5% long term assumption for CTR. Okay. But Mr. Schultz, you're not reflected in the rate file. It is reflected because it was considered in our decision. No. Fine. Show me in the rate file where it is reflected. It's the 1.5% CTR. No. Show me in the rate file where the refunds you will get under the Trump cash bill are reflected in the rate file. If you go to attachment C of the rate file, it's on the page 180. Okay. We outlined that rationale for the 1.5% in that document. We also talked about the tax cuts and jobs act, that impact. We also talked about the federal CSR payment on page 2082, $7 million. This is your memo. This is your memo. This is not Mr. Schultz's rate filing that he served us. This is in the rate file. It's part of the rate file. It's not part of the corporate tender, part of the federal tender. Okay. Mr. Schultz could you turn it please back to exhibit 5. Sure. About eight lines down under population risk morbidity. There's a line agreement. You can talk to the removal of the penalty for the individual mandate. You see that? Yes, I do. Okay. And you calculate that that will raise, and then you see the number on the right hand column 1.020. Yes. Okay. So that means that you are raising rates by 2% based on the removal of the individual removal of the penalty for the individual mandate. Very close to that. I'm raising the index rate by 2%, which is the claim of the permanent risk. Stand corrected. The reason you're doing that is that your book of business, that the people you insure as a whole are going to use more services because the people who are insured are going to be on average, less healthy, right? I rephrased that a little bit. The people we continue to insure will continue to use the same services we wouldn't project in the absence of this. What's happening is that we project that some healthy members will choose to forego insurance in 2019 due to lack of a penalty. So when you're removing members from the denominator and you're keeping the claims more or less constant in the numerator, when you divide that out, you get an answer that's 2% higher. Sure. So on the average, the people you insure are going to have more claims because you're eliminating the healthy people who have relatively few claims. Yes. We're assuming that they will drop coverage. Right. Making the universe of people you insure relatively less healthy than they were last year. Right. Okay. Can you go down to the last line, two lines below that? You see it says changes in pool morbidity? Yes. And for changes in pool morbidity, you're raising rates another 2.3%, right? Again, raising claims, but yes. Okay. And isn't change in pool morbidity the same thing? Aren't you saying the same thing? The people we insure are going to be less healthy this year. So we've got to raise rates. Yes. There are two reasons for that. This change in pool morbidity reflects the members that we can observe to have left us from 2017 to 2018. We see factually what they spent on average in 2017 and we therefore make an adjustment for those people who have factually left us by 2018. I do want to note as well that 1.0231 was the source of one of Lewis and Ellis's recommendations. We don't oppose that recommendation. That changes the number to 1.0101 if I recall correctly. Okay. The rationale for changing the 1.02 to 1.01101, whatever it was, was what? In response to one of the questions that Lewis and Ellis asked, we agreed that we should have normalized that adjustment for plan design, for benefit design. So in other words, there's another adjustment on this page that goes into plans that are chosen by individuals in projection year versus the experience year. We should have normalized that out of this selection factor. We agree that that would be a better methodology and so we incorporated into our amendment. Okay. So there was a little double counting there, wasn't there? There was some unintentional double counting that we corrected. Okay. And then if you can go down under other, the third line under others is changes in demographics. You're raising rates because of changes in demographics by 1.01. Correct. Okay. And aren't you saying the same thing there? People are going to be older. Our book is going to be older, more male, therefore less healthy. So we've got to raise rates. It's a similar category. Gender has nothing to do with it. But as I testified, we looked at a number of different population changes. This one reflects the changes in population due to the continuum population. The one we previously addressed were members who left us. The first one we addressed are members who were expected to disenroll because of the lack of a penalty for the individual mandate. This one impacts members who have been on our books and will continue to be on our books. We expect them to continue to get older. And as a result, we include this factor in there. Yes. Okay. So you'd agree with me that all three of those, the removal of the penalty for the individual for the individual and then the changes in pool morbidity and changes in demographics, one way or another, mean the people that you're ensuring are going to be less healthy, and therefore they're going to have more, your book is going to have more claims. Yes. That's right. Okay. Now you're an examiner. This is embarrassing. But my hearing aid went dead. So if you don't mind, could I just take a 30-second recess to change the battery? I think that's kind of necessary. 30-second recess. I have a battery. I also want to remind everyone about the time and we did discuss scheduling and time constraints. So we will be moving forward and will hopefully be able to take a very quick lunch break, but it may be a very brief break, a break at all. So we will keep moving forward the afternoon without the testimony may make up for some of that. And if anyone is here who has not signed up for comment and wishes to comment, at the end of the hearing, please sign up with Agaphe's in the back by the door. This is for me to carry out. I must say it was good to see him actually ask for a break. At one time I sat in the sun and my seatmate had a hearing issue and would never admit to not being able to hear. So it's refreshing that somebody admits it. And I hope he has his battery with him and it's not across the street looking for one. You may proceed. He probably heard you now. I apologize to the board. I apologize to you, Mr. Schultz on the panel, and to you, Jackie, Anthony. And you may proceed. We'll get it moving. Then under trend factors, it's costing based on the cost training utilization trend. You also raise rates by 3.2% for utilization trend because people are going to use more services, right? Yes. And the reason people are going to use more services is that that's less healthy. No, those are completely separate factors. Sorry. Once we adjust for population adjustments, that gets us to the projected population for 2019. Now, trend is going to continue. The medical cost trend is not going to stop just because we've identified the population that will be enrolled. So for that population that will be enrolled, we expect their costs to be higher, not because of the change. But once we've identified that population, we've settled on a population. We're looking at their 2017 claims. We're projecting the 2019 claims. We expect those claims to be higher because of medical utilization trend. So medical utilization trend has nothing to do with the health status of the people that are being insured? No. In fact, when we develop medical utilization trend, we normalize for that. We normalize for age and gender. We normalize for benefit plan. We do that so that there is no double counting when we calculate the utilization trend. Don't people use more services because they're less healthy? That is one reason that they will use more services. There are many others. For example, there are high-testified extensively on the new miracle drugs that have been released, both on the retail pharmacy side and for dispensed in medical settings. People will use those drugs even though they're very expensive because they cure previously uncurable diseases or they vastly improve quality of life. So, yes, there are things that will continue to drive up utilization trend for any given individual other than their health status. Okay. So when you raise rates by 2% because the removal of the county for the individual mandate, another 2.3% because, or changes in pool warm activity, another 1.01% because of changes in demographics, and another 3.2% because of increased utilization, your position is there's no double counting on that. There is no double counting now that we have corrected the changes in pool morbidity factor for the unintentional double counting that existed there. Other than that, there is no double counting. We've normalized all the other factors to account for the ones that came before it. Okay. Let me ask you now about your assumption that the removal of the county will mandate the raise rates by 2%. In coming to that conclusion, you assumed in you that all the healthy people who are unsubsidized would leave you. Correct? Yes. And you assumed that all the unhealthy people who are unsubsidized would stay. Correct. Okay. Aren't both of those assumptions unrealistic? That's a good question. Do I expect literally that to play out? No. I think some people will make choices that maybe aren't in their best outfit, but I do believe that the resulting impact of 2% is reasonable. Both be based on my own actuarial judgment and because it matches the best estimate of a report that was published jointly by the Department of Financial Regulation and the Green Mountain Care Board. Thank you. But you agree that among all the people who are healthy and unsubsidized, some of them are going to stay. Right? Some of them are going to be rich and they're going to keep their insurance. Yes. And some of them aren't going to know about the repeal of the individual mandate. They may not have known of the existence of the individual mandate to begin with. So they're going to stay, right? That's possible. And some people who are not healthy for one reason or another are going to leave. That's true. I mean, there's a wide range of population here. We go from people with no claim to preventive only to the people with catastrophic claims. The folks with catastrophic claims are clearly going to keep their insurance. But within that wide range, I'm sure, as you suggest, there will be some people who have a low level of claims, well below the average, who don't believe they're going to get the utilization out of their benefits that makes it a good decision for them to keep their coverage. They don't have to pay a penalty. Some of those people will leave as well. So I will concede that we made a simplifying assumption in coming up with this estimate. The means we took to do that was opined as reasonable by Lewis and Ellis. It matches the report that was published by the Green Mountain Care Board and by BFR. And I'm satisfied that that estimate is a good actuarial estimate. Even though the assumptions are unreasonably. No, the assumptions are reasonable. Will they perfectly model exactly what will happen in 2019? No, absolutely not. I will never say that that is true. But I believe it is a reasonable way to estimate it. Fair enough. You also agreed on that just because somebody had claims last year doesn't necessarily mean that that same person will have claims the next year. That's right. And conversely, you also agreed on that just because somebody had no claims this year doesn't mean that they don't have no claims next year. Correct. So those would also affect your calculation. What you just granted would also affect your calculation, wouldn't it? It would be also a reasonable methodology to use to come up with an estimate. When the report that was published by the Green Mountain Care Board was prepared the authors of that report had far more information at their disposal than UI. They were able to see both blue cross information and the MVP information. They were able to work in information that was provided to them by the state to take a look at this. So yes, there are many different methodologies we could have used. I could have landed on an assumption that more people would leave because people with some small to medium amounts of claims may well make this decision as well. Perhaps not all of the people with no claims would make the decision. Perhaps some people with chronic conditions would make the condition, although I would make that decision, that that's very unlikely. So yes, there are many different methodologies that could have produced this estimate. The methodology I chose produced an estimate that was in line with a different methodology that was published by another source. And in my professional opinion, that result is reasonable. Would you agree with me, though, that your estimate of 2% is a guess. It's an educated guess, but it's a guess. No, actuarial science is not guesswork. So you think your 2% is going to be perfectly accurate? No, I didn't say that. I don't think it's going to be perfectly accurate. But I do think it's a reasonable assumption. It's an educated guess. It is my assumption based upon my professional judgment as an actuary with over 20 years of experience in the healthcare field. And as an actuary, Mr. Schultz, you're not giving an opinion on whether or not the proposed rate is affordable, are you? I testified, to some extent, to whether I believe this proposed rate is affordable, given the statutory and regulatory framework. Okay, you're not a lawyer, are you? I'm not. You're not an expert on statutory interpretation, are you? That's correct. You don't know what the rule against or plus it is, do you? I don't. Okay. So what was your opinion as to whether or not the proposed rate is affordable? My opinion is twofold. If the rate is not excessive, then it can only be unaffordable if the underlying cost of healthcare is unaffordable. Secondly, my opinion is within the statutory and regulatory framework that we have, not meeting the law and the things you discussed and those things, but in terms of no age rating, in terms of the existence of the cost shift, in terms of that structure, these rates are as affordable as they can be. Okay, let me ask you this then. Ms. Green, you feel free to chime in because I think you said it a little more boldly than Mr. Schulz said it, but are you both saying that if somebody doesn't have enough money to be able to pay for insurance, that doesn't mean the insurance is unaffordable for that person. It means that the insurance that that person can't buy because she doesn't have enough money is too comprehensive. Is that what you're saying? What I testified to was that Vermont has made policy choices to balance the triviality and affordability and quality and access. And Vermont has very high marks in terms of access and quality, and I do testify that that will tend to mean that health plans are more expensive. I'll testify that there are other policy choices that come into play there as well. Ms. Green, let me just make sure that I understand what you're saying. Would you mind turning to exhibit 9, page 18 of exhibit 9? That's page 252 of the PDF. Sorry, I don't have the PDF. Page 252 of the PDF. Yeah, page 252 of the PDF. And could you read before the last paragraph there just the last sentence said slightly differently? It begins with said slightly differently? Said slightly differently, output and not excessive rates are not unaffordable unless the care which the premium pays for is too comprehensive. Okay, so aren't you saying there is exactly what I said maybe non-elevably, but aren't you saying there that if somebody just doesn't have the money to pay for insurance, it's their fault? That's what we said. Sorry? It's not what you said. If somebody, aren't you saying that if somebody doesn't have the money to pay for insurance, it's not unaffordable. What it means is he or she should buy cheaper insurance that covers less. That is a possibility for some jurisdictions. What is the possibility? Having a range of health plans that cover different services. Oh sure, but what I'm asking you though is that your definition of affordable that the, are you saying that just because somebody doesn't have enough money to pay for insurance that doesn't mean it's unaffordable? That's not what we're saying. What are you saying? We're saying that as Vermont pursues the triple aim of balancing affordability, quality, and access, those things will land in different places depending on the policies and races. What things will land in different places? Portability, quality, and access. We had, part of our amendment is that we've had two more mandates passed since our rate filing. That is a choice to increase access to end quality care that will have a small but yet specific impact on rates. That's an example. Do you have another, would you like to offer another definition of affordability other than what you have said in your Exhibit 9 or June 28th letter? If you read Exhibit 9, Tat 9 in its entirety from the beginning to the end for the questions outlined beginning on page 2 of that Exhibit, we walked through Blue Cross Blue Shield of Vermont's contributions to affordability, quality, and access to care. I know Blue Cross Blue Shield of Vermont has made tremendous contributions, but do you have another definition of affordability? I don't believe there is a definition of affordability. Very good. Mr. Schulz, we talked earlier, you all talked earlier about negotiating with hospitals and how difficult it is. And there's no getting around with that, is there that hospitals have tremendous marketing power in Vermont. It's a small state, there are very few markets where there are very few areas in the state where there is competition among hospitals, right? I agree with that, and this was a primary direction of Mr. Gardner's testimony, so he may be your best witness to whom the direct question is here. I'd be happy to answer more on the actual word at work. Very good. Mr. Gardner, you agree with that, right? The hospital has tremendous marketing power. Yes. But Blue Cross also has tremendous marketing power, doesn't it? To an extent we do. We do. And the consumer is not a bottomless pit. The consumer just cannot keep paying these increases. Correct. Presumably? Wouldn't it be the Blue Cross's advantage to be able to go to the hospitals where we all have tremendous marketing power and say, listen, we've got to get together on this. You guys can't keep raising your costs, raising your risks. We can't keep paying for them. Because there's got to be some enjoy. Absolutely. And that conversation is had every year with every significant hospital in our network coughing at multiple levels. High-level, the team that works below me that includes all the contracting folks who do the day-to-day work. Even the level above me, I think our most senior leaders are in frequent contact with our hospital partners and conveying exactly that message. Can any hospital in Vermont long survive without Blue Cross's business at any time? Long survive. It's very difficult for me to align on the financial health of the hospitals in Vermont. From what I've seen, looking at filings, some of them have significant reserves. It's frankly far in excess that they think of what we have. That being said, I also can't clearly assert that we would not have to continue to pay those hospitals as much or perhaps even more than we're paying them now, where they to fall out of our network. As I testified, there are network access standards that we have to live up to. And in many cases hospitals and providers going out of network simply means that health plans end up paying even more to those out of network providers because the care has to be provided for. So we lose all of the gains we've made over decades of negotiations and end up paying very very, very high rates that are quote-raised or small percentage off those quote-raised. So it could be a losing proposition. You were pretty big in need of each other. Yes. And you're not going to unilaterally disarm. Not sure I know exactly what that means. You're not going to say that. You're not going to have trouble by your announcing here that under no circumstances are we going to to not have a hospital DNR network. I mean obviously I think no one wants that. But to announce that aren't you giving up some potential, aren't you giving up guardian power by right up front saying you know whatever happens, no matter what you guys say to us we're going to keep you in our network? That's what I said. Then I misspoke and we could check. But I believe what I said is that it's a step that we are unlikely to take because it would have extremely severe repercussions for our members, for the hospital, for the health of our community, for the healthcare system which we work very hard to improve. I mean I certainly for those from the hospital community who are sitting behind me would not say that it is impossible if we could get to that point. I think the business case has not been there in the past and something extreme would have to happen for us to find enough value from that to make it in this case in the future. But if it were there kind of I don't think we would go down that road. Mr. Schultz can we talk about Blipcross as administrative costs? Yes we can. You raised the rate in two ways with respect to administrative costs, right? You raised administrative costs you assume you assume that administrative costs are going to go up and you incorporate that in the rate in two ways. You assume that administrative costs are going to go up by 3.4% because Blipcross you project Blipcross is going to have less business, right? I don't have the numbers in front of me but that sounds correct. You go over the rate finally it's the discussion of administrative costs on pages 30 to 32. So you do assume that administrative costs are going to go up by 3.4% because you're going to have less business to ensure it's correct. On a per member per month basis that's correct. We're actually assuming administrative costs will go down because we will eliminate variable costs that support those numbers but on a per member per month basis the resulting calculation leads to an increase. And you also assume that administrative costs are going to go up by 2.5% because of the trend. Because primarily because of the wage group. Yes, that's correct. I understand the increase of 3.4% because you're going to have fewer, 3.4% per member per month because you're going to have a smaller worker and fewer insurers. I understand that. I don't understand the additional 2.5% for trend though. Isn't that already incorporated in trend in general? No. Okay, could you explain that? Yes, so this is a completely separate trend. I don't know that I really necessarily call it trend. Trend is normally associated with claim costs. These are projected increases in our administrative costs over time primarily driven by the fact that we do generally see wage increases from here to here within our building and among our vendors. Okay, so the fact that you are accustomed now to a greater extent, you're more accustomed to doing this business and therefore you want to there's an argument isn't there that administrative expenses should go down because you guess you're better at what you do. Do you buy that? And we have made as Ms. Green testified and could probably answer better than I can because Blue Cross has made enormous strides over the last 10 years in reducing our administrative expenses. Okay. So you've got to increase your admin by 2.5 or trend in 3.4 because you're going to have fewer insurers, right? Yes. Okay. You also agree on that because you're going to have fewer insurers you can have them over what you call a contradiction of the surplus in what the federal government calls profit, right? In total, yes, as a percentage, not necessarily. Okay. And why is that as a percentage not necessarily? Because Blue Cross's philosophy for contribution to surplus is to given all the considerations that Ms. Green outlined earlier, what we found in the attachment C of the memorandum our approach is to continue to file a long-term assumption that will allow us to maintain our target range as long as we're within that target range and that long-term assumption is the one and a half percent that we filed. Could you turn to exhibit 16 which is your annual statement? Yes. And could you turn to page 2625 which is part of the notes to financial statements section? There's page numbers in the binders I think you were provided binders. If you could give those, that would make it easier for us to follow them. Okay. Do you see note 25 there? Yes, I do. It changes and encourage claims and claim adjustment expenses? Yes. Okay. And what you're saying there in note 25 is that you reserve too much money in the past. It turns out now that more information has come in that you really didn't have to pay out as much as you originally projected, correct? I'm glad you asked that question. I want to draw a distinction between estimates that are prepared for the financial statements versus estimates that are prepared for rape filing. For the financial statements, I as an actuary am required to use a conservative estimate. Okay. When we get to the pricing, you might think well, is Blue Cross starting with that conservative estimate? The answer is no, we are not. We remove the margin from our reserve estimates that is inherent in the year-end estimates when we do the pricing. So that conservatism, that extra margin is not in our pricing. It isn't in our financials because it is required to be and I would expect us to restate downward in most years if we don't. I'm not doing my job correctly as the valuation actuary. What you say then in note 25 has nothing to do with the rape filing? That's correct. I don't know if I'll be able to find it quickly but we do address this in the actuary memorandum. We say that IV&R uses factors before explicit margin for conservatism. And then similarly I guess if you look down at the same page on note 28, healthcare receivables do you see that? Yes. Okay. And going back to 630, 2016 starting on 630, 2016 going forward before your estimated rebates are significantly less than your actual rebates. Yes, I do. Is that reflected in your rape filing? Is the difference between your estimates and your actual rebates reflected in your rape filing anyway? Yes it is. I'll give the same answer there. For financials we are required to be conservatism, to be conservative and we are. For the purposes of the rape filing we start with actual rebates and we trend those forward based upon our best estimate of prescription brand trend. So again the answer is yes we start with actuals we do not start with the conservative estimates in our financials. Could you turn to the 5-year historical data page of your annual statement which is page 386 of the PDA and Mr. Schultz could you go down there to line 12 to see that net income? I do. You see that who crosses net income then in 2017 was 7.6 million as opposed to 2016 where it was where you lost money. And my question is does that 7.6 million in net income affect your rape filing anyway? In as much as that 7.6 million in net income either covers or fails to cover increases in the filing reserves so there's something called the authorized control level risk-based capital which is a measurement it's the denominator in the RBC calculation. You can also find it on this page. In as much as that increases net income means to go to cover that in order to keep RBC within our target range. So the 7.6 does come into play again in that management memo wherein I was directed to use a 1.5% contribution to reserves in that the 7.6 million will help to define what our RBC level is at the end of the year. And you don't reflect investment income in your rape filing right there's no line item where you say here's how much we made in investment income and here's how it's going to affect your rape. Again that is there's not a specific line item but it does play into where we are in terms of risk-based capital which is one measure of solvency and it does play into whether we file a CTR equal to our long-term assumption or some other number. Sure and so all things equal investment income will raise your surplus. Yes. If you look at line 13 do you see net cash from operations there? Yes. Okay and so in the last in the last two years you had pretty good years you made more than 20 million in 2016 more than 21 million in 2017 are either of those numbers in any way do they affect the rape filing at all? I'm going to have to defer to Ruth on that one. That's fine. Yes so the net cash from operations is a reflection of the cash flow and it's affected by the large federal insurer fee payments and other large payments. A lot of times our stop-loss coverage will have cash flow that comes ago so the cash flow is an important metric for us to pay attention to but it does not measure the amount of income that's coming into the RTC. Mr. Schultz have you ever heard that Blue Cross has a legal duty to provide insurance at minimum cost under efficient and economical management? Yes. And how, if at all do you believe you operationalize that legal duty in your rape filing? Dr. Cleveland testified to that extensively in Mr. Garland. I also testified to it in that we are incorporating $16 million of rape mitigation into this particular filing in part due to new cost containment programs that we're establishing in conjunction with providers in point here in Vermont in part due to increased efforts and continual efforts on negotiations that will lower prices of the pharmacy and will increase rebates. So yes, I think there are many examples of how Blue Cross accomplishes this. If you can turn to page 36 the last page of your rape filing and the TDF would be page 4 to 4 Okay, could you the second full paragraph that begins in my opinion do you see that? Yes. Just leave out the first phrase for a while that begins with the projected index rate and the starter has been developed do you see that? Yes, so can I ask a question? Oh, I'm sorry, yes, please do. When you say that the index rate has been developed in compliance with the applicable actuarial standards of practice you're certainly, whether people agree with it or not or think you made reasonable assumptions or unreasonable ones as an actuarial that's certainly a judgment that you're qualified to make correct? Yes. Okay. And similarly, when you say that in your opinion the index rate is reasonable in relation to the benefits provided and the population anticipated to be better, again whether people think your assumptions are reasonable or unreasonable, as an actuarial that's a judgment you're qualified to make correct? And similarly when you say it's neither excessive nor deficient you're qualified as an actuarial to make that judgment correct? Yes. Okay, but if you go back to the first phrase which we left out and you say that the index rate is in compliance with all applicable state and federal statutes and regulations you don't know that, do you? I do, I certify it to you. You know all the statutes and regulations that govern this rate thoroughly? That are pertinent to this filing? Yes. I have reviewed what I believe are the applicable statutes. Whether they do actuarial terms or not I I have reviewed what I understand to be all applicable state and federal regulations with respect to developing the projected index rate, yes. You're familiar with the rate review standard in this case? Yes, I am. Okay, there is no actuarial principle that governs what affordability means instead? There is not. And there's no actuarial principle which based on which you evaluate quality of care, correct? That's true. Then how can you say that you're certifying here that this rate is in compliance with all federal and state standards when there are standards which you agree and it's no criticism, you're an actuar but there are standards which you have acknowledged, you know nothing about. I think it's a bit extreme to say I know nothing about them. Good point. I went too far. I don't know anything about them. And I may have relied on some of my colleagues in terms of whether we provide promote access to care whether we promote quality care and I believe that we do in terms of affordability again that standard has not been defined. It's not defined as standard. So based upon my interpretation of what that means because these rates are not excessive the only way they can be affordable is if the underlying cost of care can be affordable. And while I think I do some pretty good actuarial work along with my team who supports me I unfortunately can't wave a magic wand and make the cost of the hospitalization less. Blue Cross can and does do a lot in terms of negotiations with providers in terms of care management and we do all of these things in order to make care affordable. But there's no actuarial standard that governs the meaning of affordability. That's true. And there's no actuarial meaning of the word what? There is no actuarial standard that governs the meaning of affordability. Correct. That's correct. And there's no actuarial standard that governs the meaning or prepares you to evaluate the quality of care. Correct. That's correct. No further questions. I will open it up to questions from the board. At this point, Chair Malin will start. Sure. Looks like it's going to be a late lunch. So I'll begin my questioning with Mr. Schultz about the filing of the amendment. Yes. Five days before hearing less than three real business days before hearing it. What prompted you to do a late filing? What was the exact event that said there should be filed now? There were three things. Actually four things that drove the timing of the filing. One is the very late enactment of the two new Vermont mandates. I don't have the exact dates for those in front of me, but they were in late June I believe. Second in the bigger impact was the promulgation of federal regulations on association health plans which came out in late June as well. It took some time for us to review and assess them. We also continued to learn additional information such as the Department of Financial Regulation's decision that they would be working on emergency guidance that would come out within a week or two from today. These all were very late developments. The fourth thing is we wanted to look at Lewis and Ellis's report. There was an element of our amendment that I did not discuss because it had no rates. We didn't change rates for this but we were waiting to see if Lewis and Ellis had recommended any sort of changes to our competitors filing because of the market imbalance that exists if you look by a metal level within the plan. So we did take a look at that. What we consider to be a market structural defect as well in the hopes and the L&E opinion that it would be addressed it was not. So that was another very late piece of the puzzle but even without that piece the Association Health Plans those rules and regulations came out so late that we had little choice but to start working on that amendment as soon as we can and to you as soon as we could which unfortunately is last week. So isn't it accurate that a discussion on the Association Health Plans has been occurring for quite some time? Yes. And it appears that it's recent events that have triggered this particular filing I thought I heard in earlier testimony that you had also been approached of being involved in Association Health Plans can you tell us when you were first approached to be involved in the Association Health Plans? I don't personally know the answer to that. I'm sure it was well before the federal final regulations our point of view that we expressed both in the original filing and subsequent questioning was that federal late regulations and state regulations would not be problemated in enough time for there to be a 2019 market for Association Health Plans that was our assumption going in that's why we assumed nothing into these rates originally for Association Health Plans we were frankly the federal guidance came out well in advance of what we were expecting and Vermont is reacting to that very quickly so it's become very apparent from late June till today that our thought that this would not be a 2019 market impact it's now very clear that it will be a 2019 market impact as far as an association approaching you have there been multiple associations which have approached Blue Cross Blue Shield or is it a single association? Multiple associations Okay and you have the company has in the filing stated that you believe it's going to be 8,000 lives correct? Correct of those 8,000 lives you are making a an assumption about the health of those lives correct? We are making an assumption in one way yes we are assuming that groups that offer coverage only flattening coverage to their members so many small groups offer full employee choice their members can choose whatever plan they want often from whichever carrier they want but there are a smaller number of groups who do not offer that in fact offer a flattening plan only through Blue Cross because we do not believe association health plans will meet their needs we don't think any of those members will shift from a flattening plan to an association health plan other than that we assume members will come proportionally from all plans and with all different health statuses so your assumption is that it will be proportional to health status that 8,000 migration Yes setting those platinum groups aside yes we assume that the rest would come from all different health statuses in proportion to the way they are enrolled in Blue Cross today and have you made an assumption about what proportion of that 8,000 is strictly Blue Cross members migrating? The 8,000 is specifically for Blue Cross members we assume that MVP members will also migrate to AHPs And what number is that assumption? 4,000 so it's pretty proportional to our current small group enrollment And couldn't you likely assume that based on previous risk adjustment payments that those migrating from MVP to Blue Cross Blue Shield may be healthier? Migrating I'm sorry we're not assuming that any of them will migrate to Blue Cross Blue Shield we have not been selected as the carrier for AHPs we're in a competitive situation there we hope to be and if and when we are selected as the carrier for AHPs we will need to develop rates for AHPs at that time we will consider both the Blue Cross migration and migration from outside sources like MVP or currently self-funded plans so is your testimony then that the Green Mountain Care Board should be looking at the rates in other Blue Cross Blue Shield rate plans at the time of an AHP migration to that? I think we have to wait for DFR rules to come out on that I don't know if AHPs will fall under the jurisdiction of the board if they do I think the board should take notice of those rates and should investigate them thoroughly but let's move to pharmacy you've talked a lot about the trend in pharmacy being related to very high price drugs one of the examples we used was oral oncology and all the assertions made prior to the approval of oral oncology drugs there were assertions that there would be savings in other aspects of medical costs specifically cutting down on nausea cutting down on the side effects of radiation and chemo and that there should be savings in the system elsewhere are those accounted for in those pharmacy trends? I believe we answered a question on that and I would have relied upon Dr. Plavin for that answer I don't know if I could find the response quickly so I'm not sure that I can answer your question we may have to get back to you that's fine you talked a lot about exhibit 18 which you admitted earlier today and you were focused on the green area in exhibit 18 and can't blue cross blue shield themselves reduce that green area through negotiating better rates with hospitals? we can and we do as Mr. Garland testified someone conflicting testimony but there your quote was you're ready and willing to lead yes and it almost seems to conflict with an interwinding theme between each one of your testimonies this morning as far as the issue of the reserves there seems to be a very clear theme throughout the questioning this morning and Ms. Green you said that this is not sustainable something has to change clearly the rates have been inadequate since 2014 and you also went on to further state that you demonstrated to the board blue cross blue shield of Vermont's efficiency and I would ask Ms. Green the argument that has been presented has basically focused on any change to any other factor of your rates other than CTR is a direct impact on CTR and could it not be argued that rather than um the board granting inadequate rates that blue cross blue shield themselves have not adequately managed to the previous decisions of the board as far as meeting any reduction in any of the other trends there were specific proposals that were areas to consider by blue cross blue shield those changes and couldn't someone equally argue that the failure to keep a higher reserve is linked directly to the company's inability to manage to the green mount care board's decisions I suppose someone could make that argument and I believe blue cross blue shield leadership view is that our rate filing or proposed rates when we submit them are designed based on what we know to be in place for programs and our efficiency and hospital contracts, the green mount care board decisions, our white care contracts Paul really puts together what they think is their best estimate as to how many expertise they have as to what the premium rates need to be in that in this case 2019 to cover those costs but the pass rate filings and the board has for instance challenged us to improve on hospital utilization results as a way of improving the cost of care we have responded to that saying that it takes programs a period of time to come into play each year when we submit a rate with the current environment that has the benefit of all the programs for all providers and the ACO and anyone else that's contributing to finding new ways to deliver care to the right people at the right time I would also put forth that in 2019's rate filing as it sits here in front of us Paul testified to the effect that we've got rate mitigation actions built into these rates of 4% part of that is the cost containment initiative which is something new part of it is the more aggressive pharmacy benefit manager contracting and the partnership with the ACO on the cost containment so I think we believe that we're working with all the stakeholders to do the best we can as state to provide affordable quality care and access to that care the rates that we provide is the best estimate there's been a lot of volatility and changes to our reform environment and right from the beginning of 2014 roll out of the exchanges and then subsequent repeal of the ACA all those things are developments that we're navigating as we're making those best estimates so the inadequacy that we've seen in our rates over the last few years clearly is partly due to reductions in rates by the board but it's also partly due to developments and things that we did not take into account when we were doing the rates so I believe that when we submit a rate for approval it is taking into account everything that we know that could happen and it needs to be adequate in that context and then when history becomes history we've had more downside impacts since the beginning of the call by health plan market and had upside impacts a lot of those being the board's decisions in your testimony you testified that an acceptable range is 500 to 700% for RBC is that correct that's our current target range yes what RBC level would the state effectively take over blue crossbow shield the various levels I believe it's 200% where they would take over clearly earlier levels where action would be taken the blue crossbow shield association this is the blue card network that we rely on to have Vermonters travel nationwide the association will begin monitoring and looking at our management practices at 375 does blue crossbow shield receive benefits under vermont statute that are far beyond your colleagues in other states I don't know that I don't know what our colleagues in other states okay I'll leave it at that I don't know what you mean by benefits well I think there are additional protections maybe a better word that are in vermont statute and some of your colleagues in other states would receive there may be some reasons why it might be beneficial for an RBC to be higher in another state without those protections but I'll leave it at that can you tell me Ms. Green what the policy has been for the last several years on wage and benefit growth at blue crossbow shield blue crossbow shield sets its wage and benefit growth budgets based on the goal of attracting qualified folks to come and work for our company and in the last few years we've approved company-wide average merit increase of 3% when I first joined the company that was 2% but we do believe that we have to build something to our budgets in order to attract and retain quality fuel so it's no secret that in the past year you have lost subscriber lives to a competing company have there been any reductions through attrition or anything like that to address the fact that you are now administering fewer lives so thank you for that question we did respond to a question from the pre-hearing that we look across all of our books of business and look at increases and decreases of membership over time and each quarter that goes by we'll look at how membership is running relative to our budgets and we will make we'll recalibrate the variable costs when membership goes down for instance some of our vendor contracts are driven by membership levels so we'll make sure that those contracts are adjusted accordingly and some of the variable areas that we have staffing models that are built based on the amount of membership that Andrew testified earlier all of our segments are served by the same infrastructure so we'll look across the volumes that we're expecting so that we're not laying people off only to hire them back at a cost and train those folks so we're taking a full review and calibrate our variable costs according to the membership outlook has there been any reduction in FTEs or reduction in force since the loss of corporate liars we started the year with some attrition and you mentioned attrition is one of the ways that happens in the service area and some of the enrollment services functions and to the extent that vacancies have been held open as we see how the total company membership unfolds and we'll be hire classes of customer services folks in in groups of six or eight so we'll wait and see what the outlook for membership is we also have other things going on in our business we have a large project that we're implementing a new technology and so we need to make sure that our phones are there in case there's a problem with that roll out so we need to take into account both the membership volumes and the other things that we're accomplishing and then calibrating the hiring process accordingly. Does the 3% growth rate that you have estimated is that based on the bottom line total of all employees wages and benefits or are you doing a proportional share if there is indeed a reduction proportional share I'm not following your question could you repeat it? Let me just give you an example if you had 10 employees and you paid $100 and you went down to 9 employees but you were still paying $100 are you reducing it proportionately for a reduction in force or are you just using the bottom line number for the total? So the 3% I might ask while we help navigate this the 3% increases a trend on a permanent basis so that is going to be sort of automatically calibrated for the changes in membership. What I was referring to on the membership merit increases that we look at our total 400 people that we have working for us the people that stayed with us to process the business we do have we'll need to be rewarded for the progress they're making and their career paths or their expertise and to be competitive so if the total amount of costs that our business can support needs to go down as a result of a change in membership that would be a reduction in FTPs I hope that's an answering question the 3% is based on the salaries the assumption around salaries for the staff that is on staff and then it would be you know if we lose 10 staff it's not as if the rest of the staff get more than 3% it's 3% on the remaining staff that would have been the short answer sorry Mr. Garland in your testimony you you testified that Blue Cross Blue Shield has reached a maximum efficiency because of competition and can you tell me the last time that Blue Cross Blue Shield denied coverage in the hospital service area because of failure to negotiate rates with that hospital I cannot can you tell me are there variations between likely situated hospitals so not comparing academic medical centers but between other hospitals are there variations in the rates that you discussed that provider based on your contract negotiations with particular hospitals yes are we talking hospital services or physician services hospital services absolutely physician services generally now it's usually the same reimbursement for physician services and we do out the academic medical centers across the network okay but even in physician services isn't there variation because of private practice would be reimbursed less than a hospital because of the ability to charge facility fees typically no we do not pay facility fees fees is a Medicare reimbursement mechanism we reimburse for facility services but that reimbursement goes to the hospital physicians do not receive any facility fee reimbursement regardless of where they practice in our network and virtually all physicians in our network other than those of the academic medical center are on the same reimbursement schedule okay what is the basis during the negotiations that you determine it's okay to have a variation in payment well what's challenging about our hospital payment analysis is that we don't have apples to apples comparison anywhere in our network and you must have experienced this when you're talking to the hospitals about their budgets so if I say to hospital A it looks like your charges for OB services are 30% higher than they are at hospital C, D and P the response I will invariably get is yes but we have an ophthalmologist that we really need to pay for and he doesn't have enough patients and the only way we can keep him on staff is to charge more for OB and cross cover those services so we do we put as much information in front of the hospitals as we can and as you would imagine we draw their attention to the things that look high to us we're trying to win the argument we push hard on those things ultimately our ability to complete that analysis is less satisfying than we would like because we don't have access to their books we don't have access to their cost accounting we don't really know what they're spending on that OB service or that ophthalmologist we only know what they're asking to be reimbursed and there are wide variations as you probably also have experienced in your analysis between what we may see reimbursed at one hospital versus the one that's just one county over and they go in both directions right it is true that this one charges 30% more for OB services but they really are charging 12% less for cardiology and kind of put those two together and determine ultimately which is giving me the better deal only to report but we push regardless we sorry that some of my peers are in the room here we select the evidence that supports the negotiation and we push on those things that pop up and deserve attention is there any internal benchmark for standard deviation from the average that the company would just say no we're not going past this point the best benchmarks are available to us on our Medicare reimbursement and we do look at cost relative to what Medicare would reimburse for them it is very difficult for us to say we're not going past a certain point because typically you have already applied on the appropriateness of that budget or that may increase through your process and the hospitals feel like legitimates the request that they're making to us and we would probably need to go to a pretty significant escalation to say we absolutely will not accept this okay and I understand that this gets into an area that you probably loathe to talk about because of considering it to be a trade secret in confidentiality so I won't proceed with this questioning any further other than to say that in some respects insurers handling it as what they consider a business secret really inhibits the ability to push down those rates would you agree with that if we had complete transparency of cost and we had solid cost accounting that we could compare sort of apples to apples we would have a very different dynamic in discussing pricing and other pressures would come to bear on those hospitals besides what I can bring in a confidential contract negotiation absolutely that is true that being said sometimes we win I want you to hear me say that because I think we haven't focused on that enough here we do sometimes win the wins are not as big as we would like and they're not nearly as big as they used to be but there we push we use every bit of ingenuity and thoughtfulness and creativity and pressure we can come up with and we do win sometimes so based on the conversation that you just had do you still believe that Blue Cross Blue Shield has reached maximum efficiency because of competition I apologize that I don't remember precisely what context I uttered that phrase was it about contracting yes and your testimony was that you would reach maximum efficiency and I'm just curious if that's still your testimony other than pushing the lever where we deliberately allow a contract to terminate I believe that our team is both as skilled as it could be and as diligent and hard working as it could be in its pursuit of these negotiations we work very very hard and very very long and we push very very hard I don't feel that I can I can say with confidence as the person who manages these functions I don't look at my team and say we need smarter people but we need to be working harder to get better results I think we've worked as hard and as smart as we can and we get as many results as can be achieved so you keep talking about without taking off a cupboard area is there an internal Blue Cross Blue Cross policy that would prohibit you from okay those are all the questions I have Member Holmes thank you so actually I mean this recent line of questioning from Chair Mullen is similar to mine I'm trying not to be too redundant but I think there is this disconnect between the description of active negotiation with hospitals in particular or your providers with to some degree there's only so much we can do because the Green Mountain Care Board has said hospital budgets and a lot has been written about a lack of incentive of insurers in general of negotiating because they can just pass off the increased cost to consumers it's the experience from the previous year plus some for the next year so there is some concern here about how hard Blue Cross Blue Shield is bargaining and in particular but I want to ask a couple of questions with respect to that so if you turn to page 27 this is the cost trend from among from all facilities and providers impacted by the Green Mountain Care Board's hospital budget review and other facilities and providers so 50%, 53% of the allowed medical claims are actually to some degree managed has some oversight by the Green Mountain Care Board and 47% do not measure your filing and if we actually look at the cost trend you know for the Green Mountain Care Board regulated entities it's 2.3% last year to 2.9% for the other facilities and providers and this year it looks like for those entities regulated by the Green Mountain Care Board it's going down to 2.1% from 2.3 and it's actually going up for the other facilities that are not regulated from 2.9% to 3.5% one thing one question I have is why so the entities that we're regulating are actually worked to some degree maybe we can take some credit holding down some of the cost trend what are you doing for the entities that we're not regulating to try and keep it in line with what we're doing here at the board yeah so the numbers I just wanted to repeat my testimony from earlier so if we look at what we currently know about contracts elsewhere then what goes under your umbrella that 3.2 becomes 2.8% I apologize I don't have the correlating numbers for the 2.9 and the 3.5 but we have pushed harder on those contracts and what we know now is that those are at 2.8% if we look at the hospital budget submissions those rather than being at 2.2% are at 3.2% and the one other element I want to add to that before I turn it over to Andrew is that the other facilities and providers a large chunk of that again I don't have these numbers in front of me so I'm not going to guess but a large chunk of that is for out of the area providers that's for those who access if they're traveling they access these and those are negotiated for those plans sorry on that note what percentage of that would you say is Dartmouth Hitchcock Dartmouth Hitchcock we do negotiate with directly and again I don't have the numbers in front of me I would be happy to follow up with those that would be great I would love to know what percentage of that say 47% of other facilities and providers is actually the other large academic medical center that we don't regulate but that a lot of Vermonters seek care go ahead I can describe at least what goes on in that that 46% of Paul said a significant amount would be met by Massachusetts, New York New Hampshire Blues but we don't directly contract those we just have to accept those rates we know that nationally the blues tend to do better than SIGNA or FNA or United so though the rate of increases higher than what's happening here in Vermont than what other commercial clients are doing and that's because we have a very local community focus across the blues network and that tends to turn into better rates. We do negotiate with Dartmouth Hitchcock every year those are serious I mean those negotiations take about six months beginning to end and it's a constant year-round process and I would say that we have been highly successful in accomplishing a lot we have our members there the other component would be things that we manage on fixed fee schedules without going into a lot of details in this room we'll create noise when we walk out into the hall I can tell you that those fee schedules are not going up 3.5% anywhere or anything like that so the big drivers here would be what's happening out in state the increases for the fee schedule that we manage tend to be much much lower than 3.5% and what creative innovative incentives might you be creating for consumers to stay within the network? Consumers to stay within the network? To not, yes you're talking about some proportion of this being Massachusetts New Hampshire or out of state out of regulatory control of state Well some of our members have benefits that provide richer coverage if they stay in network we offer tools on our website that allow members to see the relative cost of coverage that includes national so they can compare the cost of a service at the local hospital or at the academic medical center if they're considering that option they can compare the cost Josh could talk more about his case managers and how they help people navigate when they know that they're going to be in a high care situation I'm sure that it is not our policy to try to refer people to high cost facilities in other states but to help them understand where high quality services are available here but it's important to remember we have a lot of people who live along the border across the border or who live in other states entirely and for some reason or another are receiving coverage through the confidentiality of the law part of local hospitals well let me actually build on that a little bit then you talked about the price and quality transparency website just now and there's some testimony in here about that website as well as a tool that potentially people could use to understand who's an accredited physician and what the price to them will be a particular procedure but you also talk about the very very low usage of that website and so one of the questions I have is what are you considering to try and drive more traffic to that website and in particular you also talk about in here that Blue Cross Bushield has evaluated tools that might offer other incentives for consumers to be more price conscious or more price aware in making their choices one that I've actually seen evidence that it works is actually a shared savings program that patients get money back from using a diagnostic lab or some other sort of procedure that actually is the lowest cost alternative and I'm wondering you talking here about saying that you actually have considered these I'm wondering what you've considered and how those innovations might actually reduce excuse me utilization rate so we're in fact in the process of implementing a new tool so we've already identified vendor and I can't believe but so would you welcome a place until 2019 after we get past the other technology project that Ruth was mentioning the tool we think will bring hopefully a much higher level of engagement because it offers tools to engage people on more factors than simply I'm going to go out because I know I've got service and see what it might cost the tool gives us the ability to engage people across healthy wellness campaigns or prevention campaigns that might be happening in their offices it allows us to connect with the community events that we're running where we may have people's attention and try to get them to go out and connect with the information on the tool so that when we have their attention in a slightly different venue we can then redirect them with a hate that you know it also has outbound capabilities to send each email letting them know if we're aware you want this therapy or that you have recently scheduled a service did you know there are lower cost alternatives available click here to explore those the tool also has the ability to manage fairly complex and customized incentive campaigns so if we wanted to target a particular area of high spend and let members know you know there's another place to get this lab service let us tell you about it and if you choose this lab versus that lab we can make an incentive available on Amazon to guard or a dollar incentive that ability is there for us as well so after we get past implementing the tool and really pushing to raise awareness you know we'll do a broad based campaign of communication with members groups, physicians then we'll move to what are areas that we can now we can now think about launching incentive programs that will really work for our membership and you know where we know we have utilization opportunities so is there any expectation that in 2019 that we'll lower utilization at all and has that expectation been manifested in your rate request given the project plan I think the goal for 2019 is to get the tool up and running and to raise awareness just so that we can get people to begin interacting with it I think broad based incentive campaigns and savings from them are much more likely to be something we're looking at in 2020 although even now I wonder if we'll have enough knowledge to be able to price them prospectively we'll see as we can work with the partner what they've accomplished with other plans and what they can prove to us that they can accomplish with us just before I switched a little bit to utilization something different in terms of unit costs in the past couple of weeks the pharmaceutical companies maybe four or five of them have made some announcements about some flat pricing and or delayed price increases some of the bigger pharmaceutical companies I know that would have been too late to incorporate into your filing and maybe perhaps into your amendment but I'm wondering if those recent announcements would have any impact on your pharmacy trend it will eventually have an impact on pharmacy trend and we applaud that sort of thing we certainly hope it happens I do want to point out you can see it in the L and E report that our pharmacy trend for the first four or five months of 2018 has been 20% we did not change our pharmacy trend within the amendment even though the trend is clearly significantly higher than what we filed so we're glad to see that activity we hope it does mitigate costs in the future if you ask me my professional opinion today I think our pharmacy trend is likely to be understated for 2019 one point in one of the whether it was in the question I cannot remember but I don't know who Blue Cross Blue Shield in general stated Blue Cross Blue Shield is motivated to reduce excess and unnecessary care and there was a frequent citation or multiple citations of this National Academy of Medicine assumption that about 25% of all expenditures this is probably directed at you have no impact on health outcomes 25% of all health care expenditures have no impact on health outcomes so if we look at just roughly the allowed claims we're talking about $456 million in allowed claims 25% of that would be about $114 million of expenditures that probably have no impact on people's health it's a lot of money and maybe that's a big broad estimate but just doing a little back at the envelope so you know the cost containment initiatives which having sat through these rate reviews previous years I applaud the fact that there's actually a section on cost containment there has not been such a section with such initiatives before so I thank you for that but if we look at it this new cost containment effort of reducing readmissions and reducing ER visits I'm asked about a $4 million savings of these two initiatives at least according to in here so I'm wondering what are more significant efforts that could be done beyond you know these two efforts to really rein in this unnecessary and wasteful expenditure that you know that would have a big impact on rates if we could cut 25% of our expenditures that are having no impact on people's health how do we do that well so we do have our PA policies by the way we do have network PA policies we do touch and kind of thank you but you know we also remain to cover things that we don't necessarily believe are actually medically necessary so we have done a lot of work to bring that in is to do investigational policy address kind of are about to address lab management because that's becoming a runaway cost but you know to think that we would be able to achieve the 25% it would have been done in the United States already so to achieve a portion of that is good progress and we want to continue to do that so radiology we have touched lab we are out to touch but that's not going to be a 2,000 utility that would probably impact the 2020s my guess in terms of implementation and the other policies that we have are built into our claims experience and our projections can we do more I'm hoping that the all pair model in the ACO will help to mitigate costs a lot more than we have so including pharmacy in that arrangement or at least non specialty pharmacy to start is a big step forward hopefully will include specialty pharmacy as well you reminded me that one of the big drivers of utilization has been diagnostic lab kind of work so again that's an area that's often right for over utilization so that's one of your drivers of utilization it's also one of the areas where you know there can be some waste technology solution required and we have to make that investment in the technology to manage that utilization management piece too so we are addressing that actively right now time is of the essence you mentioned the all pair model so let me ask you a couple questions about that and I don't want to ask too many questions because I'm pretty sure my colleague down the road is going to have some questions too but how do you plan to work with the ACO in general to reach scale targets that we have for the state I mean related to this particular filing but also related broadly and we have committed a comprehensive effort at improving healthcare outcomes at lower cost for this all pair model and I'm wondering if you could speak a little bit to us as the state reach those scale targets I have to defer this population I mean we're all in with the limiting factor here is the size of the ACO so as they grow more primary care physicians join the network more and more of our individual smoking members will be in and if all primary care physicians in Vermont were in essentially the entire local population would be a part of the program if you look at the rest of our population there's a whole segment of largely mature and it is relatively small at this point we've talked with the ACO about what is the right time to move that pool into a very similar arrangement to the one in Calvary individual and small group and I think it really is just a matter of timing as they grow their infrastructure and their ability to manage more you know more lives through the model so I don't see any impediments to moving that one in which is for a final block which is quite large is the self-funded block there are more complexities here obviously we're not bearing that risk so creating an arrangement where that risk is shared between the payer which is in this case the employer and the ACO is more difficult one self-insured groups are quite a bit smaller so we very quickly run into issues of credibility of data they want to maintain their status as self-insured so we have to be careful that we don't unintentionally make them insured and put them in a place where they would be violating any laws and then we have to manage the benefit challenges that go with moving away from a deeper service payment to a fixed form of payment where there are two groups that are right next to each other on Main Street have widely different benefits and all shares that need to be administered but we've launched our first pilot our first self-insured pilot is a fairly large group of 10,000 lives and we've been working very hard with the ACO folks to push the model so that it is scalable and can be available as an attractive alternative for other businesses and for modern organizations that are ready to move that way so are you optimistic that by next year you'll have more of your self-insured book of business in yes I think there might be some more whether or not I think broad-based adoption by that segment will trail results and when we're able to look at those folks instead we have some very positive results for an individual small group we have very positive results from our first pilot then I think adoption will move much more quickly folks are really waiting to see okay we know now what it is but we're still waiting to find out is it going to work and what are the issues that comes up often when we talk about reform and provider the landscape of providers and the morale providers is administrative burden both the quality metrics and the administrative burden of paperwork and prior authorizations which I understand have a return on investment but they also have a cost on providers so I'm wondering if you could talk a little bit about just what you're doing how you're trying to reduce administrative burden while still trying to use some cost containment strategies that will be helpful to the consumer at the end of the day but also keeping making sure that those cost containment strategies are not reducing provider morale or creating retention recruitment to Vermont kind of issues sure so as board chair molly knows I've been on the primary care advisory group as board chair molly knows I've been on the board chair I've been on the primary care advisory group when we were talking about this very thing and one of the things we're doing this year for most but not all EMRs is we're rolling pharmacy management into the EMR at the point of care through through technology essentially so that providers have the information at the point where they're making the decision for care so they don't have to it's all kind of rolled into that process and they make more form decisions they can look at the formularities etc etc so that will be, that was very well received by providers in that group and I think will be across the the state however is limited to some of the larger EMRs right now and it's rolling out slowly to others as well so that's on the pharmacy side on the radiology side that was automated there are opportunities, a lot is going to be technology so a lot of human time, effort we need to figure out how to make smart technology investment to bring utilization management transitioning to decision support at the point of care Medicare as you may know is requiring now radiology utilization management so it's being more accepted and where we can harmonize our approach with them that would be a smart thing to do and and I think as we go through our policies we develop them in concert with our providers I was just referencing that earlier in my testimony so the more we can do that the more it becomes the standard for sure and in the future assuming that we have continued development in the ACO we'll be able to work much more in concert with providers around appropriate use criteria building that into the standards of care and care pathways so it's not really, again, not a prior rule that's kind of what we just do because none of this is about medically necessary care and care that improves health outcomes it doesn't help to contain costs but most of it does some stuff as we testified on is a societal choice to make an investment actually it's the pharmacy question maybe I can talk about economy per second which is that $253,000 medication-persistent diagnosis which may prevent one or two emissions a year so you're spending $253,000 to improve quality of life of a kid most of the time you're maybe going to emissions which is far less money than $253,000 but we're making a choice to do so because the right thing to do will be longer so we make these trade-offs around willingness to pay as a society for some things many of these things are over as you suggested can be good cost-containing methodologies to use these ways I think I just have two more questions hopefully how does the rate reflect care management costs so there's money going out to one care Vermont PMPM dedicated to one care Vermont there's money allocated towards per member per month to one care Vermont there is per member per month allocation to ESI I think it's right the express scripts for some clinical management there's blueprint money allocated and then 14% of your administrative costs are related to medical management and quality and wellness so there's a lot of money largely being allocated towards care management clinical management and some of the care management that I could imagine Blue Cross Blue Shield used to do internally has now to some degree I would imagine somewhat being outsourced so one care Vermont is doing some clinical management care management blueprint community health team are doing some clinical management so how do we ensure that there's not a ready to get back with it we are now going to continue with the questioning from the board and I'll go to our board member at the end sure I just want to go back to something that Jess was talking about on page 223 when you talk about the members who are going to lose the 2% that we're taking for those members who are going to join the panel I wanted to ask have you considered any changes in bad debt as well when you made your assumptions we did not and then I know the fact that Vermont is going to reinstate the penalty of 2020 came after the fact of coming up with your 2% do you think that would have some impact on some of the members I'm not saying a large percent but you would assume everyone doesn't have a thorough understanding of we're off on the federal as far as receiving a penalty but it will be come back on at a future time for Vermont I don't think it will have any impact as L&E states with their report guaranteed issue in place so there's nothing preventing these members from leaving in 2019 coming back in 2020 so no I mean I'd like to give you a different answer but I don't think the new Vermont mandate is effective in 2021 have an impact on 2019 okay can we look at page 12 and part of the reason for rate increase 1.3% was looking at the 2017 to 18 medical utilization that was reduced to 1% from 2% by GMCB last year and now you re-examine these and you're restating that again for this filing and just want to understand do you have data any new data that's supporting that actually what's coming in is closer to the 2% versus the 1% or are you just saying that was your original assumption we adjusted that last year and now you're re-adjusting that back is your question in terms of the 2018 experience that we just looked at? yeah the specific part where you added 1.3% for the 2017 to 18 trend component because of the adjustments that GMCB did last year sure I'll answer that in two ways so we did have an additional year of experience that we were able to examine looking at that utilization trend run rate is and again we confirm the 2% I'll also answer in terms of the question is there additional new data kind of since the time of the filing and the same answer to that that I usually give to Ruth to my right which is it's still pretty early to be able to fully assess what 2018 experience would look like so we did include the additional year of experience we had from 2017 we did not include any experience from 18 very early return showed some additional pressure on 2018 rate so we were above what we had anticipated but I did not factor that into the filing and I did not factor that into the trend calculation and is that over and above what you had anticipated or what was filed? that's over and above what we had anticipated we did file our anticipation of the 2% utilization trend and what we're seeing so far is that emerging experience is slightly behind that I can't put a number on it because again it's very early in the year to look at medical claims we can look more concretely at pharmacy claims which is part of the 1.3% as well it's about half of it and as Stella D documented in their report and we've documented one of our questions in the Q&A pharmacy trend is running much closer to 20% for the early part of the year it's easy for us to look at pharmacy trend because those are discreet claims they're electronically submitted so there's really no run out those are almost real time in today's world so we were able to assess some 2018 pharmacy claims again we did not change our trend we did not increase it for that increasing pharmacy trend we were observing thus far in 2011 association health plans where you guys had not originally submitted that into your submission and now you seem to think there's more certainty that that will happen and that was bringing in a potential of 2.2% for rate just probably a little $8.4 million or so that would be contributing and I just wanted to know if you thought about offsetting that AAMT tax which I understand it's also a federal plan and it's not necessarily definite but is assumed to be happening in the later part of the year and if we did that and did not roll through that 2% and assumed we could offset that with the AAMT and there would be time to look at the actuals next year and then understand did you really get the AAMT of $16 million rather than put this into the finally now at this late time and they understand it also puts a moderate 0.1% change for the chiropractic and things like that but I'm just looking at it as they're both federal programs federal things that are running we're not necessarily sure of either yet we don't have 100% surety that the association plans will run in we certainly will know down the road whether you've got the $16 million from the AAMT and whether this is current but one way to capture that would be to offset so I think there are two parts to that response and I'll turn it to the second part in terms of the actuarial work when these association health plans come into being my team and I are going to have to price those as well and I'm going to have to meet the same standards of making sure that they reflect the population that I expect and the benefits that those plans are going to offer so I think that's an important consideration because if we completely ignore any impact they might have on QHD then when we go to price AHP we would I can't make an assumption that that $8 million is just going to disappear from the system altogether it's the same people whether we have them here or over here I'm still going to charge them or we need to still charge them rates that are adequate so therefore whether they're a member of the qualified health plans or a member of the association health plan it's the same bucket of money so we've got to balance both things if we just if we decide to pay that if we essentially decide to decrease rates to pay that out of the AMT to me that speaks to a solvency decision in terms of the CTR that my senior management instructed me to file so for that piece of the response I'll turn it to you and in my response to that it's much like the HCA's question and sort of what would happen if I think I'll go back to the commissioner's solvency opinion which clearly states that one of the fundamental aspects of the tech consultancy is to submit rates that are fully funded and with the knowledge that we have here sitting here today about the association plans for 2019 we believe there will be an impact so that's why we believe we need to file the amendment if for whatever reason there's a cut in the rate or there's some new event that happens that will all come into our surplus and when we review that and look at what's required to sustain our RBC level when those events occur we're constantly looking at it so I think to the extent that if something were to happen maybe there's another rule on AHPs that will come out between now and the end of the year that's from the federal government who will be as I said navigating these waters and the 16 million will come into surplus and whatever our situation is at that time it will be a positive thing because it will help us navigate but there's already so much pressure and financial risk on us in terms of the lower end of our range that it would not be consistent with our need to submit fully funded rate proposals to not file the amendment to this point. I guess the only challenge that might be that if you had the knowledge today we assume we will get the AMT money back today with the knowledge that we have there's nothing saying that we won't get it back so it's just sometimes we're putting things in when we have the knowledge on the association of plans we also do right now have the knowledge on AMT we're just not putting it in because it could change. It could change and we know that the federal government has changed its payment policy so we believe it's appropriate to reflect that when it's received not when we're estimating that we'll get it. Can I elaborate that on that for a second? So even if we do receive the entire view of that $16 million that is not going to push us outside of our solvency range. So we've testified in the past that if we fall outside that range we will amend our CTR and file something that is different from our long-term assumption. If we fall below our range we will have to increase the CTR and try to get back there. If we're above our range we will decrease CTR so again we get back within the range and I just want to make it clear that $16 million is not going to push us outside of our solvency range all else being legal in terms of how claims are coming in etc etc I guess the last question is I definitely applaud the cost containment programs that you have rolled through here Are there any programs you can talk about on the horizon that maybe could be accelerated into 19? I mean we're still just mid-year and 18 other things that you guys are looking at maybe benefits from in 19? I think a example possibly Andrew that you very earlier is one that we're working on and it's on the horizon. You mentioned that our goal was to implement it in 19 see what the results are and then we'll have to decide if that's something that we can incorporate into the right file. I don't know if there's any others I don't know if that's a relatively large one in terms of interacting with members in real time I think was the example that Andrew could give him earlier so that he could get them to good quality hair but for possibly improved results. There's a lot of focus on that one because it's so important to our members Yeah, that then it's going to take a little longer because most of our labs are done by the hospitals and so there are very few independent labs in the state unlike other states and so it will take a bit longer to kind of realize that. Maybe another example I can just offer up as a way to show you that there is a pipeline there's a project that we're in just the beginnings assessing the RLI and that relates to one of the office new data and technologies to apply to automatically checking campaigns as submitted and through we have mechanisms now for that but our understanding that there's new technologies out there on the marketplace and we can look at that. That's just an example of something that we're constantly on the lookout for those sorts of things. Thank you. Member Pelham? Put it up. I was going to put it around this time and so I have some questions having to do with this premium of the RLI the relationship with these premiums that we're by Health Connect and their calculator a little bit on the cost shift and a little bit on some other language that was in the special session budget bill that affects for my Health Connect just to see about your understanding so I'm new on the board and this process of asking questions is a little different from me because usually I used to sit there and have to answer questions but so I'm sympathetic to your position. To get this a sense of scale on your filing cover sheet it says this is worth about $26 million so in terms of these great increases people can talk for member per month things of that sort but the amount is $26 million which is helpful in terms of a sense of scale and these premiums when approved are before subsidies they're before running through my Health Connect where most people will engage their policies so I'm wondering have you do you have information or have you done analysis that shows with these premiums that you're dependent of advanced premium tax credits and cost sharing reductions what the percentage of these what the relationship is of these premiums 2% of poverty the federal poverty level you have not done that analysis so would it surprise you I just did a couple actually what I did do because those are approved rates and there is the calculator for those rates and I could actually tie it out between the calculator and the premiums and so I'm looking at a couple at 250% of poverty that the premium before would be 28% of their income and for an adult with child the premium would be 32% these are bronze plans 23% and across all four plans so if you do a matrix of individual couple adult with child and family and then the 6 income levels across the top of the federal poverty level chart that those the average premium is 27% of income and so I know that we have a second next stop of the training which thankfully we do have that but would you consider rates in this arena as being affordable or un affordable as a percent of income I think the Vermont legislature saw that they would be unaffordable at 300% and thus the existence of those programs that you talked about providing state subsidies that are also federal subsidies for those individuals well that's exactly what I want to get to in a minute okay so I went down through these just to tell you where my numbers were that across all the silvers the average is 33.3% if we did that matrix across all the goals it was 36.6% and across all plattons it was over 41% so then when you go to the Vermont Health Connect calculator and you start running your premiums through that system it makes a big difference I mean affordability is really affected by almost 100 million dollars of subsidies that exist in that calculator which we haven't really talked about today so the bronze plans as I found and there is no standard of affordability I agree in your answer to the healthcare advocate that there is no we don't have a standard and we're all using our best judgment and trying the best we can I think there is one standard in the affordable care act of about 9.5% for an individual without help from an employer so it's just kind of a rough measure looking at the bronze plans most of them seem to be affordable and meet that criteria but as you start kind of scaling up to silver plans they become kind of by that standard unaffordable at around 400% of poverty and you go to the gold plans at around 250% of poverty and at the platinum plans around 150% of poverty so as your income goes down it's a relationship that makes sense so it's clear to me that these subsidies are are key to affordability so let me just kind of leave that alone and go to the next area which as you mentioned the cost shift the cost shift is you have it at $393 million in 2014 up to $491 million in 2017 and the Medicaid cost shift at $209 million is the actual number you had it from the end before and you have a subsequent number that's right and you talk about collaborating with the state to provide seamless and rolling management of the products offered to the Vermont Health Connect I'm sorry I'm sorry I can't hear you with the background list I just couldn't hear that last phrase so in their filing they said that they collaborate with the state to provide seamless enrollment and management of the products offered through the Vermont Health Connect so have you had discussions with the state relative to the filing for 2019 as to how the subsidies that the state might make available to make these plans more before so the process as we come to understand it over the years is that once the rates are approved the Vermont Health Access will take those rates and run it through the technology that matches that up to the calculator and they'll update the calculator we have not one of the 2019 rates through that view that is your question once those rates are up and running we do coordinate very closely I think the seamlessly references it's getting at we work very closely with the department of Vermont Health Access on the outreach and the communications making it really clear what the changes are and how folks can navigate the new plans or in this case this year we have the silver solution which we're working very closely with to make sure that the community my understanding is that the Vermont premium and Robin can correct me if I'm wrong here but the Vermont premium assistance is in this title so from a state appropriation point of view it's not a fixed amount that has to be managed to it's in addition to the as premium credit that's how it's worked in the past it's additional it's actually a separate plan design so if someone's eligible for the Vermont premium assistance their plan accounts for that right in what they see for now and do you know because I don't whether or not the cost sharing reductions sponsored by the state not the federal level are the state cost sharing reductions in entitlement or is that a amount of money that the calculator has to manage to the way cost share reductions work is that it's based on the claims that are paid so my understanding is that the state estimates what they think they'll pay for the Vermont piece of cost share reduction and then they pay that based on enrollment but at the end of the year we set it up based on what was actually paid for claims and what sort of cost share reduction was required to have that person experience the appropriate cost share so I'm not clear if you know if that's how it works but it gets true up it's not just an open ended entitlement exactly so here are the numbers for 2018 the Vermont premium assistance was 6.6 million and the CSRs were 2.6 million that's from the JFO documents you can go online and do the budget tracking documents that's what you'll find for 2019 the legislature has appropriated 7.1 million for Vermont premium assistance for only 1.4 million options so that's a decrease from 2018 from 5.6 million to 4.7 that's just the general fund share do you have any sense as to why the legislature and the government would have decreased the cost sharing reduction appropriation? I don't actually fairly limited understanding is that the legislature for whatever fully subsidized CSRs that was not to say that the benefit is going to change they do expect the benefit to remain they do expect that the total outlay is going to be 2.8 million dollars and they're going to have to find that minus somewhere but for my understanding of the negotiations that went on they only included the 1.4 so let me I don't have much more here I just wanted to go over the discussion which you talked about which is the legislation that affected you the cost sharing with relative chiropractic and to breast cancer did you have any discussions with the state as to them passing the law at the end of the session but not appropriating any money for that's an interesting question so my understanding is that if there are new mandated benefits the state is going to take those the way the state has approached these types of changes in the past is that it is not a new benefit but rather it is a big change in cost sharing and as a result that needs to go into premium rates as opposed to having the state appropriation so I'm trying to make a connection between the actual appropriations going down and the legislative pressure going down for services and benefits did you test finding those two bills having to do with those two changes in benefit we did we did so I'm just to kind of close the loop here there in in the appropriations bill there was change to the language to a reserve called the human services caseload management reserve are you familiar with that at all so in 19 and here again you can go to the joint fiscal office and find these that is in the general fund and for fiscal 18 they had 22 million dollars in that fund for fiscal 19 it is up to 100 million dollars it's a huge increase and I know something about that fund because when I was finance commissioner we created the dean administration we used it to stash cash that we knew the legislature wouldn't touch to be frank with you because they wouldn't want to take it away from human service program but this is a huge increase and I'm told I don't know for a fact that that increase was driven by the kind of true often settle up of the mount health connect and that is money that can be used and I'll read it to you a sub account for medicaid related pressures relating to case load utilization changes in federal participation in existing human service programs and settlement costs associated with the management of the global commitment that's new language and what the legislature did is kind of assign it to two areas one is the incurred but not reported associated with global commitment and the other was for this language and assigned to that language is $14 million and finally and this is the question you don't need the law is structured such that you don't need the legislature to appropriate the money they can be appropriated by the emergency board and the emergency board is combined of the governor and the chairs of the finance committees money committees and the house and senate and so when we get to an issue like the individual mandate which is an upward pressure on rate payers and L&E has estimated that the amount associated with just the individuals who in my opinion are under the most pressure because they don't have an employer helping them etc. the cost of the individual mandate to them with premium the 1.2% increase would be a little over $3 million and to to about $1 million so would you consider going to the emergency board and asking them for because this individual mandate is a one-year event it's an anomaly and rather than lose those people in the system and hope you get them back a year down the road just to try to find some incentive to keep them in the mix would you be willing to consider going to the emergency board given that there's 100 million dollars in the human services caseload reserve now to help mitigate the burden on rate payers of your premium filing so in L&E my colleagues to comment as well I wouldn't rule any idea out at this point for dealing with the curve falls frankly that are coming from a federal level there is a federal the board has organized the federal issues working group which is a very collaborative stakeholder group to look at ideas and my suggestion would be to have that group excuse me think of whether or not that might be an option in the case of the current or future so if that would be part of this good idea and I don't know what would be involved like I don't even know who has to move it go to the emergency board and ask them to follow and I'm sorry to interrupt but we're not a government agency so I'm not sure how we could get in under that tent I do understand that but your premiums are directly related to Provide Health Connect and what people buy so they get filtered through that system and I'm making the point that there's new statutory language that is specifically directed at Provide Health Connect where they reserve that now has a hundred million dollars in it and it shouldn't be off your screen that's all have you conducted a market analysis about the competitiveness of your premium rates competitive this in yes quality rates are filed across all the rates by that level and how different similar rates are that's a market analysis that would be something you do internally yes and actually this year we took an additional step we did hire a small research firm to do a little external research for us on our current position in 2018 our anticipated position in 2019 and to get a little more insight into purchasing drivers what would cause people to think about or how people were thinking about the premiums and what kind of choices they would make as they go into home care we've only seen the preliminary results of that the detailed analysis is due to us actually next week so any information from those preliminary results were not available for integration if you're finding no we received the preliminary stuff on the 18th or the 19th it was just last week and it tells us more about how people are thinking about the purchasing decision then I think at a level of detail that probably would be helpful to fall and those practice actuarial science okay, thank you related to the case management initiatives in your filing you indicated that you're working through some new workflows related to identification of individuals before they become high high-cost and complex cases quote-unquote how are you integrating these workflows with the work of One Care Vermont so that we actually meet with them so we have a data analytics team that meets with One Care and talks about this is using the the MCRG prover jump to risk levels between those groupers and so we have a shared pool of patients that were identified for case management and so then those patients kind of float to the top of the queue if you will for either on our side or in collaboration with ACO okay you also indicated that I'm sorry I don't have the page number of your filing but some of the technology costs that would be additional related to new case or care management would be about $150,000 yes sorry about your business problems okay do you have different care or case management processes for ACO members versus your general population so we are developing those right now so again we have a case management group that is doing exactly that work at this moment what if any are you considering in terms of reduction of prior authorizations in a future ACO program so yeah so this is kind of a question of how they would implement utilization monitoring so that they can we can kind of move that it's becoming a shared recipe much more partnership which is good and but for 2019 I think it's more of a 2020 initiative but I think that definitely is the future have you looked at what Medicaid has done but the results are not just my understanding so yeah we have what they have done and we're anticipating what we can do for your 2019 ACO program for the qualified health plans are you moving to a fixed payment model for 2019? yes why not well there's a lot of good things we did in the contract we got RX in but we said it was important and I think one category but this largely it's important for a commercial market to have some opportunity for the clients to share in the initial website I think it builds a lot of credibility and it will absolutely help us as we return to the group market there are technical challenges that are not insignificant that also made 2018 for 2019 or 2017 or 2018 significantly less attractive we will revisit this with one care at the first quarter of 2019 to ask as we move into that year when attribution is settled are we at a point yet where we can at least move some of the back-end payments so there are mimics fixed payment system but then there's the final hurdle that we'll have to work through and this is a commercial monthly challenge which of course is to map them to benefits even within the QHPs where there are not a lot of benefit plans we have a very wide disparity in cost share and if we move to a place where we're doing a global PMDM or a global budget then we have to figure out a way to fairly charge member Y with a bronze plan their $3,000 deductible versus the platinum plan and their $500 deductible and we're going to have to work through the mechanics of that particularly because we do have folks that are using health reimbursement accounts and health savings accounts so for some folks there can be real serious tax implications to the way we manage that how will your attribution numbers shift if your predictions around the association health plans come true I think it is not likely that they shift at all there's a lot of caveats there the association health plans themselves are still waiting for final rules and so the associations have given us a strong sense of what they're interested in and what they want to do I suspect that the ACO will be a pretty natural fit for them and that we've already taken that first step with individual and small group is likely to lead most of them to continue to participate in the ACO I think I think we're very likely to see any of them become the ACO it's not for us we want you to rethink this decision now that being said we don't know the whole universe of folks who are interested in association health plans only those who have spoken to us so we could have a third party Oscar show up tomorrow and propose something wildly different that we haven't anticipated but I kind of see it being a major disruption to what we're working on so isn't the ACO program part of what you file in your forms don't know if there's a panel specifically in the form of like I don't know but maybe no I can ask DFR there too so so you don't see any issues with offering the ACO program to an association health plan regardless of what plan the associations eventually have yeah so for now it looks like the majority of interest in the association health plans is on the fully insured side and in that case it's our risk so our default position would be where it's our risk we're doing the ACL individual and small group so an association would have to push back on this very hard and say well we have a reason why we're not there with you but I don't see any evidence that that's likely to come to pass okay thank you a lot of my questions have been answered so I'm trying to get to any more in your filing you described at a high level some of the outreach that you would be doing related to both the silver loading quote unquote and the individual mandate but could you more specifically talk about your member outreach that you will do related to those two issues yeah I think as you mentioned we have described this in some detail in a couple of places I find the references for you that's helpful I actually did not think it was in some detail I thought it was in a very small amount of detail to tell you the truth but unfortunately I'm not directly involved in this work but what I know is that we are always proactive and reactive customer communication is extremely important so on the proactive side we're a part of the WALTE stakeholder working to think we've referenced this before healthcare advocates are on that group NDP Diva participated in that and together we'll be working on one of the messages, one of the themes one of the mediums that we can all tap into is the group of broad based communication strategy that will include written communication, postings on our websites we leverage our social media tools to get the word out I'm sure we'll have a broad canvas of tools and we know that it's particularly important this year because of the silver solution inside the organization we've already begun training the dedicated team that works with individuals in small groups as they're trying to make purchasing the product decisions so there is a small group of highly trained individuals who just work on this problem they'll be fully trained on the silver solution and be able to field questions and where they hit their limits regarding the calculator things move people to the right resources and get those questions answered and I'm sure that our larger customer service team who doesn't specialize in those services they'll also be cross trained so that if they identify people struggling with those issues those calls to the dedicated team that does them Are there any plans around auto enrollment or auto mapping to new plans related to either individuals who should be switching plans or small businesses for example who should be switching from the silver exchange plan to the off exchange plan so I don't know the specific answer but you know that one of the areas of improvement that will not connect is with sharing for the upcoming renewal and they put together a we call it a passive file of all of the renewals that are coming over and it's that file that will control what plan the membership is selecting or being rebooted into for 1-1-19 so I can take that question back to the folks who are working on that and see what the answer is and that makes sense for those who can help connect but what about the individuals directly emerald for you and small businesses directly emerald through you It's very much what Andrew just described we would be hard to go individuals that we feel need to or are affected by changes in such a way that they need to be real clear what they would like to do and that we've got their real wishes understood correctly and to the extent that the service and the outreach and the visa to the extent that there's any communication that's required and we're doing that very directly in person there is no plan to auto place people that was sort of a thing in the past when things were crazier than they are now So I believe that Blue Cross's position on the state individual mandate was supported without your understanding Yes And could you tell me what testimony was provided to the legislature regarding the impact of not doing a penalty for 2019 by Blue Cross I cannot We can dig that out Thank you Related to the association health plans what was the date the federal final rule was released I believe it was June 22nd That's not the date June 2018 Yes And the state rule is not yet released Correct And then as discussed earlier there are a lot of enrollment and population shift assumptions in the current rate filing including those related to the individual mandate those relating to the association health plan those relating to the shift in business last year I might have missed one in there Is it fair to say that enrollment assumptions are one of the more challenging aspects of actuary of science Yes, it's fair And in your assumptions related to the association health plan did you make any assumptions about sole proprietors No we did not and we did not for a few reasons There have been studies that have been published on the impact on sole proprietors in other markets For months a little unique for many reasons One of them is we don't do age rating as we discussed earlier So in other markets it would be very easy for a sole proprietor to take a look at rate for a 42 year old in a qualified health plan and compare it to a rate for a 42 year old in an association health plan and make a decision that they can live with That is not really going to be the case in this market because of age rating So sole proprietors will have to make some choices not really knowing or understanding what the rate difference is likely to mean to them The evidence in other markets are that rates will increase because of sole proprietors leaving the individual risk pool and moving to AHPs We didn't think that was appropriate to include in our filing both for and it's going to be harder for them to compare plans because many sole proprietors are going to be receiving subsidies and therefore are being incentivized to stay with Vermont Health Connect Those are really the main reasons that we didn't include them I think it would have been a reasonable assumption to include something for the sole props in year two That would have increased rates further but we decided not to go down that path Thank you Federal Association Health Plan changed the federal preemption rules related to state law And if you don't know that related to the Vermont vaccine fee Have you received any final guidance from the Department of Health about the cost of that fee or tax whatever you call it Final number We were provided updates to how they were going to roll services in that program forward and I'll let Paul speak to if I believe we have the latest information that is available on the limits and the rates Yeah, it's in the range We basically assumed that they would waive the for a number of months that was more or less equal to the amount of time they would need to get their funding back down to this reasonable level Based on information I've seen since then, I'm not entirely sure that the premium holiday will last as long as what we assumed, but it's really a very small amount in the filing So if the latest and greatest information is a little bit different, there won't be much of an impact one way or the other Great Other than $150,000 investment in technology related to care management, are there any other healthcare reform investments that you have included in your finding? I want to make it clear that $150,000 that you're referring to is not included explicitly in this filing That's money that occurred in 2017, so it was not part of our roll forward So that $150,000 is not in here Beyond that again, our process is to start with what we spent in 2017 and as much as that includes some initiatives to move forward with these cost containment strategies that already existed that will find its way in the 2019 projection as well but we did not increase the projection anyway for any of this future activity beyond just that training forward that we always did I can just add that our basic budget includes a number of resources who are dedicated up to one who is full-time and several who have from 10 to 50% of their time allocated to work on the interface with the ACO and that's both on the legal side the primary payment side on the medical services side and on the other programs that have gone on some of Josh's nurses sit on the community health teams within some of the blueprint communities We have quite a broad base of engagement built into the base admin budget and I don't know if we could easily draw an outline around and tell you exactly what those are Thank you I'm just going to take a minute to look at my notes so I think I should be pretty much done If I remember correctly you have filed a lawsuit against the federal government to recoup the cost sharing reductions that were defunded I can speak to that both situations with the federal government the defunding of the CSR and then the risk corridor program which is one of the original three R's of the ACA we worked with two different law firms to retain them to provide a lawsuit to see if we can recoup those monies they will share in any recovery that we get some will have a long shot that we figured on behalf of our members in Vermont and our regionals don't return Great, and what's the status? The risk corridor one is running into trouble where we're pretty much in the same situation as public plans nationwide and to the extent that there's a lot of similar lawsuits there was a ruling that it would sound like that it wasn't going to go our way on the risk corridor one On the cost share reduction we're still in the process of getting a ruling on the first step in the process and we remain optimistic that Vermont's in a unique situation because a lot of the other states have regulatory frameworks had contingency plans for 2018 in terms of rate changes and Vermont is unique in the sense that we in one of the jurisdictions will not have that option so we remain optimistic that the CSR-1 will possibly yield some results but it's way too early to tell Great, I just have one last question You've mentioned this speculative nature of federal payments and I just wanted to clarify a couple of things The cost sharing reduction and the risk adjustment were both programs that were established in the Affordable Care Act, isn't that right? It's true. The alternative minimum tax change is a different piece of legislation that was passed in December last year I believe That's right, December 26th 2017 Thank you We'd like to move on now to our next witness I wanted to say that I'm not sure how long the Department of Financial Regulation will go but we do have witnesses here from Dallas who will not be returning and I would like to get them done so I would like to finish up the questioning and if they are not finished up by about it'll be 3.30 we are going to go right from DFR to the actuaries and come back to DFR at another date it looks like we are going to maybe have to take some evidence and some questions coming in and then we may have to open up for more testimony so I will let DFR proceed but we may be interrupting you in about a half hour or so depending on how this is looking Are you just going to testify or is your attorney going to... I was just planning to testify and then of course from the board and from the other parties here as well So good afternoon I'm Mike B. Jack I'm a commissioner at the Department of Financial Regulation and first and foremost I want to thank the team from DFR that's here that helped to review this filing like always they did great work and I just want to thank them to recognize them for that work and then secondly I want to also just recognize all of us in the room for a second because I just came back from a National Association of and I look at some of the other rate filings that are occurring across the country I think the average of this year is double digits maybe even high double digits I know the Maryland commissioner the rates went up by about 80% that's at least what's filed in California I think they improved an 8.7% rate increase and it was reported on that that was back to more modest rate increases so as you can see from across the country people are really dealing with this issue of rate increases in a much more dramatic way than fortunately we are in Vermont many of the states are also dealing with coverage as well so carriers pulling out of the market and not in their entire state being covered so again we don't have that issue here in Vermont so I think everybody to some degree has to take some credit for that in the room both the three mountain care board the healthcare advocate and also the carriers as well so I was just going to talk a little bit about DFR in our role in this process and an overview of DFR so that you have some familiarity with that talk a little bit about solvency talk a little bit about risk based capital RBC that you've heard today about generally overview our oversight of Blue Cross Blue Shield talk generally about some impacts of solvency that we watch out for and then turn to our rate or sorry our opinion letter that we issued this year and talk specifically about the issues that we highlighted and then of course take any questions that you might have so that those that might not be familiar the department supervises the securities industry, the banking industry the captive insurance industry and then also the traditional insurance industry here in Vermont I consider ourselves first and foremost a consumer organization we protect consumers we protect them from fraud we protect them from products that are not good products for them we handled in the last five years about 1800 inquiries from consumers returning to them about 11.4 million dollars in restitution on top of that we've had about 100 million dollars in penalties against regulated entities in the state so I think first and foremost we think of ourselves as a consumer organization certainly when you're talking about solvency solvency is the primary number one consumer protection in the insurance arena and that's something that we take very seriously we also have a mandate to make sure that our markets are robust that their availability of products and that those products work well for Vermonters so by numbers we have about 1400 licensees that do business in Vermont that are carriers that are doing business here in Vermont a dozen or so of those are domestic insurance companies when they're domestic insurance companies we obviously take a much greater interest in their solvency we're the primary solvency regulator so when we're talking about solvency I mentioned it being the primary number one goal of the department because we need an insurer to be around to make good on the promises that they've made to consumers whether that's a life insurance company a PNC company or health insurer as well so solvency is really what we do to create a consumer protection something that we hold in the highest regard to help us review solvency and understand solvency and look at those 1400 different carriers that may be operating in Vermont and other states the NAIC has developed what's called risk-based capital it's a ratio for us to uniformly and objectively look at the surplus adequacy for carriers across the country compare them to one another and then determine where they are in the trajectory and where they may be to insolvency the RBC was developed in the 1990s as a result of some insolvencies that occurred in the 1980s prior to that there was basically a fixed capital requirement so if you could put $5 million away you could operate in our state that turned out not to be sufficient because obviously there was great risk beyond just being able to put down that $5 million so RBC is something that's developed and specific for industry types so there's a health care RBC life insurance RBC so there's specific by the type of industry and the type of insurance that's being provided I will mention that has been talked about that the RBC ratio for Blue Cross Blue Shield has been approved for ranges between 500 and 700 RBC points I'll also mention that on average all of the health insurers in the country together their average RBC based on NAIC data from 2016 is 925 so even the average RBC of all of the health carriers in the country our range is below that but we still think our range is reasonable and provides a level of solvency to Vermonters and to the Blue Cross Blue Shield organization as well so again the general oversight of the Blue Cross Blue Shield RBC is one factor one of the downsides of RBC is that it looks historically it does not look into the future it's looking at past results and obviously when we're with the insolvency the trends are but then also what's on the horizon and how that's going to impact the company so generally when we're reviewing Blue Cross Blue Shield we have quarterly financial statement reviews we look both at the financial statements on their face and also do certain analyses on those that provide the tools from the NAIC that allows us to look at certain ratios we also have an annual review that we conduct that looks in more in-depth as to the company's financials claims of analysis investment analysis and that is obviously much greater in-depth review we also do examinations at least every five years we completed one in 2015 so there's another examination and not to this in future that we will conduct those are very long intensive reviews nine to twelve months they're on-site they're looking at almost everything but we certainly focus our attention on things that we think have a greater risk exposure for consumers and then we also have what I just call sort of intermittent meetings when things come up we need to get certain data from Blue Cross Blue Shield and we need to talk to their executives or their experts we do that on a somewhat frequent basis so I can talk generally about some of the impacts on solvency that we mentioned in our solvency opinion these aren't necessarily specific to Blue Cross Blue Shield this year but these are threats to solvency that can happen in any given year one is certainly adverse medical trend the cost of service has been higher than the amount that Blue Cross Blue Shield anticipated mean that obviously will go down the bottom line decrease surplus and decrease RBC adverse utilization so this would be a situation where people are using more healthcare than was anticipated whether it's the economy is better whether it's that there's a flu outbreak or some other sort of issue on a medical side that could certainly cause adverse utilization there's premium inadequacy so premium inadequacy could mean for example the board Blue Cross Blue Shield doesn't get the rate that they need from the board certainly but it also means administrative expenses could be more than were anticipated there could be issues relating to federal healthcare we thought that was so significant that we broke it out into a separate risk factor this year but there could be a number of issues that impact premium inadequacy membership growth is another one I think of that sort of as increased risk and I can talk about it a little bit when we get to our specific opinion but when the growth in membership occurs if there's not a corresponding growth in a surplus then that increases the risk and reduces the RBC and has a greater impact on solvency and then finally we thought it was so significant that we pointed it out this year federal healthcare policy there's been so many changes in the last two years around in healthcare policy at least those that were intentional decisions have all in some ways seemed to have undermined the ACA or that was their intent we'll also talk about a federal change to taxes that was somewhat unintentional as far as we can tell in terms of its impact on health insurers but certainly will benefit potentially health insurers but certainly the trend out of Washington DC has been healthcare policy that's been unpredictable and that has looked to undermine in some respects the ACA so with that I think I will turn it over to our specific opinion this year I think you have that filed and it's probably less as an exhibit number I don't have in front of me but there are a few things I want to point out a little bit different this year than in past years certainly primary is the drop that we've seen in the risk-based capital ratio so the risk-based capital ratio has trended downward since 2014 that is a trend the trend is one of the things that we look at we look at what the numbers have we also look at where things are trending the trend has been unfavorable it's a pretty significant degree in the last three or four years also the current status of the RBC not only has the trend been negative but it sits now toward the bottom of the RBC range so that's something that is of concern to us again as I mentioned RBC is one metric that we look at I included another one in the Solvency opinion this year that I thought helps illustrate the point if you look at the 2017 numbers from Blue Cross Blue Shield compare them to the 2013 numbers in 2013 they had $420 million of earned a premium and they had a surplus of $132 million fast-forward that to 2017 the premiums earned have increased to $578 million that's for all covered lives that's not just for the exchange but their entire population that's an increase of about 37.4% but if you look at the surplus during that same time period it's gone from $132 to $134 million so 1.2% increase so basically what's that is telling us is that their risk exposure has increased pretty significantly at least 37% but the population the amount of money that they have to offset swings like adverse utilization medical training all those other Solvency issues have gone up about 32% we compared that to some of our other companies that we regulate the increase in premiums was somewhat similar the other companies we took a sample in they had gone up about 36% but their corresponding surplus had gone up about 38% during that same time period so again comparing them comparing Blue Cross Blue Shield to itself that's certainly something that has given us cause for concern for us then lastly again the Solvency opinion touches on this well but we see a wide variety of federal health care changes that have been impacting potentially low impact and also unknown impact into the future so CSR funding was certainly something that had been talked about for a while but when it happened it happened very quickly certainly impacted Blue Cross Blue Shield because it didn't receive payment obviously impacting Blue Cross Blue Shield during this current year fortunately there was the silver loading solution that we implemented however I will just caution and mention this in the opinion that Secretary Azar who is the head of health and human services indicated that they could not do rule making to prevent the silver loading solution for the current plan here in 2019 but it wasn't off the table in future years so even the solution that we've come up with and something that we again looking out into the future highlight as a risk factor association health plans this is again a federal policy the department is working to implement a robust regulatory regime around health association health plans we think if we don't do that then it leaves us susceptible to out of state plans coming in that maybe are not offering as high of quality or as robust of benefits so that's something that we're working quickly to try to implement emergency rules but certainly it will have an impact on the association market we also touched upon the individual mandate a limited or short term duration plans legislative fixes have mitigated those impacts to some degree but again those are things that the primary effort in my opinion was to try to undermine the ACA we've mitigated those impacts but we'll get to see what the true impact will be in 2019 going forward also at the time of the opinion the risk adjustment program was put on hold and I think this just demonstrates again the uncertainty of federal health policy so I think our overall message with our solvency opinion this year was that things are trending down they're at a very low point in their RBC compared to previous years and with the current federal environment it's not a good time to be trending down at the bottom of your range that this uncertainty in Washington DC makes it very difficult to predict what will happen in a given month or a given year or a couple years out so that's why I think you see some increased urgency in our opinion letter this year so I do want to mention one thing before opening up to questions because there was a benefit in those federal changes relating to the alternative minimum tax and the elimination of the corporate alternative minimum tax so as you know Blue Cross Blue Shield is scheduled to get payments over the next let's call it five years the first one being at the end of 2019 at the earliest maybe in early 2020 we issued a permitted practice this winter that told Blue Cross Blue Shield that they could fully non-admit their deferred tax assets so basically they're going to get $16 million in 2019-2020 we said that those dollars since they're so far out into the future should not be reflected in their financial statement because otherwise it would be misleading and overstated those are monies that cannot be used right now today if they needed $16 million today they couldn't go to their bank account and grab it they probably couldn't do that for all or most of next year 2020 the end of 2019 is the earliest that they can access those funds and obviously the same is true for all of the following years after 2020 so that's why we issued that permitted practice and I just wanted to make that clear to the board so again that is to say again schedule whether or not those payments actually come to fruition there's something else that we put in our solvency opinion and just caution to the board we hope that they do but with the changes that we've seen in federal health care policy the last few years there's certainly not a certainty and we want to reflect that our opinion thank you I'll call that question from the carrier do you have any questions I have no questions this week HCA good afternoon let me just make sure that I understand I think I do the various with the various RBC levels under 70% is the mandatory control that's correct under 100 and between 70 and 100 is authorized control level what's between 100 and 150 so at 120 at 150 to 100 there's mandatory regulatory you know reporting and controls basically we have to set some sort of regulatory regime that's going to be in place and maybe mandate that the company do certain things such as race capital in this case because from across Blue Shields and on profit it's hard for them to do that or if impossible we might have to say you have to have a mandatory rate increase of X% on certain segments of business or we could you know I guess potentially require a merger or some other sort of more serious situation and then between 150 and 200 what's that yeah so around 200 between 300 and 200 depending both on the basically how quickly they're going down and then also at some point when the RBC ratio hits a certain point at 200% we also require company the company to issue issue us reporting about how they're going to fix the problem that's going on so this isn't us telling them how they're going to fix it but the company coming up with its own solutions so all of those things I just mentioned could be solutions race capital and do that very readily because they're not profit could be a merger it could be cutting back on certain lines of business all of those things are not very good so basically if it's under 200 they've got a follow-up plan if you want explain how they're going to get hold of it or potentially 300 but yeah and then under 300 is that called the trend test level between 200 and 300? yeah so if they're trending down to a significant then they have to do that same type of reporting to us as if they're at the 200% RBC okay and then if over 300 that's been no action level yeah I mean there's no action statutorily I would say that between 500 and 300 the department informally would want to know what they're doing to get back into their range and then also of course I want to point out that Blue Cross Blue Shield has their own RBC targets and triggers so at I think it's 375% Blue Cross Blue Shield parent association is going to come in and acquire additional reporting additional information about how they're going to get back into a more positive RBC range I'll just mention I think the real issue is becoming between 400 and let's call it 200% because if you have to start meeting very regularly with the parent of Blue Cross Blue Shield with myself or their department it distracts you from your core business operation it takes time intensive and resource intensive so that's not a position where any insurer wants to be you know NBP's RBC is essentially wrestling Blue Crosses right so you may be familiar with this but NBP is not a domicile company here in Vermont so we look at their rate but we don't look at their solvency in the same significant degree that we do for Blue Cross Blue Shield sure they're not going to sell it but if they will you have a concern about their common RBC well you know RBC is obviously a confidential member so I'm not sure how you would get NBP's RBC but if any company were trending down if any company were at the bottom of its range then certainly we would have the same concerns yeah NBP's RBC is in the answers to one of the L&A questions in this procedure you understand the 16 million Blue Cross will get that's not included you understand that's not reflected in the degree final well there's a couple things to point out there one is not this year it's going to be earliest 2019 maybe 2020 and then secondly the money is not guaranteed in our union it's money that's scheduled to come to Blue Cross Blue Shield but in this current administration in Washington DC certainly this was an unintentional windfall if you will to Blue Cross Blue Shield because of that it gives us a greater concern whether the schedule will actually be paid out as we anticipate it you understand though as member one said the windfalls that will come to Blue Cross is not part of the ACA it's not something that HHS has authority over it's the IRS it's a separate bill the IRS has not had a history of not refunding money that is what Congress has mandated that they refund I think you'll agree with me that all of those agencies report up to the President of the United States and I think that's where all of these healthcare policies are emanating from and again because it was an unintentional decision I think that raises the level of concern that the schedule is paid out as it is and I also do just want to touch upon this idea that it's not reflected in the rate from my own review and our team's review that the contribution to reserve normally at 2% has come down to 1.5% reflective of not having to pay federal income tax into the future and I applaud Blue Cross for this they're not trying to get back the reduction in the CSR payments and this year's rate filing but anticipating using that ATM tax credit in the future to mitigate what would otherwise be a risk would otherwise be a rate increase so that is good and then also they've also very prominently said that they're going to use all of the remaining money for risk for sorry for rate mitigation in the future and that is what they've said so I think we understand I didn't understand at the beginning of this Blue Cross' position that they're dropping what they call contribution to reserves what the federal government calls profit they're dropping that from 2% to 1.5% not because they're using any of that 16 million or any of the 14 million in the next years for that purpose but only due to the second part of the windfall which is they're going to pay federal tax in the future for that one PCS but of course they didn't you know there's 6.5 million dollars I think they lost due to CSR defunding and that's not incorporated into the rate because they anticipate using that alternative tax of payment to mitigate that increase and also again it very publicly stated that they're going to use the remainder for rate mitigation no they have stated that did you agree with Blue Cross that a point of RBC is about 4 million dollars I believe that's correct for the Blue Cross from SHIELD and their revenues did I get that wrong sorry a million a million dollars in a CTR if you reduce CTR from 2% to 1% to 1.5% that's worth about 4 million dollars so the other way is 4 million dollars if you increase it to 4 million dollars right so this 16 million that they'll get back from the government that wouldn't be equal then wouldn't it to about 64 points of RBC yeah I think in the Blue Cross for the SHIELD answers to one of the questions I know they came from the healthcare advocate for the board showed the impact on RBC for those various funding amounts and for the 16 million I think it was about 64 points and of course for just carrying that out for 30 million that would be 120 million I'm sorry for 30 million would be 120 I understand it would be about 100 yeah I mean it's not many the more the greater the contribution the less the point is worth I think I just need to suggest that all else being equal if they get the full amount I understand the impact of the around 100 points on RBC on page 3 of your your solvency opinion you know that membership growth is risk factor if the company is growing if it's going to run out of a higher RBC well the opposite the opposite is also true if the company is shrinking then it can have a lower RBC that's correct now again we look at Blue Cross for the SHIELD holistically and if you look at that premium earned number there's also a per member monthly number there as well and both of those numbers have not up so when you look at Blue Cross Blue SHIELD globally their covered lives have continued to increase even if those in the qualified market has increased this 500 to 7 percent 500 to 700 percent RBC range is that something that the department mandates sorry have you put out a border of mandate in the Blue Cross retain a RBC ratio of between 500 to 700 so it's definitely a department mandate I mean that's something we've worked with Blue Cross Blue SHIELD and set that parameter again we think that's a reasonable parameter given the situation and the stability of our market and again I just referenced the fact that on average the RBC number for all other health carriers is 925 so even our range is considerably below that but again that's a range that we worked with Blue Cross Blue SHIELD on with our financial team and something that there's a mandate from us for them to work in by the way should that 925 is the number for all carriers and not just all Blue Cross no all health carriers all health carriers in general have much lower RBCs than the non-profit some could you're pretty confident that 925 is country wide all carriers yeah that's an AAC statistic the um so is there an order that you or some predecessor of yours has put out saying that Blue Cross must have a 500 to 700 percent RBC we don't do it by order but again we've had we've mandated that via our general regulatory oversight for Blue Cross Blue SHIELD and the mandate is in what form I mean is there anything in writing with somebody an outside an outside of the city there's not but again the RBC and the function of the RBC is really a regulatory role so not necessarily I think the inquiry in this instance but something that we worked with Blue Cross Blue SHIELD to get them in between that range and also mandate that range was it something that was the 500 to 700 percent RBC was that something that was initially targeted by Blue Cross that if you all say Blue Cross that's what we want so Blue Cross Blue SHIELD it wasn't sort of a number that was picked out of the sky it was something that was done with great thought on Blue Cross Blue SHIELD pretending to us a range we looked at that and then we confirmed and included that as the mandatory range I understand Blue Cross Blue SHIELD is engaging in a process of looking at whether that's the appropriate range again I guess both actually financially and other sort of analysis that go into that but that was something that's developed by the carrier brought to us we review for reasonableness and then approve and mandate I don't want to spend much time at all on this because I haven't read their amendment but you're familiar with Blue Cross amendment on AHP yes am I correct in understanding I think I am based on an answer that Blue Cross gave to the chair that this new AHP market Blue Cross wants to is actively trying to participate in that my understanding is that there are individuals in Vermont that are trying to actively participate and they've reached out to Blue Cross Blue SHIELD okay and were you here for the Blue Cross testimony where Blue Cross said in answer to a question by the chair we hope to be selected as even the carrier on the risk for the ASL provider in this market and they also said if and when we are selected we're going to participate in this market were you here for that yes okay but does it trouble you at all that what Blue Cross is now trying to do is to charge the individual members the QHP purchases or products that it's going to create or help create or participate in that takes some of the good risk out of the QHP pool and so Blue Cross is charging the people in the individual market so that it can additional money in this new QHP market at the same time mess up the individual market as the insurance commission is that trouble you at all well what troubles me is again the federal policy that's been laid out what would trouble me more is an out of state carrier coming in taking those lives away from our change and not having the robust regulatory requirements that our emergency rules are anticipating having I would suspect that any carrier in Vermont would react to from a business perspective would react to change in regulation particularly at the federal level so in some degree Blue Cross Blue Shield is not responding to this thing that none of us in the room have any control over that would some much trouble me and then again it seems to allude to the fact that Blue Cross Blue Shield is not cross subsidizing among the various offerings and and again that's something that we look for in any grade finally is that cross subsidization we would not want to see that we want to see each risk pool standing on its own so I think Blue Cross Blue Shield is responding from a business perspective in a way that you would anticipate a carrier responding to and again if they weren't responding if they're flat footed that might cause some concern but they have control they have not 100% control but they've got substantial control on how to which this new market which would mess up the individual market how big a part of the entire Vermont insurance market how big a part that becomes of the entire Vermont insurance market and obviously neither you and I have any control over the federal government but as insurance commissioner you do have control over your domestics and again they are now asking as I understand to raise the rate of individuals more because they're going to go off and help create help facilitate this new market that's going to mess up the individual market that's not something that causes any concern well I think the characterization is somewhat unfair again as I understand it the marketplace has dictated the interest in these plans they've gone to carriers including Blue Cross Blue Shield once realizing there's a business opportunity presumably they're now interested in being selected for that business opportunity but again it's going to be the individual businesses sole proprietors that are driving interest in the association health plans not Blue Cross Blue Shield and if Blue Cross Blue Shield didn't do it again someone would do it more likely than not someone from out of state and I would much more prefer someone in state having that risk but you agree Blue Cross could decline together they could I would might have some concern about that but it's just a decision well are you saying that the department would step in and force Blue Cross to what do you say when you say you may have some concerns about that I think there's an opportunity there for domestic insurer to fill a gap and create by the federal government so I see no reason why they wouldn't pursue that opportunity and the reason it would raise rates to individuals in the exchange why did that again that brings me to concern but it's a federal issue all the rate filing amended rate filing does is re-grade the risk pool that remains after the association health plans are in operation we might take might disagree with the association health plans but that's the reality that we're living with so I think that's where my concern is more directed at this point I think the department and the carriers in the market are responding as practically responsibly and quickly as we can and of course none of us know how substantial the age of the market is going to be and we don't know how long it's going to last that's also true no questions Gordon commissioner thank you what do you believe is the number of carriers that would be necessary to create a true competitive marketplace well I think right now is two major carriers in the qualified health exchange and I think there is a competition within that marketplace so I think we see competition with two I think any number greater than that would add greater competition obviously but I think we certainly see competition with two carriers okay when you were talking about the percentage increase did the national association also share a spreadsheet that showed the out of pocket per member per month costs for individuals involved in this by state I haven't seen that information I think it would be an interesting thing for you to look at we started a lot higher because we were already at guaranteed issue and community rating and a lot of states are catching up in terms of the rate increases you're talking in terms of the rate increases in terms of the final rates that are there we don't have much to pat ourselves on the back about unfortunately we wish we could we're going to say the court reporter inspires me because I can't even take notes fast enough to keep up but you were talking about premium revenues versus total dollars of reserves those total revenues was that across Blue Cross, Blue Shields, a book of businesses or was that only the QHP filings? that was anything where they were bearing the risk so across okay so you did subtract out anything that we were just doing the administration on yeah exactly right okay great that's helpful Vermont uses RBC other states not necessarily using that same standard I think we heard last year in MVP's testimony that New York uses a different standard York does a lot of things different what makes RBC special? so I don't know there's anything particularly special about it but what it does provide for regulators is again a uniform standard most states do use RBC and it's objective in that a carrier in Vermont can be viewed compared to a carrier in California by these metrics that we're all using so I think it's that uniformity and that objective analysis that provides regulators somewhat of a comfort it also provides regulators clear triggers and if they get to a 300% RBC there's a clear trigger in terms of action that they have to take under our statute and again if they get to 375 people across Blue Shield there's a clear trigger as to action that they have to take so it also provides that clarity and not that subjective analysis as to where they stand so not saying that this is the case in this particular situation but if a carrier has a regulatory decision should that be used as an excuse to ask for additional reserves I think I'm trying to understand the question so in earlier testimony today from Blue Cross Blue Shield they testified that cuts in other rating factors other actuarial factors resulted in lowering their reserves and my question to you is should a company be able to use their own inability to manage to a regulatory decision to argue for higher reserves yeah I think I understand your question so I mean I guess I tried to make sure that this was clear at the beginning but you know we obviously are concerned Blue Cross Blue Shield and their solvency but ultimately we're concerned with consumers being able to get their claims paid so regardless of what caused the company to get to a place where they need additional surplus looking out for consumers I would say that they should have sufficient surplus on hand to ensure their solvency so basically any carrier could ignore any reduction in the trend and come back the following year and ask for a higher reserve if they needed a reserve increase then again I think it's a separate conversation about you know not following the regulatory order but certainly again we look at the solvency of the company and protecting the consumers so that's our ultimate concern so what would incentive carrier to make structural changes well I think you know there have been a number of changes that have occurred from Blue Cross Blue Shield testimony that you heard earlier when it comes to the administrative costs when it comes to the way that they're trying to provide access to care and also increase the quality of care so there seems to be some progress from the carrier it's not a main component of what our regulatory outlook is in terms of looking at the company but certainly you know I think this process creates a certain degree of incentive certainly I guess I'll just close with an analogy not a question I would say that the New York Yankees have the second best record in baseball and yet there are five games behind in their division and I'm happy for that two questions this actually builds maybe a little bit on Chair Malone's question so in your solvency analysis do you review the fiscal management of premium dollars and in particular do you review how carriers spend revenues on personnel costs, board salaries executive compensation investment choices, administrative overhead and cost containment strategies yeah I think those I would put those more into the bucket of our ongoing overview and oversight certainly on the annual basis and at the exam conversation with management happened at the annual level and also through the escalation process so how they're using premium dollars is certainly something that we have a concern about if administrative costs were increasing reasons that couldn't be explained or they're increasing above what was going on nationally that was our concern for us but that's more in your ongoing analysis not in your specific solvency analysis yeah I think that's correct and in our solvency analysis again we're looking for rate adequacy obviously the administrative component is part of that so we think the rate as filed would cover the administrative costs as well as the claim so that they anticipate being paid okay and this is the second question is increasing enrollments obviously you testified here that that requires a greater surplus to protect against insolvency so did your solvency analysis take into account the potential for decreased enrollment because of the individual mandate change because of the migration from the AHPs and also the potential for future losses in market share due to the differential in prices of the two carriers that are filed. Yeah so that's a good question I'll start with the AHPs so certainly those are individuals that aren't being removed from the global marketplace that might be moved from a certain segment and presumably some of those will end up at Moon Cross from SHIELD but not all right we don't know not all yeah that's true but the ones that we anticipate having interest in Vermont would be fully insured association health plans so again not all but some would migrate when the individual mandate to heal those individuals would just be out of the marketplace altogether so certainly you could see a decreased membership and a corresponding increase in RBC because there would be less reserves required for that but again we view all of those things when issuing our solvency How about the third one was this potential loss in market share because of the rate differential between MPP and Blue Cross Blue SHIELD We've seen Blue Cross Blue SHIELD's RBC let's say in the last year either go up or not decreased by as much as it would have otherwise because they've lost some of their membership on the qualified health market but again looking globally their per member per month lives has continued to increase so large group and other types of insurance have continued to grow so they haven't necessarily lost market share globally and they've covered lives globally looking at the company but we have to make a decision about CTR for this filing so we have to look at what is the impact of this filing on potential No I think that's exactly right and again we look at solvency globally and I think this is looking at how this finally impacts solvency globally so certainly the qualified health market has decreased but again their overall risk profile is either the same or increasing from last year Thank you Maureen, just a question on the schedule that had your capital on surplus and change from 13 to 17 are you able to talk about what the RBC was at the start of that and what it is at the end so I can't speak to the exact RBC but I can tell you during that entire period it was within the range at the start of that it was much higher in the range I'd call it mid to high and now it's low toward the bottom of the range and if it goes above the range what type of actions do you take if it were at 800 so we would view anything over 700 as excessive and we would have an opinion that stated as much so we anticipate and expect Blue Cross Blue Shield to try to play to that range both in the low end and then also on the high end Thank you Robin You confused us I confused your last one Hi Have you reviewed the Federal Department of Labor rule related to the Association Health Center? I have and our team has more specifically And are you aware of changes to preemptive rules in that Yeah, so that's a good question The way that we view the federal rules in terms of preemption is and the secretary of the Department of Labor had stated this prior to the rules coming out that their intent was not to preempt the states we heard that orally a number of times clearly the rules have stated that there is no intended preemption but then of course the rules have also said that there is a threat of preemption the states are not enacting the Association Health Plans in line with the spirit of the final rules and I don't think I have a language exactly correct on that but what we take that to mean is if we disallow them or do something to that extent that Vermont or other states could face preemption so I think we're free to regulate but I think we are handcuffed to some degree about how far we can go in that regulation You wouldn't be surprised that I also have reviewed the role the comment related to preemption in my recollection you're welcome to submit something if I'm incorrect about that was specific to self-insured Association Health Plans so you could please let me know if I'm wrong about that in the future but my understanding from my review was that the preemptive comment was specific to self-insured I'll ask our team to look at that Just a quick question so you talked about the 2017 surplus at $134 million and I've seen that in the audit and I know the best enumerator of the RBC calculation and I know that it's a confidential number but what comprises the denominator what are the gradients that go into the denominator I think there's some really about the category but certainly we look at what I call the asset quality but you could also look at it as asset risk so what are the assets that the company has on balance sheet how open are those to risk certainly a life insurance company that has long-term bonds or something they're anticipating a lot of interest rate and so low interest rate environment or changing interest rate environment will be an impact for them we also look at the underwriting risk so what's the pool, what's the population that's being underwritten what's the age, what's the mortality morbidity all of those categories and then there's sort of just another general category to break that down a little bit more we would look at I guess I call it enterprise risk or operational risk, reputational risk credit risk all of those other sort of things that don't fall neatly into either asset risk or underwriting risk so these are are these kind of established parameters or established indicators by the national association of court commissioners yeah that's exactly right there's the RBC statute that was formulated through the NEIC process and then passed here in Vermont and many other states across the country thank you we have David Dillon come up for his nomination and hopefully get through this today we may be all arrested for staying in the state house to go on by now state house bail good afternoon could you tell everyone to be your I'm David Dillon I am senior vice president and principal with Lewis & Ellis what is Lewis & Ellis? so Lewis & Ellis is an actuarial consulting firm founded in 1968 however we do other insurance consultants as well I'm also involved with insurance compliance work and insurance financial solvency financial examination work in addition to the traditional actuarial work what is your educational background? so I have a undergraduate degree from the university in mathematics and then I have a graduate degree from the University of Iowa in statistics and actuarial science how long have you been an actuary? so I have been in the field for 22 years I started about 1996 I've been a credentialed actuary for 16 years I've been at Lewis & Ellis almost 20, I'll be 20 in February do you have any professional certification or representatives? so I have two primary certifications I don't know exactly how this came about but the actuarial world kind of has two organizations that we're kind of beholden to one is the Society of Actuaries and that is more of the education and research body and that's kind of the pass on our exams and being certified to become an actuary once we pass our exams and become a member of the Society of Actuaries we also have a professionalism requirement which includes continuing education and that's through the American Academy of Actuaries which I also will know how long have you been retained by the board to provide actuarial services? so from the morning beginning of 2014 how many of them are not health insurance group filings have you worked on in that time? including the two we're discussing this week at a 66 in that time and in what market segments? so it's primarily the individual small group and large group markets do you work on health insurance for filings in other states? since 2010 in the passage of the ACA my team that this Vermont team is a subset of we have worked with 22 states regarding rate review and health care reform issues we are currently assisting 8 other states so 9 this year on rate review issues what the ACA specifically and in that work do you get a comparative look at the health insurance market nationwide? oh yeah absolutely so my clients we have a wide range of states that do have different issues so it's kind of good to see how some of these market impacts like the discussed day of mandate the non funding of the CSR things like that we definitely see a wide range I would say we have of the 9 states that my team works with I'd say we have kind of 3 in the northeast we have BC, Maryland and you guys we work with Louisiana, Arkansas South Carolina and then I would say we have some kind of in the middle as well Kentucky and Nebraska and in your work what do you do to keep up with changing health care reform issues? so I do several things I'm a very active volunteer with the society of actuaries I'm the chair of the society of actuaries strategic initiative called commercial health care what's next we started that a year ago almost exactly a year ago and it is a series of health light papers that addresses issues such as the individual mandate association health plans things like that so I'm heavily involved in that process as an editor there I'm also involved I'm with the society of actuaries I'm the chair and lead interviewer for the SOA health podcast series so I produce podcast on behalf of the society of actuaries repairing all health related issues so that really keeps me informed of what's going on and then just kind of corporately with Len Lewis and Ellis I do a few things I issue a newsletter to send out to clients interested in parties regarding what's going on I do that quarterly and then if anyone in this room is a friend of mine on LinkedIn you will know that I try to disseminate as much information as possible to interested parties as it comes I probably posted it three times a week if not more on related issues and generally speaking how is the health insurance free file reviewed so I'll kind of start with the big picture there as a company that files and there's an actuary that reviews if there's probably 200 pages of guidance the actuary that has to submit has to follow and the primary thing we do is we make sure that that guidance is followed there's three sources primarily three sources of guidance there's the federal regulation of the ACA there is the state based on your rules and your statutes and then from an actuarial standpoint we have actuarial standards of practice so we follow we make sure that the company follows all of those regulations generally speaking your state based regulations and actuarial standards of practice are more general in nature they're a little bit maybe getting around to and we'll talk more about the kind of standards of review while a lot of the federal guidance now is much more I don't know if I want to say the word prescriptive but it is a little more targeted on what we have to review for a state to have an effective rate review program there are 15 categories of things that we have to review I won't go over the whole laundry list but it is things that have been discussed medical trend, changes in benefits change in reserve needs change in capital and surplus so we hit all of those items in the review one thing I was kind of saying as part of doing the rate review and not just with you guys but with all of our states I kind of view our role as kind of an actuarial translator we take all the regulations we synthesize it we tell you what that means I kind of look at it as it is the kind of the Goldilocks analogy if it is too hot, too cold or right in the middle just perfect something kind of in between now I will say that one thing we are not in our actuarial fortune tellers while we can review a process a company does we review the process we make sure all the factors that they should consider are considered once we look at those factors over the 200 rigorous pages of guidance but we might say the porridge is just right but we can't we don't know if it is 150 degrees temperature or 190 degrees temperature there could be a variance everyone sitting up here is a different definition of hot and so we try our best to kind of say it is within a range but generally speaking so if something is too hot we will say all of you guys are going to say it is too hot or something is too cold we are going to say it is an extreme it is too cold so we try to keep it in the middle but we are never going to be able to exactly nail what will happen two years down the road even though we will use rigorous models to develop a range and what is the process for reviewing health insurance for rate filing in Vermont so specifically the submission date comes around and kind of the button gets pushed the company submits to filing it usually takes about a day but Green Mountain Care Board staff let us know that it has been submitted and we have access and surf which is the system for electronic rates forms in filing so that is the NAIC mechanism every state but one uses that and so we Blue Cross will submit all of their filing documentation federal rules, state rules all that through surf so that is how we receive that information and then over the review period we utilize that system to communicate with the company through what are called objection questions in the filing and the term objection does not necessarily mean they are negative that is kind of a surf definition but it is just the way we ask questions through that system so would you say that when you are reviewing a filing you are performing an independent analysis and calculation so I would say partially it really depends on the assumption and the materiality of that assumption several of the assumptions that have been discussed today risk adjustment utilization that are very material to the filing a lot of times we will do an independent calculation if maybe the company does not use an approach that we have used in the past so maybe we are just more comfortable with using our approach we might do that but if a company utilizes a formula or a process that is similar to what we have done we are not going to necessarily recreate the wheel we will utilize what the company does so it kind of does depend on the assumptions so you mentioned earlier the process of sending out objection letters from surf how do you receive additional information during the company and during your review that is correct and in your review do you do a peer review yeah so when you kind of ask about how we do a specific review what we do is when we get it in surf we really are set up we have three people assigned to each filing Josh Hammerquist is what I would call our lead credential lecturer I am the primary peer reviewer and then Jackie Lee is the secondary peer reviewer and we kind of have different roles Jackie and I also we both are kind of assigned to MVP filing as well so Josh when he gets the filing and submit it through surf I would say the first thing Josh does is kind of a completeness test make sure that all the requirements are included things like that and then Josh is going to be the one who really kind of lays it out really do the deep digging and all of the little assumptions there's probably 30 to 40 different assumptions that are changing in each rate filing and so he reviews all of those changes submitted by Blue Cross he kind of presents a summary to me and then what I do when we first get the filing I kind of do a big picture look I kind of want to know what's going on what companies telling me as what's been discussed today is the 2019 filing is primarily based on 2017 experience it's kind of a starting point and there's some adjustments along the way so typically what I do is I will jump in even before I look at what the rate increase request is I ask Josh to give me just the 2017 results I look at that and then I assess based on big picture market issues I think that might change that experience we've talked about the non-enforcement or the non-payment of the CSRs the health insurance fee going away that's going to change the rate request group things like that so I kind of end up kind of do an informal upper and lower bound on the rate increase even before I see what they say I think that helps me get engaged once I see that number how kind of crazy it is or if there's some reasonableness to it just from a starting standpoint and for this year I came up with a ballpark of 5 to 10 percent and they felt right in the middle of that so there weren't any initial red flags that it was extremely high or extremely low we're obviously going to beat on every assumption in there but at least there were no significant red flags and I will say there are a lot of times we do see significant red flags in other states and other carriers that fall outside of that range so you mentioned today's filing are you familiar with today's filing how long did you have to review it we had 60 days so if we turn to your report you put into your report that there's a standard of review and you mentioned before the actuarial standards of practice and I was wondering if you could just tell me a little bit about that standard of review and which of the factors are relevant to you as I mentioned earlier we reviewed the filing to make sure they comply with federal rules state rules and actuarial standards of practice and then within the state rules you guys are charged with multiple factors to review and three of those are actuarial in nature and those are defined in actuarial standards of practice and that is excessive and adequate and unfairly discriminatory do our review and write our report we are making a recommendation to you on those three items about the filing excessive we'll get into that a little bit so excessive basically means that we need to review all of the claims the expectation of the claims that the company is doing the expectation of admin we review those provisions to make sure they are reasonable and that the premium that is being charged is reasonable in relation to the sum of those pieces so we look at the claims we look at the admin we look at the profit margin and make sure that the premium charge makes sense and can you define adequate as an actuarial term? yeah so inadequate is really kind of defined as kind of the flip side to the excessive so it's really we look at again we look at the claims we look at the profit provision we kind of sum those up and compare that with the premiums being charged and if we do not believe that the premium charge is enough to cover what we would expect a company's population to use in terms of benefits or anything like that we would call that an act but and can you define unfairly discriminatory? sure unfairly discriminatory is really kind of defined as charging if they're substantially similar to somebody else okay but typically in Vermont that is not typically as big a consideration because you guys are different a lot of ways in a lot of states in terms of community rating and merge market and so that kind of almost takes a lot of those considerations out so when you say in your report that a given assumption is reasonable and appropriate what does that mean? so when we say something is reasonable and appropriate instead it's basically as I was getting at when we talked about excessive we'll focus on the claims and all that implies and when we say incurred claims there's a lot of assumptions there when we look at admin there's assumptions in that so when we say something is reasonable and appropriate that is saying when we've looked at those components we believe those components are not excessive they're not inadequate they're not unfairly discriminatory and as I alluded to earlier so we're not necessarily this is going to be the exact number that's going to be realized in two years but based on the information a company has at that time we say that is a reasonable projection and when you give an actuarially reasonable range in your report does that mean that all of the numbers in that range are equally likely? no it does not you know as an actuary it can be a little tricky to give ranges you know and people have a different view of ranges typically when we give a range not all the time but most of the time it's based on a lot of you would know the normal distribution of the bell curve so when you give a range on that that is typically a 95% likely so when you see a bell curve and people give a range that's the most common so what that means is when you have the bottom of the range even with a bell curve that observation is not that likely it could happen but it's not super likely so even within a range it can be a little tricky to make recommendations with ranges we would say right around kind of the best estimate that is a lot more likely and in your report did you make recommendations to modify the filing as originally submitted? yes we made five recommendations this year let me just start right there is anything your understanding of that testimony today that the company agrees with those recommendations? yes for the sake of time we're not going to go through each of them since they are undisputed but as to your as to the sum of your recommendations can you explain what the ultimate projected rate increase is in the individual sure so when I answer that I want to kind of answer it two ways the first way is I'll say kind of the strict definition the original proposed rate increase was 7.5% so simplistically if they were charging 100 bucks before they're going to charge 157.50 after the four recommendations that had been reduced to 7.2% so it was about a 4% reduction when you kind of do a relative nature to that the second way I'm going to answer that question is I'll call it kind of from the effective rate increase view it has been mentioned several times today but a lot of the premium that is going to be charged will be covered by the federal government and be subsidized by the federal government so even though Blue Cross might be charging 7.5% before in reality that was 5.3% as an effective rate increase because so many of the people on the silver plains and some on the bronze and gold plains get subsidies from the federal government so the actual increase to premiums like out of their wallet was about 5.3% proposed and based on the recommendations that it's 4.6% so that 0.7% it's about a 13-14% reduction and the rate increase that was proposed by the company I wanted to discuss some elements of your report that you didn't issue a specific recognition on in your report you said that the companies proposed administrative costs were reasonable and appropriate could you go through that assumption? Yeah sure so we did a couple things with the admin similar to the claims 2017 is kind of really the starting point and that's where we start in our analysis with the annual statement there's a supplemental health care exhibit which provides which was kind of mandated through the ACA and all companies have to provide this information and so we start there okay so that is kind of the first you know we find that out in March so we know this information before the filing and so it's kind of the first piece of information on claims in that way so if you look at that and go okay how does the admin and the filing compare to what they're reporting in the statement if you do that exercise you will see there are differences and so that makes a question what are the differences multiple questions were asked through the review I think the first thing that has to be pointed out is the annual statement it is based on statutory accounting principles which we've heard today in multiple cases is different than the generally accepted accounting principles or GAAP so if you account for that that is one big difference between the statement and the filing so that's kind of the next kind of starting point and then there are the company proposed changes based on a lot of the membership changes with the different plans and things we reviewed that the company basically assume 50% of their costs were fixed overhead and our experience of doing financial examinations and reviewing rate filings that is a reasonable assumption to us and so based on that that was kind of the next starting point kind of adjusting the 17 and then the company made some projections for wages from 17 to 19 to increase the admin what we did there is we did research in Vermont from over the last 10 years with the information reported by the Department of Labor and confirmed that a 3% wage increase was reasonable across the state of Vermont over those 10 years and we concluded that Blue Cross's assumption was reasonable okay so I also wanted to ask you about the company's proposed utilization trend in your report you said that that trend was reasonable and appropriate and I wanted to ask if you still agree with that opinion after listening to Paul's testimony today yes I do did you determine what would be a range of reasonable utilization trends in your report? yeah so the utilization trend has been a topic of discussion over the last few five years and this was one was a little bit different this year in that the company historically had done kind of two approaches to standardizing the utilization trend last year we discussed a third way kind of going to the independent calculation approach we used a different approach probably I'm not going to get into their heads but probably to cut me off with the past a little bit the company did some of those approaches this year because they knew I was going to ask the questions use of utilizing that approach so the company did utilize green so we were able to use a lot of the information provided by the company in addition to maybe doing our own independent analysis that kind of did it for us so based on that information and relying on a lot of the work we do with other states and similar utilization trend things we based our utilization trend range on a plus or minus 20% to that factor and then again that's kind of the 95% the bulk of that range would be in the middle there around the 2% best estimate so if the company had filed 6% utilization trend would that also have been reasonable so that's kind of tricky as I was alluding to if I were doing the filing I would not file 1.6 I do not believe it is that likely so what I would say is with the range I would say that if it's lower than 1.6 or above 2.4 I would definitely kick it out as unreasonable right away but with this when it's in the range I would probably say that the numbers closer to the middle are better reasonable numbers so I would probably say I would just answer if I say that would not be an assumption I would utilize if I filed the rates let's talk about the overall medical trend what was your range for the company's overall medical trend let's say I believe 3.6 to 4.6 with the best estimate of 4.1 how did that determine so basically we kind of did it from the component standpoint we've talked about the utilization trend and we also looked at the unit costs the unit cost here in Vermont there's not as much variability as with the unit the utilization trend obviously because you guys have so much control over a significant portion we don't see as much variability in Vermont from the unit cost side as we do in other states so we used a kind of similar approach but not the exact approach and I think our range for the total was roughly a weighted average of plus or minus 12% from the best estimate did you use the same approach to evaluate the company's proposed pharmacy trend so what we did with the pharmacy trend was this is one I kind of alluded to earlier we don't necessarily do an independent calculation if that company does something that's similar to what we would do and the company in this case did do an analysis very similar so this is one where we rely quite a bit on their calculation they appear reasonable and so it was done a little bit differently okay so one of the other key changes in this filing is an increase in premiums resulting from the removal of the individual mandate penalty did you review the company's assumption in this regard yes and did you find it to be reasonable and appropriate yes we did so after the filing was submitted Vermont passed a lot on implementing a state based individual mandate does that change your opinion regarding the reasonableness of the company's assumption no it does not as the company alluded to Melanie was engaged by both the board and DFR to do an analysis on the individual mandate so we have through that work we have pretty intimate knowledge of a lot of the information about Vermonters and as alluded to we had a different method to calculate the impact but as can be found about our estimate we primarily focus on the financial aspects of the mandate if any of you guys have read the congressional budget office report on the mandate non-enforcement they talk about there's some financial and non-financial we think it's much maybe cleaner to focus on the financial aspects primarily the income level the premium level the health status of the person in question so when we have also through the reviews over the last few years we have learned that Vermonters are very well informed regarding health care reform issues relative to other states so when a main day comes in for 2020 it is our opinion that that will not impact the 2019 rates because of the financial aspects that people will heavily weight what the non-enforcement in 19 will mean to them so we believe that the two percent process estimate is still reasonable even in light of the main day for 2020 and later now let's turn to contribution to reserves do you review for solvency risk margin and CTR yes so even though the DFR does it as part of the federal regulations regarding rate review as I alluded to earlier a couple of the bullet points that have to be reviewed are change in reserve needs and change in capital one surplus and you can get a chance to look at confidential information concerning companies RBC yes so we're provided a lot of the information about that so we definitely review and assess the appropriateness of the CTR assumption in light of the company's financial situation and did you find the company's 1.5 percent proposed CTR to be reasonable and appropriate in this case yes are you aware of what Blue Cross is target ranges for RBC yes 500 to 700 percent and what is your opinion as to what CTR would be needed to keep the company within the mid-range of that target RBC so relying on the company's detailed calculations I believe it's right around 1.5 percent for the long-term basis to keep them in the middle so if the company had submitted a 1 percent CTR would they still be in their target range I do not believe so no so there was an earlier testimony today about the tax cuts and jobs act and how it impacts the carrier could you please describe what the carrier assumed and what your assessment of that assumption is sure so there's really two implications of the tax bill one is the non-profit nature they no longer have to pay the 20 percent tax rate so it's very simplistically what we did is the company's always assumed a long-term 2 percent CTR is being appropriate if we apply a factor of 0.8 and so that is a judgment but thus a reasonableness for a CTR so if they had submitted a 1.6 percent CTR that would have seemed reasonable slightly lower than that so that's the primary that's one of the main implications is that they did modify their CTR as a result of that the other thing with the tax bill was the alternative minimum tax issue which is a little bit more of a longer term issue and all of the reviews we have reviewed so far this year we and we have reviewed since 2014 we have reviewed over 900 ACA violins we have never seen a company take a specific you know capital and surplus level that is not actuarial standards practice in terms of having rate it is typically through the CTR process that's what the CTR provision is for is to have provision for the solvent side so we think it is appropriate that the company address the AMT issue through the CTR okay now let's let's turn briefly to the silver looting that was briefly testified to earlier did you review reflective silver plans in this family? Yeah so that was one of kind of the big changes for this year was that the caution reductions were no longer going to be funded at the federal level and so there had to be a mechanism to cover that so even though they were not funded the federal law still required that the company had to pay for that portion of the benefits so there had to be a mechanism to fund it in some other way the state of Vermont addressed that specifically and allowed off exchange plans for those that do not have for persons that do not qualify for subsidies so that approach was a very common approach across a lot of states not every state did it that way but it was a very common approach it basically put all of the cost sharing reduction that wasn't funded on the premium plans on the exchange because the federal government would be paying that through a different mechanism through the APTC or the premium subsidies so the reflective or off exchange were created to give the people that had higher incomes higher than the 400% a mechanism to have a silver plan that wasn't loaded or more expensive as a result of the federal government not funding CSRs and your testimony earlier was that a significant portion of the premium increase for that reason would be born out of the federal government could you say what that percentage is if we go to page 17 in my report or I think PDF 307 that table after the modifications really kind of describes that you can see that there's the silver loaded bullet there that says what the proposed is and we're saying that you can see it's really not applicable on our feeling that because that's being paid by the federal government but if you look at the overall numbers you can see the difference again I alluded to earlier that in the proposed 7.5 5.3 was going to be effectively that effective rate increase on consumers in Vermont so that 2.2 or whatever it would be paid out by the federal government and there's just one last question I want to ask you about with regard to the filing as originally submitted so Paul testified earlier about the Blue Cross's cost containment strategy and how you disagreed with how you incorporated that into your range can you briefly explain how you incorporated Blue Cross's cost strategy into your range and whether his testimony changed your opinion in that regard so what we did as I alluded to earlier is we based our range based on kind of an inherent volatility around best estimates for the utilization trend we believe we have a reasonable range because our best estimate we believe is consistent with their approach of including the cost containment in the trend numbers and so we just based our inherent volatility around the best estimate consistent with what we had seen in other utilization trend assumptions so with the recommendations that you outlined is the filing as originally submitted excessive after implementation of the recommendations we do not believe the filing is excessive and is it adequate? it is adequate after the modifications and is it unfairly discriminatory after the modifications? after the modifications? so are you aware that there's been an amendment to the filing? have you had an opportunity to review that amendment? that amendment was submitted just a few days ago we have made an initial and cursory look but the information provided in that amendment was not enough for us to draw any conclusions at this time so we do not have a written response at this point we have posted additional questions to the company based on that amendment so we have asked them for additional information for us to utilize and then to make a full assessment regarding that amendment so you do not have a full opinion for us today as to fluid process this amendment? all I will say at this point so this is still preliminary and as I said it is not written based on the information we have reviewed the two increases as a result of the benefit increases appear reasonable however we have extra additional information regarding the association health plan we would really like more information that is more of a significant amendment however I will say based on all of the new guidance that has come out from the federal government and apparent actions by DFR since the submission of the filing we do think it is reasonable that the company has requested this but we do not have enough point to say that if their amended rate change is appropriate or not thank you I have nothing for you thank you can we get through some questions over here in the next few moments? as you can tell we will probably be finishing some of this by phone and we will have to reopen the amendment but let's go to the bitter end right and that last call we eliminated all my questions on the amendment because it is not right can you turn to page 294 you have a box there that is labeled remount care board or GSB possible budget review and does the information contained in that box reflect the recent possible budget submissions? I don't believe that addresses the most recent so that may not be totally a factor and could you turn to page 302 and you heard the commissioner earlier review certain categories of regulatory uncertainty is the box on page 302 one of the uncertainties the commissioner described I guess it is and can you elaborate on the risks explained in this box relative to the blue cross? yeah so risk adjustment so recently there have been several lawsuits and obviously with the risk adjustment the payments were put on hold I guess we will find out at some point if it is temporary or permanent however the risk adjustment is really kind of one piece of incurred claims and so basically what has happened with nonpayment of the risk adjustment and this goes across all carriers and all states is the companies that are sicker than the market are going to not receive the money that they were promised to cover the sicker people and currently the people that the companies that are healthier as of today will not be paying money to those sicker companies and they will get to keep as of today keep that money rather than give it to the people that really provided the care so this is a market disruptor if it stays this way in the Vermont market it is very common knowledge that blue cross has a sicker population than MVP so blue cross has significant risks that if this payment is not made that basically the actuarial soundness of the rates has been longer there thank you and page 303 you mentioned a comparison of blue cross blue shield of Vermont to other blue plans with respect to their administrative costs and how does blue cross compare with those other plans so while I don't remember the specific PMPMs but as we outlined in our report blue cross of Vermont was in the bottom 5% it was by far one of the smallest amount of admin expenses and as you know blue cross is requesting a 1.5% CTR and does that favorably compare to what you're seeing elsewhere so I would say since 2014 in the ACA market I would say we have seen anything from 0 to 6% in terms of a CTR that can vary dramatically by market we've seen in Vermont we've seen a proposed 0 before a couple years ago I would say typically again kind of going to most likely I'd say the most common we see are between 1.5% and 3% so yes the 1.5% is very common for what we see thank you attorney Mr. Dillon you said you made a recommendation as to the blue cross refiling means three standards yes that is correct the proposed rate is not excessive right it's not inadequate correct and it's not unfairly discriminatory correct and you've got a big stable of state not that you work with right and I couldn't quite understand there were 22 states among Europe did you work with their 9 states how many is it so currently it is 9 states we have assisted other states with reviews some of those have taken an acquired staff they don't need outside staff and more things like that but currently for this year for the 2019 rate filings we have assisted 9 states okay and do any of those states have a rating law the rating law that Vermont has before us in this case for the states we work with I believe the answer is no okay so sorry go ahead so you go prime that the rate here is not excessively inadequate or unfairly discriminatory but you're not offering an opinion and I am not and you're not offering an opinion as to whether it promotes quality care and you're not offering an opinion as to whether it promotes access to health care correct more you are offering an opinion as to whether the rate is unjust correct or unfair correct someone might say inequitable and unfairly discriminatory or similar but from a pure definitional standpoint correct okay so on page 2 of your your opinion on page 11 page 292 of the when you say there under the box you see there's a little paragraph standard of review yes okay so when you say that this letter is to assist the board in determining whether the requested rate is standard you really don't mean affordable and so forth you're not going to assist the board in determining whether or not the rate is unfair I'm sorry excessively inadequate or unfairly discriminatory that is correct no further questions anything else board members would you defer Jess I just have one question would you agree that since you start with the claims experience in the prior year and then you add trend to it that any inefficiencies fraud or waste that were exhibited in the prior year's claims experience would just be baked into the future year so I think it could be but most companies will review those issues and we believe that in this specific case we believe for 2019 that adjustment that the company included for that is appropriate okay and when you talk about the adjustment that you're talking about which like a reduction just like the impact of their programs we believe that they're in more for 2019 is appropriate okay and if we use that number of 25% of medical expenditures are potentially wasteful with no impact on the health of the patient's population that is not being adjusted for in any way that's how it is I would agree with that if there is maybe I would classify as excess utilization of MRIs or things like that that a consumer might say I really need an x-ray in addition that would not be necessarily in that adjustment number thank you no questions no questions Tom I was looking at a question I wanted to ask but we are getting the minutes so please real quick if we need to continue we don't have you okay three quick ones in terms of the small group versus individual in this words market do you have any sense of how much help employees in small group get paying the premium versus individuals who don't get it I do not have a Vermont specific answer to that I would say generally speaking based on my experience in other states I would say a relatively small portion for small employers generally speaking small employers it's a big decision that you can kind of get an offer coverage it's not always so we cannot see that as often so if I swallow a range 5% 10% don't hold me to it okay I hope you're ready I will move second question is in terms of administrative cost what is it that you tie out to because this is my second great hearing so we looked at large groups I think in that filing the administrative cost kind of totaled up to 10 million and then I kind of looked at the National Association and the report 2017 and there's a they have general administrative cost there from the shield it's 16 million and then another 8.3 million earned that a signed administrative cost but it's earned on the non-insured of a book of business so I'm just wondering what is it that you tie out to so typically what we tie out to is the individual and small group numbers that are included in a supplemental healthcare exhibit that exhibit was designed by the NAIC to provide boards of entities like you information on the admin the company has followed that's our starting point and that's what I was alluding to then some adjustments are made appropriate adjustments to get from like a statutory basis to a pricing basis but that is the starting point so you're comfortable that if I had all the filings before that those administrative costs plus or minus add after the total I would assume so yes that's all thank you so the small group market employers for you were referring to does that take into consideration the fact that the Vermont small group market definition is up to 100 employees no and again as I said I do not have Vermont specific information and my answer was directed more towards what we've seen elsewhere which is not necessarily the same definition great thank you thank you are there members of the public here that have signed up to speak there had been two names on the list I don't know if they're still here but if so could I please see who they are Mark Sanislar are you the one person is there anyone else Mark would you like to make your comment quickly actually I just have a couple questions and I will direct them to the board we take public comment we don't take questions of this so if you do not okay so under public comment there's been some comments made that new information has become available about the rate of violence okay particularly you know with the hospitals and particularly with the University of Vermont Medical Center okay to a previous statement so under public comment I would just like to say you know it's important to put that in context of what the total net patient service revenue budget is for that hospital hospital and if it was put into that context the change from 2017 actual to 2019 budget was only 5.1 percent so that's two years rate input that's two years of utilization two years of unit cost and any changes in the mix so I would ask LaCrosse and Bushiel did they factor that 5.1 percent change from 2017 to 2019 into the rate of violence thank you the other person Kate Cross I do not believe this year we do have public comment open tomorrow evening also starting at 4.30 at City Hall in the Memorial Room we are going to only recess this hearing because we are going to have to take information about the amendment we will let everyone know as to when it will be we do have that at the end of about 30 days and whether or not we will need to actually have open hearing or whether this will be done in interauditories we will determine that and send out something from that shortly but today we'll take a recess and I will turn it back over to the chair for right now I just wanted to let everyone know that we're encouraged to exit the building as soon as possible within our time limits so you have about four minutes to leave the building