 Good morning everyone. My name is Kevin Mullen chair of the board and I'll just do a quick check Good morning, mr. Battles. Welcome. This is your first time In a right here in case before us. Do you have everyone from blue cross blue shield? That's necessary for testimony with you I'm just looking at the purchase spin list J don't see the entire group but as I see Ruth now is Paul there as well You're muted Ruth, but we take that as a yes Okay, we do yes super help advocate Mike Fisher, how about you and your team? Good morning, mr. Chair. I think we are all here. Yes Okay, so the first order of business I'm gonna invoke GMC be rule number one trillion and one H and wave any Necessary requirement for anyone to wear a jacket today With that the second order of business I'm going to appoint Michael Barber as the hearing officer for the hearing and turn everything over to Mike Whenever you're ready Mike Before I start I just want to make sure that we have Tom Pellum with us because I don't see him So I see him, but I don't see his face Tom are you with us? I can reach out to him like this is Susan Barrett. He shows up under the There we go It's that Berlin thing going on Good morning Okay, so As you heard I've been designated by Board chair Kevin Mullen to serve as the hearing officer for today's hearing The purpose of this hearing is to take evidence and argument on Blue Cross and Blue Shield of Vermont's 2023 Individual and small group rate filings the docket numbers release cases are GMC be dash 003 dash 22 are are and GMC be dash 004 dash 22 are are The hearing is being held pursuant to 18 VSA 4062 Representing Blue Cross today is Benjamin Battles from the law firm Pollock Colin LLP Representing the office of the health care advocate R. J. Angoff in the law firm Marion scallop PLLC as well as H3A attorneys Eric Schulteist and Charles Bepper. I Also want to recognize the board's attorney Laura Bellovo Who's joining us today? I think we have established all the board members can Hear and be heard if anyone's having trouble Please Let me know Mike just one point of clarification. I believe we have a new Court reporter, and I'm just not sure if they are on can we confirm that? Yes, I'm on This is any Miller Thank you We are recording today's hearing as We heard we also have a court reporter here to transcribe the proceedings. We will Get the parties a copy of the transcript as soon as we receive it For members of the public who may be on the call We will be taking public comment at the end of today's proceedings However, I don't know when that will be so if you Don't want to sit through what's going to be a long day of witness testimony. We are having a Meeting this Thursday afternoon from four o'clock to six o'clock that will be dedicated exclusively to hearing from the public on The individual and small group filings from Blue Cross as well as MVP the other carrier offering plans in these markets Information about that meeting can be found by going to the Green Mountain Care Boards website and clicking on the rate review tab Additionally, you can submit written comments to the board via our website or by written mail through this Thursday Before we begin I just want to remind the board and the parties to exercise caution regarding information in the binders that's been Marked as confidential as these matters can't be discussed in the public portion of the hearing If it becomes necessary to discuss confidential materials, we do have a separate line for a potential executive session Just So that You guys are aware that the the confidential materials in the binder are blue highlighted in in this hearing So we received Binders with 28 exhibits on July 14 as I understand it all the exhibits that we received in that binder Were stipulated to by the parties On July 15th, we received four additional exhibits exhibits 29 through 32. I understand exhibit 29 has been stipulated to But not exhibits 30 through 32 Did I get that right? Mr. Battles and Mr. Angolf? That was my understanding as a Friday unless the healthcare advocate has changed their position on any of exhibits 30 to 32 then Then will propose to address those during test one I'm not aware that we've changed our position on 30 through 32. So those would still be not stipulated to That's my understanding too Does anybody Do any of the board members? The court reporter does anyone not have all 32 Exhibits you should have gotten 29 through 32 via email Kevin your mullet your you needed I was just saying Mike if you could speak up it would be great. We appreciate it. Okay, sorry Okay, sounds like everyone has all the exhibits And I assume neither party objects to me admitting exhibits one through 29 into the into evidence at this time No No objection Okay, then consider that done and mr. Battles will take up exhibits 30 through 32 During the hearing Sounds good. Thank you. So that is all I have and now we'll move to Opening statements if either party would like to make an opening statement mr. Battles You want to go first? Yes, thank you, mr. Barber and good morning chair Mullen and members of the board My name is Ben Battles and I represent Blue Cross and Blue Shield of Vermont We are here today for a hearing on Blue Cross's rate requests for the individual and small group markets This is the third year that this rate hearing has happened virtually as we continue to feel the disruptive effects of COVID-19 Blue Cross has played a stabilizing role in Vermont's healthcare system throughout the pandemic We help providers stay solvent with cash advances We offer payment flexibility to keep people insured and we adapted our policies and programs to make sure our members could access care We approach the pandemic the same way we approach our everyday work by focusing on our commitment to Vermont and To our role as a partner with regulators and providers Pursuing a common objective to bring high-quality affordable health care to Vermonters Our read requests in these markets this year reflect this amendment We continue to commit paying direct pandemic costs out of our reserves rather than charging for those costs and premiums And we are not requesting an increase to the contribution reserves above the 1.5 percent that we have consistently asked for in our past several filings We have requested rates that will allow us to pair members claims and remain solvent And although we are requesting a rate increase this year, it is significantly less than what our competitor in these markets is requesting Much of what I just said and what you're here today is going to sound familiar Blue Cross has taken the same approach to developing its rates this year as it has in the past We've been guided by the same regulatory requirements Including that the rates are fair and affordable that they promote quality care and access to care and that they protect insurer solvency We've applied the same actuarial standards and taken largely the same approach to our modeling forecasts And we've maintained a consistent approach that will keep our administrative costs and reserves within a reasonable range for 2023 As the board's actuaries of Lewis and Ellis and the department of financial regulation have agreed But obviously some things have changed from last year Last year we requested a decrease in rates for small group plans and an increase for individual plans that was largely offset by federal subsidies This year we are requesting significant increases in both markets So what what is different and I think the answer is clear and will not come as a surprise to anyone here Is the cost of health care? That's the elephant in the room today More than 90 of the premium payments that Blue Cross receives go to paying providers for the care they deliver to Vermonters And although we will have some detailed actuarial discussions today This part of the math is very simple when we have to pay more for care We have to charge more for costs for coverage Increased health care costs specifically very large expected hospital budget increases and the continually rising cost of specialty pharmaceuticals Are the key drivers of our requested rate increases this year Through the testimony of Blue Cross's chief actuary Paul Schultz and chief financial officer Ruth Green We will show how Blue Cross has worked hard both in its reform efforts and its rate development To account for and to the extent possible to mitigate the impact of these costs I would like to emphasize some of the key points that you will hear today From Mr. Schultz and Ms. Green about our rate requests First our requested rates are actually supported You will hear Mr. Schultz explain how Blue Cross developed its rate requests for this year He will explain the various components of the proposed rates How they were calculated and how various state and federal regulatory requirements affect those components He will also explain the direct and unholy impact that the cost of health care has on our rate requests And you will also hear how much of our actuarial analysis is undisputed The board's actuary is that Lewis and Alice have recommended that the board accept most components of our rate requests Including our administrative costs and contribution to reserves And where Lewis and Alice has recommended modifications, we have largely agreed with those recommendations Including by considering recent hospital budget submissions For its part the Department of Financial Regulation has concluded that the range of surplus we have targeted in our proposed rates Is quote reasonable and necessary for the protection of policy holders And that any downward adjustments to the filing's rate components that are not actually Supported will reduce our surplus and negatively impact our solvency We do have a disagreement with one of L&E's recommendations Which is that the medical utilization trend assumption in our rate request should be reduced As Mr. Schultz explained in his supplementary pre-file testimony and we'll cover again today And we do not believe there is actuarial support for making that reduction The second theme that we will hear in today's testimony is that Blue Cross has been committed to keeping rates as affordable as possible We recognize the difficulties that the cost of healthcare creates for individuals and businesses in Vermont We've continued to partner with the state and ongoing healthcare reform efforts And to design and implement innovative programming that both reduces costs and makes it easier for Vermonters to navigate the healthcare system and access high quality care And the final theme you will hear is how Blue Cross has worked hard to accurately forecast its risk-based capital for the coming plan year This will ensure that we maintain sufficient but not redundant surplus to protect our solvency to be prepared for future disruptions And to continue paying COVID related costs from our reserves Mr. Schultz will explain how Blue Cross's actuarial team developed a more useful and complete forecasting model for risk-based capital And why they did so And Ms. Green will explain how Blue Cross has committed to maintaining a contribution to reserves percentage of 1.5 percent for 2023 even though the pressure arising costs could certainly justify increasing that percentage But thank you We urge the board to approve our final requested rates to ensure Blue Cross's ability to continue providing monitors with access to affordable and high quality care Would the HCA like to make an opening statement? Yes, thank you very much Mr. Barber Mr. Chair and members of the board. I'm Jay Angoff representing the HCA The board has been Since the enactment of the Affordable Care Act and since the implementation of the current system The board has been particularly understanding and compassionate and helpful to Blue Cross Every year the board has approved the rate increase for Blue Cross in the past two years The board has been particularly helpful in Blue Cross Last year despite the fact that Blue Cross had its best year Certainly since the new system came online The board approved the 12.4 percent rate increase The year before that despite the fact of an ill-advised investment that reduced Blue Cross's RBC by 163 points The board took no Cheering of action against Blue Cross and to the contrary Allowed a in effect allowed Blue Cross to have additional money to replace the money that That investment loss Had caused How has Blue Cross reacted to the board's largesse over the past six or seven years? It has sued the board last year Blue Cross sued the board because it said The board was compelled to Grant a 1.5 percent CTR To Blue Cross And it only granted a 1 percent C cr allowance I found that odd On the other hand the pending lawsuit raises some very significant questions And I think it's something that that Should be taken seriously and can and will affect the discretion that the board has in the future With that lawsuit attempts to do is to severely limit the board's discretion So that the board In effect must Take the guidance of l&e Rather than the other way around what the What what what the the issue that the that the lawsuit highlights really Is something that Both the board and l&e and the hca And I certainly blame myself for part of this Have disregarded the past several years And that is this There is no such thing As one rate that is Not inadequate excessive Or unfairly discriminatory Rather there is a range There is a range of rates a zone of reasonableness Within that zone Lots of rates are Not excessive not inadequate Not unfairly discriminatory What we have all been doing the past several years is to try to find it is to find try to find a rate That fits that standard there is no one rate. There's a broad range of rates and what It's too late to fix the past, but it's not too late to not too late to fix the future What the board in my opinion ought to be doing is asking l&e Give us a range give us a range of reasonable rates. Give us a range of reasonable assumptions In connection with each element And within that range Then the board can exercise its discretion To determine what number To accept within that range What blue cross once is the opposite They want they want they Take the position that once the actuaries say here's one number the board must accept that number It can choose between blue crosses number and l&e's But that's it the board itself has no discretion So what i'll be doing throughout the day is asking blue crosses witnesses What is the range of reasonable assumptions? It may well be that the assumption that blue cross has made is reasonable But there are many other reasonable assumptions The important the reason that a range is so important Is that This is an inherently uncertain business Nobody can predict the future Acheries can't predict can't predict the future. They do the best they can But they can't predict the future. So there's got to be a range of reasonable rates In addition Because of the coronavirus There's even less certainty Today than there has been in the past So I think we we sometimes get the illusion, you know actuaries when they do their their analysis Sometimes they carry out factors to four decimal points And we get the illusion of precision When we look at those numbers, but there's no there's no precision again, it's got to be arranged I was disturbed last week when And i'm no expert on the hospital rate setting process and I apologize if I get something wrong here, but I believe after the three months of back and forth between l&e and the hca and the And blue cross and letters back and forth and objections and finally Answers to questions After all that Last week blue cross asked for an additional 22 percent increase Not 22 points, but 22 percent above the original increase Based on Its belief that the Board would approve hospital rate increases in august And if I've got that right to me that seems wrong for three reasons number one I don't think it's proper. I don't think it's proper under the either under the statute or under the regs For blue cross to come in at the last minute After there's been intense analysis Of its rate filing And say oh by the way we want 22 percent more There's just not tight. There's just not time to to uh to evaluate that Second it's just unsporting We've been at this for three months and then they come in the last minute and it's asked for 22 percent more third and this is the most This is the most significant It seems to me it's hardly bad policy Because what it would to approve what blue cross has asked for Because by doing so You would not just be approving blue crosses rate increase You'd also as a practical matter Be approving the hospital rate increase which you're supposed to be evaluating next next month And that all gets locked in and it becomes part of trend and it becomes inflationary Year after year. So I'd urge the the board very strongly to just regard blue crosses Request for a An additional 22 and at a very very minimum If the board is to consider it to wait until after the board acts On the hospital rate increase before taking any action As to what blue cross has requested Thank you, mr. Chair and mr. And uh board members and I look forward to the hearing I'll move to Miss testimony mr. Battles Please call your first witness Hi Mike you haven't sworn the witnesses in yet I'll do that when Paul shows up. There we go Uh, thank you. Mr. Barber blue cross calls Paul Schultz Mr. Schultz Square you in at this point If you could please raise your right hand You soundly swear that the evidence you shall give relative to the cause under consideration Shall be the truth to hold truth And nothing but the truth to help you guys Do Thank you You please state your name and your employment for the record Hi, I'm paul schultz chief actuary for blue cross blue shield of brahmont Did you prepare and submit pre-file testimony in this proceeding mr. Schultz? Yes, I did Uh, will you please identify your pre-file testimony by the exhibit number in the exhibit liner? sure My um July 1st pre-file testimony can be found at exhibit 21 And my july 11 supplemental pre-file testimony is exhibit 23 Was all of the testimony contained in exhibits 21 and 23 true and correct to the best of your knowledge at the time you submitted it? yes As you sit here today is all the testimony contained in those two exhibits true and correct to the best of your knowledge Yes, it is Thank you Were you responsible for preparing the blue cross 2023 individual and small group? The subject of this proceeding I was the filings were prepared under my supervision And i'm fully familiar with all of the contents thereof and as well as the rate development that underlies the filings All right, and did you certify those filings? Yes, I did at the time of filing. I certified that they are in compliance with all relevant actuarial standards of practice and with all applicable state and federal law and that Certification holds true today Thank you, and were you also responsible for preparing all the information and responses that blue cross has provided during the course of this proceeding? Uh to the questions that have been posed by the green mountain care boards actuary and Lewis analysis Yes, that material was also prepared under my supervision, and I'm fully familiar with with all of that content as well And are you also familiar with the information and responses that blue cross has provided? During this proceeding to the questions that were posed by the green mountain care board itself and the office of the healthcare advocate Yes, I'm familiar with that information and I can speak in depth to several of the topics on that note, uh, can you What were your objectives when you, uh, developed the rates reflected in the filings? Sure, our objectives were to develop rates that cover the costs of health care in 2023 for our members Um while providing for the minimum necessary contribution to policy holder reserves that keeps blue cross on a trajectory Toward the solvency position that is mandated by our solvency regulated department of financial regulation Uh, and at the same time we wanted to develop rates that are competitive in the marketplace We did this by using assumptions that are reasonable individually and in the aggregate And that comply with all state, uh, and federal rules and instructions as well as the relevant actuarial standards of practice One of our goals was not to develop the set of rates that represents the maximum reasonable rates actuarially Can you will you please summarize the proposed rates contained in the initial filings? Yes, as initially filed we proposed, uh, rates that would Reflect an average increase of 12.3 percent in the individual market And 12.5 percent in the small group market And just to clarify Those are the rates that were posed in the initial filings before accounting for Lewis analysis recommendations Or the impact of hospital budgets Yes, that's correct Uh, please summarize the key drivers that resulted in the rates proposed into filings The key drivers of the rate increases were the increasing use of specialty pharmaceuticals As well as the increased prices that are demanded by hospitals and other providers Especially pharmaceuticals, uh, are responsible for an increase of 3.4 percent in the individual market And 2.4 percent in the small group market It is essential that blue cross provides access to these high cost drugs That improve the quality of life and in many cases save lives um But in order to provide that access it's necessary to include those very high costs within our rates This is an example of prioritizing access to care over affordability In terms of the prices charged by providers Those were responsible for an 8.0 percent increase in the individual market And 7.8 percent of the increase in the small group market And that's before consideration of the hospital budgets that were submitted on july 1st to the board Once we incorporate those hospital budgets both of those figures Increased by about 2.5 percent Meaning that over 10 points of the increase in both dockets of the final proposed rates that you'll hear of today Is due to increases in prices that will be paid to hospitals and providers Blue cross did continue its work to mitigate these rate increases Through its continued engagement with vermont blue rx And through a new partnership with civica rx Blue cross has been able to deliver 1.3 percent premium relief in both dockets You please describe in general terms how the filings were prepared Sure, um Generally we project we from recent experience We project that experience forward to 2023 using generally accepted actuarial standards of practice Um in its broadest terms we apply actuarial science to project the claim costs taxes and fees and cost of insurance Necessary to cover the costs of health care for our members in 2023 And then we calculate premiums that are sufficient to cover all of those costs Before attempting to project claims costs and cost of insurance isn't necessary to rebase Blue cross's prior rate calculations. And if so, could you explain what rebasing means in this context? We actually don't have to rebase any prior calculations. This year's calculations are completely independent from last year's calculations What we do however is as long as the experience is credible We update the experience base to use the most recent 12 months that are available Credible in this sense is an actuarial term that means that a population is sufficiently large to develop Projections on its own merits as opposed to blending with some sort of manual rate In this case we're using actual calendar 2021 experience to direct project forward to 2023 And so just to clarify so when you're talking about rebasing in this context You're talking about using the actual 2021 claims data as opposed to changing prior calculations Correct last year's development used the 2020 as the base period for client Well last year's development act fact used 2019 because 2020 was deemed to be not credible because of the pandemic This year we're updating to use 2021 as the base period Did you make any adjustments to actual 2021 experience? We did COVID continued to have an impact on utilization of health care services in 2021 So we did a few things we we did a detailed analysis of claims by service category And reached a conclusion that care that was deferred from 2020 into 2021 Was offset by continued deferral of care during 2021 as new COVID waves hit Um the exception to that was for certain claims categories for which care cannot be deferred It can only be foregone those include emergency room urgent care ambulance Flu and pneumonia For those categories, we assumed that the 2023 level of utilization would revert to pre-pandemic levels The other adjustment we made was to account for a cyber attack that took place on the university of vermont health network systems in october of 2020 And as a result of that attack a good deal of care that had been scheduled for the fourth quarter of 2020 Was deferred and rescheduled for the first quarter of 2021 So we adjusted 2021 downward in in that case To remove those extra services that were originally scheduled for 2020 in combination those adjustments that i've just discussed Uh had an upward impact on 2021 based experience of a little less than half a percent And can you quantify the impact of updating to use uh 2021 experience? Sure, uh including a favorable risk adjustment transfer result The impact of updating to the most recent experience was a 0.1 percent decrease In the small group market and a 0.6 percent increase in the individual market In your last response you mentioned a risk adjustment transfer What is a risk adjustment transfer? Sure, uh, so when the aca was enacted it included three federal programs that were designed to encourage issuers to Cover all americans not just those who were in good health The only permanent of those three programs is the risk adjustment program Where in any given market the issuer who has Tends to ensure the healthier lives Provides a payment to the issuer who ensures the less healthy lives Um, this is done to in a basically the goal is to Bring equilibrium to premiums so that issuers who cover the the folks with the greater healthcare needs Are not punished For the choice to cover those folks specific to the vermont market Individuals with greater healthcare needs overwhelmingly choose blue cross coverage So this results in a payment from mvp to blue cross that in recent years has exceeded 20 million dollars The entirety of those funds are directly incorporated into these rates Please describe what allowed claims costs are and generally how you projected them Sure, allowed claim costs are the total, uh, cost of healthcare Four members including member cost sharing We project that by examining 2021 experience making the adjustments that I discussed earlier And then projecting that experience forward to 2023 The two primary components of that projection Are increases in the utilization and cost of services, which are encompassed by the trend assumption And changes in the population itself the covered population May likely be different in 2023 And those projections are part of the population morbidity assumptions We also take into account any sort of regulatory changes that take place between 2021 and 2023 And we factor those into the projections as well How do the allowed claims flow into that premium? So we then split the allowed claims into its component pieces those would be Claims that are paid by blue cross to providers and the provision of care And then member cost sharing the former category goes directly into premium Whereas the latter category does not And the way we split those things out is through a series of what's called allowable adjustments To the projection these include a paid to allowed adjustment that is based on a standard population And benefit Richmond adjustments based on federal factors That account for the fact that members who are on richer coverage tend to use more services Paid claims that is the the portion of claims that are paid by blue cross to providers For providing care to our members accounts for over 90 percent of the premium What is a medical loss ratio or an lr? Medical loss ratio is a federally defined quantity that reflects the total of clinical services and quality initiatives as a portion of premiums And what is the mlr uh for the proposed rates that blue cross is about As initially filed the proposed rates included an mlr of 90.2 percent for the individual plans and 92.3 percent for the small group plans And is there a federal requirement uh for mlr? Yes, the federal and state requirements a minimum of 80 percent mlr So the figures that I quoted both over 90 percent are well above the federal minimum requirement What is the cost of insurance? Uh the cost of insurance is the uh the total amount of money it takes for an insurance company to provide the infrastructure and operations Necessary to help members navigate the health care system and to pay claims as they arise Uh in our case the cost of insurance consists of two main pieces Those are the administrative charges and the contribution to policyholder reserves Please explain how you projected the cost of insurance and preparing the funds Sure, so for administrative costs, we again started with 2021 base experience Uh, we then made a few adjustments. We removed any one-time charges that were not likely to repeat in 2023 um, we also made an adjustment to Decrease the amount of overhead that is allocated to the aca line of business From that baseline We projected forward using a modest four percent inflation assumption from 2021 to 2023 And then to that amount we added the cost of two new services that we're providing to our members We are allowing members to pay premium using a credit or a debit card. And so the transaction fees Associated with that have been added into the administrative costs Additionally starting in 2022. We've taken over billing from vermont health connect So we've added the the costs of those operations into the administrative fees as well In terms of contribution to policyholder reserves, blue cross has to comply with all vermont regulation and that includes maintaining a quantity called risk-based capital or rbc Which is a measure of a company's solvency at a certain point in time We need to maintain that quantity within a certain range that has been ordered by the department of financial regulation In order to do that. We need to file a nominal ctr of one and a half percent in these filings But we've also made pled a pledge that we will continue to pay for direct covid costs out of reserves um, so we've projected those costs for 2023 and We remove that amount from the nominal ctr to calculate a net ctr And that that number is 0.8 percent in the individual market 0.7 percent in the small group market To that we add another 0.2 percent only in the individual market for something called the cost of bad debt And that reflects the uncollectible premiums that we've consistently seen in that market because of the grace periods that exist in the individual market In total our cost of insurance comes to 8.7 percent of premium in the individual market And 7.4 percent of premium in the small group market And that number is less than half of the maximum 20 cost of insurance that's allowable under state and federal law Did you include a profit in developing the rates for these filings? No, Blue Cross is a local Vermont non-profit company. There is no profit in any of our rates You identified trend and morbidity as uh to the most important assumptions in figuring out how to project your 2023 claims costs from your 2021 experience Uh, you first explain how you address trend in the filings Sure. So for medical trend, we take a look at two components utilization trend Which we define as both the number of services and the mix of those services In unit cost trend, which is the increase in price for any one given service Uh, similarly for retail pharmacy We took a look at utilization and unit cost for non-specialty medications for specialty medications because they're Quite low in terms of utilization, but very very high in terms of cost We combine those things and just look at the total costs for specialty medications And Will you please describe how you calculated the medical unit cost trend? Sure, so we uh separate the providers Of medical services into three categories. There are the hospitals that are part of the green mountain care board budget review process There are other hospitals and providers with whom blue cross contracts directly And then there are out of area providers who are accessed and contracted through the blue card network For those latter two categories, we examine recent experience And flavor that with an understanding of any ongoing contract negotiations to develop our assumption For the hospitals that are part of the green mountain care board process We started with an assumption that the board would approve budgets this year That match the budgets the commercial rate increases that were approved for hospitals last year Um But we amended that in certain cases for the hospitals that requested a mid-year rate increase in early 2022 We assumed that the portion of that mid-year increase that was denied by the board Would become incorporated into their annual budget request Ultimately when you put all that together, uh, we could be calculated at the time of filing A 6.9 percent medical unit cost trend And will you describe how you calculate the medical utilization trend? Sure, we examined uh several years of recent experience and applied a variety of statistical Methods to assess that experience When a number of these calculations yield a similar result, we can feel comfortable that the underlying trend assumption For historical trend is pretty solid Starting with that baseline, we will make adjustments for any sort of one time events that will have Will have affected trend in the past And we also consider how future trends might be different from recent past experience um ultimately for medical utilization trend we landed on an assumption of 1.9 percent in the individual market 2.0 percent In the small group market both of those numbers consist of the same set of underlying trend assumptions And those specifically are one and a half percent for facility utilization trend Eight and a half percent for professional mental health services 1.0 percent for other professional services and 3.6 percent For pharmaceuticals that are accessed through the medical benefit because they're dispensed in a hospital or a provider's office Please explain the pharmacy cost and utilization trends reflected in the filings Sure, so again for these we take a close look at recent experience and apply statistical methods to that um to develop a baseline To that we incorporate any cost savings that we expect to arise by from brand drugs losing their patent expiration Between now and the and the projection period um We also examine the specialty drug pipeline almost the entirety of the pharmacy pipeline at this point Consists of specialty pharmaceuticals So we we take a close look at those and make sure that we're adjusting properly for any new specialty drugs that will be coming on the market Ultimately after contract changes. We are using a pharmacy trend of 13.4 percent Above you mentioned that population morbidity is another key assumption driving your 2023 projected claims costs. Can we explain how you address population morbidity in your filings? Sure, so we we take a look at the way that our populations is expected to change from 2021 to 2023 and we develop a number of assumptions in that regard One component of is is we look at the individuals who have disenrolled from blue cross coverage since the experience period And we make adjustments by essentially removing their claims from the analysis um We also take a look at how average cost sharing Will change from the experience period to the projection period based upon the plans that members chose in 2022 um And we we make adjustments uh to the to the um paid to allowed ratio and to the utilization based upon that cost sharing and finally we we examine how our base population is just going to naturally change over time as people get older Newborns arrive to join the population and some members hit medicare eligibility or otherwise decide to retire and leave the population um So we you know we we put all of those things together and the the impact of the population morbidity assumption specifically was a minus 0.3 percent decrease for individuals and in a i'm sorry a 0.3 percent decrease for individuals I should be more clear and a 1.4 percent decrease for small groups Uh You do explain what a risk adjustment transfer was uh A few moments ago do uh risk adjustment play a role in developing your population morbidity assumptions Risk adjustment is uh closely related to the population morbidity assumptions It's probably more accurate to say that the population morbidity assumptions played a role in our risk adjustment projection um And we developed that projection using information that was available to us at the time of filing One key assumption is that we assume the 2023 population would be very similar to the 2022 population In terms of age and risk profile Thank you, uh Now I ask you to turn to exhibit 13 Sorry Ben that's 13 Uh Yes, okay, and uh, if you please identify that exhibit, uh with the board Sure, this these are our responses to a set of questions that were posed by lewis and ellis uh on june 20th And if you look at uh page, uh beginning on page five and going through Uh, it's a page nine of that exhibit. Uh, can you identify what that is? Um, yes, this is a description of our um of the rbc modeling the that we performed uh in conjunction with these filings And you're familiar with uh with that model Yes, I am that was performed under my supervision Could you explain the term stochastic modeling? Sure. So when we're doing financial projections, there are a couple different ways that we can do that There's deterministic modeling and there's stochastic modeling In deterministic modeling you determine specific values For your key assumptions like membership or medical trend or investment return and using those Assumptions as input you can then calculate The financial result that you're trying to project in this case rbc at a particular point in time Stochastic modeling is similar in that you still define a most likely result for each of the assumptions But you also define a range of likely results Around that most likely answer You then run a huge number of iterations of the model We used 10 000 and you let the model itself Choose at random a value for each assumption within that range you've defined and within a probability distribution that you've also defined within that range Can you give an example? Sure, so in a deterministic model, we might assume that we expect two percent membership growth Into the future for a stochastic model. You might instead define that as a range from zero percent to four percent growth and a bell shaped normal distribution within that range And using those assumptions two percent is still your most likely result But the stochastic model simultaneously gives you sensitivity to a broad array of other results That also you know fall within your defined range and probability distribution And in your your prior answer you indicated that uh Blue cross had used a stochastic model for these filings Can you just convert that and also? Is this the first year that blue cross has done so? Yes, that's correct. It's uh, we did use a stochastic model We we built and used it and this is the first year that we um That we did employ a stochastic model We we did that because we observed that our simplified deterministic model that we used last year gave a false sense of precision For the rbc resulted a certain point in time So in developing the stochastic approach, we had two goals in mind One is that we wanted to account for all of the major drivers of rbc And that includes investment return pension impact As well as the impact of results from other lines of business than the aca business um Our other goal was to enhance the level of information that we were providing our regulators By giving them a range of most likely results for rbc Um rather than simply a point estimate that gives no real sense of the possible fluctuation in rbc You talked about ranges and probability distributions for stochastic assumptions. Are those listed at page six of exhibit 13? Uh, yes, they are And did Lewis and Alice offer an opinion with respect to blue crosses use of stochastic model? Uh, they did they reviewed our assumptions and their opinion was that they are reasonable inputs for projecting 2023 rbc Um, and they also opined that the range of possible rbc positions and resulting likelihoods from our stochastic modeling is reasonable Uh, i'm gonna ask you to take a look at exhibit 15 in the binder okay Got it Okay, can you identify what that exhibit is? Yes, this exhibit are our responses to questions posed Also on june 20th by Lewis and Ellis on behalf of the office of the healthcare advocate Okay, and uh if you would look to Turn to page two and read the request at the bottom of page two if you Okay, um the request is to quantify the impact on blue crosses projected year end 2022 And you're in 2023 rbc of any multi-year fee guarantees blue crosses provided to self-funded customers Could you summarize blue crosses response to that question? Um, sure so large self-funded customers typically place their business out to bid through a formal rfp request for proposal process um Those rfps almost invariably Demand that a bidder must provide a multi-year guarantee of their fee Um, if blue cross were not willing to provide these multi-year guarantees We would be uh immediately eliminated from contention in these rfp processes So to assess the the impact on uh rbc Of these fee guarantees. We examined the rbc With and without these customers And we found that um projected year end 2022 rbc would be approximately 85 percentage points higher in their absence And 50 percentage points higher at year end 2023 If rbc would be higher without these customers does it follow that aca rates would be lower if blue cross hadn't sold this business? No, just the opposite in fact, um because of the larger membership base Uh, we were able to allocate fewer fixed costs to the aca business in these filings and that has the impact of reducing premiums by about 2% Um, the temporary rbc impact while meaningful is not of a sufficient magnitude To compel blue cross to divert from its uh, usual process of filing the long term one and a half percent contribution to reserves That allows us to stay within the dfr mandated range So looking at those things in conjunction We can conclude that this large self funded business has the impact of reducing premiums in the aca market by about 2% All right, you mentioned a temporary rbc impact. Can you please elaborate on what you mean by that? Yes, so Statutory accounting rules Require that where we have expected losses on multi-year contracts. We recognize all of those losses immediately rather than as they actually occur So when we were doing this assessment, um, you know, the way we did it was to assume that all of that self funded business Essentially goes away in 2023 What that does from an accounting perspective is it immediately releases the entirety of those accrued losses over the life of the contract So what we have is an immediate bump in rbc and that's the 85 percentage points that I talked about Um, over time as we approach the end of those fee guarantees That bump the windows Back to sort of its baseline level so we can see that as we go from 85 points in 2022 To 50 points at year end 2023 and in fact by year end 2025 when most of these fee guarantees will have expired The rbc impact is in fact neutral Is individual and small group business subsidizing these multi-year fee guarantees for self-funded large group business? no As i've testified in the absence of this large large self-funded, uh business on fee guarantees Aca rates would in fact be higher Uh, if therefore cannot logically follow that the aca business is subsidizing the self-funded business Now i'm going to ask you a few questions about the analysis that luis and ellis prepared for Uh, the filings in these markets. Um, have you had a chance to review their, uh, Actuarial opinions, which are exhibits 17 and 18 in the binder. Yes, I have Uh, I'm going to ask you to turn to page 26 of exhibit 17 Got it And direct your attention to the recommendations section of the report And regarding the second to fifth recommendations does your supplemental Prefile testimony, uh, which you previously indicated was uh at exhibit 23 Uh, does that testimony still reflect blue crosses position with respect to those recommendations of ellen It does blue cross agrees that each of those recommendations should be made Thank you. And what is blue crosses position regarding the recommendation? To consider updated hospital budget information which is on Page 23 of ellen newsletter Um, we we agree that with uh, luis analysis recommendation that the updated information regarding unit costs Trends that is available in the july 1 hospital budget submissions Uh, should be used to update the assumed unit cost trends in this filing And have you estimated the impact of the submitted hospital budgets on these filings? Yes, we have We'll now ask you to Look at exhibit 29, which is one of the exhibits that was circulated by email after the binder was filed And if you could identify what that exhibit is Yes, this is our response to a luis and ellen's inquiry To quantify the impact of hospital budgets on rates How did you go about performing this analysis? Um, we examined the hospital budget narratives that are available on the greenmont and care board website And we extracted from those narratives each hospital's commercial rate increase request We then plugged those requests into our unit cost trend spreadsheet and allowed the results to flow through to premiums Uh, what we found is that um, if the hospital budget requests were approved as requested The impact on rates would be an upward adjustment of about three and a half percent in each docket And uh, sorry to jump around but i'm now going to direct your attention Back to exhibit 20 Page 26 of exhibit 17 Okay And this again, we're looking at the recommendations section of the l&e report Uh in regarding the recommendation to reduce medical utilization trend Uh, does your supplemental pre-filed testimony at pages three through nine of exhibit 23? Uh, still accurately reflect blue process position with respect to this item Yes, we disagree with this recommendation. Uh, in my opinion, there is no actuarial justification for reducing our filed medical utilization trend Uh, furthermore, um, our filed facility utilization trend Uh, is already at the low end of the reasonable range for those assumptions and any downward adjustment to that assumption Would result uh in a facility trend that is below the reasonable range for facility utilization trend and is therefore inadequate I'm now going to direct your attention to another one of the, uh Uh, to exhibit what has been marked as exhibit 30, which is another one that was circulated by email And this has not yet been entered into evidence. I'd like to ask you a couple questions about this document Could you first identify what this document is? Uh, yes, this document is an exhibit that shows the impact of the l&e recommendations on premium And also demonstrates a simplified development of the final blue cross proposed rate increases in these dockets Did you oversee the preparation of this document? Yes, I did Does this chart accurately portray and reflect the impact of l&e's recommendations on blue crosses final proposed rates? it does And, uh, will this chart assist you in helping us understand your testimony about blue crosses final proposed rates? Yes, it will Uh, I would like to offer exhibit 30 into evidence The objections, mr. No objection Thank you Um, and just a couple more questions about this document. So, uh, could you explain Yeah, identify where in the document we can see blue crosses final proposed rates Um, yes, there's a uh, a column that is labeled as such blue cross proposed and you can see the final proposed Average rate increases highlighted in boxes at the bottom of each of the two tables Uh, and I see a note at the bottom of each table, uh Which says percentage changes are multiplicative and may not sum to the average rate increase So I just wanted to just explain what that means for us Sure. Um, and this is a note that Lewis and Ellis typically includes in in their presentation as well And that's you know, each of these impacts on rates Is independent of the others And you you can't just sort of add down the column to get the total rate Increase or rate impact you have to multiply each one together They're intended to be multiplied together as opposed to added together Uh, that's what that note's intending to convey Okay, and Please summarize the proposed rates as modified according to Lewis analysis recommendations Sure. So if we change the rates in accordance with all of the Lewis and Ellis recommendations, uh, we land on an average rate increase of 11.2 percent in the individual market And 11.6 percent in the small group market Both of those figures are before considering the impact of hospital budget submissions And how does blue crosses final rate request which you just described in exit 30 Uh, how does that differ from the figures you just noted? Sure, it it differs in two ways one because we disagree with the l&d recommendation to reduce our filed medical utilization trend We do not include the impact of that recommendation in our calculation Uh, the second way it's different is that we've actually quantified the impact of the hospital budget That were submitted on july 1st Does the impact of new hospital budget information on the final rate request matched what was previously discussed in exhibit 29? No, it does not It differs in two ways, uh, both of which reduce the impact that we showed on exhibit 29 First we assume that the green mountain care board would take action in these hospital budget reviews That is similar to the action they've taken in recent years So we've reduced those commercial rate increases by 1 to reflect that green mountain care board action The second thing that we've done is that we've incorporated the final contracts for certain non vermont hospitals Where negotiations had still been ongoing at the time of filing again, both of those changes reduced the impact of the hospital budget submissions And just so uh I know you addressed this a moment ago, but just to be clear What are the final average rate increases blue process requesting in these documents? Sure, the the final average rate increases are 14 an average 14.9 percent in the individual market and an average 15.4 percent in the small group market I now like to turn what has uh been marked as exhibit 31 Okay, uh, and Can you explain what this document is? Uh, yes exhibit 31 demonstrates the final proposed Rates on a plan by plan basis in both the individual and small group markets It also shows the the average rate. Well, it shows the rate increase from prior rates for each of those plans as well Did you oversee the preparation of this document? Yes And does this chart accurately portray and reflect the final final premiums for specific plans in the individual and small markets That blue crosses requesting Yes I would offer exhibit 31 into evidence as well Mr. Chair, I'm going to object as I said in my opening. I don't think it's proper to be for blue cross to be At this point proposing an additional what I said was it But the additional rate increase that brings them up to where they are now instead of where they were During this whole proceeding So I just don't think it's proper for the board to be considering this issue at this time After the board acts on the hot proposed hospital rate increases That if the board wanted to consider this issue, that would be the time to do it Not not now because I think it has it it has a terrible Incentivizing effect on what will happen with the board and as I said my opening I think has an inflationary effect which will be locked in for years and years in the future So I object to the admission of this document and Any response to that mr. Biden? Yeah, just to briefly respond. You know what I hear mr. Engel making it is a policy argument for what You know whether or not He's sort of the timing of the different calendars before the board and whether We should be including one. I don't hear that as an evidentiary objection or any reason why that can't come into evidence I Strictly to what's being admitted if the board doesn't consider it until after the after it acts on the boards on the hospitals increases I think we heard a sufficient foundation for the introduction Obviously the board's going to consider it How they you know how they consider in their decision making I think is not something we need to Resolve here, but it comes into evidence. So I'll admit it this time Thank you Have a few more questions for you. Uh, mr. Schultz With with respect to the individual individual market What does the term gross premiums mean? Gross premiums are synonymous with approved rates And how do you define net premiums in the individual market? Net premiums are gross premiums less any and all available Vermont and federal premium subsidies On what basis are those federal and vermont subsidies calculated? They're calculated on the basis of something called the benchmark plan Which is defined as the second lowest silver plan available on the vermont exchange At this time, can you Tell us definitively which plan will be the benchmark plan for 2023 No, at this time, it's not clear If a blue cross plan is the benchmark plan, what impact would a reduction in gross premiums have on net premiums for subsidized members Mr. Hearing officer Appears that paul is frozen It does appear that way Uh I'll send him a note to see if he can leave and rejoin That would take a five minute break while you're doing that bathroom break and Okay, you can be in it 917 Sounds good. Thank you. Okay. Thank you. Uh, and uh Mr. Schultz that we were just talking about the benchmark plan. Uh, and So question I have is if a blue cross plan is the benchmark plan What impact would a reduction in gross premiums have on net premiums for subsidized members? Uh, every one dollar reduction in gross premiums would reduce net premiums by about 10 cents What happens to the other 90 cents? Uh, the vast majority of that 90 cents would go toward reducing federal subsidies In other words, it would accrue to the federal government Um, so just a few more questions for you. Uh, if you could turn to exhibit one in the binder Okay Which is the uh actuarial memorandum, uh, and it turned to page nine of exhibit one I'm there Okay I'm looking at section 1.8 And uh, does that section discuss the statutory criteria that the board must consider interviewing the proposed rates? It does Okay, and could you please read the list of criteria quoted from? 8 bsa section 4062 a3 That appears at the top of the page as well as the additional criteria incorporated by the board Um, sure when reviewing a proposed rate the board must consider whether a rate is affordable promotes quality care Promotes access to health care protects insurance solvency And is not unjust unfair inequitable misleading or contrary to the laws of this state Uh, the board also expressly incorporated actuarial review standards into the process Asking itself with determining whether the requested rate is not excessive inadequate or unfairly discriminatory In your professional opinion, are the final rates proposed by blue cross inadequate? They are not Are they excessive? No Are they unfairly discriminatory? No Are they reasonable in relation to the benefits provided? Yes, they are Are they unjust unfair inequitable misleading or contrary to law? No Are they affordable while promoting quality care and access to care? Yes, they strike the best balance available among those Interrelated and sometimes conflicting criteria Do they protect blue crosses solvency? Yes And uh, my final question for you, uh, uh, mr. Schultz is is how are you able to conclude that these rates strike an appropriate balance among the affordability quality and access criteria? Well the bulk of these rates over 90 cents of every dollar Go directly toward paying for the health care of policy orders Uh, the proposed plans offer access to a broad national network of providers That includes over 97 percent of the providers in brahmant Blue cross provides world-class customer service and an array of clinical programming That helps members access the health care system in a more effective and efficient way Studies show that the quality of health care in brahmant is among the very best nationally But there is a cost to access that high quality health care It's the job of actuaries to reasonably project that cost Using rules and instructions that have been promulgated by state and federal government And guidelines promulgated by the actuarial professions own governing bodies One of those vermont rules is community rating which insists that Every policyholder within the community of policyholders Must pay the same gross premium The healthy member who never sees the doctor pays the exact same gross premium As the member who needs a million-dollar specialty drug to maintain their quality of life The board's contracted actuaries Lewis and Ellis have reviewed blue crosses projections And with a lone point of dissension Have uh or have been satisfied that blue cross followed all of those rules instructions and guidelines In other words, the claim cost component of these premiums Fairly represents the cost of accessing high quality health care in brahmant The only way to make that portion of the premium more affordable Is to reduce the actual cost of care that is delivered by hospitals and other providers So we then have to turn our attention to the remaining pennies on the dollar What are vermonters getting for that nine or ten cents of premium? That does not go directly to our paying for their health care A portion of that Comprises vermont and federal taxes and fees. These are amounts set by government and cannot be altered by blue cross The balance is what I have termed the cost of insurance The administrative charges and contributions to policyholder reserves That blue cross needs to charge To do the work to help Policyholders access the health care system and to pay claims when they arise So how do I know that blue cross's cost of insurance is affordable? Well, I I can determine that in two ways I can observe that our cost of insurance is less than half Of the maximum that's allowable under federal and state law But even more conclusively I can observe that blue cross activity in the form of vermont blue rx Civica rx Payment integrity programming clinical programming like better beginnings Saves more premium dollars through reduced prices Avoided waste and better outcomes than blue cross charges for its cost of insurance Put simply blue cross's presence in the vermont market makes health care more affordable And those savings have been reflected in the rates before you today Thank you, mr. Schultz and I know I said I was dumb, but I just have one small clarifying question You mentioned nine or ten cents of the premium going toward uh taxes and the cost of insurance Uh, did you mean nine or ten cents on the dollar of the premium or nine? I did thank you. That's a good clarification. I meant nine to ten cents on the dollar. Yes Thank you, and uh Although reserve the with the board's permission the opportunity for some redirect, but uh Concluded the direct question Hey, mr. Angoff. Do you have questions for mr. Schultz? Yes, I did. Thank you, mr. Herring officer Good morning, mr. Schultz. How you doing? Good morning, mr. Angoff. I'm doing well. How are you today? Good, you are answering a few questions that mr. Battles asked you about Could you please get that back out and turn to page five of that? I'm sorry. I didn't quite catch the exhibit number Exhibit 15 Okay, I am there very good, and I just want to make sure that And that the board understands how much people are paying today And what they're paying for and how much they would be paying under the proposed increase so could you go to exhibit 15 page five and You see there are two rows there go to the The uh bottom right Fox that's headed standard bronze. Do you see that? Yes Okay, and so am I correct then in understanding for somebody who's making 54,360 or more today that person is paying 573 point on 573 dollars and nine cents for your standard bronze About policy Yes, okay, and And is a bronze policy one that has a 70 percent actuarial value 60 percent Okay, and so a bronze policy is a 60 percent actuarial value Yes, okay, and what is actuarial value? Actuarial value is is Essentially synonymous with paid to allowed ratio So it's the the percentage of claims that will be covered by the plan on average for a standard population Relative to the the total claim cost for that standard population Okay, then is it fair to say for the average person the bronze policy pays 60 percent of his or her cost and the policy holder Pays 40 percent. Yes Okay, and um On your standard bronze plan there. What is the deductible? Um, I will have to consult another exhibit that I may or may not be able to read to be quite honest with you Uh, the print on some of these gets quite small Or do you have an estimate? Uh, it's several thousand dollars $5,000 or so for an individual Uh, yes Probably a bit north of that Sorry Probably a little little higher than that 10,000 Uh, not as high as 10,000. Okay, but so the standard bronze plan then is 60 a v And the stat where they deductible of somewhere between five and 10,000. Is that fair to say? Yes, that's fair to say Okay, and then so under your originally five filed rates Then that person would pay 646 dollars today Uh, if if if the if you originally proposed rates were approved Yes 646 right Okay, and then if contrary to my recommendation the board were to accept the new increases How much would that The new proposed increases based on the hospital Anticipatory Increases how much would that raise the rate? Um, good question. Give me a moment to consult exhibit, uh, 31 I will And we're looking at the standard bronze So that figure is Just make sure you have the right thing 600 60 dollars and 75 cents That that would be the price with the new including the new increase. That's correct. Okay Okay, so I think I understand that then then Uh Similarly for the standard silver plan today people are paying Individuals making 54 360 or more paying 772 dollars and 90 cents Yes, and under that under the proposal they'd be paying 855 Yes And then that would be increased based on your latest increase if the board were to consider that Yes, and standard silver Is now 875 dollars and 12 cents on the on the final proposed rates Okay, and do you have an estimate of what or maybe you know the exact deductible for the standard silver plan? Do you know what that is? Don't know that one either again I'd have to refer to uh to binder exhibit two and probably find a magnifying glass somewhere And I would just Object to the extent that calls for speculation obviously if mr. Schultz can answer it again. Okay, I'll wait for mr. Schultz to find it then Standard silver deductibles appear to be Yeah, I better find my magnifying glass. That's bronze Silver I think that says 4 000 But I reserve the right to find my magnifying glass Very good And then the the goal plan that's an 80 percent actual value plan. That's correct Okay, and so today for that people are paying 840 dollars and with the original increase they pay 949 and then If the board were to consider the latest Increment, yes, that's right um Okay, and if you can get your magnifying glass out again, what would the uh deductible for that be? Uh, let's see Gold standard looks like 1400 dollars Okay, and you testified Uh, just a little bit earlier that you believe that these rates are affordable Correct. Yes. Okay. Did you do any research to determine whether somebody making 54th that to determine the To which someone making 54,360 dollars a year Uh, can afford any of these rates? No Okay, could you please turn to the rate filing? Exit one Are you there? Yes, any page in particular? Yes page six, please each six Okay Okay, and you see the uh the first two columns of the Table there's or had a year and member months Yes, okay. Um, how long have you been? Preparing or supervising the preparation of the rate filings for the individual in small group markets in Vermont From 2015 till today Okay Well, you're a good person to ask this the following question to that you see don't you that member months in 2016 were 45,541. Yes And you see in 2021 Member months were 411,961. Yes Okay And 411,961 is a little less than half of 835,204 to 544 correct. I agree. Okay, so when you were Uh preparing or supervised by the way, have you prepared all these rate filings yourself? They've been prepared under my supervision. So, yes, I've been directly involved with a team of people who do all the work Okay, um, do you know what a retention analysis is? I have I but I suspect I know what you mean by that, but would you care to define what you mean by it? Yeah, when you Uh Let me ask the question this way when when you uh prepared these rate filings. Did you do any did you develop any estimate? any estimate of the number of people who would but Stay with the plan the number of people who would drop it and the number of people who would come into it We we did take that into account in the sense that we know that when the federal health emergency expires Vermont will recertify everybody who's currently on the Vermont Medicaid plan Um, when that happens they will find that a number of individuals and families no longer qualify for Medicaid And therefore they will be looking for their health coverage elsewhere Uh, so we we did take that into account Uh, what we did not take into account because we don't know at the time of filing what our competitor is going to file in this market We did not attempt to project any sort of membership uh migration from uh us to mvp or from mvp to us So you didn't do any analysis then of How many uh How many insurers would stay with you at different rate increases? No, that was that was not part of the work that we did Okay, and you didn't do any analysis as to how many how many new insurers Would come into blue cross at different uh different rate levels Uh, we we did do the analysis of the new insurers from medicaid as I mentioned Uh, but that did not include an assessment of whether rate level would impact that figure Okay, and did you do any assessment of how many people would leave blue cross at different uh rate levels? Our assumption is that we would retain the same membership that we currently have in the plans in 2022 Okay, um could you Explain please Don't strike that. Let me ask it this way. Did you did you plan on a reduction of membership Of more than 50 percent Between 2016 and 2021 No Okay, in your opinion Why did blue cross lose so many members? Between 2016 and 2021 Just to object to the extent that calls for speculation Please answer the question if we can mr. Schultz Uh, in my opinion the reason for that was that mvp offered better prices on the exchange than blue cross did during that time period Okay, did you ever consider the possibility that had blue cross? uh Implemented somewhat lower rate increases It could have Retained more business and been more profitable and it was with a higher rate increase and less business I agree with half of that statement. We could have retained more business, but uh in underfunding rates intentionally to do so That would have done the exact opposite of increasing profitability. That would have caused uh some pretty massive losses Okay, so it's your position that had you charged lower rates You would have been Is it your position that had you charged lower rates those rates would have been inadequate? Yes, I think that's fairly easy to see uh based on the table to which you referred me Uh, that demonstrates that the rates we actually did charge were inadequate So it stands to reason that even lower rates would be more inadequate Would you agree with me that at lower rates more people Would have been members of blue cross. Yes And given the structure of the aca and the Area subsidies including three Rs Would you agree with me that those additional members could have ultimately resulted in a more profitable blue cross individual and small group program? I consider that extremely unlikely in my professional opinion Okay Mr. Schultz you were uh discussing with mr. Battles The concept of trend right? Yes Okay, and there's utilization trend and there's cost trend That's right Okay, and is there any uh Is there any formula that carriers must follow in calculating trend? No, there are uh Actuarial standards of practice with which we must comply but those do not include specific formulas Okay, so an actual standards practice you're known as asops, right? Yes. Okay, and so is there an asop that Uh tells the actuary how many years to consider When he's determined trend. No Okay, is there an asop that tells the actuary how much weight to give Different years in calculating trend. No Okay, and is there there are a bunch of different averages that the actuary different types of averages That the actuary can use right Yes, okay, and so is there an asop that tells the actuary Which which which types of averages to use in calculating trend? No, the asops are not that prescriptive. Okay, is Are there any other standards that are prescriptive in connection with those issues? No, not to that level of detail. Okay, then is it fair to say that the uh the actuary has Uh discretion in determining how many years to look at in estimating trend Yes, the asops in fact require the actuary to exercise their professional judgment In in performing such work Okay, and similarly, uh, the actuary has discretion as to uh, how many how much weight to give each year, correct? That's right In actuaries there certainly could be couldn't there could there be actuaries who Disagree with you as to what is the Based on their actual judgment as to how many years to use in calculating trend Yes, different actuaries might use a different approach than we did Um And so you would agree with me wouldn't you that trend there is no one right absolute answer As to what the correct trend should be correct Well, there is we just won't know what it is until after the experience actually takes place, right? I think we can agree on that. Okay at the time when the actuary is Determining trend At that time No one can know correct. That's right. But what it will turn out to be I agree with you Okay, and so there's a range around the point the actuarial point estimate Which most actuaries would consider within which most actuaries would consider the assumption to be reasonable, correct? Yes, I agree. Okay, and Is the is that range typically defined for example in terms of standard deviations from the actuarial point estimate? No how What what standards are used to define that range of reasonableness? Um, really that comes down to an assessment of the inherent variability in the estimate that you're talking about for example Uh, when we're looking at unit cost trend Uh, there's not a whole lot of variation there because those are based upon actual contracted reimbursements Uh, utilization trend on the other hand has a wider amount of variation That's possible and therefore your your range for a reasonable unit cost trend By way of example would be tighter than your range for a reasonable Uh utilization trend even though the unit cost trend itself is far larger Than the utilization trend I get what i'm just trying to find out though is Is there any Is there any guidance in addition to the actuary's professional actuarial judgment? Is there any guidance as to how big that range is? Uh, there's nothing that specifies that the range must be of a of a certain breadth But the more uncertainty There is the uh, the greater that range is correct. Yes Okay, and covet The existence of covet is certainly added to that uncertainty, correct It has I mean we all hope That it's going to go away, but my wife just got it and You're reading the paper and the new york times every day now deaths and cases Uh and hospitalizations are going up none of us really know what's going to happen in the future with covet as much as we might hope that it disappears, correct I agree. I'm sorry to hear about your wife. I hope she's feeling better She'll be okay. Thank you. Good But it's not a it it's tougher than you might think All right Thank you for your good wishes I want to turn out of some questions that I have about Blue Cross's negotiations with the providers in particular the hospitals Mr. Schultz are you are you involved in any of those negotiations? I am not directly involved But you're aware Yes She can tell me are there certain hospitals or groups of hospitals that blue cross has No discretion in negotiating that is blue cross has no choice but to accept the rate that the hospital Proposes it are there hospital are there hospitals in that situation? I'm sorry. I was on mute a moment ago, but I just wanted to interject that we did uh Quite easily go into confidential information in this line of questioning. So I just wanted to Remind mr. Engoff and mr. Schultz about that. Okay, and I have I I Don't intend to talk about individual hospitals Mr. Battles if you think we're we're getting close to confidential Issues you have to go into executive session I'm I'm struggling to see how I could answer that question without divulging material that's been deemed confidential in this filing I I was Sorry, could you restate the question? Yeah, very eloquently put And at this point, I don't want to identify them and Wouldn't mean that much to me if you did identify but are there hospitals? That you have no choice But to accept the rate that they give to you Okay, mr. Schultz you believe you're an answer to that with Devils information that's been deemed confidential previously I do mr. Barber Okay, well, why don't we save that? question and answer for um An executive session potentially should the board choose to do that Uh later on That's fine All right, mr. Schultz. Let me ask you this um If you're if blue cross to the extent blue cross is losing policy holders That's bad for administrative costs, right? That that means that administrative costs must be spread over a smaller base And therefore per policy holder the administrative cost is higher, right? That's correct. Okay um At the same time though if you're losing business uh Might seem somewhat perverse, but that's good for your rbc ratio, right? You need less capital to support your To support your total business. I agree with that. Yes And then conversely if you're if your business is increasing Your rbc ratio needs to increase Correct um I would phrase it a little bit differently if our if our membership is increasing our rbc would naturally Decrease so our surplus needs to increase in order to maintain rbc Let me make sure I've got the increases and decreases straight. It's So if if you're gaining business Your art your your sir. You must have it. You've got to have additional surplus To support additional business and therefore Your rbc all else equal your rbc ratio goes down Yes, if you if if surplus stays constant and you gain membership rbc goes down Yes, I did that and then Conversely again Regarding administrative costs if you've got if you're gaining business Then you can spread those administrative costs over a broader base and the administrative cost Per member per month should be lower, correct? Yes, those those things all align well as as we gain membership admin costs go down Which should allow us to gain more membership Um Blue Cross has implemented several initiatives in the past year That are designed to reduce costs, correct? Yes Okay, is one such initiative one care? Um, I I mean that that's not a unilateral blue cross initiative But uh, yes our our partnership with one care is one way in which we we hoped to Uh bend the cost curve in the future Yeah, um, let me make clear I don't know whether I'm going to go through five different Uh Arguably cost cutting initiatives. I don't know whether the the initiative for the initiative comes from blue cross their state Or not or who would touch on I'm just trying to find out whether the process found that it works Okay, so one carry what what is one care? One care is an aco or accountable care organization. Um That's uh, it's organized It's an independent organization that's that's recently Been turned into a nonprofit and its goal is to uh, uh Effect the the triple aim of increasing quality reducing cost having better outcomes Okay, and in blue crosses current rate filing has blue cross Reduced the proposed rate at all to reflect the uh, the benefits of one care Um, not directly our partnership with one care has been in place for a number of years and so Uh, the results of that work Are in experience already They're already in the trends that we're analyzing and so we're assuming that any benefit from that work Will continue into the future Through the trend assumption, uh, that we use in the in the development of the rates In the development of rates you do, uh, include a A cost for one care, correct? Yes Okay. Have you done any analysis to determine whether the benefit outweighs the cost? Yes, we have And what did that analysis show? Uh, it's inconclusive particularly in the most recent years because of the impacts of coveted. It's really difficult to to tell Uh, whether one care has achieved its goals or not Um, what is civica rx? Civica rx is a new non-profit company. Uh, the blue cross is is, um, uh, contributed an equity contribution toward Um, and the goal of civica rx is to manufacture generic drugs and sell them at cost Uh, and specifically they're looking to manufacture generic drugs that are Generally single source drugs, which means there's there's usually only one manufacturer today And those drugs appear to be sold today at an enormous profit to that single manufacturer So civica rx is kind of stepping into that space in a way that's going to allow us to actually change the cost of health care By delivering generic drugs at cost rather than at an enormous profit In this in this year's rate filing though, you haven't uh included any savings this year's rate filing does not Uh reflect any, uh, savings From civica rx, correct? It does reflect a very small amount of savings civica is just beginning operations Um, and starting the manufacturer or expects to start by 2023 the manufacturer of its first four generic drugs Um, none of those drugs are particularly, um, enormously utilized But you know, it's a start. It's a place to start. So we are reflecting that a small amount of savings in these rates Is there a line item somewhere for The extent to which civica rx reduces rates? Um, I believe there is but I think it's uh, uh coupled with the um improvement that we have through vermont blue rx, uh, which is our, um The the broader pharmacy programming that we're delivering to the market So I testified earlier that the combination of those two things saved about 1.3 percent of premium, uh in this year's rate filings Okay, I don't want to take up too much time with this But can you can you try to find the reference to civica rx in the rate filing because I wasn't able to find it Um I'm sure I could but I I don't know that I can uh at the tip of my fingers Okay, maybe I'll be maybe I will be able to find it in the meantime. Let me ask you about the vermont blue integrated care program Which you reference on page 24 of the rate filing What is that? Yeah, vermont blue integrated care is a new program that we're putting in place with a select number of, uh, pcp offices um And the goals of that program are similar to the goals I described for one care is to improve outcomes um and lower costs, uh At the same time, uh as improving quality and improving outcomes So it's it's not entirely dissimilar from the one care initiative except that this is a blue cross initiative It's a blue cross led initiative And is there any wine item? Reflecting savings produced by the vbic program in the rate filing Um, no Okay, um, but there is a cost to that program right and that cost is eight dollars pmpm Four attributed members so the as you can see in the table at the bottom of 20 page 24 the projected combined pmpm is 14 cents Sorry, how do you get from eight bucks to 14 cents? Based on the number of lives that are attributed within this model So there's there's limited number of providers do not see every life in our aca filings. They're they're not Right, so they based on the the number of providers with whom we contract They see only a limited number of patients. You can see the attributed members. In fact in the box at the bottom of page 24 We're talking about 574 individual members 684 small group members out of a population of about 20 000 um in each docket Okay, then it's fair to say anything that the cost to your members of uh Of the by the bic is trivial It is 14 cents is quite small. Yes But what is the caa? Uh, you refer to that in your uh in your rate filing as one of the What one of the potential cost reduce it cost reducing measures Yeah, that's um the consolidated appropriations act of 2021 that so that's recently uh past federal legislation That calls for a whole lot of provisions everything from it impacts everything from id cards uh to the way Certain out of network providers are reimbursed and a number of other things as well Okay, and you don't uh If I understand what you said in the rate filing you don't anticipate Saving you're not including any savings from that in the rate filing Uh, we based on the information we have we don't think there will be savings from the from the caa It's it's unclear at this time. Uh, the the only you know, there's clearly going to be additional administrative cost And in so far as that cost has already shown up in our base period. It is reflected in the rates Um, what's unclear is whether some of that regulation will result in savings Um for some of those out of network providers um at this point Some commentators believe that it's going to increase cost for those providers others believe it will decrease cost But because it's unclear at this time, we did not include anything uh additional or any any decreases to the rates So based on what you know so far, obviously things can change in the future but this is this is something that that uh Increases costs at least marginally for blue cross and so far anyway has not produced any benefit correct Could you turn to page 12 of your rate file? Yes Okay in the uh the the second under paragraph 3.1 there the second paragraph The second line Which starts with we completed You see that? Yes, I see it Okay, and then you talk there about uh financial statement reserves best estimates before margin. Do you see that? Yes, I do What is margin in that context? Uh, so statutory accounting principles require that we include implicit uh or and or explicit margin Uh in our projection of any obligations and our of any actuarial obligations Uh, so that's specifically done for statutory accounting Because statutory accounting is is meant to protect Uh consumers against potential insolvencies. So there there's a requirement in statutory accounting um that we uh Assess any sort of liabilities and assets Using assumptions that reflect marginally adverse events Um, there's also a requirement that we that we include this margin I want to just want to make it perfectly clear That is for statutory accounting purposes When we're talking about these rates, you can see the note that says best estimates before margin. We do not include Explicit or implicit margin in these rates Except in as much as contribution to policy quarter reserves is sometimes referred to as margin I think I understood what you said except that I don't I did not understand what margin is in connection with reserves. What is it? right, so it with respect to reserves for statutory accounting purposes and this is um That this is different from the concept of policyholder reserves here. I am referring to um actual liabilities such as incurred but not reported claims When we estimate incurred but not reported claims at a certain point in time Uh, we apply an explicit margin um of 10 or 15 percent depending on the the time of year quite frankly If we have a month of additional run out, it's only 10 percent And that is in accordance with statutory accounting guidelines So that's that's the margin that i'm referring to it's margin for a statutory accounting Calculation yeah, so is it fair to say that margin is a safety? uh a safety uh amount Uh, yes. Yes uh Could you turn please to exhibit 10? and Look at page two of exhibit 10 Okay Okay, you see uh number three there. There's a discussion of what's going to happen with the medicating role is Yes okay And your answer to that that question confirms That you're assuming that a hundred percent of medicaid enrollees Will lose eligibility but are eligible for premium subsidies We'll purchase coverage correct? That's a little bit of an oversimplification answer speaks for itself there. I think there was a misstatement of the percentage Okay, uh, mr. Schultz could you read the question and then Your answer to number three Sure section 3.4.1 of the memorandum appears to assume that a hundred percent of medicaid enrollees who lose eligibility But are eligible for premium subsidies We'll purchase coverage Please confirm and justify and we confirmed that that was that was indeed our assumption Okay, and my only question regarding that question and answer is Is it realistic to assume that a hundred percent? Is the is the 100 percent realistic? um I I think it is Most of these individuals are going to be heavily subsidized, but it's important to think about that assumption in context We are using some pretty broad assumptions based on some national studies of both the vermont market and and the nation line market In terms of both how many members are likely to be Disenrolled from the medicaid block books and what proportion of those members are going to Get coverage through employer plans versus the individual market um, so admittedly there's some fairly broad assumptions there um But I point out two things one is that as you and I have talked about mr. Angolf The assumption of higher membership leads to an assumption of lower admin costs so um While a hundred percent may or may not be possible a hundred and two percent or a hundred and fifty percent is pretty unlikely Um, so in my mind, we've made the assumption that that goes toward minimizing premiums as a result of this additional membership Um, I'll also point out that lewis and ellis examined this assumption and they reached similar conclusions that you did They think we're being a little bit aggressive in terms of what we're assuming here and aggressive in this context means um Creating rates that may be a little bit lower than what may actually happen if say 92 percent or 97 percent of that membership and rules in our plans And as you and I have also discussed mr. Schultz lower administrative costs on the one hand lower administrative costs result from Greater membership lower lower administrative costs per member per month results from greater membership But also greater membership Means you need more surplus and therefore your rbc ratio goes down, right? Yes Could you turn to on the same exhibit? Page four okay, okay, and you see those 2018 through 2023 Uh Projected what are those utilization trend numbers? Yes, that's uh facility costs per member per month normalized for cost increases and a couple of other items Okay, and I'm not going to spend a lot of time Argued with you about this. I'd just like you to respond to if you don't mind my uh, my impression of what those numbers show and You tell me how i'm wrong if if I am wrong sure, okay Okay, so I so I see From 2018 2019 which is free kovat The number goes down 2020 it goes way down presumably because of kovat I throw that out because of kovat 2021 is back to normal at least to a certain extent to to a large extent and that's That's a little Little above what it was in 2019, but still below 2018 My question is based on those numbers Wouldn't it be reasonable to assume at least a modest decline from the 297 for 2021 rather than a Rather than the increases you have that you've shown there No, and I say that for two reasons uh first Actual 2018 results were a high outlier meaning there was a sizable increase from 2017 to 2018 It was it was not surprising that 2019 came in lower than 2018 Because 2018 itself was a high outlier if I were to uh Add some additional useful information to this table You might reach a different conclusion because you would see that from 2017 to 2019 There was positive trend so that minus 2.9 percent Was not indicative of overall underlying trend and certainly not indicative of future trend The other reason I would disagree Is that we know that vermont hospitals are engaging in revenue enhancement efforts Um And what that means is they're trying to get they're trying to generate more Income uh more ways of getting paid higher claims More revenue for hospitals means higher claims for blue cross so while I You know, I I could agree that looking at the data and including 2017 You might conclude that the underlying trend rate, uh, maybe around 1 percent Which is what lewis and ellis concluded I would caution you that it's important to consider how future trend might be different from recent past experience And based on what we're seeing and hearing from local vermont hospitals. We have every reason to believe that Future trend will be higher than recently past trend experience Um, and that's what we reflected in our own assumption We we modestly increased that assumption in the expectation that hospitals would be successful in their Revenue enhancement activities And by revenue enhancement, you mean what? Revenue enhancement for a hospital means they get paid more money, right? So they're they're providing services to either the population for which they'll get paid more money Um, or they're providing services that are simply more profitable to them Um, but revenue enhancement for a hospital means higher claims for a payer Okay And so where if at all does Whatever action the board takes with respect to the proposed hospital rating increases in August So Sorry, man I just said it was just an injection to the form, but you can you can answer um so The decisions the board makes in the hospital budget submissions impact the medical unit cost trend This particular information we were just talking about has to do with the medical utilization trend um, they're not Entirely divorced from each other. Um, but they are two separate assumptions. Um So we we would we would consider the hospital budget decisions in unit cost trend and not in utilization trend Okay, yeah Can you give me specific examples of What you call revenue enhancement activities that hospitals Engage in I I can, um We actually included as part of my supplemental pre-file testimony. We included the university of ramon health network uh hospital budget narrative Um And I did not flag a useful page for that Quite unfortunate, but they they speak in the narrative One of the one of the questions or concerns they address or is basically what is the hospital doing To try to enhance revenue because they're you know, their whole idea is that they're losing money They need to replenish their own funds, etc. Etc Um, and so they they list a number of initiatives that they are undertaking as an attempt to increase revenue These include things like, uh, reducing Reducing wait times for services so that they can perform more Um reconstructive surgeries by way of example. So that that's the type of thing that um Can increase future trend above past Past performance. Okay, and has blue cross done any analysis? As to the extent of any to which these revenue enhancement techniques techniques Improved the quality of care No um Okay, just one more question about these these uh six numbers here on page four Would it be unreasonable mr. Schultz to to reason as follows. Okay 2018 303 that was that that was uh unusually high I forget what you said that was unusually high or 2019 was unusually low Which was it 18 was unusually high So throw out 2018 because it was unusually high throw out 2020 because it was coded So what you're left with is 295 and 297 two buck difference Why wouldn't it be reasonable then to project 2022 at 299 and 2023 at 301? Um, again in my professional opinion that would not be reasonable We did a more detailed analysis than that and then looking at two numbers on the table And we determined that the you know the underlying l&e did a similar analysis Both parties determined that an underlying trend is likely in the neighborhood of 1 We believe it will be not be reasonable Excuse me. We believe it would not be reasonable to project that underlying trend forward Which is what we've what I've testified in my supplemental pre-file testimony In part because we are aware that hospitals in vermont are engaged In activities that are designed to increase utilization in 2023 Is there anything that blue cross can do to counter activities designed to increase utilization Yes, but I don't know that we would want to counter these health network activities The goal of these activities is to reduce weight times And to make better use of the hospital beds that they have available so that patients with more acute needs Can use those beds. Those are those are laudable things. We should be encouraging that activity Sorry, go ahead This is a trade-off between access to care and affordability In this instance the health network is engaging in activities that are going to increase access to care Reduce their goal is to reduce weight weight times And their goal is to increase access to hospital beds and surgery rooms for members with acute issues Both of those increase access, but they also decrease affordability costs are higher because of those activities But it's a trade-off that if um, if you know, we're not as a state It becomes a policy decision if as a state we decide we don't want to reduce weight times And we don't want to make sure those hospital beds are available Then we can as a policy decision decide that we don't want hospitals to engage in those sorts of activities That will certainly bring premium rates down But it certainly won't do anything to curb the problems that we've been facing with weight times during the pandemic You did testify just now though. Didn't you have not done any analysis as to whether the hospital Revenue enhancement activities Increased the quality of care Correct Okay, I just got a few more questions. I appreciate your being patient and I appreciate the board's being patient Could you turn to page 31? I think we've discussed this in past years And that is the mental health trend of 8.5 percent, which which you say is going to Uh continue even when coveted Uh goes away or covet uh covet improve the covet situation I'd like to know what is the basis for that 8.5 percent? What did you rely on for that 8.5 percent? Yeah, so we relied on a couple of things. We looked at the Utilization of those services even before covet and that utilization was trending at quite a high rate Around 10 to my recollection Um, we can see that utilization of these services continues to trend at a high rate During covet and again speaking to future trends. We can observe that blue cross Is engaging with the healthcare provider community to make access to mental health services more More available Vermonters, it's it's well understood that we are facing a mental health crisis As we are Hopefully coming out of the pandemic but kind of still mired within it And we couple that with the current financial crisis. That's that's not doing great things for people's mental health It's what you know, so it's well known that that is taking place and there are efforts underway To ensure that the that the supply of mental health services is there to meet the demand for that reason We believe that that it's a natural to conclude that mental health services will continue to trend at a relatively high level And luis and ellis reviewed that assumption and they agreed with it I don't I don't see any numbers in here. Maybe there were an exhibits that I missed them But I don't see any numbers in here that justify that 8.5 percent. Can you point me to any any such numbers? um, I don't know that we included that Within the filing it may be it's it's almost certainly in one of the exhibit numbers one of the exhibits in uh section two But I I can't off the top of my head point you do which one of those it would be Could you turn please to page 32 of the rate filing? Okay Okay, the bottom paragraph you you're you're assuming there a 14 percent Go ahead before I ask you that is it is at your position. Mr. Schultz that any Uh mental health trend of below 8.5 percent is unreasonable Um, not necessarily. I have not assessed An assumption that is different from eight and a half to determine whether it's reasonable or not But i'm not prepared to say that anything below eight and a half would be unreasonable Um, okay, let's go back to page 32 the bottom paragraph there. You're talking about a 14 percent uh trend for uh For biosimilars is that right? um, it's a 14 percent trend combined for the the um The specialty drug the injections and the biosimilar So it's those those two things together you can think of the injection itself as a brand drug And a biosimilar more or less is a generic So the 14 percent is for the combination of those two uh different types of drugs that treat the same illness So it's it's for a combination of the injections with biosimilar equivalent and biosimilars Yes Okay So I don't see how you can you explain to me why that 14 percent? is Your assumption when the five different uh five different averages are you thought that we're Where Can you explain to me why that 14 percent is what you selected when you've got five numbers there? um Only what only the highest one of which is 14 And you've got something that's as low as 4.4 You're not taking an average there. You're taking the highest number correct Well, I I can see that the two of these numbers are in very close agreement the 36 month regression and the 24 month regression I put more stock in the regressions which are statistical approaches to Observing past data Then I do in the year over year the year over year can be in fact affected by a whole lot of things The pandemic being a notable example The statistical regressions though are are quite consistent Falling right near 14 percent. So we we put our stock in the statistical regressions Rather than that year over year result that looks like a clear outlier um You're not saying though Are you that any assumption? That is less than 14 percent is unreasonable. I am not Can you turn to please to page 35? Yes Okay, and there you've got a A bunch of different What should I call those are those averages? The the 10 or so entries that you have there. What what how should I describe them? Most of those are results of statistical analysis of past data Okay So you've got got 10 or a dozen different statistical Analysis of past data. How did you come to to select those 10 to look at? um, those those are 10 pretty pretty common Measures we thought it was important to look at quarterly drug trend because a lot of scripts are filled as 90 day supplies Most maintenance scripts are so you can sometimes see some sort of odd Flexuations from month to month that could impact the statistical analysis and by using quarterly regressions um And quarterly time series analysis. We're able to smooth out those fluctuations and kind of get that noise out of there um So the this is a pretty comprehensive list of the type of analyses that we will do Um on historical data and you can see the vast majority of these numbers are pretty pretty close to 2 percent Um, there's a couple high outliers that are closer to three. There's a couple low outliers closer to one But most of them are converging right around two. So we can feel pretty confident that uh underlying trend uh for this particular item, which is non-specialty drug utilization Is right right in the ballpark of two percent Okay, so you're comfortable that two percent is reasonable two percent Yes is reasonable in my actual opinion I'm sorry if you can hear my three-year-old in the bed. I'm not quite almost three-year-old in the background Three-year-old She's a natural entertainer. So I hope Okay, you're not saying that anything less than two percent would necessarily be unreasonable um I I think it would be unreasonable to diverge significantly from two percent Uh, for example looking at those results. I don't think a one and a half percent trend would be reasonable But about 1.7 I haven't done a full assessment of 1.7. I I'm not sure whether that would be reasonable or not Very good. Please turn to page 39 Okay, so you see the right hand column lists under combined factor Cost trend factor 1.14 Um, yes. Yes, I do Okay, that's How do obviously that's a bigger number than the numbers we've been talking about how do you arrive at that number? Yeah, that's that's intended to refer to unit cost trend um, so when we look at utilization trend all the numbers we've just been talking about inform different components of utilization trend Um, and that factor by the way is a that's a two-year factor So we that's the factor we apply to go from 2021 to 2023 that includes two years of trend Oh, okay so that That explains it the fact that that that that includes two years of trend. It's not It's not one year correct. That's two years of trend, right? Okay um Please go to page 53 and I'll ask you a couple of questions about administrative costs And that will be it before I ask you questions about an executive session, which will include The hospital related questions that mr. Battles was concerned appropriately with And also, I will ask you some rbc related questions, but just to end the public portion On page 53 you're talking about blue cross base admin is administrative charges. Is there a difference between What when asked this way what what what is The base what are blue crosses base administrative charges Those are the charges that we incur as part of our own operating budget. They can be distinguished from certain Well, they can be distinguished from a couple of other things one that can be distinguished from New services that we intend to provide those become ultimately part of our base admin But are we're not part of our base admin in 2021 They can also be distinguished from charges for certain outside vendors including dental and vision Vendors and hra and hsa integration services. Those charges are listed separately on page 56 Our base administrative charges the base administrative charges for the entire blue cross entity No, we're we're looking at base administrative charges specific to the aca business, okay uh in the bottom paragraph the fifth line from the Bottom you there's a sentence that says blue cross had higher pension benefit expenses in 2021 Due to the loss incurred in 2020. Do you see that? Yes, I do. Okay. Can you explain what that means? um, yeah our our pension fund uh had losses the investment fund had significant losses in 2020 and There's there's a lot of actuarial mathematics It's not not work that I do it worked the pension actuaries do to determine how your pension funded status Uh results in it in an expense that you have to book annually Uh to reflect that so what what this paragraph says is that we we did have higher pension expenses in 2021 because of those asset losses in 2020 But that we made sure to exclude um Any amounts in excess of the uh current expectation for long term Pension expenses so in other words that that that was one of the one-time charges that I testified to earlier That we remove from our base admin before we project forward. We're we're not passing that increase through in these rates Okay, but conceptually and there's no need to go into the Any big argument about the pension loss but conceptually the pension loss increases admin Factually speaking the pension loss increased admin in 2021, but it did not increase the admin component of within these rate filings Um, could you turn please to the next page page 54? In the middle paragraph right under the little uh the little chart there You project basic you're using a four percent annual trend For a base administrative charges. Do you see that? I do But within that paragraph there's you refer to a three percent Personnel cost increase why would the annual trend be four percent? Notwithstanding the personal cost increase of three percent The three percent refers to our assumption used in prior filings We've replaced that assumption in light of inflationary pressures to use a four percent uh annual inflation on administrative charges But I'll raise the cost of any of everything shouldn't be relationship between admin and total I Total costs be the same regardless of inflation Um, I do you mind clarifying the question. I'm not sure I'm following Sure You and I agreed don't we that the inflation raises costs. Yes, we agree. Okay, and so Unless there's a so I would think that Whatever denominator you're using For that three percent or four percent inflation also Also affects that so that I wouldn't think the ratio That is the admin percentage Would change because of inflation If I'm wrong, tell me in but admin as a percentage of premium Um, in fact admin as a percentage of premium goes down in these filings over time We're assuming a four percent inflationary impact on admin charges And as we just discussed at length the Trend that we are using on medical services Is much higher than four percent driven by The increased prices that are being demanded by hospitals and other providers So yeah, in fact over time the admin as a percent of total premium Decreases in this filing from from 2021 through 2023 You're saying admin is a percentage of premium decreases even though you're using Even though you're using a four percent Trend to increase admin Yes, the four percent trend is applied to a per member per month charge Um, and that that per member per month charge Is is but a relatively small portion of the total premium So if we have 90 of the premium, uh, which reflects the cost of health care It's increasing at a medical trend that's much higher than four percent And we have about seven percent of the premium that's increasing at an inflationary rate of four percent The percentage of that smaller amount for the admin will decrease over time relative to the to the premium itself Okay, I think I understand. I'm not going to waste your time trying to nail it down so that I'm sure that I understand Just let me and this may be my final question um On page 54 this Paragraph second from the bottom that begins. We are experiencing You see that? Yes And you talk about new capability what you're introducing new capabilities Outside of blue crosses core operating platform. Can you tell me there what you're talking? Can you tell me what that paragraphs about? Sure by way of example? um We have introduced a medicare advantage product to the marketplace That product while it increases blue crosses membership those those members are blue cross members um That that product is not serviced on blue crosses operating system So while it will look like and in fact our our overall membership is increasing The the portion of that membership that is serviced on the blue cross operating model and operating system Is decreasing So that's that's what that paragraphs attempting to get at it's we we so in other words We cannot spread our administrative costs over those medicare advantage lives Because those admit our administrative costs have nothing to do with those medicare advantage lives So individual and small group members Admin does not include any Costs for medicare advantage. That's right. Yeah um Mr. Uh hearing officer i have no more questions mr. Schultz Thank you for your patience and mr. Chair and board members. Thank you very much for your patience. Okay, so Next to Well the board but before we do that miss galvo. Do you have any questions for mr. Schultz? I do not thank you Okay, so we'll go through the board members starting with board member lunge. Thank you um Hi, mr. Schultz. I hope you're doing well today and it's a pleasure to hear your your child in the background always Thank you. You're welcome Um, so I did have a couple of questions. I wanted to ask you About first of all related to the assumptions um about the emergency department Utilization And those other services. I don't have the list at the top of my head PD urgent care, etc um, so the the underlying assumption there uh that I believe you're making is that uh Covid waves will not result in the suppression of that care in 2023. Is that correct? That is correct okay, um, and So then moving to a different topic. Sorry. I'm gonna be jumping around based on my notes quite all right so also In the filing you discuss, uh, some assumptions related to facilities Utilization being suppressed due to workforce issues Uh, you have to verbalize your response. I'm afraid yes For the record and What is the basis for that assumption The specific assumption that there's been some suppression due to workforce issues Yes, um, that's based on information that we've learned in conversations with hospitals over the course of the past year and um, that is Kind of reviewed in spades in the uvm hn health in the budget narrative by way of example Okay, and uh, do you expect that those workforce capacity issues to be corrected in 2023? Um, we we hope so. Um, that's that's part of the basis for the, um There I say good gargantuan increases that have been requested by uvm hn and some other hospitals Their their intention is to address those issues Um, and I I think for public health reasons, we all hope they are in fact able to address those issues Okay, thank you. Um in terms of COVID we are currently still in the federal public health emergency. Is that correct? I agree Do you happen to know when that is set to expire? Um I I wish I did. Um, the original thinking was that it was going to be allowed to expire Right about now. Um, I think the the order that was Extended in early april was set to expire. I I believe on july 15 I I actually haven't checked to see whether that's been officially extended. The thought was that it was going to be extended Um, because the government did not notify states that they were going to let it expire Um, the they had said they were going to notify states because states needed to kind of get the machine cranking On eligibility recertification for medicaid Once that health emergency expires so they they didn't make that notification So the thought was it would be extended for another three months. It can only be extended 90 days at a time Um, what i'm hearing is that it's likely to be extended through the end of this calendar year But um, but it's it's kind of anybody's guess in a way Okay, thank you But but it's fair to say the feds have not given that 60 days notice that you just refer to at least not to your knowledge To the best of my knowledge. They have not done so Thanks I just want to make sure that mr. Angolf is still with us. He's frozen on my screen Are you are you able to listen to this mr. Angolf? Am I on frozen now? Yes, thanks Thank you Okay, sorry robin No, thank you mike. I i'm focused on my notes. So i'm not really looking at my screen. So please feel free to jump in as needed Okay, so and I think um when you were testifying around about exhibit 30 today I believe you indicated and I just want to make sure I heard this correctly that in And actually let me move to exhibit 30. So I have it in front of me Okay So in on exhibit 30 you have the expected increase from hospital budgets And I believe you testified that in calculating that impact You used Understandably your own medical utilization trend not ellenie's recommendation. Is that correct? For medical utilization trend. Yes, that's correct. Okay. Thank you So and you and mr. Angolf spoke to this a little bit earlier, but I just wanted to clarify So when you're talking about uh revenue enhancement activities, it sounded like the basis of knowledge for that is the uvm narrative Is that correct? um that Supplemented our knowledge of that our knowledge of that originally came from conversations that we've been having with hospitals Kind of through our provider relations department Uh over the course of the last many months. So we we were aware that that was the intention of hospitals At the time of filing the budget narrative simply confirmed What we understood to be true about their activities in that space And is that all hospitals? Uh quite honestly, I haven't reviewed all of the budget narratives. Um, I I would expect that it is most of them But as as we both know uvm health network is the Strong majority of the of the care that we do is provided to facilities in vermont Thank you And also in your back and forth with mr. Angolf You indicated that the hospital budget decisions impact medical unit cost trend um And I understand that you didn't consider the hospital budget narratives for your utilization trend But you are aware that the board approves a cap on net patient revenue. Are you not I am And net patient revenue for hospitals includes both unit cost and utilization That's my understanding Thank you Let me just I think i'm almost done. Let me just check some other notes I do have um Mike this is just for your mike barbers just for your knowledge I do have a couple of questions related to confidential materials that I'll hold Um, so I will be asking um at some point that we go into executive session But I'll hold that until everyone else has a chance to ask their Questions Okay, um Related in general to Utilization, um, I am interested in understanding larger utilization trends in your book of business and variation by hospital Um, and I understand that this may not be something that you're Prepared to answer today But what i'm wondering is if it would be possible for the board to get utilization Information by hospital broken out by the three main service categories in patient outpatient and professional services For calendar year 2021 I think this would help us have an understanding of broader utilization trends across uh Your book of business in general Um, and it would also be helpful to see your estimates specific to the emergency department similar to what you provided lumped together with the urgent care and other suppression That's particularly helpful quite frankly in comparing the utilization assumptions in the hospital budgets that we receive later But it would be helpful if that's information or analysis that you might be able to provide I believe that's something we should be able to assemble after the hearing of course, but yeah, we should be able to pull that together Great, okay It's confidential Um, oh that one is confidential Okay, um, I believe that's it I have a couple other tabs to go through but mike just in the interest of time Perhaps we should go to other folks and i'll just take a double check through my notes and Let you know if I have anything else if you don't mind coming back to me if necessary So next we'll move to a board member. Pelham. Do you have questions for mr. Schultz? I uh, I do I Your your voice came across a little You pointed you pointed in my direction, right Mike? I do. Yes. Thanks. Um, so I kind of want to pick up where I left off last year in the rate review um and uh the concurring opinion um that I had last year on both uh Blue Cross Blue Shield and mvp that basically lamented that because of the uh pandemic We couldn't spend a lot of fixed perspective payments and with um the cost shift So I just want to focus a little bit. Uh, pick up that thread a little bit um here and I'd like to refer um to a An email that uh don george um sent out on um march 28th 2022 to um The community basically it was a went out to all community leaders And the topic of it was why we oppose mid-year increases If I may a quote from that um He said in this letter Uh email we must turn determinedly toward value-based payments and global hospital budgets to think more holistically About patient health rather than incentivizing Volume by paying for each service individually And I assume by that he means fee for service um, so I'm looking at that language and then I'm looking at um uh exhibit one where um The presentation the board filing says Because the performance to date of this arrangement and that has to do with uh with basically one care and the health care reform efforts Um because the performance to date of this arrangement gives no clear basis for projecting savings in the near term This filing does not include any adjustment to projected expenditures related to the one care program And so last year the uh looking at the development of the index rate. There was a minuscule amount of of converting um Tapetated payments to fee for service and um and similarly in the index rate this year um, it is 19 dollars of the 779 dollars and um And which is to me a diminutive amount and um and I worry or I wonder um What will happen if the commercial carriers? Don't get off the sidelines in terms of of capitated payments. Um, or and and kind or stay on the sidelines it's um kind of looking at uh uh Just a couple more seconds here looking at medicare um, the one care is projecting a 53.4 percent participation Looking at medicaid 58.2 percent Medicaid in the uh administration's implementation improvement plan said very good things about how um Capitated payments have been beneficial to medicaid The nork study uh said several uh things about The medicaid engagement and but I worry that That these are large fish, but they're not the largest fish the largest fish in the payment pond is are the are the carriers And uh, so here again, you know, we're down to a minuscule amount. I mean, it's in in tens of a percent in terms of of um cap of uh capitated payments as part of the index rate And I just wonder um Well, the outcome will be of the if if blue cross blue shield has any sense of of the weight of their participation in health care reform And if you know, here we are in the fifth year of the all-payer model um, and and without significant engagement In uh capitation the um what one care has established a target for commercial for 2023 at 23.9 percent of um I think I think the the the reference that they made was uh Where do we go if if if next year we're in the same place as we are this year? Which is the same place that we were in last year, you know, does That could mean that uh up teller of of um Of health care reform in brahmat. Um, it's just Uh, it is not there and um, I fear that all the separate Everyone's putting into health care reform may collapse. I'm just wondering if kind of more broadly not in you know, you have a sense of of where blue cross blue shield might go, you know, um Well, we know where you want to go for 2023 but 2024 and finally the second part of that question would be we have a copy of the analysis supporting um The language uh of of CEO george that the perform performs to date of this arrangement gives no clear basis for projecting savings So I think would think there's some kind of technical analysis behind that statement And i'm wondering if we could see it Um, I I can certainly pursue that. Um So the Sorry mr. Pelham. I think the the question is where blue cross stands relative to fixed perspective payment Is that an adequate summary of what you've asked? Well, well, it's the contrast. It's the contrast of what ceo president Don george says and what the what we find in this filing is uh you know, so he he has an aspirational and positive view of um according to his email of um Of value-based payments. Um, but in the filing There's minimal value-based payments And i'm just wondering is there a strategy on the part of blue cross blue shield to close that gap in favor of value-based payments Absolutely, or or do I worry one more thing? I just got to get that. Do I worry that what we have is a Is uh blue cross blue shields likes fee for service. It's what you do. You probably do it very well And it's it's the culture of the company and our our are we just stuck with fee for service I don't think we're stuck with fee for service, but I can also say that blue cross cannot unilaterally implement value-based arrangements We we need the hospitals and other providers to be willing to enter into that as well Um, we answered a recent question. I was just looking for it unsuccessfully um that discussed our uh ongoing pursuit of fixed perspective payment and value-based arrangements and in particular through one care And where we've landed with one care for 2023 is that we're we're doing a lot of work um to agree on uh a fair equitable um target setting process That is can be shown to deliver value to consumers and that's that's fairly easy to say, but it's a lot harder to do Um, especially coming off the back of the pandemic where we we more or less remove risk from the arrangements because we we had Little idea of what in the world was going to happen. Uh with this pandemic Uh having its impact Um, so our focus for 2023 uh, at least with one care Is to get that target setting process and re you know re establish the risk sharing arrangement that we had before the pandemic Um, so that we do have some risk sharing over and above just straight fee for service Once we have that pulled together and in place the intention is then to build upon that to establish fixed perspective payment um at You know, whichever facilities are are willing to participate in that sort of arrangement Um, so it's yeah, I I don't think we're on the sidelines at all. I think we are right in the middle of the field and in fact calling plays Um, but you know, we're we're not the only ones out there. We we have one care out there with us We have providers and hospitals out there with us as well Um, and you know, I think we all share the same goal We we see the value in moving away from fee for service Um, but we also need to make sure that we are moving toward fixed perspective payment In a way that's going to benefit everyday Vermonters Um, you know, certainly there's some uh stability that fixed payment provides to the hospitals and other providers And that's a laudable aim But one of Blue Cross's goals is to make sure that fixed payment is not just good for providers But it's also good for everyday Vermonters and Vermont small businesses and their employees as well Um, and those those goals can sometimes be at odds. And so we we need to make sure we develop a system Um that that delivers value to everybody Um and delivers value in a way that doesn't just end up with A UVM health network coming and saying we need a 19.9 percent increase on our fixed perspective payment next year um, because that's That's not really any different from what's happening today Um, so there's a lot of work to do in order to get there Um, and we are absolutely committed to that work and participating Uh, uh, you know as as as much as we possibly can And reaching that vision that don george shared Well, I would agree that I think um the concept is is that with fixed perspective payments some of the benefit of that and the innovation that comes along with it and Uh falls to the pocketbooks of ratepayers. Um, so it's not just Beneficial to providers, but it's also beneficial to ratepayers I just worry that there's gridlock that um, and I go back to last year where you had Blue Cross Blue Shield saying we need some willing partners And uh, dr. Brumsted saying he'd be first in line and here we are A year down the road and I I don't think we Move the ball very far. At least it seems to me Um, but that is what it's at. I just worry that a long time goes by Ratepayers or providers don't see the benefit of fixed perspective payments, although the folks in Medicaid say they have Have benefited by it and the Medicare study says they benefited by it But if I agree with the ratepayers don't begin to see the benefit of it People are going to say what good is it and the clock is has been ticking for a number of years now um My next one is that from the same email um, uh Don George says instead we need to redouble our efforts to restructure our um, Hang on a minute He talks in this email About he talked he talks about the cost shift and I I could find the exact quote here But um, so I just want to kind of raise uh a question And the trigger for it was that isn't that email. I just can't Find it right now You know about the cost shift and he basically Says that uh, you know, they're not in control of the cost shift, which is true. Blue crossfield is not in control of the cost shift But um, um, I think oh, here's what he said He said the green mountain care board has no say over how much Medicare Medicaid Pays hospitals and while the underfunding of government payer exacerbates the problem No one has the resources to keep pace with these shocking budget increases So, uh, that's what he said, uh last march and so I kind of went back into the and you can see that, um from 2017 they have they have one tab that Is is a five-year trend for every appropriation of the state budget so you can go to the global commitment It's uh, um line and see that You know since 2017 The appropriation has risen at the annual rate of only four tenths of one percent From seven hundred and forty four point four million to seven hundred and fifty eight point three million In the 2022 budget It's notable as well that diva underspent the 2021 budget in global commitment by uh over 18 million And that the 23 budget is reduced by 18.5 million from the 20 22 budget mostly attributed to post pandemic caseload reductions as we came out of the pandemic You know they've been resurfaced stations, etc So but these are still big numbers. I mean in terms of your rate Request, you know, I think in dollars. It's like 18.6 million For the small group in 19.5 million and this is before the adjustment up based on hospital budgets Those are the dollars on on the the surf filing And uh, so that they're not out of the ballpark. They're not out of scale with each other Yes, it's a complicated connection But I just uh, so I I guess I want to ask the question Given that the trend rate on Is four tenths of one percent since 2017 and given that the appropriation In global commitment 2023 over 22 was reduced by 18.5 million you know Did blue cross blue shield who was not Unten influential you do have influenced did you participate in any Efforts under the golden dome or at the state house to Basically say yeah, uh caseloads are going down. You're saving some money But you could put that money into rate rate increases You don't have to send it off to other parts of state government, which as A former guilty party. Um, I can say You know that that that can back I think I'm a guilty party. I hope I'm not a guilty party, but I probably am you know that You know, uh, there's opportunity there to Um to pay providers more through Medicaid and take some of the cost pressure shift off of you folks Yeah, we would certainly, uh, welcome that sort of move I I don't actually have knowledge of our of our activities In montpelier to effectuate that so I I can't speak to that with any degree of detail But I think as you can tell from mr. George's letter Blue cross would certainly be supportive Um of those kinds of things um, my next is question has to do with just uh Is there one number in terms of the the cost sharing increases that were recommended and approved by diva And a few of the minor ones by us. I think there were two or three on that list that we approved If if if that if that, uh, those increases in cost sharing were translated into premium increase How much on top of kind of the requested premium increase? What what would be the value of these cost sharing increases if they were translated into premium? So in other words if we hadn't increased the cost sharing and instead kept the cost sharing flat and allowed that to flow through premium instead Right, okay. Um, I I don't have an exact number for you. Typically what we see is that the um The actuarial value uh movement over time is usually a little bit over one percent per year So if we if we keep them flat that would be about a one percent probably a little over a one percent premium increase um, you know, I I will point out that there are Uh parameters within which we need to keep that the cost sharing So a lot of the that movement is kind of dictated by the need to stay within the the metal levels that are defined by the federal government So I you know, we we don't have I you know, we don't have carte blanche ability to just keep everything the same as it was unfortunately um, but yeah So I I just asked that question More for the general public who might come to the hearing later on this week that it's not only the premium increase But it's also these cost sharing increases a minor partner But you know once you get up into double digits it all adds it all adds up um My next question is um They basically kind of wondering Uh, there was an article in the um from my digger this last week about how You know a reemergence of the pandemic a little bit or of a different strain of virus might um, un Unsettle kind of the budget process this year There's no no doubt about that But I just I just wonder How looking down the road six months or a year how we We know What the impact is Of this uh in in your case this 38.1 million dollar increase investment in higher kind of higher premiums You know on a combined basis So um and in a fee for service world What what should we look at to know that this investment Is doing the maximum amount of can for hospitals and independent providers, etc To stabilize the system Hopefully coming out of the pandemic. What what should we What are the measures we should look be looking at that that say This uh this 38 million dollars is a lot of money um and part of it is just not to kind of you know, um Pay providers more but it's strategically, um Structured to stabilize The weaker members of our provider system Yeah, that's a that's a great question and I I think the answer to that probably lies in the hospital budget Uh approval process more so than it than it lies in the rates um, I I can well You know, I I can say we you know, we did include the impact of of anticipating remun careboard action on the hospital budget requests We assume that impact would be in line with what it has been in the past Um, and that's not to say that you'll treat every hospital the same. I'm quite certain that you won't Uh, but at this point in time, it's it's hard to anticipate a hospital by hospital Uh action that you're going to take Um is part of our advocacy for ratepayers We we'd certainly welcome and encourage you to take a really hard look at at these hospital budget submissions Uh to ensure that that is money well spent the um Kind of a related question you know, well Let let let let me just say for for me in my perspective. I'm not an actuary and I'm not a lawyer uh kind of uh but you know I try to avoid getting involved in those technical weeds But I but I you know, I I I I Given the actuarial process I kind of wonder how Um, how to integrate the the economic context. So for example, jeff car and tom kebeth submit their annual economic forecast to the um to the uh Emergency board and the emergency board adopts it, which is a big formal deal in the process of the state government They're looking uh, their report to the emergency board was a 4.4 percent 2023 increasing gross state product and a 3.6 percent increase in personal income Nowhere near where um these rate increase requests are And so I can understand from an actuarial basis where you're looking in the review mirror And this is what you've seen and you're projecting it forward and you end up with this, you know, with this recommendation That recommendation is still, you know, way out of context of what's going on in the underlying economy The state budget and just in terms of state funds forgetting about all this federal money The state budget uh for 2023 over 2022 Went down 5.4 percent. So it was it was a negative And and over the the five years going back To 2017 it's been a 5.66 percent increase So I look at that and I say well, that's in touch with the economy, you know And and and it's reasonable As opposed to where I started in the state budget Which was coming off high double digit numbers in the cune administration And then uh, we hit the 1990 recession and the bottom fell out And Dick Snelling had the sustainable send spending proposal That governor dean embraced and we went negative a couple years on the state budget So I'm just I'm just wondering Given, you know, given the scale of this requested increase um Whether or not this is a one-year issue or a three-year issue I mean it took us six or seven years to work out of the The um bond rating went down et cetera et cetera in the early 90s And I'm just wondering if What the context for this increase is is this just one in a Series do you think or is this a a one-time fix to help stabilize the system and Stabilize providers and we'll be back in the you Four to five percent range in 2024. What are your what's your thoughts on that? Yeah, what what I can say is this this increase is uh inextricable from the hospital budget increases that you'll be considering next month Um, as I've testified over 10 points of our final increase is due to increases in prices that providers are paid Um, so that that 10 points is certainly not uh in step with the with the figures that you quoted for the broader economy as well um As to how that's going to play out in the future I Um I'm not sure that I have a much better guest than anybody else I'd like to think that the current batch of hospital budget requests are going to um stabilize These hospitals that are asking for double-digit increases. Not all of them are there Certainly a few hospitals that are that are in the single digits kind of in the mid single digits And we we'd certainly love for that to be all hospitals um I I believe the intention is to try to surmount these problems and put them in the rear view mirror Uh talking about problems, uh budgetary problems hospitals are facing in terms of hiring visiting nurses You know doctors coming in to meet the demand they've had workforce issues So the sooner we can get that behind us the sooner we can uh return to normalcy as as the phrase was coined um Can that be accomplished in a year? I I don't know. It's a it's a heavy lift that the the hospitals are going to undertake um My job really uh while it's certainly technical is in some ways a lot easier and that I I Simply am reflecting those cost increases In these rates, uh, and when it comes to them to do 20 24 rates, I'll take the same approach I'll take a look at what's going on with the hospitals Um what their financial performance has been How the rate increases that will be approved uh in september Are going to impact that financial performance going forward and I'll use all of that information to kind of inform What the 20 24 increase is going to be how's that going to play out? I I think it really depends immensely on the extent to which hospitals are successful in stabilizing their own operations Uh and bringing some of those extra costs under control Unfortunately, some of that probably also depends on what happens with the pandemic Are are we going to continue to see these these big waves that we saw in 2021 and even into 2022? You know, we're we're kind of experiencing more of a caseload now Hospitalization is down in vermont, but that's certainly not true across the country There's there's many many areas in the country where hospitalization is is ramping up again um due to covet so Gosh a lot of it depends on the on the pandemic and the hospital's ability to kind of stabilize And I you know, I I kind of unfortunately lack a lack a good crystal ball about 2024 I have a pretty clear indication of what's likely to happen in 2023 So I I have been able to incorporate that into the rates But that that work of incorporating the increases in rates is is pretty minor compared to the work of actually using those funds to stabilize hospital operations so that we can Get back down toward More affordable increases in the future Kind of building on that just a little bit. It's uh and going back to the whole fee-for-service concept that One of the only windows I seen on fee-for-service um Actually kind of playing out in the field is that very small study that we did on reimburse price reimbursement Um, I think it came out last spring where you can look at um commercial payments to providers In the same year for the same procedure and see this wide variance You know and and and how How that's applied, you know within hospital budgets. And so I worry That we don't have a window to measure to to kind of You know, except for these very top side numbers to measure You know, whether or not the use of these increased um premiums is being done in as thoughtful and as uh Kind of stabilizing manner as possible My my last my very last question is the long shot here It's um You know, as you know, there, you know, cms has this annual requirement For um each hospital operating in the United States to provide clear Accessible pricing information online about the items and services they provide Um including a unique list of 300 shoppable items Uh items and services including 70 already defined by cms And I just wonder that we have this system in place already The federal government mandates it hospitals have to abide by it I've looked at some of those um filings in hospitals and it is chaotic You know, it's it's it's definitely Uh a system that you you know, if you're if it's patient facing It doesn't work very well for you, but if you're trying to look to see follow the money, you know in terms of procedures It's not easy to deal with I I spent a lot of time with uvm's example, which is just this huge spreadsheet um And i'm just wondering if whether or not we could play a role um In finding a common format for each hospital to submit to cms and because it's a common format the the The utility of this federally mandated annually reported 300 shoppable procedures is something that we can we can use to kind of Shine a light on where we are and and where the system might be working or where the system might not be working um So that's that's my that that's my wish of the day and um If you can put some wind in that sail it I'd appreciate it I see what I can do. I think we would welcome that involvement And we we agree with your characterization that the current uh, the currently it's quite chaotic But it's a system that's out there and uh, you know, I I don't see why we couldn't say And I don't think any of these Of methods that any hospital for martyrs used has been counted violation So so so it's not like you know, we've got a bunch of bad apples out there We've just got a a bunch of chaotic apples and Just wondering if giving bringing order to that would be helpful So thank you, um for this and uh, that's all I have to To say and to inquire about excellent move to Remember homes Great. Thank you Good morning, mr. Schultz. How are you? Good morning. I am well and it is still morning when I'm talking to you this year. So that's that's good. Barely, right? Barely Um Well, so many of my questions have actually been addressed by your testimony already as happens when you go towards the end But I do have a few So actually as it turns out last friday, the federal government did actually extend the public health emergency for another three months And you know, as you've already Mentioned it looks like we still have some A few more worrisome new sub variants predicted for the fall and kovat is still very much with us And I assume that this latest extension any subsequent extensions that we might see there's going to postpone this redetermination Of medicaid eligibility So how will these, uh, public health emergency extensions impact Your assumptions about medicaid members transitioning to the exchange and in particular your assumptions about the population Morbidity risk and utilization trend that you have in the filing right now Great great question. Um, so So the assumptions that are currently in the filing are that the the new members would not really have an impact on experience We assume they would look a lot like our existing membership um by and large we So the the major impacts were really on administrative costs in terms of bringing them down Um, and there are some kind of residual impacts on risk adjustment and other things like that But we we did not have any sort of, you know Massive or really particularly significant movement in terms of the the cost the claim cost um, the biggest component of the premium so There will absolutely be an impact when these folks flow into the market But since we don't know when that's going to happen. It's hard to gauge what that's going to be So a couple of things one is since we're pretty sure at this point that they're unlikely to be there at the beginning of the year That does a couple of things one is that Our administrative costs will probably run a little bit higher on a pm pm basis than what we have in the filings because we won't get That bump to membership um Another thing that could happen is if these members end up joining midstream Unless we have some sort of regulatory Um action that means that their deductibles are going to start. Let's say they they enter the Enter the fray in next august or something like that You know, they'll have a short plan year So their deductibles will apply for only five months instead of 12 That means that their paid claims as a portion of the total are going to be low Um relative to the average member So that that would actually offset the administrative cost impact Um the extent to which it offsets or overcomes it really depends on the timing of when those folks enter the market And right now that's that's kind of anybody's guess. I think at this time as to when exactly they'll come in so um You know all that said it's it's not this isn't going to be this is going to be something we measure in tenths of a percent It's not going to be something we measure in in the full percentages Um, so yeah, we'll we'll see how it plays out, but it's it should be a relatively minor impact at the end of the day okay, um, and as I think everybody has already mentioned this is a pretty unprecedented year in terms of expected increases in pharmaceutical drug prices and hospital rates in insurance premiums Um, and I I just want to probe a little bit. It's been touched on but I want to probe a little bit deeper You know as people face these higher premium rates I would anticipate I would love to know your opinion on this that people may drop metal levels with the higher premiums They're then going to face greater cost sharing and they may utilize less And even within a metal level facing higher medical prices They may also utilize less particularly if they're in the the metal levels with higher cost sharing so Do you have an estimate of this price responsiveness or elasticity and how do you account for it In your projections for utilization for 23 particularly given that this is a truly unprecedented year in terms of these These deltas on the price increases. We may see an impact and I'm curious as to how you've accounted for that Yeah, so we we did take a look at um plan migration from 2021 to 2022 and we included that In the filing So that that's in there. Uh, your question is more to do with anticipated plan migration to 2023 and that's a that's a little bit harder to judge Um, so we we haven't um, you know, I totally understand what you're saying and I think that that could realistically happen Um, we don't have an assumption that that's you know that that plan migration is going to to increase because of the of the higher prices It's possible that it will I guess here. I'll just say that You know plan migration over time and we've had some some unfortunately We've had some rather large increases in the past as well And we've never noticed plan migration that has an impact of greater than a tenth or two of a percent Um on the on the final claims So I I don't think we're talking about a huge ticket item here But I do hear what you're saying and I think it would be reasonable to think about that The other thing we did not include although we we could think about this too is that um, unfortunately We could well see a rise in the uninsured rate um with these large hospital budget increases driving a large premium increases um And typically when that happens, it's the healthier members who decide to leave the market So that would have the opposite influence to the one that you're talking about Or that you know the healthier members leaving would drive premiums or drive claims per member per month Higher than what we're showing in this filing. So there's there's definitely some movement there It will absolutely be different than the more or less status quo that we're assuming in the filing But it's it's unclear to me that that movement will definitively be in one direction or the other And I think at the end of the day given the the you know, we've for a very long time had a low Uninsured rate in vermont And I you know, I don't I'd like to think that these increases are not going to change that In an appreciable way. So I think at the end of the day, we're talking about a rather small impact in one direction or the other um, and I you know, my my best assumption for all of that stuff Is to kind of go with the status quo assumption that that's that's going to be a net neutral And then we end up with just projecting the the claims based on the population. We already have Okay um And I apologize if I've missed my missed in the materials my following question If I have please just point me to it or if you need to submit and follow up That's fine, too But my question is for the past five years How have your actual administrative costs compared to your projected administrative costs at the time of filing Oh interesting question. I don't think that is in the material, but I'm certain that's something we could follow up with That would be great. Thank you um And on page 28 of exhibit one, um, there's a table in there regarding the Increase in fraud, waste and abuse payment recoveries Yes And I'm just wondering if you can speak to what accounts for the increase in those fraud, waste and abuse payment recoveries You know They're even now last year was even higher than pre-pandemic and I guess my question is what accounts for it? Are they are more fraudulent and wasteful claims or are your teams better at detecting them? Wow What a loaded question The the answer I think is twofold one is we we did suspend Quite a bit of fwa activity during the height of the pandemic in 2020. So we've been sort of recovering From that level. We know that was artificially dampened for a time. You can see it start to recover in q4 Um, but then really recover back toward and above pre-pandemic levels in in 2021 The other part of it is uh has to do with the vendors we're working with we're we're working with a few new vendors Um, and the the way these things work, you know, it's It's not really a sample kind of thing. You're not going to dig into a claim and say Ooh, this one. Let's see. Let's find out if this one's fraudulent. There's really a Parameters or an algorithm that's set up to identify claims that may be an outlier for one reason or suspicious claims I guess might be a way to put it So if there's a if there's a certain parameter or part of the claim that doesn't fall within usual bounds or standards That's one we'll pull out and take a look at it investigate So it's it's really the the improved algorithms that we're using on the vendor side That's helping us to identify more claims that we need to take a closer look at Um, and that's that's why the you know, we we don't think the 1.99 percent we achieved in 2021 is going to turn out to be a High outlier. We've assumed that we'll be we'll be able to continue To identify claims at that same level about two percent as we move into the future Um, ideally we you know providers will learn learn And typically this happens providers learn that they can't code in a certain way or And so they'll make adjustments to make sure that what they're what they're doing on the on the coding side and submitting claims is Proper and in alignment. I don't think we have any real bad actors out there But we do think we'll be able to continue to achieve that two percent as we move forward How does that two percent number compared to benchmarks you might use or other blue cross boo shield organizations across the country Yeah, it aligns pretty well To my recollection We presented a great deal of the testimony last year On those national benchmarks, and I I could probably flip through and find it and read from it It's not necessarily my area of expertise But at a high level it aligns pretty well with what we what we see others attempting to achieve or actually achieving nationally Okay, great. Those are my questions chair malin. Thank you very much. Mr. Schultz You're welcome Okay, we'll move to board member Walsh next Thank you, and hello, mr. Schultz Hello, mr. Walsh Nice to meet you Likewise Thanks for your presentation today going through the numbers. I want to ask a couple questions just about affordability Um, you you talked about it earlier mentioned that it's something that You and your organization care about And I'd like to just make sure that I understand how you assess it How that's how that's measured or or looked at I think I got a couple things with when you were talking earlier about The quality of the products that blue cross offers and that some of them Save more money than they cost and that your your cost of insurance charges Are quite a bit less than allowable Those are the two things that I had in my notes, but I'm wondering if there if there are any other measures of affordability um Yes, they're they're a You know affordability as as you're aware as has not been defined In the in the standards and the rules So there there are a number of different ways that you could assess affordability um One point that we've always held to is that um We do have to employ a community rating. That's a requirement in vermont So one thing we cannot do Is say well this person is healthy Um, and this is their income level So they're probably they're probably not going to have a lot of claims because they're healthy Here's their income level. So we're going to charge them a certain amount And then this person over here who's who's going to consume a million dollars of health care um, you know Our premiums are incredibly affordable for that person Right, they're they're they're paying A certain amount for an insurance product and the benefit they're getting is a million dollar benefit from that product That's affordable. I think by any definition um So the question to us really becomes so is this rate affordable for the community? Of subscribers and I think the you know, the two things you talked about are very important Um looking at our cost of insurance looking at the value that we bring and the savings We're able to bring to the premiums compared to what we charge for our part of the premium Which is the cost of insurance But the bigger component Is taking a look at those claim costs And the projection of that and making sure that there's no kind of margin or fluff in there We're doing a fair and adequate job Of projecting future claims Um, and we you know, that's part of that is luis and ellis's rule They they do a very in-depth examination of the work that we've done to make sure that we're not Um, we're not doing something improper. We're not doing something that results in a rate That's too high that we are in fact fairly reflecting Um the 90 plus percent of premium that that is driven entirely by the the cost of care In vermont and outside of vermont as our members travel um They've done so and they've agreed with the with the one exception that we've talked about there is one point of contention this year Um, but luis and ellis has agreed that the numbers that we're putting in there That is a reasonable projection and I can also look at our historical financial results And determined by looking at those that we do a pretty good job Of projecting that 90 plus percent component of premium if I look at our actual financial performance Versus our expected to financial performance over the years, which is um, that's in the binder Uh at exhibit one page six Um We can see that over the entirety of these products the approved Contribution reserves so the approved amount that we we thought we would be able to put into reserves after paying for all the claims And the administration was zero point six percent and the actual result has been zero point two percent So our our assumptions over time have been a little bit aggressive. That is they've produced rates that have been slightly under um I'm sorry. We produce. Yes, we produce rates that have been slightly under um, what what's actually turned out actual experience has been very slightly higher. So, um you know, I If the rating rules were different and I could take a look at something like age rating for example You know, we I hear from a lot of families in public comment that come and say that this This is just way too much for a young family to pay for And I personally don't necessarily disagree with that, but I'm not allowed to use age rating in Vermont I'm not allowed to reflect the fact that a young family of two 30 year olds and a child or two Is likely to spend a lot less on health care than a couple that's in their early sixties And we can debate the policy merits of of that, you know at at length Um, but the fact is I I'm not allowed to rate that way And so it may well be that the coverage Could be considered unaffordable by that young family of four And part of the reason for that is that they're being charged more than they're likely to consume Um Within that insurance, but the flip side is true for that couple in their sixties, right? So but we can't look at it individually We have to look at it in the community because I have to use a community rate in these products Yeah, and and I hear you we could we could debate it I happen to think that that's probably the community rating is probably a better way to go Um, but it's debatable as you talked about the The thing that I'm trying to get my head around as a new board member and trying to understand affordability It seems to me. We don't have a good measure of it From the consumer or the the individuals needing health care, right? You you had an example of someone who has a million dollars worth of expenses And that Because they don't pay in that much It would be absolutely affordable and I don't quite agree there their premiums may still be Not affordable for them because oftentimes the people who are sickest and have the most need for health care Are unable to work as much Right, so this this affordability nugget is tough But it's in the models and the range of variables you nicely described stochastic models I have fond memories of them for my dissertation You describe a range of variables, right? We don't have something like that for affordability And so that's not playing into our models the same way We get 74 pages of public comments that things are not affordable But we don't have a good measure of it yet, and I think that's a that's a weakness But I appreciate your calm explanation through things. You're very clear and and I appreciate you doing that So thank you very much Thank you for the kind words That's all back to you mic Two questions from chair moan Thank you, um, mr. Schultz Uh, we hear continually about the lack of capacity in the mental health system And we hear continually about increased demand You're projecting that, um They the costs are going to go up But what leads you to believe that there's sufficient capacity In the existing mental health system That would allow for those additional costs to you as a payer Good question. Um part of the answer to that is telemedicine There's an increasing use of telemedicine in the mental health space It's proven to be very effective clinically So part of the way that we're, uh Reacting to the demand for mental health services is by increasing the supply through telemedicine You don't necessarily have to hang a shingle in vermont in order to Help a vermonter with their mental health Um, and I you know, I'll admit I I can't really speak in a great deal of depth about the initiatives that we have currently underway But the mental health space is one that is very important to blue cross blue shield of vermont Particularly through our vermont collaborative care initiative Um, and we you know, we've we will continue to uh to make sure that we're working within this space to make sure that that That additional demand is met When you take a look at, uh Patient acuity Utilization trends Are they indicative since blue cross is the largest commercial payer in the state? Are they indicative of Um, your company's efforts at prevention and wellness and care management Yes, yes, all of that is embedded within the experience that we analyze to to come up with those trends So we're effectively assuming that the success we've had with all of those efforts Will continue to produce better and better results as we move forward in time You blocked out for a second, but I think I got your answer And uh, that was all I had for questions. So thank you Thank you chair melon I believe uh, robin had asked for an opportunity to follow up And anything Yes, thank you. I just have a couple more that I missed the first time around. Sorry about that Um, Mr. Schultz could you take a look at exhibit 23 page 12? It's attachment a to the supplemental prefiled testimony that you provided Getting there, um, let me know when you're there I've got it Awesome. So, uh, in that bottom table for, um, historical total medical pm pm matched populations I noted that you had a two-year trend and a four-year trend Did you calculate a three-year trend and uh, do you know what that would be? We did we're not displaying it because of the severe disruption that covid had in 2022 I don't have the number in front of me. Um, we could do the map and figure that out But as you can see that 2020 pm pm is significantly dampened Because of the impact of covid so we we do have the number, but I don't think it's particularly indicative of anything useful Okay, I'd just be curious to see what it is understanding, of course about covid sure, um And then the other question I had is, um Um, so you testified today that you were not surprised that the 2019 utilization was lower than 2018 medical utilization because it was an outlier. Is that right? Because the 2018 utilization was an outlier. Yes, that's yeah Yeah, uh, and in the 2020 rate filing, however, you did assume a positive utilization trend. Did you knock? I will have to take your word for that Okay, we most likely did yes Okay, thank you very much. That's all I have Mike Okay before we get Back to redirect. Um There was an email exchange, uh the hca had asked for The email from don george that board member pelham referenced And there were a number of other Actual statements that are not in the record that were referenced One of them being you know the continuation of the Public health emergency things like that. Um, I I expect that We may, uh Propose to take judicial notice of certain facts. I would anticipate that that would come After the hearing so something we'll deal with In writing after the hearing, but uh, we'd like to hear from the parties about that at this time Thank you, mr. Barber You know, I think we I don't anticipate objecting, but would want to see the you know specific proposal um, we're We're fine with your proposal, uh, mr. Hearing officer I think you're you're muted Mr. Barber Oh, I said it I'll turn it back to you for any redirect Um Would it be all right if I just took a ask for a brief couple minute recess to review my notes? Yes, uh, why don't we reconvene it? Order till noon Okay, thank you Hello again, mr. Schultz Hello, mr. Battles Uh, mr. Angle asked you a few questions about, uh, the actuarials Standards of practice or ASOPs and how they impact your medical trend assumptions Um, I'd ask you if you could turn to your supplemental Prefile testimony at exhibit 23 and specifically page eight If you could just review your your first response on the top of page eight and then sort of summarize that response for the board Um, yes, so the the question is whether Uh, it is in what way the L&E opinion contained, uh, what I believe to be a clear error And that has to do with the actuarial standards of practice which do prescribe that the actuary should determine the extent to which past experience trends are relevant to assume future trends Um, so Mr. Angle was was asking me a series of questions about whether those standards of practice are prescriptive in terms of this precise methodology that is used to assess those trends and the standards are not um, but they are prescriptive in in in saying that the actuary must Uh, assess how past trends may or may not be indicative of future trends Thank you. And then I just uh, a couple additional questions to follow up on on some of the uh, some mr. Angle's questions about, um specific numbers in in, uh uh actuarial report and so if you could turn to the report which is exhibit one and, uh, specifically page 21 and, uh You could take, um A moment for review and sort of the first paragraph on that page and then explain to, uh Uh Whether that addresses the impact that the civica rx initiative has on the file rates It it does indeed. Um Yes, so this the bulk of this paragraph has to do with the impact of of civica rx on um specialty drugs Uh, so I was asked earlier to point to the number that we included in the rate filing and in fact there it is So at the top of the page we included a factor of 0.9974 um That was applied to specialty drugs for the impact of civica as I testified earlier It's you know, civica rx is just starting production. So the impact is not immense Um in in 2023 you're not expected to be immense in 2023 But we do hope that that gains momentum over time and becomes a more significant number And then just one more question, uh Turning to binder exhibit two Which contains, uh, the exhibits to the actuarial report if you could look at page Um, 26 And, um If you could Explain what we're looking at there I should have retrieved my magnifying glass in our five minute break, but I failed to do so but um this This appears to to be um I was asked earlier for um A demonstration of the mental health utilization that led me to conclude that an eight and a half percent utilization trend was appropriate Moving forward. Um, and and this would be that data. So this is the mental health and substance abuse Services data that we use to construct that eight and a half percent utilization assumption Okay Thank you. No further questions Angoff, do you have any additional cross on that on those issues? No questions Okay, and I think we need to deal with when To have an executive session because I did hear Mr. Angoff and uh board members Have some questions about Confidential material I'd ask you mr. Chair. Do you have any Preference to what would you like to do it before we go into a lunch break? um group it with any Executive session we have around, uh, Miss green's testimony. What would you like to do? My preference would be to group it with lunch and I do not have a preference Whether it's pre-launch or apre-launch, but as long as it's during that break it allows the public to know that will be back um within a certain Estimable amount of time um That they can uh know that uh, they can tune back in so either before or after lunch um Would be best Okay, I would propose before lunch just to continue with The flow of testimony and not break it up. Um If that is okay with the parties Mr. Herring officer, do you mean the in the entire uh executive session before lunch including both The hospital related issues and the rbc related issues or just the hospital related issues Uh, so it would just be questions for mr. Schultz um On confidential It's on confidential rbc related materials, which we haven't spoken about yet Right. Are you assuming those would be before lunch too? Uh, I yes, um, I'm asking if that is okay with the parties or whether they would prefer it be after lunch I don't think we have an objection to to doing the session before before lunch. Um I will note that you know, we we do as you know happen, uh Ruth green testifying uh today, uh, also in and she may Be be witness better suited to address some of the rbc questions and just letting Jane know that for his Yeah, uh Mr. Herring officer, I I prefer to do the rbc questions after lunch If that's at all possible Just because I think together they're going to take a while Okay. Well, it sounds like So i'm hearing Ben say that some of the rbc questions may be more appropriate for ruth. I think in the past we've had Uh, ruth and paul kind of testify in an executive session Uh Together I think maybe that might make the most sense, but that means uh, I think that we can't group it with lunch So that's the trade-off, but I think that's probably Okay, so So why don't we so I'm proposing that we plan an executive session for uh, miss green and mr. Schultz for This afternoon following kind of at the tail end of miss greens testimony. Does that sound Okay to the parties Fine with the h3a Okay, any concerns from board members on that plan Okay, then why don't we break for lunch at this time? When we come back, uh, the next witness is kevin ruggaberg from louis and ellis and we'll hear from ruth green Then we'll have the executive session. I assume Here from jesse lucer at tfr Uh, and then from blackfisher Okay, so I that's a lot to get through so why don't we take a half an hour lunch? that That okay Yes Okay, so we'll um reconvene this hearing at 12 30 And here from mr. Ruggaberg Thank you. Thank you. Thanks