Value-based reimbursement makes actuarial expertise a must

Value-based reimbursement presents healthcare providers with risks they have limited experience and expertise addressing. These risks call for actuarial, analytic, and data mining capabilities that can help providers improve their quality of care and succeed in this new environment. Milliman’s article “Are you ready for the new world of value-based reimbursement?” explains how providers can benefit from hiring experts with contracting and data management knowledge.

Here’s an excerpt:

There are many contracting choices offered to clinicians and facilities by both CMS and private payers. Knowing which option at which negotiated rate will work best for them is essential to the survival and prosperity of providers. In addition, ensuring that the contract includes certain types of protection to control risk is critically important and requires forethought and planning. It would be prudent for providers to engage actuaries who possess a deep understanding of actuarial risk to assist in structuring and negotiating these risks. In addition, the reconciliation of payments from these contracts will also require analytic and actuarial resources to ensure all aspects of the contract have been properly applied.

Advanced analytics and data management is another area that requires additional focus in order to be successful. Providers need to have a data analytic strategy with tools and resources to develop a quantitative-based plan of action that focuses clinical resources on the areas of highest importance.

A first step in this process is to complete a review of current capabilities and a gap analysis. This expertise should include capabilities in medical cost and trend analytics, population health, quality analytics, and risk score analytics (see Figure 1). In addition, development of a data warehouse and the necessary analytic tools and reporting functions will set the organization on a path to success.


Milliman MedInsight chosen by two state-based organizations and a leading community coalition to identify unnecessary costs and procedures in healthcare delivery

Milliman announced today that its healthcare tool, the MedInsight® Health Waste Calculator, has been chosen by two state All Payer Claims Databases (APCDs) and a leading Regional Health Improvement Collaborative to aid in their identification of unnecessary costs and procedures in healthcare delivery.

The Virginia Center for Health Innovation (VCHI), Oregon Health and Hospitals, and the Washington Health Alliance (WHA) have all licensed the MedInsight Health Waste Calculator to support their statewide initiatives to identify and eliminate waste in their healthcare systems.

“In Virginia, an important component of our state health innovation plan is to reduce utilization of low value medical tests and procedures so that we can free up needed resources to advance high value care. Our medical and business communities want to do what they can to better ensure that patients and providers are choosing wisely when it comes to healthcare,” said Beth Bortz, President and CEO of VCHI.

The Health Waste Calculator is an analytic tool that is powered by Milliman’s MedInsight software and encapsulates Value-Based Insurance Design (VBID) Health’s market knowledge on wasteful healthcare spending. The tool identifies and quantifies the use of unnecessary or potentially harmful clinical services, including those defined by national initiatives such as the U.S. Preventive Services Task Force and Choosing Wisely. Using the Health Waste Calculator, each state will be able to report on countless aspects of healthcare but the typical starting points are reports by county, region, or even health system, using these metrics:

• Percentage of individuals exposed to at least one potentially wasteful service.
• Percentage of potentially wasteful services in each market, what is called the Waste and Quality indices.
• Cost metrics of the waste impact as a baseline for them to work from as they implement strategies to realize greater efficiencies.

Mark Fendrick, Director of VBID, stated, “the achievement of Triple Aim in healthcare is to improve quality, enhance patient experience, and lower costs, which requires us to spend more on evidence-based services and less on those that do not produce health. The MedInsight Health Waste Calculator can identify, and potentially reduce, the use of low value services to free up needed resources to reduce important gaps in care.”

MedInsight is used by over 300 health plans, employers, at-risk providers/ACOs, state governments, community health coalitions, and third party administrators.

For more information about Milliman’s MedInsight products, click here.

Transitional policies result in higher medical loss ratios

A new Milliman analysis shows that the percentage of transitional policy members in a state’s health exchange market appears to correlate with higher medical loss ratios. In the analysis, Milliman consultants Erik Huth and Jason Karcher quantify the effect that transitional policies had on issuers’ 2014 individual market performance and how it may result in 2017 rate increases for transitional states.

Here’s an excerpt:

The table in Figure 3 shows that issuers in transitional states had higher 2014 loss ratios but appear to not have taken large enough 2015 and 2016 rate increases to achieve profitable 2016 loss ratios (assuming 2014 to 2016 significant cost savings are not realized in other ways). Although issuers’ 2017 rate increases will reflect their 2015 experience and updated projections, there is potential for transitional states to see higher rate increases in 2017.

Figure 3

The graph in Figure 4 shows the 2014 ACA loss ratio and the average 2014 to 2016 statewide QHP base rate change for each state. The gray line represents an illustrative 2014 to 2016 rate increase needed to target an 85% 2016 loss ratio given the 2014 loss ratio and assuming a 5% annual claim trend. For example, a state with an 85% 2014 loss ratio would require a 10.25% 2014 to 2016 rate increase to target an 85% 2016 loss ratio (i.e., 5% annual rate increases to cover the 5% annual claim trend to maintain the 85% loss ratio). States well underneath the line indicate a possible need for higher 2017 increases than states closer to the line. Keep in mind that projected 2016 loss ratios are merely illustrative. There are many factors that will affect a state’s overall 2016 loss ratio and required 2016 and 2017 rate increases, such as, but not limited to, changes in experience and statewide morbidity levels, wear-off of pent-up demand, provider contracting, claim trends, population migration and characteristics, and product and issuer mix. These values also represent a statewide composite, while specific issuers could have materially different results than the average.

Figure 4

Regulatory roundup

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

Drafts of ACA 2016 reporting Forms 1095-C, 1094-C released
The IRS released drafts of two forms for reporting 2016 health coverage information under the Affordable Care Act (ACA).

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage; and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, are to be filed in early 2017. The draft forms are for employer planning purposes and may change before their final release later in 2016.

For more information about Form 1095-C, click here.
For more information about Form 1094-C, click here.

ACA-HIPAA grandfathered and non-grandfathered group health plan checklists
The CMS’ Center for Consumer Information & Insurance Oversight released two checklists containing summaries of certain provisions applicable to grandfathered and non-grandfathered, self-funded, non-federal governmental group health plans.

For a summary of certain provisions applicable to grandfathered plans, click here.
For a summary of certain provisions applicable to non-grandfathered plans, click here.

Overview of health insurance exchanges
The Congressional Research Service released “Overview of Health Insurance Exchanges” which provides a summary of the various components of the health insurance exchanges. The report includes information about how exchanges are structured, the intended consumers for health insurance exchange plans, and consumer assistance available in the exchanges, as specified in the ACA. The report also describes the availability of financial assistance for certain exchange consumers and small businesses and outlines the range of plans offered through exchanges. Moreover, the report provides a brief summary of the implementation and operation of exchanges since 2014.

To read the entire report, click here.

Developing mortality assumptions for LTC first principles modeling

The development of separate mortality assumptions for healthy and disabled lives creates challenges for insurers using a long-term care (LTC) first principles model. In this article, Milliman actuaries discuss those challenges as well as their experience working with companies to overcome them. They also explore the advantages and opportunities of an enhanced approach to modeling mortality in a first principles context.

Medical professional liability industry’s profitability declines while maintaining overall favorable results

Surplus grew slightly in 2015, leaving the medical professional liability (MPL) industry in a financial position roughly consistent with where it has been since the end of 2011. The increased capitalization and favorable operating ratios in the MPL industry of late have had one primary cause, the release of prior-year reserves. In 2015 in particular, reserve releases contributed 24 points to the industry’s operating reserves. The reserve releases are similar to those during 2014 and represent a decline relative to each of the years 2008 through 2013. Milliman consultants Chad Karls and Susan Forray provide more perspective in their recent Inside Medical Liability article.

Regulatory roundup

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

Proposed rule on health insurance premium tax credit
The IRS released proposed regulations relating to the health insurance premium tax credit and the individual shared responsibility provision. These proposed regulations affect individuals who enroll in qualified health plans through health insurance exchange and claim the premium tax credit, and exchanges that make qualified health plans available to individuals and employers.

The proposed regulations also affect individuals who are eligible for employer-sponsored health coverage and individuals who seek to claim an exemption from the individual shared responsibility provision because of unaffordable coverage. Although employers are not directly affected by rules governing the premium tax credit, these proposed regulations may indirectly affect employers through the employer shared responsibility provisions and the related information reporting provisions.

To read the entire proposed rule, click here.

House approves bill on health flexible spending, health savings accounts
The House of Representatives voted 243-164 to approve the “Restoring Access to Medication and Improving Health Savings Act” (H.R.1270). The bill would repeal the tax code’s provisions that limit payments medications from health savings accounts, medical savings accounts, and health flexible spending arrangements to only prescription drugs or insulin, thereby allowing distributions from such accounts for over-the-counter drugs.

The repeal would apply to drug expenses incurred after Dec. 31, 2015. The bill would also reduce the threshold at which individuals must fully repay any excess cost-sharing subsidies they received to help them purchase health insurance on an exchange. The Joint Committee on Taxation estimated that the bill would raise $2.17 billion over 10 years and increase the number of uninsured by $130,000.

CMS: When must 2017 edition of SBC template be used?
The Centers for Medicare and Medicaid Services (CMS) released guidance recently addressing the applicability date of the Summary of Benefits and Coverage (SBC) template and associated documents that were published on April 6, 2016.

For more information, click here.

“Mega Reg” rule mandates MLRs for Medicaid managed care programs

The Medicaid “Mega Reg” final rule now makes medical loss ratios (MLRs) a requirement for Medicaid managed care programs in every state. While the Medicaid MLR formula largely follows the commercial and Medicare Advantage formula, there are some key differences between the three. In this report, Milliman consultants discuss several issues that state agencies and managed care organizations need to consider in the development and completion of MLR reporting.

Regulatory roundup

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

ACA filings permitted after June deadline
The IRS has announced that ACA filings may continue filed after June 30, 2016. The deadline for applicable large employer, self-insured employer, or other health coverage provider to electronically file ACA information returns with the IRS is midnight Eastern Time on June 30, 2016. The ACA Information Returns (AIR) system will remain up and running after the deadline. Providers can complete the filing of their returns after the deadline.

For more information, click here.

IRS Chief Counsel memo on Medicare eligibility and employer shared responsibility penalties
The IRS’ Office of the Chief Counsel released Memorandum 2016-0030 regarding the effect of Medicare eligibility on employer shared responsibility penalties. The memo states that “for purposes of section 4980H(b), an employee could potentially average 30 or more hours of service for a month and still not trigger (or increase the amount of) employer liability, provided that the employee does not purchase coverage on the Marketplace and receive the premium tax credit. An employee such as the taxpayer who is covered by Medicare is ineligible to receive the premium tax credit, and therefore generally would not lead to any employer liability under section 4980H(b). However, a full-time employee who is eligible for Medicare could potentially trigger or increase the amount of an employer’s liability for an assessable payment under section 4980H(a).”

To read the entire memo, click here.

IRS Chief Counsel Memo on retirement plan distribution and health insurance premium tax credit
The IRS’ Office of the Chief Counsel released Memorandum 2016-0035 regarding the effect of a retirement plan distribution on the health insurance premium tax credit. According to memo, a taxpayer took a distribution from a retirement account and the income from the distribution required the participant to repay on their tax return all of the advance credit payments made on their behalf. The distribution was not included in the estimated household income used to compute the advance credit payments. Therefore, the advance credit payments were more than the premium tax credit the participant was allowed. The memorandum concludes that the estimated household income used to compute advance credit payments is not used to determine a taxpayer’s premium tax credit.

To read the entire memo, click here.

Development and implementation of functional-based risk adjustment for Medicaid Managed Long Term Services and Supports

As the number of Medicaid Managed Long Term Services and Supports (MLTSS) programs increases, significant momentum is also building around the development of tools to adjust managed care organization (MCO) payments using the functional, medical, and behavioral needs of their members. These tools match payment to risk and align MCO and MLTSS program incentives more effectively. While the planning, development, and implementation needs of a functional-based risk adjustment (FBRA) mechanism are significant, the improvements realized in MLTSS programs are worth the effort.

Milliman actuary Michael Cook provides perspective in his article “Functional-based risk adjustment for Medicaid Managed Long Term Services and Supports: Part 2.” This article is the second in a two-part series on functional-based risk adjustment (FBRA). To read part one, click here.