Milliman releases analysis of Medicaid managed care administrative costs

Pettit_T_ChristopherMilliman today announced the second iteration of its research into the administrative expenses associated with Medicaid managed care plans. This research complements the analysis of Medicaid managed care financial results report that was released on June 6, 2016. The information has considerable value given the CMS Medicaid managed care rule (CMS-2390-F) published on April 25, 2016 and historical CMS Medicaid capitation rate-setting guidance. These regulations require greater documentation of administrative costs included in the capitation rates and this information can be useful in providing greater transparency of the rate-setting process.

The additional analysis on administrative expenses is critical in helping understand the true expenses being incurred by the Medicaid managed care organizations. The recent approval of the Medicaid managed care rule highlights the focus being placed on each component of the managed care capitation rates. We believe that this research can become as familiar in the industry as our financial analysis report to help establish benchmarks for use in rate-setting.

Key findings from the analysis include:
• The average administrative loss ratio (ALR) for Medicaid focused plans is 8.8% after removing the impact of taxes and fees
• CY 2014 and 2015 ALR values, net of taxes and fees, are considerably lower than previous years
• The administrative per member per month (PMPM) value continues to climb as average premium levels increase

This is the second year the administrative expenses report has been produced, with expectation of providing future annual updates consistent with the Medicaid managed care organization financial results report.

To see the Medicaid administrative expenses report, click here.

Regulatory roundup

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

House panel advances health bills
The House Ways and Means Committee approved seven health care bills recently, including the following that would apply to employer-sponsored plans:

• H.R.5445 (the “Health Care Security Act”), which would increase the annual contribution limits for health savings accounts, allow for catch-up contributions by both spouses to a single account, and permit the payment of expenses incurred 60 days before an account is established
• H.R.5447 (the “Small Business Health Care Relief Act”), which would permit qualified small employers that do not offer a group health plan to reimburse up to $5,130 annually/employee ($10,260/family) for the cost of buying health insurance
• H.R.210 (the “Student Worker Exemption Act”), which would exclude full-time students who are employed by an institution of higher education from being counted as full-time employees in calculating the institution’s shared responsibility coverage requirement under the ACA
• H.R.3080 (the “Tribal Employment and Jobs Protection Act”), which would eliminate the Affordable Care Act’s employer mandate for businesses owned by Indian tribes.

House panel approves mental health bill with group health plan implications
The House Energy and Commerce Committee voted 53-0 to approve a substitute mental health bill (H.R.2646) called the “Helping Families in Mental Health Crisis Act.” The full House is not expected to act on the measure until sometime in September.

The bill generally calls for improving oversight of certain mental health and substance abuse programs. There are, however, some provisions that affect employer-sponsored plans, including a directive for the Departments of Health and Human Services, Labor, and Treasury to coordinate and issue a “compliance program guidance” document relating to mental health parity that provides examples/illustrations of informative disclosures and nonquantitative treatment limitations, as well as descriptions of the violations uncovered during the course of compliance investigations.

In addition, if a group health plan or group insurance provides coverage for eating disorder benefits, the plan/insurance must provide such benefits consistent with the mental health/substance use disorder benefits parity requirements, under the bill.

Milliman Medical Index: Components of cost

Girod_ChrisEvery year the Milliman Medical Index (MMI) examines the cost of healthcare for the typical American family of four under five separate categories of services:

• Inpatient facility care
• Outpatient facility care
• Professional services
• Pharmacy
• Other services

MMI2016_figure8As shown in Figure 8, for the MMI family of four, total facility care comprised 50% of total spending, with 31% being inpatient and 19% being outpatient. Another 30% of spending is for professional services, which includes services provided by doctors, physician assistants, nurse practitioners, chiropractors, hearing and speech therapists, physical therapists, and other clinicians. Pharmacy constitutes 17% of the healthcare spending pie, and the remaining 4%, is for “Other” services, which includes miscellaneous other items and services such as durable medical equipment, prosthetics, medical supplies, ambulance, and home health. Figure 9 in the study shows how the dollar amounts of these components have been changing over time.


At $7,965 in 2016, inpatient facility costs grew by 4.2% (see Figure 10), the lowest annual increase in the past 15 years. Inpatient facility utilization changes continue to be very close to zero. Utilization is typically measured in terms of the number of inpatient days per year. That number of days results from a number of admissions, and the number of days each patient stays in the hospital. In recent years, admissions have declined, which sometimes increases average length of stay because it is the less intensive cases that tend to be avoided. The net result is that total inpatient days have changed very little. The admission reductions and length of stay increases may have resulted partly from hospitals’ renewed emphasis on avoiding unnecessary readmissions, and partly by discharging patients at an optimal point in their care when they are healthy enough and logistics are in place such that they can recover and thrive without being in the hospital.


Outpatient facility spending also grew at a historically low rate, increasing by 5.5% to $4,922 in 2016. Part of the low growth rate may be attributable to pent-up demand and “crowd out,” as people newly insured by the ACA—especially in states that expanded Medicaid—consume limited hospital resources and produce treatment delays for other populations. Elective surgeries are one type of service subject to such delays resulting from capacity constraints.

The professional services slice of the healthcare spending pie has shrunk slightly, to 30% of the total in 2016. Professional services costs increased from 2015 to 2016, but at a lower rate than other services. The slow growth is primarily due to relatively low increases in physician payment rates for a given basket of services. When a physician treats patients having employer group insurance, like the MMI family of four, the physician usually gets paid according to a fee schedule that has been negotiated between the health plan and the physician. Today, those fee schedules are often based on the fee schedule Medicare uses. Over the past 10 years or more, that Medicare fee schedule has increased only at very low rates, at or near 0% in many years. Consequently, physicians often receive little or no payment rate increases for their Medicare patients, and also for their patients who have employer group insurance.

Prescription drugs costs are still the fastest growing slice of the healthcare cost pie, increasing to $4,270, or 17% of the total, in 2016. Drug spending increased by 9.1% from 2015 to 2016, down from the previous year’s increase of 13.6%. Although the lower rate of increase was encouraging, it is still much higher than the 3.8% growth rate for all other healthcare costs. Much of the prescription drug cost growth is driven by specialty drugs. While there is no universally accepted definition of specialty drugs, they are generally very high-cost drugs. Medicare defines specialty drugs as those costing more than $600 per script in 2016. For the MMI family of four, specialty drugs now constitute nearly 6% of all healthcare spending, which is approximately $1,550 for the family in 2016.

This content first appeared in the 2016 Milliman Medical Index.

Webinar: Medical loss ratios in the Medicaid mega reg

Medical loss ratios (MLRs) will become a required part of financial reporting and prospective rate setting for Medicaid managed care programs in every state, effective for managed care contracts beginning on or after July 1, 2017. The creation of minimum MLR standards for Medicaid managed care follows the precedents set by the commercial health insurance market in 2011 and the Medicare Advantage (MA) market in 2014.

Join Milliman’s Ian McCulla, Scott Jones, and Jill Brostowitz for the webinar “Medical loss ratios in the Medicaid mega reg” on Friday, June 24 at 12 pm EST. They will discuss the release of the final Medicaid and CHIP managed care rule (final rule). To register, click here.

Regulatory roundup

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

Treasury, DOL, HHS issue proposed rule on expatriate health plans
The Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) have released a proposed regulation on the rules for expatriate health plans, expatriate health plan issuers, and qualified expatriates under the Expatriate Health Coverage Clarification Act of 2014 (EHCCA).

The proposed rule affects expatriates with health coverage under expatriate health plans and sponsors, issuers and administrators of expatriate health plans, individuals with and plan sponsors of travel insurance and supplemental health insurance coverage, and individuals with short-term, limited-duration insurance.

For more information, click here.

Gen Re and Milliman publish 2014 & 2015 U.S. Group Disability Market Survey

Milliman and Gen Re, a leading global life/health reinsurer, are pleased to announce results from their first jointly produced U.S. Group Disability Market Survey.

The U.S. Group Disability Market Survey, originally launched in 1987, has returned after a brief hiatus as a result of a collaborative partnership between Milliman and Gen Re. The report covers sales and in-force results for short-term and long-term disability products and includes analysis of premiums, cases and covered lives from new sales and in-force business for 2014 and 2015.

Highlights from the survey include:

• Total premium was approximately $4 billion for total STD in-force business and $10 billion in 2015 for LTD in-force. This is believed to represent 90% – 95% of the group disability insurance market, with 26 disability insurance companies participating.

• Combined STD and LTD in-force premium was about $14.7 billion among contributing companies, versus $14.1 billion in 2014. STD in-force premium increased by approximately 6% from 2014 to 2015, and LTD in-force premium increased by approximately 3%.

• Combined new sales premium (STD and LTD) was approximately $2.1 billion for 2015 versus $2.0 billion in 2014. STD new sales premium increased by approximately 8% from 2014 to 2015, and LTD new sales premium increased by approximately 2%.

Copies of the full report will be available only to participating companies. For a summary of results, click here.

Developing a population health management program: Considerations for population segmentation

Predictive analytics can improve medical outcomes by identifying patients needing medical interventions. Population segmentation is a common method used to identify such patients. Individuals are grouped into cohorts to help improve the quality of their care. In this paper, Milliman’s Jordan Paulus and Nick Creten explore four common methods for population segmentation: cost cohort segmentation, condition cohort segmentation, utilization cohort segmentation, and social cohort segmentation.

Encounter data standards: Implications for state Medicaid agencies and managed care entities from final Medicaid managed care rule

In this article, Milliman consultants Jeremy Cunningham, Maureen Tressel Lewis, and Paul Houchens summarize new regulatory requirements for Medicaid encounter data from the final managed care rule. The authors also identify best practices for state Medicaid agencies and managed care entities in the development and submission of encounter data. Additionally, they discuss how improvements to the quality of Medicaid managed care encounter data may change the industry.