Risk adjustment considerations for shared savings agreements

January 26th, 2015

By Javier Sanabria

The role of risk adjustment in shared savings agreements can confound providers and payors. There are numerous uncertainties that impact the health status of a population. In their paper “Risk adjustment and shared savings agreements,” Hans Leida and Leigh Wachenheim offer several steps that can be taken to optimize the accuracy of risk adjustment results.

Here is an excerpt:

Consider the following criteria when selecting a model to be used with shared savings arrangements, in addition to overall predictive ability, as described above.

Population: Risk adjustment models are typically calibrated for specific populations—such as commercial, Medicare, or Medicaid. Avoid using a model developed for one population to calculate risk scores for a substantially different population without evaluating whether it still performs adequately. If an agreement includes more than one population (e.g., commercial and Medicaid), more than one model may be needed, although if multiple models are used, they must be normalized consistently.
Benefits: The risk scores generated by a model assume some underlying set of benefits and scope of coverage. There are a few areas to focus on in particular:
o Carve outs: Most medical (versus prescription-drug-only) models were developed assuming a broad set of benefits, including mental health. If specific services or conditions are excluded from the shared savings arrangement, it may be necessary to recalibrate the model.
o Prescription drugs: In some cases, the payor does not have detailed prescription drug data for a material portion of the population, even when the benefit is included in the scope of coverage and subject to shared savings. This is often the case when prescription drug benefits are processed by a third party or pharmacy benefit manager (PBM). If prescription drug data is not available for a significant portion of the population, consider using a model that does not require drug data.
o Paid vs. allowed costs: Risk adjusters are most commonly calibrated to predict variations in allowed costs—that is, costs including both the payor liability and member cost sharing. There are some risk adjusters, however, that are calibrated based on paid costs. For example, the U.S. Department of Health and Human Services-Hierarchical Condition Categories (HHS-HCC) model, used by CMS for calculating carrier-level risk adjustment settlements under the Patient Protection and Affordable Care Act (ACA), is calibrated based on estimated paid costs for five different cost-sharing levels. Many shared savings calculations are based on allowed costs, making a risk adjuster that is also based on allowed costs most appropriate. Allowed costs have the significant advantage of greatly reducing the need to adjust for changes in the average level and types of member cost sharing over time, although it is still important to consider whether changes in cost sharing might be impacting overall utilization over time. On the other hand, some of the “savings” on an allowed basis benefits a third party other than the payor or the provider—the insured member, who ends up paying less cost sharing in the form of deductibles, coinsurance, and copays. For populations with significant member cost sharing, consider whether an adjustment to the savings calculated on an allowed basis is needed to remove the portion that will impact member cost sharing. Otherwise, the payor may end up sharing “savings” that they never received.

For more Milliman perspective on healthcare reform, click here.

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Regulatory roundup

January 19th, 2015

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

House passes ACA exemption for volunteer responders from employee count
On January 12, the House of Representatives voted to approve the “Protecting Volunteer Firefighters and Emergency Responders Act” (H.R.33). This bill would exclude volunteer firefighters from the Patient Protection and Affordable Care Act’s (ACA) definition of full-time employees, thereby exempting volunteer fire companies from the law’s health insurance mandate.

The bill would amend tax code Section 4980H(c) to exempt bona fide volunteers of government and nonprofit organizations from counting toward the employer mandate threshold. The bill requires Senate action.

IRS issues guidance for filing Form 8922 regarding third-party sick pay recap
The Internal Revenue Service (IRS) has released Notice 2015-06. The notice describes the rules for filing Form 8922, Third-Party Sick Pay Recap, an annual form filed with IRS, which replaces third-party sick pay recaps that were filed with the Social Security Administration.

Form 8922 is used to report total amounts of certain sick pay paid to employees by a third party (an entity other than the employee’s employer). Form 8922, which applies to sick pay paid on or after January 1, 2014, must be filed if liability for the payment and reporting of Federal Insurance Contributions Act (FICA) taxes with respect to third-party sick pay is split between the employer and a third party under applicable regulations. The notice also describes the requirements for payment and reporting of FICA taxes, Federal Unemployment Tax Act (FUTA) taxes, and income tax withholding with respect to sick pay.

Notice 2015-06 will be published in Internal Revenue Bulletin 2015-05 on February 2, 2015. To read the entire notice, click here.

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Regulatory roundup

January 12th, 2015

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

House passes bill increasing full-time work threshold to 40 hours under the ACA
The House has voted to approve the “Save American Workers Act” (H.R. 30), which would raise the threshold for full-time employment under the Patient Protection and Affordable Care Act (ACA) from 30 hours to 40 hours per week. A comparable Senate bill (S. 30) has been introduced.

House approves bill exempting veterans from ACA count by private employers
The House of Representative recently voted to approve the “Hire More Heroes Act” (H.R.22), which would exempt employees with health coverage under TRICARE or the Veterans Administration from being counted by employers under the ACA’s employer mandate. The bill excludes such individuals from the employee count when an employer determines whether it is an applicable large employer subject to the requirement to provide affordable healthcare coverage. The bill calls for an effective date of months beginning after Dec. 31, 2013. The bill must be approved by the Senate to advance.

IRS updates publication on medical and dental expenses
The IRS has updated Publication 502, Medical and Dental Expenses. The publication explains itemized deductions for medical and dental expenses, including the Health Coverage Tax Credit.

To read the updated publication, click here.

Updates to HIPAA exemption election guidance
The Center for Consumer Information and Insurance Oversight (CCIIO) has announced procedures and requirements regarding to a plan sponsor’s election to exempt its group health plan from certain requirements of Title XXVII of the Public Health Service (PHS) Act. This guidance follows up on the final regulation for the HIPAA opt-out election process.

After December 31, 2014, opt-out elections must be submitted electronically. For electronic submission of elections, plan sponsors will need to register for access to the Non-Federal Governmental Plans Module (Non-Fed Module) in the Health Insurance Oversight System (HIOS).

To read the entire user manual, click here. For more information, click here.

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Look before you leap: Shared risk programs and considerations for health systems

January 8th, 2015

By Javier Sanabria

Healthcare reform created the Medicare Shared Savings Program, which established financial incentives for accountable care organizations (ACOs) to deliver more effective and efficient care to Medicare beneficiaries. But shared risk is not unique to Medicare. There has been major activity among health systems and payors in commercial and other insurance markets. Shared risk agreements are a starting point for health system organizations to move from fee-for-service payment structures to population-based payment arrangements. Milliman’s Simon Moody provides some perspective in this article.

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Top 10 worldwide Milliman publications of 2014

January 5th, 2015

By Javier Sanabria

In 2014, Milliman published a range of articles and videos, covering issues including retirement ideas for Millennials, the pros and cons of catastrophe models, the value of enterprise risk management (ERM) programs, and the impact of the Patient Protection and Affordable Care Act (ACA) on financial statements. We also published on challenges related to healthcare costs and insurance and risk management issues—and about real insurance for fantasy football and insurance for ride sharing. To view this year’s 10 most viewed articles and reports, click here.

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2014 U.S. organ and tissue transplant cost estimates and discussion

January 5th, 2015

By Javier Sanabria

This 2014 report summarizes estimated U.S. average costs per member per month, billed charges, and utilization related to transplant admission for treatment for organ and tissue transplants. There are some new developments to report since 2011 when the last report was released. Since that time, there have been annual increases in per member per month costs for certain types of transplants. Survival rates have generally shown mixed improvement and decline by transplant. However, hospital lengths of stay for most transplants have not changed much since the 2011 report.

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Regulatory roundup

December 29th, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Form 8959 instructions
The Internal Revenue Service (IRS) has released instructions for Form 8959 regarding the additional Medicare tax. For a copy of the instructions, click here.

HHS again extends initial data submission deadline
For a second time the U.S. Department of Health and Human Services (HHS) has elected to extend the submission of the first production file to the External Data Gathering Environment (EDGE) server by issuers with plans that are subject to HHS-operated reinsurance and risk adjustment distributed data reporting requirements. This deadline had been December 19, 2014. The HHS has elected to extend this deadline until 11:59 p.m. EST on December 28, 2014.

For more information, click here.

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Regulatory roundup

December 22nd, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Federal agencies release proposed rules on excepted benefits
The U.S. Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) have released proposed regulations that would amend current regulations concerning excepted benefits under ERISA, the Internal Revenue Code (the Code), and the Public Health Service Act. These regulations are related to limited wraparound coverage. The proposed regulation is scheduled to be published on December 23, 2014.

To read the proposed rule, click here.

New compliance report on the Mental Health Parity and Addiction Equity Act
The DOL has published a report that provides an overview of the developments with the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008. The report highlights the ongoing efforts being taken in the context of the previously established MHPAEA implementation framework to ensure that parity is accomplished as intended by the law.

To read the entire paper, click here.

Retiree Drug Subsidy Program announces webinar on reconciliation
The Retiree Drug Subsidy Program of the Centers for Medicare and Medicaid Services (CMS) will hold a webinar entitled “Best practices for reconciliation success” on Wednesday, January 7, 2015, 2-3 p.m. EST. The program also made available a webinar recap article entitle “The road to reconciliation.”

To register and/or access the article, click here.

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Provider risk-sharing: Back to the future?

December 18th, 2014

By Javier Sanabria

What would Marty McFly and Doc Brown have thought about the present provider risk-sharing environment had their mission been to scout its arrangement in Back to the Future Part II? Encountering Milliman consultant Courtney White’s article “Back to the future: Provider risk-sharing: 1985 or 2015?” during their time travel would give them good perspective.

Here’s an excerpt of what they would read:

While the current provider risk posture may seem much like the 1990s, the lessons learned from that time, coupled with the recent legislative initiatives, have created a risk-taking environment that is very different from the past. A renewed (and justified) interest has emerged in creating provider organizations and in seeing providers take on more risk.

There are a number of initiatives influenced by the Patient Protection and Affordable Care Act (ACA), such as accountable care organizations (ACOs), the level playing field created by risk mitigation, the product transparency existing on the exchanges, and carrier loss ratio requirements, along with a focus on quality and innovation. The ACA created a number of issues that are distinctly different from the past and that a provider organization should consider when structuring a risk-taking arrangement, including:

• Homogeneity of the covered population
• ACA-enabled parameters such as:
– Cost-sharing reduction subsidies for low-income individuals
– Risk adjustment
– Reinsurance
– Risk corridors

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Regulatory roundup

December 16th, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Deadline for submission of 2014 reinsurance and risk adjustment program claims and enrollment data delayed
The U.S. Department of Health and Human Services (HHS) has released a notification extending the deadline for submission of the first production file to the External Data Gathering Environment (EDGE) server by issuers with plans that are subject to HHS-operated reinsurance and risk adjustment distributed data reporting requirements under 45 CFR § 153.700. The new submission day is December 19.

For more information, click here.

Form W-2 reporting of employer-sponsored health coverage
The Internal Revenue Service (IRS) has published guidance on Form W-2 reporting of employer-sponsored health coverage. The Patient Protection and Affordable Care Act (ACA) requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of healthcare coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their healthcare coverage.

For more information, click here.

Health Insurance Oversight System (HIOS) nonfederal user manual released
The Centers for Medicare and Medicaid Services (CMS) has published a user manual explaining the functionality of the nonfederal module within the Health Insurance Oversight System (HIOS). The manual provides information on registering organizations within HIOS, role request, role approver administrator functionality, creating and managing plans, completing HIPAA opt-out elections, and editing HIPAA opt-out elections. This manual provides step-by-step instructions for the features and functionalities available in the nonfederal module.

To read the entire manual, click here.

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