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© 2017 Wakely, All Rights Reserved, Confidential and Proprietary.

Actuarial Memorandum Sendero Health Plans

Issuer #71837

January 1, 2018 Individual Health Insurance Exchange and Off-Exchange Premium Rate Filing

REDACTED PUBLIC VERSION

September 22th, 2017

Developed By:

Bradley J. Davis, FSA, MAAA 1660 Highway 100 South, Suite 590 Minneapolis, MN 55416 (612) 800-6587 [email protected] Luke Brehmer, FSA, MAAA 1660 Highway 100 South, Suite 590 Minneapolis, MN 55416 (612) 800-6584 [email protected]

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Sendero Health Plans (Issuer 71837) Individual Product | 2018 Rate Filing


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TABLE OF CONTENTS

Executive Summary ............................................................................................................................4

1. REDACTED ACTUARIAL MEMORANDUM .....................................................................................4

2. GENERAL INFORMATION ............................................................................................................4

3. PROPOSED RATE INCREASES .......................................................................................................5

4. MARKET EXPERIENCE ..................................................................................................................5

4.1 Experience Period Premium and Claims ......................................................................................... 5 4.2 Benefit Categories ........................................................................................................................... 6 4.3 Projection Factors ........................................................................................................................... 6 4.4 Credibility Manual Rate Development ............................................................................................ 7 4.5 Credibility of Experience ................................................................................................................. 7 4.6 Paid to Allowed Ratio ...................................................................................................................... 8 4.7 Risk Adjustment and Reinsurance .................................................................................................. 8 4.8 Non-Benefit Expenses and Profit & Risk ......................................................................................... 9

5. PROJECTED LOSS RATIO ............................................................................................................ 10

6. APPLICATION OF MARKET REFORM RATING RULES.................................................................... 10

6.1 Single Risk Pool ............................................................................................................................. 10 6.2 Index Rate ..................................................................................................................................... 10 6.3 Market Adjusted Index Rate ......................................................................................................... 11 6.4 Plan Adjusted Index Rates ............................................................................................................ 11 6.5 Calibration ..................................................................................................................................... 12 6.6 Consumer Adjusted Premium Rate Development ........................................................................ 12

7. PLAN PRODUCT INFO ................................................................................................................ 13

7.1 AV Metal Levels ............................................................................................................................. 13 7.2 AV Pricing Values .......................................................................................................................... 13 7.3 Membership Projections ............................................................................................................... 13 7.4 Terminated Plans and Products .................................................................................................... 13 7.5 Plan Type ....................................................................................................................................... 13 7.6 WARNING ALERTS ......................................................................................................................... 13

8. Miscellaneous .......................................................................................................................... 14

8.1 Effective Rate Review Information (optional) .............................................................................. 14 8.2 Reliance ......................................................................................................................................... 14 8.3 Actuarial Certification ................................................................................................................... 15

9. Appendix A – Projection Period Allowed PMPM ........................................................................ 19

10. Appendix B – Plan Adjusted Index Rate Development ............................................................ 20

11. Appendix C – MLR Calculation ............................................................................................... 21



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12. Appendix D - Consumer Adjusted Premium Rate Example ...................................................... 22

13. Appendix E - Sendero Cost Sharing Reduction Estimates and Justification ............................... 24

14. Appendix F - Non-Applicable ASOPs....................................................................................... 25

15. Appendix G - Sendero Health Plan Affidavit ........................................................................... 26



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Executive Summary

This memorandum documents the development of individual market health insurance premium rates for Sendero Health Plans. This product will be offered both inside and outside of the state of Texas health insurance exchange, which is being operated by the federal government. Sendero is offering individual health insurance products in the Bronze, Silver, and Gold metal tiers, with the premium rates documented in this memorandum effective January 1st, 2018. New for 2018, Sendero will offer a Bronze HSA plan both on and off the exchange as well as one Silver and one Platinum off-exchange only plan.

Considerations for Cost Sharing Reduction Funding (CSR) This memorandum and accompanying files reflect alternative rates from the filing submitted on August 15th, 2017. The rates presented and submitted here were developed assuming that the cost sharing reduction (CSR) payments are no longer funded by the federal government in 2018 and the cost of these payments will instead be funded through member premiums and Advanced Premium Tax Credits (APTC). The submission of these rates does not guarantee that Sendero will continue to participate in the individual market in 2018 should the CSR payments no longer be funded. Should this occur, Sendero will evaluate the market conditions at that time and determine whether or not they will participate in the market in 2018.

1. REDACTED ACTUARIAL MEMORANDUM

This actuarial memorandum should be considered the redacted CMS version as specified in the Part III Actuarial Memorandum and Certification Instructions.

2. GENERAL INFORMATION

Company Identifying Information

Company Legal Name: Sendero Health Plans, Inc.

State: Texas

HIOS Issuer ID: 71837

Market: Individual Market

Effective Date: January 1, 2018

Company Contact Information Primary Contact Name: Wesley Durkalski, President & CEO



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Primary Contact Telephone Number: (512) 978-8180

Primary Contact Email Address: [email protected]

3. PROPOSED RATE INCREASES

Sendero will sell individual policies with effective dates beginning January 1st, 2018. The 2018 plans that are continued from 2017 are:

• Sendero Health Plans IdealCare Total (Gold)

• Sendero Health Plans IdealCare Complete (Silver)

o The corresponding Silver variations were also continued into 2018

• Sendero Health Plans IdealCare Essential (Bronze)

The premium increase by plan and weighted average premium for 2018 are outlined in the table below:

The increases calculated are primarily the result of trend, morbidity, changes to the expected risk adjustment payables, changes in taxes and fees, the assumption that CSRs will no longer be funded, and changes in the overall expected covered population in the Texas individual market. Given that the rate changes are based on the same single risk pool, the rate changes vary by plan due to benefit changes and also the interaction of fixed dollar administrative cost PMPM amounts added during the rate build up.

4. MARKET EXPERIENCE

4.1 Experience Period Premium and Claims

Paid Through Date: March 31st, 2017

Premiums (net of MLR Rebate) in Experience Period Experience Period: Calendar Year 2016 Earned Premium for CY 2016: REDACTED Expected MLR rebates incurred in experience period: REDACTED Premiums earned during the experience period were provided by Sendero from their 2016 Income Statement. Sendero did not pay an MLR rebate to policyholders in 2016 therefore these amounts are net of MLR rebates.

Table 3.1: 2018 Increase by Renewing Plan

Plan 2018 IncreaseIdealCare Essential Bronze 29.1%IdealCare Complete Silver 56.0%

IdealCare Total Gold 38.6%Weighted Average Increase 47.2%



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Allowed and Incurred Claims Incurred During the Experience Period Incurred claims during the experience period were provided by Sendero. All claims, with the exception of vision claims, were processed through Sendero’s claim system. Table 4.1 summarizes 2016 paid and allowed claims and provides an estimate of incurred but not paid (IBNP) claims. TABLE REDACTED There were no private reinsurance recoveries or subrogation. Wakely’s IBNP estimates are calculated based on claim lag studies performed on the paid claim lag triangles. The lag studies were performed using a 4-of-6 Month Traditional Averaging Method. This description refers to the method of completion factor development and the selection of the number of run-out months used to determine completion factors. The completion factors were applied consistently to both paid and allowed amounts. Vision claims were processed outside the issuer’s claim system. The vision benefit is paid for on a capitated basis and capitation expenses are included in the Incurred Claims column of Table 4.1.

4.2 Benefit Categories

Claims processed through Sendero’s claim system were mapped to the benefit categories in Worksheet 1, Section II based on bill type and procedure codes associated with each claim record. Vision claims were included in the Capitation category. The experience period claims were mapped to the URRT categories as follows:

• Inpatient claims were included in the URRT category of Inpatient Hospital

• Outpatient claims were included in the URRT category of Outpatient Hospital

• PCP, physician, and physical therapy claims were included in the URRT category of Professional

• Ambulance, home health care, and DME claims were included in the URRT category of Other

• Sendero has a capitated arrangement for vision services. These benefits were allocated to the Cap category.

• Prescription drug claims, net of rebates, were mapped to the URRT category of Prescription Drug.

4.3 Projection Factors The following describes the factors used to project the rating manual allowed claims to the projection period (CY 2018). This process will be outlined in the steps below and is also illustrated in Appendix A. Morbidity Changes Wakely reviewed emerging 2017 experience and found a considerable increase risk scores compared to 2016. The morbidity adjustment factor is shown in Column 4 of Appendix A.



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Changes in Benefits No change in covered benefits were made. Therefore, no adjustments to premium rates for changes in benefits were made. Changes in Demographics The demographic adjustment factor shown in Column 5 of Appendix A was applied to the claims experience. The demographic adjustment factor translates the base data’s age/sex enrollment distribution into Sendero’s projected 2018 enrollment distribution. Wakely estimates the 2018 enrollment will resemble the April 2017 demographic distribution (most recent enrollment data received). Other Adjustments – Induced Demand due AV Differences In general, members who enroll in richer benefits are expected to have higher utilization. This adjustment was calculated using the federal induced demand factors. Projected enrollment in 2018 is expected to have richer benefits, on average, relative the experience period membership. The adjustment factor applied is shown in Column 8 of Appendix A. Other Adjustments – Provider Contracting Sendero has recently increased their provider reimbursement at a few facilities within their network. The increased reimbursement is expected to continue into the projection period. The experience data was therefore increased to reflect higher expected allowed claim costs. The adjustment factor applied is shown in Column 10 of Appendix A. Trend Factors (cost/utilization) A trend assumption was applied to translate CY 2016 claims costs to CY 2018 claims costs. The trend assumption (two-year trend figure) shown in Columns 11 and 12 of Appendix A represent ongoing increases in utilization, unit costs, and technology. This assumption is based on a review of recent rate filings in the Texas market as well as actuarial judgment. This trend assumption does not include any expected changes in demographics, benefit changes, or provider contracting changes. Any adjustments for these changes are separately made.

4.4 Credibility Manual Rate Development

The allowed PMPMs for 2016 where very low compared to 2014, 2015, and the emerging 2017 experience. Therefore, for pricing, we used a rate manual with a 50%/50% blend of CY2015 and CY2016 Sendero experience. CY2015 base experience was projected to CY2016 prior to blending with CY2016 experience and before the application of the projection factors discussed in Section 4.3.

4.5 Credibility of Experience

A 100% manual rate was used, however the base experience underlying the manual rate was Sendero’s own individual experience for CY2015 and CY2016, which is considered fully credible.



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The following formula was used for assigning credibility to the experience period:

𝑧𝑧 = min�1, �MM

30,000�

.5� for MM ≥ 3000

Experience Period Member Months (MM)

Credibility factor (z)

The determination of full credibility depends on the assumed variation in the claim experience and was based on an application of classical credibility theory and actuarial judgement. Full credibility was determined based on the number of individuals that are needed to have a probability of 95% of being within 10% of the expected claim amount (consistent with the Medicare criteria). The credibility threshold was calculated using random samples of 5,000,000 members from the Truven MarketScan data for years 2010 – 2013.

4.6 Paid to Allowed Ratio

The Wakely pricing model uses the data underlying the Truven MarketScan detailed claim data of a nationally-representative sample of over 40 million group lives to develop paid-to-allowed pricing estimates for final rate development (as opposed to the actuarial values from the federal AV calculator). The model uses actuarially-sound pricing methods to value the impact of deductibles, copays, coinsurance and maximum out-of-pocket cost sharing parameters. We calibrated the utilization and unit cost assumptions in the model to the allowed cost estimates underlying the manual rate and/or experience rate, including adjustments for EHB, trend, provider reimbursement changes and other adjustments discussed elsewhere in this report.

In the URRT, the pricing AV row includes the catastrophic factor and induced demand adjustment consistent with the URRT instructions. The values deviate from the federal AV Calculator values for each plan.

4.7 Risk Adjustment and Reinsurance

Experience Period Risk Adjustment and Reinsurance Adjustments PMPM Wakely assisted Sendero in estimating the impact of risk adjustment for 2016. We developed estimates of the Texas individual market average risk scores based on a Wakely national database of risk scores submitted by over 750 issuers in over 30 states (not including Texas). We compared Sendero’s estimated risk relative to the market using the HHS payment transfer formula, and estimated that Sendero will pay approximately $26.7M into the ACA risk adjustment pool. Because this component of Sendero’s experience is an estimate and is not based on actual participation by other Texas individual market issuers, it contains significant uncertainty.

Federal Transitional Reinsurance recoveries for the 2016 experience period were provided by Sendero and are estimated to be $1.2M.



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Projected Risk Adjustments PMPM For 2018, we estimated the level of risk adjustment payable to reflect a comparable risk differential to the market as 2016 with changes noted in the morbidity section of this report as well as anticipated increases to the market average premium. The following table illustrates the different components of our projected risk adjustment payable:

The projected risk adjustment payable was converted to an allowed amount when developing the Market Adjusted Index rate.

Projected ACA Reinsurance Recoveries Net of Reinsurance Premium No projected ACA reinsurance recoveries are projected for 2018 due to the expiration of federal transitional reinsurance program.

4.8 Non-Benefit Expenses and Profit & Risk

Administrative Expense Load Sendero developed expected administrative costs based on current administrative costs for the Individual line of business, adjusted for 2018. Table 4.8 summarizes the expected 2018 administrative costs (excluding regulatory fees and taxes) for the average enrollee is below:

Contribution to Surplus & Risk Margin Sendero has set the expected contribution to surplus or risk margin for this product as a percentage of premium shown in line 20 of Appendix B. The load does not vary by plan.

Taxes and Fees Taxes and regulatory fees include the following:

1. PCORI Fee: Line 18 of Appendix B

2. Issuer Fee: Line 20 of Appendix B

Table 4.7: Components of Projected Risk AdjustmentComponent PMPMRisk Adjustment User Fee ($0.14)Estimated Risk Adjustment Receivable/(Payable) ($120.39)High Cost Pooling Charge (0.5% of Premium) ($2.44)High Cost Pooling Recovery $0.66Total Risk Adjustment Receivable/(Payable) ($122.32)

Table 4.8: Administrative ExpensesComponent PMPM Staffing $4.44Overhead $6.80Sales and Marketing $0.46Outsourced $24.46Total $36.16



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3. Health Insurance Exchange Fee: 3.5% of final on-exchange premiums, applied to the Market Adjusted Index Rate

4. State premium taxes: Line 19 of Appendix B

As directed, the reinsurance charge and risk adjustment user fees are excluded from this section of the memorandum as well as the taxes and fees reported on Wk1 of the URRT. Sendero is exempt from Federal income taxes, therefore these have been excluded from the Taxes and Fees section.

5. PROJECTED LOSS RATIO

The projected MLR using the Federally-prescribed MLR methodology for the individual line of business is illustrated in Appendix C. Regulatory fees and taxes were excluded from premium in the calculation of this value.

6. APPLICATION OF MARKET REFORM RATING RULES

6.1 Single Risk Pool

Sendero has established a single risk pool for all of this individual business. The index rate for the projection period reflects all non-grandfathered members expected to be enrolled in a single risk pool compliant plan during the projection period.

6.2 Index Rate

For the experience period, the index rate and total allowed claims are shown below Column 3 of Appendix A on a PMPM basis. The index rate only includes allowed claims for Essential Health Benefits (EHBs) while the allowed claims include both EHBs and non-EHBs. The non-EHBs are state mandated benefits; they include: adult vision exam, nutritional counseling, Inherited Metabolic Disorder (PKU) treatment, off label prescription drug use, oral anticancer medications, post-mastectomy care and lymph node dissection minimum hospital stay requirements, pediatric reconstructive surgery for craniofacial abnormalities, transplant donor coverage, diabetes care management, mental/nervous disorders with demonstrable organic disease, and habilitation and mental/behavioral health outpatient treatment related to brain injuries.

For the projection period, the index rate and total allowed claims are shown below Column 13 of Appendix A on a PMPM basis. The index rate only includes allowed claims for Essential Health Benefits (EHBs) while the allowed claims include both EHBs and non-EHBs. The non-EHBs are state mandated benefits; they include: adult vision exam, nutritional counseling, Inherited Metabolic Disorder (PKU) treatment, off label prescription drug use, oral anticancer medications, post-mastectomy care and lymph node dissection minimum hospital stay requirements, pediatric reconstructive surgery for craniofacial abnormalities, transplant donor coverage, diabetes care management, mental/nervous disorders with demonstrable



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organic disease, and habilitation and mental/behavioral health outpatient treatment related to brain injuries.

Small Group Quarterly Rate Filings Sendero will only be offering individual coverage and therefore small group quarterly filings are not applicable.

6.3 Market Adjusted Index Rate

The Market Adjusted Index rate for the projection period is shown on line 10 of Appendix B. Per HHS instructions, we included the impact of risk adjustment, converted to an allowed basis, and the “equivalent exchange user fee” (as described above) to the index rate for the projection period to develop the market adjusted index rate.

6.4 Plan Adjusted Index Rates

Plan adjusted index rates were developed by applying allowable plan level adjustments to the Market Adjusted Index Rate. The following describes how each component of the adjustments were developed.

AV and Cost Sharing Adjustment Wakely and Truven have jointly developed the Truven Benefit Modeler to develop pricing Actuarial Values (AVs). The model is updated by Wakely each year with new data, enhancements, and refinements. For 2017 (applicable to 2018 ACA pricing), we have made two important changes that may impact the AV materially depending on the associated plan design:

1. Incorporated new, more recent data from Truven

2. Updated the model’s continuance tables to more accurately price the impact of plans with deductibles that apply to only a select set of services

We have also made a number of additional, minor changes which have had minimal impacts on actuarial values.

Additional adjustments were made to account for expected induced utilization, driven by cost sharing differences across each plan. Induced utilization factors were applied at the metal level. These factors were developed using proprietary Wakely ACA datasets. Utilization factors reflect the impact of differences in cost sharing on utilization; health status differences are not reflected in utilization factors. Pricing AVs, inclusive of induced demand factors, can be found in line 14 of Appendix B. Provider Network, Delivery System and Utilization Management Adjustment No changes were anticipated in these components between 2016 and 2018. Therefore, no adjustment was used.

Adjustments for benefits in addition to EHB



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An adjustment was made to account for additional state-mandated benefits. The additional benefits are discussed in section 6.2 above. Impact of Specific Eligibility Categories for Catastrophic Plan Per the instructions, no catastrophic adjustments were made to non-catastrophic plans. Adjustment for Distribution and Administrative Costs As noted earlier, administrative costs are applied on a percent of premium or PMPM basis. The development of the plan adjusted index rates can be found in Appendix B.

6.5 Calibration

Age Curve Calibration The approximate weighted average age associated with this risk pool is 45.

The age factor was calculated as the weighted average of Federal 3:1 age factors and our projected 2018 individual enrollment by age. A zero factor was applied to the distribution of members expected to pay no premium due to the three under age 21 child dependent cap. The average age and average age factor can be found in lines 25 and 26 of Appendix B, respectively.

Appendices B and D demonstrate how the Plan Level Index Rate and age curve are used to generate a schedule of premiums.

Geographic Factor Calibration The geographic calibration factor is shown in line 27 of Appendix B. Sendero does not vary its medical management or provider contracts by region, therefore premiums will not vary by region and geographic factors for both regions are 1.0.

Tobacco Rating Calibration The tobacco calibration factor is shown in line 28 of Appendix B. Appendix D illustrates tobacco loads by age. The total calibration factor is shown in line 29 of Appendix B is applied at the single risk pool level and does not vary by plan. The total factor is the product of the age, geographic, and tobacco factors.

6.6 Consumer Adjusted Premium Rate Development

The consumer adjusted index rates were calculated by multiplying the calibrated plan adjusted index rates by the consumer’s specific age factor, area, and tobacco status.

We used the Federal 3:1 age curve to develop age factors. For tobacco factors, we used a maximum rating factor of 1.5.



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The rating factors are shown in Appendix D and the consumer adjusted index rates are provided in the rate templates.

7. PLAN PRODUCT INFO

7.1 AV Metal Levels

The Federal AVC was used without modification to generate the AV metal tier (URRT, Worksheet 2).

7.2 AV Pricing Values

The AV pricing values included in WK 2 of the URRT represent the cumulative adjustments applied to go from the Market Adjusted Index Rate to the Plan Adjusted Index Rate. Appendix B includes the development of the AV Pricing Values.

7.3 Membership Projections

The membership projections for 2018 were developed by Sendero and based largely on the current plan enrollment distribution. Actual enrollment is highly dependent on consumer decisions and the competitiveness of rates in the market. While Sendero has two regions 3 and 26, geographic factors are not utilized and rates are the same in both regions.

The following table shows estimates of Sendero individual member months by metal tier and FPL.

Appendix E shows estimates of the Cost Sharing Reduction by Silver base and Silver variant level. We calculated the Advance Payment as the difference in AVC multiplied by the allowed cost PMPM and member months for each base plan.

7.4 Terminated Plans and Products

No plans are being terminated.

7.5 Plan Type

The drop downs in worksheet 2 section 1 of the URRT describe the issuer’s plan appropriately.

7.6 WARNING ALERTS

Section III

No warning alerts.

Table 7.3: Projected Member Months by Plan

GoldSilver

250%+Silver 200-

250%Silver 150-

200%Silver < 150% Bronze Bronze HSA Silver Off

Platinum Off Total

38,956 14,269 34,784 70,600 119,703 122,072 13,564 42,051 6,000 462,000



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Section IV

Warning on row 87, Total Allowed Claims (TAC) - This warning arises because the directions for WS2 row 86 specify that the Risk Adjustment be included in Total Allowed. The check to WS1 excludes this amount.

Warning on row 100, Allowed Claims PMPM- This warning arises because the directions for WS2 row 87 specify that the Risk Adjustment be included in Total Allowed. The check to WS1 excludes this amount.

8. Miscellaneous

8.1 Effective Rate Review Information (optional)

This section is listed as optional in the Federal guidelines. We have chosen not to include.

8.2 Reliance

Wakely Consulting Group, Inc., relied on information provided by Sendero and publicly available data to develop the 2018 individual premium rates. A reliance statement is included in Appendix G. This information includes, but is not limited to the following:

• Base data and enrollment, including financial reconciliation

• Membership Projections

• Product design information

• Administrative cost projections

• Capitation fees and/or other related provider costs

• Provider network and provider contracting information including target pricing

• Smoker rating assumptions



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8.3 Actuarial Certification

I, Bradley J. Davis, am a Fellow in the Society of Actuaries (FSA) and a member of the American Academy of Actuaries (MAAA). I meet the Qualification Standards of Actuarial Opinion as adopted by the American Academy of Actuaries for preparing premium rate filings for insurers. This actuarial certification applies to the Sendero Health Plans Individual product to be offered in the federal health exchange. I certify that the projected index rate is:

• In compliance with all applicable state and Federal statutes and regulations (45 CFR 156.80 and 147.102)

• Developed in compliance with applicable Actuarial Standards of Practice, including: o ASOP No. 5, Incurred Health and Disability Claims

o ASOP No. 8, Regulatory Filings for Health Plan Entities

o ASOP No. 12, Risk Classification

o ASOP No. 23, Data Quality

o ASOP No. 25, Credibility Procedures Applicable to Accident and Health, Group Term Life, and Property/Casualty Coverages

o ASOP No. 41, Actuarial Communication

o ASOP No. 42, Determining Health and Disability Liabilities Other Than Liabilities for Incurred Claims

o ASOP No. 45, The Use of Health Status Based Risk Adjustment Methodologies

o ASOP No. 50, Determining Minimum Value and Actuarial Value under the Affordable Care Act

• Reasonable in relation to the benefits provided and the population anticipated to be covered

• Neither excessive nor deficient, although actual experience will vary from the estimates given the inherent uncertainty in developing premium rates under the ACA.

The index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2) were used to generate plan level rates. The geographic rating factors reflect only difference in the cost of delivery (which can include unit cost and provider practice pattern differences) and do not include differences for population morbidity by geographic area. The percent of total premium that represents essential health benefits included in Worksheet 2, Sections III and IV were calculated in accordance with ASOPs. All benefits are EHB and the full premium is subject to the advanced payment of premium tax credits (APTCs). The Federal AV Calculator was used to determine the AV Metal Values shown in Worksheet 2 of the Unified Rate Review Template for all plans.



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The Part I Unified Rate Review Template does not demonstrate the process used to develop the rates. Rather it represents information required by Federal regulation to be provided in support of the review of rate increases, for certification of qualified health plans for federally facilitated exchanges and for certification that the index rate is developed in accordance with Federal regulation and used consistently and only adjusted by the allowable modifiers. Sincerely,

Bradley J. Davis, FSA, MAAA Senior Consulting Actuary (612) 800-6587 [email protected]



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I, Luke Brehmer, am a Fellow in the Society of Actuaries (FSA) and a member of the American Academy of Actuaries (MAAA). I meet the Qualification Standards of Actuarial Opinion as adopted by the American Academy of Actuaries for preparing premium rate filings for insurers. This actuarial certification applies to the Sendero Health Plans Individual product to be offered in the federal health exchange. I certify that the projected index rate is:

• In compliance with all applicable state and Federal statutes and regulations (45 CFR 156.80 and 147.102)

• Developed in compliance with applicable Actuarial Standards of Practice, including: o ASOP No. 5, Incurred Health and Disability Claims

o ASOP No. 8, Regulatory Filings for Health Plan Entities

o ASOP No. 12, Risk Classification

o ASOP No. 23, Data Quality

o ASOP No. 25, Credibility Procedures Applicable to Accident and Health, Group Term Life, and Property/Casualty Coverages

o ASOP No. 41, Actuarial Communication

o ASOP No. 42, Determining Health and Disability Liabilities Other Than Liabilities for Incurred Claims

o ASOP No. 45, The Use of Health Status Based Risk Adjustment Methodologies

o ASOP No. 50, Determining Minimum Value and Actuarial Value under the Affordable Care Act

• Reasonable in relation to the benefits provided and the population anticipated to be covered

• Neither excessive nor deficient, although actual experience will vary from the estimates given the inherent uncertainty in developing premium rates under the ACA.

The index rate and only the allowable modifiers as described in 45 CFR 156.80(d)(1) and 45 CFR 156.80(d)(2) were used to generate plan level rates. The geographic rating factors reflect only difference in the cost of delivery (which can include unit cost and provider practice pattern differences) and do not include differences for population morbidity by geographic area. The percent of total premium that represents essential health benefits included in Worksheet 2, Sections III and IV were calculated in accordance with ASOPs. All benefits are EHB and the full premium is subject to the advanced payment of premium tax credits (APTCs). The Federal AV Calculator was used to determine the AV Metal Values shown in Worksheet 2 of the Unified Rate Review Template for all plans. The Part I Unified Rate Review Template does not demonstrate the process used to develop the rates. Rather it represents information required by Federal regulation to be provided in support of the review of rate increases, for certification of qualified health plans for federally facilitated exchanges and for



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certification that the index rate is developed in accordance with Federal regulation and used consistently and only adjusted by the allowable modifiers. Sincerely,

Luke Brehmer, FSA, MAAA Consulting Actuary (612) 800-6584 [email protected]



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9. Appendix A – Projection Period Allowed PMPM

REDACTED



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10. Appendix B – Plan Adjusted Index Rate Development

Formula where applicableRating model for individual and small group ACA

filings StepExperience - Projected Allowed PMPM - adjusted to

rating year basis (01) $314.58Manual Rate - Allowed PMPM - adjusted to rating

year basis (02) $356.06

Experience Period Member Months (03) 250,143Credibility (04) 0.0%

Remove non-EHBs (05) 0.9904((1)*(4) + (2)*(1-(4)))*(5) Projected Index Rate (06) $352.64

Market Adjusted Index RateImpact of reinsurance (07) 100.0%Risk adjustment factor (08) 143.7%

Equivalent exchange user fee (09) 4.1%(6)*(7)*(8)/(1-(9)) Market adjusted index rate (10) $528.48

Plan level adjustmentsHIOS ID (11) 71837TX0010003 71837TX0010001 71837TX0010002 71837TX0010004 71837TX0010006 71837TX0010005

Plan Name (12) Bronze Silver Gold HSA Platinum Off Silver OffMetal (13) Bronze Silver Gold Bronze Platinum Silver

Pricing AVs (inclusive of Induced Demand) (14) 59.8% 86.9% 95.2% 55.3% 121.2% 71.1%Projected Enrollment by Plan (15) 26.4% 51.8% 8.4% 2.9% 1.3% 9.1%

Non-EHBs (16) 1.0097 1.0097 1.0097 1.0097 1.0097 1.0097Percentage or Dollar?

D General administrative expenses (17) $36.16 $36.16 $36.16 $36.16 $36.16 $36.16D PCORI Fee (18) $0.17 $0.17 $0.17 $0.17 $0.17 $0.17P State premium tax (19) 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%P Health Insurance Provider Fee (20) 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%P Profit/Contribution to Surplus (21) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Interim Calculation[(10)*(14)*(16)+(17)+(18)]/[(1-

(19)-(20)-(21)] Gross Premium (22) $380.93 $536.49 $583.68 $355.60 $732.41 $446.00[(10)*(14)*(16)] Net Premium (23) $318.89 $463.94 $507.95 $295.27 $646.64 $379.57

Plan Adjusted Index Rate (before calibration)Gross Premium (24) $380.93 $536.49 $583.68 $355.60 $732.41 $446.00

CalibrationAge corresponding to age factor (25) 45

Age factor (26) 1.4961Geographic factor (27) 1.0000

Tobacco factor (28) 1.0083Total factor (29) 1.5085

Plan Adjusted Calibrated Index Rates Index Rates (at 1.0 HHS)Plan Adjusted Calibrated Index Rates (30) $252.51 $355.63 $386.92 $235.72 $485.50 $295.65

Projected Member Months (31) 122,072 239,357 38,956 13,564 6,000 42,051



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11. Appendix C – MLR Calculation

Item Value Sourcea $279.63 Appendix B: [step 6] x Sumproduct([step 14],[step 15],[step 16])b ($119.74) Table 4.7 Risadjustment Payable + High Cost Pooling Recoveryc $488.36 Appendix B: sumproduct([step 15],[step 22])d 7.76% Appendix B: [step 19] + [step 20] + [3.5% Exchange User Fee] + [RA Risk Pooling 0.5% Charge]e $0.17 Appendix B: [Step 18]f $0.14 Risk adjustment contribution

Numerator: a - b $399.37Denominator: c*(1-d) - e + f $450.18

= = 88.7%



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12. Appendix D - Consumer Adjusted Premium Rate Example

Age Tobacco Load Age FactorAge Factor with Tobacco Factor

0-14 1.000 0.765 0.76515 1.000 0.833 0.83316 1.000 0.859 0.85917 1.000 0.885 0.88518 1.000 0.913 0.91319 1.000 0.941 0.94120 1.000 0.970 0.97021 1.050 1.000 1.05022 1.061 1.000 1.06123 1.071 1.000 1.07124 1.082 1.000 1.08225 1.093 1.004 1.09726 1.104 1.024 1.13027 1.114 1.048 1.16728 1.125 1.087 1.22329 1.136 1.119 1.27130 1.146 1.135 1.30131 1.157 1.159 1.34132 1.168 1.183 1.38233 1.179 1.198 1.41234 1.189 1.214 1.44335 1.200 1.222 1.46636 1.211 1.230 1.49037 1.221 1.238 1.51238 1.232 1.246 1.53539 1.243 1.262 1.56940 1.254 1.278 1.60341 1.264 1.302 1.64642 1.275 1.325 1.68943 1.286 1.357 1.74544 1.296 1.397 1.81145 1.307 1.444 1.88746 1.318 1.500 1.97747 1.329 1.563 2.07748 1.339 1.635 2.18949 1.350 1.706 2.30350 1.361 1.786 2.43151 1.371 1.865 2.55752 1.382 1.952 2.69853 1.393 2.040 2.84254 1.404 2.135 2.99855 1.414 2.230 3.15356 1.425 2.333 3.32557 1.436 2.437 3.50058 1.446 2.548 3.68459 1.457 2.603 3.79360 1.468 2.714 3.98461 1.479 2.810 4.15662 1.489 2.873 4.27863 1.500 2.952 4.428

64 and over 1.500 3.000 4.500



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Appendix D - Consumer Adjusted Premium Rate Example, cont.

Family Structure – Family rates can be determined by adding up the rates for an individual. However, when calculating the total family rate, the charge is limited to the first three children under the age of 21. There is no limitation on children over 21. Example Rate Buildup:

An exchange member with the following characteristics: • Gold Plan • Rating area 3 • Age 30 • Smoker

Consumer Adjusted Index Rate (from Appendix B): $386.96 x Geographic Factor: 1.000 x Age Factor: 1.135 x Smoking Factor: 1.146 = Consumer Adjusted Premium Rate: $503.27

RegionGeographic

FactorRegion 3 1.000Region 26 1.000



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13. Appendix E - Sendero Cost Sharing Reduction Estimates and Justification

The exhibit below shows the development of CSR estimates provided in WS2 of the URRT under Section IV ‘Portion of allowed claims payable by HHS’ funds on behalf of insured person’. The allowed PMPM shown was calculated as the weighted average of the allowed PMPMs of the three Silver plans (also found in Appendix B). The advance payments are calculated as the delta between the AV of the CSR and the standard silver multiplied by induced utilization, multiplied by member months. Induced utilization is assumed for the 87% and 94% CSR plans. As explained in the Executive Summary, these rates assume that CSRs will not be funded by the federal government for 2018. As such, we have assumed $0 CSR advanced payments on WS2 of the URRT.

Actuarial Values Member Months Allowed 87% and 94%Base Silver

73% Silver

87% Silver

94% Silver

Base Silver

73% Silver

87% Silver

94% Silver PMPM Utilization 73% Silver 87% Silver 94% Silver Total

70.8% 73.9% 85.3% 92.7% 14,269 34,784 70,600 119,703 $461.38 1.120 $0 $0 $0 $0

Advance Payments



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14. Appendix F - Non-Applicable ASOPs

ASOP 26 – Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans was not used in relation to this filing. Sendero’s filing is only for Individual business, not small group.



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15. Appendix G - Sendero Health Plan Affidavit

actuarial memorandum - healthcare.gov...actuarial memorandum sendero health plans . issuer #71837 ....

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