What affect will the final rule on short-term/limited-duration insurance have on insurance markets?

The final short-term/limited duration (STLDI) rule represents the second step in the Trump administration’s plan to enhance healthcare choice and competition in America. As with the proposed rule, the final rule is relatively straightforward. Under the final STLDI rule, any plan that meets the following criteria is an STLDI policy:

1. The initial policy term is less than one year in duration
2. The total policy term including any renewals can be no longer than 36 months
3. The policy comes with a prescribed consumer warning indicating the limitations of STLDI policies

By allowing renewals (at the enrollee’s discretion) in addition to extensions (at the issuer’s discretion), the final rule offers new flexibility to allow STLDI contracts to continue past the one-year mark. The final rule affirms the rights of states to add their own restrictions and controls on the market. The rule makes equally clear that the Department of Health and Human Services does not intend to put any limits on states’ efforts to place further restrictions on STLDI.

States have the ability to shorten the initial term of STLDI policies, shorten the overall maximum length of the total STLDI policy terms, and determine whether STLDI policies can be extended, renewed, or neither. Each state’s legislative and regulatory responses to these three STLDI options will help shape their future individual health insurance market.

To read more analysis regarding the provisions of the final rule and the potential implications to individual insurance markets, read this brief by Erik Huth and Jason Karcher.

Health and welfare trusts seek increased guidance regarding continuation value

One of the primary purposes of a health and welfare trust is to develop strategies to share risk and leverage group purchasing power for the provision of health and welfare benefits to its participants. Examples of health and welfare trusts are multiple employer trusts (METs) and Taft-Hartley multiemployer trusts.

In most instances, benefits provided under health and welfare trusts usually include medical and prescription drug coverage to participants. They also frequently include other ancillary benefits such as dental, vision, life, accidental death and dismemberment, disability, and other welfare-related options. Dependent upon the size and structure of the trust, benefits are typically provided on a fully insured basis, a self-insured basis, or a combination of both.

Due to the continued rise of healthcare costs and uncertainties about the future landscape of healthcare, plan sponsors and fiduciaries are keeping a close eye and seeking increased guidance regarding the financial status of their trusts. A variety of methods can be utilized to assess the financial status of a health and welfare trust. One of the most common methods is to estimate continuation value, or the amount of time that the trust can continue to cover the cost of benefits to its participants and pay for associated administrative, operating, and professional expenses, assuming no future income.

Continuation value can be expressed in many different ways, one of the most common being reserve months. But what level of continuation value should a health and welfare trust target? While the question is common, the answer is complex and requires assessment and understanding of a variety of factors:

• How might deviations from projected experience impact actual results? Estimated months of reserves are developed from financial projections of future experience, which are based on a set of assumptions. It is important to have a full understanding of the assumptions used and how the reserve estimates would be impacted if actual experience differs from projected experience. Sensitivity analyses can help illustrate the impact of changes to assumptions.

• Months of reserves can be expressed on a gross or net basis. Gross reserves are based on total trust assets, while net reserves are based on total trust assets net of liabilities. Trust liabilities can include amounts for premium payments, incurred but not reported (IBNR) claims, accumulated eligibility credits, and hour bank or dollar bank benefits, among others. It is important to understand the basis for which reserves are reported, as well as the impact of trust liabilities on total reserves and how that may change over time.

• How is the future number of participants expected to change? Months of reserves are impacted by participant growth or reduction. For example, a trust with declining participation will experience trust assets being spread over fewer people, thus increasing the months of reserves. Conversely, a trust with increasing participation will experience trust assets being spread over more people, thus reducing the months of reserves.

• Are benefits provided on a fully insured or a self-insured basis? Fully insured trusts tend to have more predictable expenses, and are typically more comfortable holding fewer months of reserves, all else being equal. For self-insured trusts, the level of susceptibility to large fluctuations in claims experience is dependent upon participant size. Because of this, self-insured trusts tend to target a higher level of reserve months than fully insured trusts. Some self-insured trusts may have stop-loss coverage in place to protect against unexpected spikes in claims experience, especially for catastrophic claims.

• How is the trust funded? The primary source of funding is typically through employer contributions, for which the structure can vary among a flat monthly contribution rate per participant, hourly contribution rates, percentage of participant earnings, etc. It is important to understand the structure under which employer contributions are paid, and how economic changes such as variations to employment levels might impact future employer contributions. Other sources of trust income may include participant contributions, investment income, and rebates and subsidies.

• How frequently are employer contribution rates updated? Some trusts update employer contribution rates annually, while other trusts may set employer contribution rates in advance for several years due to multiyear agreements. Trusts for which employer contribution rates are static for numerous reasons (unfavorable economic conditions or political sensitivities for collectively bargained trusts) may wish to retain higher numbers of reserve months to protect against adverse experience.

When determining the optimum number of months of reserves to hold in a health and welfare trust, it is important to speak with your consultant and other trust professionals to address the considerations described above and their respective implications.

This article first appeared in the July 2018 issue of Health and Group Benefits News and Developments.

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Depletion of SSDI benefits presents new actuarial considerations for long-term disability insurers

The disability trust fund is now expected to be depleted in 2032 instead of 2028. This is primarily due to the assumption of lower disability applications and other underlying assumption changes since last year.

According to projections, assuming no legislative changes, only 83% of disability income benefits would be payable after the trust fund is depleted. The projection also shows that the trust fund balance begins to fall in 2019. That means that starting next year, the total cost of the disability income program exceeds the total income on the program, including interest.

Cutting benefits could have substantial impacts to group insurers that would likely need to increase claim reserves for future benefit payments on their policies. Lower Social Security Disability Insurance (SSDI) benefits would mean lower benefit offsets and thus higher long-term disability benefit payments.

It is important that actuaries working with group disability insurance pay attention to changes in the SSDI program which could affect their financial results. Milliman consultant Jennifer Fleck provides some perspective in her article “Social Security disability actuarial status, 2018.”

Considerations for proposed “Pathways to Success” regulation

On August 8, 2018, the Centers for Medicare and Medicaid Services (CMS) released a sweeping proposed regulation that, if enacted, will significantly change the Medicare Shared Savings Program (MSSP). The proposed regulation, titled “Pathways to Success,” accelerates the path for accountable care organizations (ACOs) to participate in shared risk arrangements while simultaneously softening key provisions, allowing lower revenue ACOs to participate with reduced total financial risk. In addition, CMS has proposed numerous methodological and operational changes.

In this paper, Milliman consultants provide a summary of the proposed regulation’s key provisions and briefly discuss how they might impact the MSSP.

CMS final rule for skilled nursing facilities and value-based care: Is your organization ready?

On July 31, 2018, the Centers for Medicare and Medicaid Services (CMS) released a final rule that outlined the 2019 fiscal year payment updates and quality program changes for skilled nursing facilities (SNFs). This rule continues the drive for change from fee-for-service to value-based reimbursement and reduces the burden on providers consistent with the Patients Over Paperwork and Meaningful Measures initiatives. Below are the three changes introduced by the final rule and how each change affects SNFs. CMS estimates that the new rule will result in an additional $820 million in Medicare reimbursements to SNFs for the 2019 fiscal year due to the 2.4% increase in payment rates.

Changes to the case-mix classification system

The final rule creates a new Patient-Driven Payment Model (PDPM) for reimbursement that will replace the Resource Utilization Group, Version IV case-mix reimbursement model. This new model focuses on treatment of the whole patient rather than on volume of services. This will decrease paperwork and reduce the overall complexity compared to the old model.

The new PDPM goes into effect for fiscal year 2020, which begins on October 1, 2019, and focuses on clinically relevant factors to determine payment using diagnosis codes. The new model will encourage more contact between healthcare professionals and patients.

PDPM decreases the number of payment group combinations by 80%. It essentially focuses on payments based on the complexity of the patient needs and condition, instead of the volume of hours needed to provide care. Finally, CMS suggests that the new model will reduce the amount of documentation for patient assessments and significantly reduce reporting burdens, saving providers approximately $2 billion over 10 years.

To succeed with this new reimbursement model, SNFs will have to assess the types of patients they treat and may have to adjust treatment plans, including the level of care during stays, and realign their operations accordingly. SNFs will also have to assess their documentation procedures and ensure that patient characteristics and needs are accurately captured.

SNF Quality Reporting Program (QRP)

Also in the final rule, CMS removed measures that were not consistent with the Meaningful Measures initiative. The updated measure set focuses on making care safer, strengthening personal and family engagement, promoting coordination of care, promoting effective prevention and treatment, and making care affordable. There were no new measures suggested or initiated.

SNFs can also educate and engage healthcare professionals and review the new documentation formats for each quality measure. The success in meeting a measure is dependent on the engagement of staff and providers, so that the appropriate coding and documentation meet the quality measure specifications. SNFs can also begin looking at appropriate analytical data, which can help with specific performance needs.

SNF Value-Based Purchasing (VBP) program

The SNF VBP program will begin on October 1, 2018, and will add a positive or negative incentive payment for services rendered by facilities based on the result of their readmission measures. This final rule will reward providers that takes steps to limit 30-day readmissions of their patients to hospitals. SNFs can begin preparations for the VBP program by reviewing their financial, operational, and clinical policies and procedures.


There are several steps that SNFs need to begin to implement now to be ready for the October 1, 2018, implementation of the Value-Based Purchasing program. SNFs are an important part of many Value-Based Purchasing programs and are now being incentivized to provide quality of care to patients. They will be rewarded for looking at the needs of the patient instead of how much time a therapist or caregiver spends with a patient. This new program will allow patients and caregivers to pick facilities that cater to their personal needs for care or rehabilitation.

What do multiemployer health and welfare plans look like nationwide?

Fund statistics for 705 plans across the country

For members and trustees of multiemployer Taft-Hartley health and welfare plans, the financial health of the fund is of the utmost importance. But up until recently there have been few, if any, national financial analyses by which stakeholders can measure the changing landscape of these plans.

Milliman has recently completed its inaugural analysis of the financial disclosures of 705 multiemployer Taft-Hartley health and welfare plans nationwide. The analysis is organized by plan size, from those plans with fewer than 500 covered members, to those exceeding 20,000 members. It includes an in-depth look at general plan statistics across the country, plan assets, average annual gain (or loss) of these plans, and per member statistics.

There are approximately 3 million members in the analyzed plans, of which 78% are active and 22% are retired. These plans had $33.8 billion in total income, $31.0 billion in total expenses, and $32.4 billion in total assets in 2016 (the most recent year for which financial disclosures are available). Looking at assets, 162 plans held assets that were less than six months of total expenses, while 140 plans held assets that were more than 24 months of total expenses. There were 221 plans that dipped into their net assets in 2016 (i.e., had a loss for the year), while 477 plans increased net assets (i.e., had a gain for the year), and seven plans that covered total expenses exactly for the year.

For more information, read this article by David Stoddard and Marcella Giorgou.