What are the key financial considerations for providers when evaluating the Next Generation ACO Model?

The Department of Health and Human Services (HHS) is striving to link 50% of Medicare payments to alternative payment models by 2018. One of the primary alternative payment models offered to Medicare providers is the Next Generation Accountable Care Organization (NGACO). Due to the potential large risk exposure for organizations considering this model, they should work with an actuary to understand the critical elements driving financial success (or failure). In this article, Milliman’s Charlie Mills, Cory Gusland, and Noah Champagne identify five key financial considerations that all ACOs should review before committing to the program. The considerations are ranked by the authors’ perceived importance, with one being the most important.

5. ACO’s CY2014 experience is the baseline for the first three performance years
4. Risk score changes are capped at 3% from the baseline year to each performance year
3. First dollar savings and losses
2. The 2016 benchmark trends are likely understated
1. In order to achieve savings, participants must outperform trended baseline less discount

Regulatory roundup

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

IRS issues the 2017 inflation-adjusted deduction limitations for annual contributions to HSAs
The Internal Revenue Service (IRS) released Revenue Procedure 2016-28, which provides the 2017 inflation-adjusted deduction limitations for annual contributions made to a health savings account (HSA) under section 223. These deduction limitations are updated annually pursuant to section 223(g) to reflect the cost-of-living adjustments.

For more information, click here.

Guide for electronically filing ACA information returns for software developers and transmitters
The IRS released “Publication 5165: Guide for electronically filing Affordable Care Act (ACA) information returns for software developers and transmitters (processing year 2016).” The report outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the ACA Information Returns (AIR) system. To develop software for use with the system, software developers, transmitters, and issuers should use the guidelines provided in this publication along with the extensible markup language (XML) schemas published on the IRS website.

To read the entire report, click here.

The CRS publishes employer shared responsibility report
The Patient Protection and Affordable Care Act (ACA) creates shared responsibilities for both employers and individuals with regard to health insurance coverage. The ACA expands federal private health insurance market requirements and requires the creation of health insurance exchanges to provide individuals and small employers with access to insurance. A new Congressional Research Service (CRS) report examines the new employer responsibilities.

To read the entire report, click here.

Plan design strategies in the ACA marketplace: A review of Unified Rate Review Template data

What patterns in plan design offerings have been seen in the marketplace during the first three years after the implementation of the Patient Protection and Affordable Care Act (ACA)? Individual market member projections exhibited a preference for lower-cost plans with health maintenance organization (HMO) plans and plans at the lower end of the allowable actuarial value (AV) range being the most popular. In contrast, small group membership projections shifted toward higher AV ranges within metallic tiers, which illustrates different preferences in the small group market.

By looking at trends in plan offerings, even at a macro level, insurers may be able to gain insight from emerging patterns in the market to help frame marketplace strategies in future years. Milliman’s Abigail Caldwell and Jordan Paulus offer more perspective in this paper.

Regulatory roundup

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

New ACA implementation FAQs: Preventive services, mental health parity, and women’s health
The U.S. Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) published frequently asked questions (FAQs) about the Patient Protection and Affordable Care Act (ACA) implementation (Part 31). The FAQ covers:

• Coverage of Food and Drug Administration (FDA)-approved contraceptives
• Rescissions
• Out-of-network emergency services
• Coverage for individuals participating in approved clinical trials
• Limitations on cost-sharing under the ACA
• Mental Health Parity and Addiction Equity Act of 2008
• The Women’s Health and Cancer Rights Act

To read the entire FAQ, click here.

Reserve considerations

Pantely-SusanHealth actuaries have been estimating incurred but not paid (IBNP) claim liabilities for decades. As claim payments moved from manual to electronic methods, payments processing has become quicker. This has caused IBNP to decrease as a percentage of total incurred claims. However, it is still critical to estimate total incurred claims before all claims are paid in order to evaluate profitability and set future premiums.

Typically, the IBNP estimate is based on completion factors developed from historical payment patterns. This methodology, however, can be volatile for the most recent months, with minimal runout. For recent months, a per unit trend analysis is typically used (such as monthly cost per member, per employee, per hospital day, etc.).

In order to improve accuracy of IBNP claim estimates, additional information can be used to inform the trend analysis for the recent months. This includes:

Working days. Working days in a month varies based on when weekends and holidays fall, impacting the availability of care as well as the claim processing capability of carriers. The impact on incurred services varies by setting. Hospitals empty out over holiday periods and specialists may work fewer hours on holidays and weekends. Prescription drugs have a pattern as well that varies by weekday, weekend days, and holidays. However, Medicaid nursing homes may be paid on a monthly basis regardless of the number of days or holidays in the month.
Claim payment pattern indicators. Traditionally, these include claim inventory, preauthorization, real-time reports from hospitals on inpatient days and/or admissions, and reported high-dollar claims.
Tracking the flu season. Wall Street investors follow the flu season to see the impact on health insurers. Higher-than-typical numbers of flu cases will lead to increased claims and vice versa. Some organizations track the flu at more granular levels, such as regional flu counts for high-risk members.
Weather. Snow days, flooding, and other weather-related events should be measured. These events can have an effect on incurred claims similar to additional holidays, and also can produce a pent-up demand impact later.
One-time events. Items that may impact claim processing such as system conversion or the transition to ICD-10 have the potential to impact claim payment patterns. System conversions often create significant claim backlogs and the potential for overpayments until corrections work through the system edits.
Seasonality. The seasonal curve for typical commercial business keeps getting steeper, with larger deductibles and maximum out-of-pocket expenses. This impacts the timing of incurred claims and the resulting IBNP significantly throughout the year, but typically it’s most exaggerated at year-end and the first quarter. Some specialty blocks or employer groups exhibit clear seasonal patterns. Dental plans, Medicare Supplement, school groups, and other cohorts present very different claim costs by month.
Benefit changes and risk scores. January 1 can cause major changes for Medicare, business related to the Patient Protection and Affordable Care Act (ACA), and some large plans. Benefit changes may have significant impact on cost-sharing and seasonality as noted above. A review of the change in risk score or monthly premium can help determine if the risk profile of membership may also be materially different from the prior month. These items could influence incurred claims and resulting IBNP estimates in the first quarter.
Comparison of prior completion factors. More sophisticated organizations will look not only at averages but at percentiles. Completion factors falling into higher/lower percentiles relative to prior months should be reviewed with more scrutiny.
Staffing changes. Looking at the number of claim payers working per claim submitted may be a useful metric for smaller plans that adjudicate their own claims.
Large claimants. It is often useful to estimate hospital costs on a contract-by-contract basis, taking into consideration stop-loss provisions and other hospital-specific items. Some plans perform analytics to determine if there is backlog in some key facilities, increased claim denials that are due to new policies put into place, and any changes in the claim adjudication process that can throw off prior relationships between inventory and actual claim payment.

Reserving can sometimes feel more like art than science. Many of these factors can improve your estimates, but what is good for some blocks of business does not always improve the estimates for others. A successful valuation team will also incorporate frequent monitoring, communication between pricing and forecasting personnel, input from claim payment personnel, and evaluations of the reasons for deviations from the expected.

How can risk adjusters improve the accuracy of value-based payment?

Providers should understand the health insurance risk they assume through value-based payment contracts, and how this might impact their reimbursements. Risk adjustment tools like the Milliman Advanced Risk Adjusters™ (MARA™) suite identify and isolate morbidity risk factors that are beyond a provider’s control. This may result in payments that more accurately reflect a patient population’s controllable risk. In this article, Milliman’s Colleen Norris and Stoddard Davenport demonstrate how risk adjustment can minimize the financial exposure associated with the morbidity risk that providers cannot influence.

Regulatory roundup

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

IRS issues ACA guidance containing items for calculating premium tax credit
The Internal Revenue Service (IRS) issued Revenue Procedure 2014-24 providing a ministerial item of guidance that contains indexing adjustments for certain provisions under sections 36B and 5000A of the Internal Revenue Code.

In particular, it updates the Applicable Percentage Table in § 36B(b)(3)(A)(i) to provide the Applicable Percentage Table for 2017 that is used to calculate an individual’s premium tax credit. This revenue procedure also updates the required contribution percentage in § 36B(c)(2)(C)(i)(II) for plan years beginning after calendar year 2016. The percentage is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under § 36B.

For more information, click here.

Analyzing data can help hospitals manage the costs of post-acute services

The Centers for Medicare and Medicaid Services (CMS) has implemented a new payment structure under the Comprehensive Care for Joint Replacement (CJR) model. The model is meant to reduce costs and improve the quality of care for Medicare beneficiaries following some lower extremity joint replacement (LEJR) procedures.

Services rendered by post-acute providers will affect the payments hospitals receive for LEJR patients. However, payments are partly tied to certain quality metrics. In this article, Milliman’s Pamela Pelizzari discusses how important it is for hospitals to understand and analyze the data sources CMS will make available for the CJR model.

Here is an excerpt:

Because the CJR episodes include services rendered after discharge from an LEJR hospitalization, much of the hospital’s financial responsibility is tied to services performed outside the walls of the hospital. The only way to fully understand these services is by analyzing the data sets that CMS provides to CJR hospitals throughout the life of the model, beginning with historical baseline data that was provided in early 2016. This data allows hospitals to examine their historical utilization of CJR-included services, particularly high-cost services such as skilled nursing facility stays, inpatient rehabilitation stays, and readmissions to acute care hospitals that may be avoidable….

While understanding a hospital’s own historical utilization on a simulated episodic basis is the first step toward success under CJR, it is also essential for that hospital to compare itself with other hospitals (both within the same census region and across the country) to understand what savings opportunities may be available and how far utilization needs to be managed to achieve the regional target prices enforced through CJR. Looking at regional and national benchmarks can allow a hospital to comprehend the level of achievement that may be possible. By understanding national average and best-performing hospital utilization patterns, it is possible to initiate conversations about the potential to shift utilization for LEJR patients to lower-acuity post-acute settings.

Regulatory roundup

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

CMS finalizes 2017 payment and policy updates for Medicare health and drug plans
The Centers for Medicare and Medicaid Services (CMS) released the final Medicare Advantage and Part D Prescription Drug Program changes for 2017 that seek to provide stable payments to plans, and make improvements to the program for plans that provide high-quality care to the most vulnerable enrollees.

For more information, click here.

RDS program: Change of address for sending an overpayment remittance
The address for sending an overpayment remittance to CMS’s Retiree Drug Subsidy (RDS) Center has changed. Effective immediately, plan sponsors are to remit payment by sending a check or money order, made payable to the Centers for Medicare and Medicaid Services, to the following address:

Retiree Drug Subsidy Center
Attn: Payments – Box 6054
P.O. Box 7247
Philadelphia, PA 19170-6054

For more information, click here.

Guidance on coordinating government contractor fringe benefit requirements with ACA
The U.S. Department of Labor (DOL) issued All Agency Memorandum (AAM) 220 to provide guidance to governmental agencies on how provisions of the Patient Protection and Affordable Care Act (ACA) regarding the employer-shared responsibility provisions interact with the fringe benefit requirements of the McNamara-O’Hara Service Contract Act (SCA) and the Davis-Bacon Act and Davis-Bacon Related Acts (DBRA, together DBA/DBRA).

For more information, click here.

Overview of private health insurance provisions in the ACA
The Congressional Research Service (CRS) issued the report “Overview of private health insurance provisions in the Patient Protection and Affordable Care Act (ACA).” The report provides general perspectives of some of the private health insurance provisions in the ACA and directs readers to more in-depth CRS reports.

To download the entire report, click here.

2014 commercial health insurance: Overview of financial results

The commercial health insurance markets in the United States in 2014 experienced a significant change relative to prior years. These changes were most dramatic in the individual health insurance market, with the conversion from medical underwriting to adjusted community rating in many states, as well as the implementation of the federal and state insurance marketplaces, facilitating premium assistance to many Americans who were previously uninsured. The 2014 edition of Milliman’s annual report on the commercial health insurance market provides an overview of financial results in the individual and group insurance markets. The report also focuses on enrollment changes in the individual market and the impact of the Patient Protection and Affordable Care Act of 2010’s (ACA) risk adjustment and risk corridor programs.