New research commissioned by the National Association of Insurance Commissioners (NAIC) looks at credibility adjustment factors for use in medical loss ratio (MLR) refund calculations. Here is some background on why this is important:
Section 1001 of PPACA includes §2718(c), which directs the NAIC to establish uniform definitions and standardized methodologies for calculating measures of MLRs to be used in the determination of refunds in those situations in which a health insurance carrier’s MLR is less than the threshold required by PPACA. It further requires that such methodologies “take into account the special circumstances of smaller plans, different types of plans, and newer plans.” These considerations have introduced the need to address the normal statistical fluctuations that occur in the claims experience of health insurers. Such fluctuations tend to be greater for smaller plans and newer plans and vary for different types of plans. In order to adjust for these normal statistical fluctuations, the NAIC and HHS are considering introducing credibility adjustments based upon the size of an insurer’s business that is subject to the MLR requirements of PPACA (similar to what is done for refund calculations for Medicare Supplement business).
The calculation periods specified by §2718 appear to be based on annual experience up until January 1, 2014, at which time the refund formula is to be based on the average MLR for the previous three years for the plan. This variation in calculation methodology may produce different patterns of statistical fluctuation that could be addressed through the use of these credibility adjustment factors and the accumulated membership exposure, although such application for multiple years may not capture all statistical variation due to changing characteristics of insureds from one year to the next.
We understand that the NAIC has not finalized its decision on how many different sets of credibility adjustment factors it will use to address its charge to take the circumstances of different plans into account and the differences in the calculation periods specified by the law. The results of our analyses presented in this report provide sets of credibility adjustment factors that may be more or less detailed than what the NAIC will ultimately recommend to HHS.
Reform
Jim O'Connor, medical loss ratios
The Early Retiree Reinsurance Program today launched a website: www.errp.gov.
Reform
Early retiree reinsurance
We’ve blogged before about internal review in the reform environment. A new Client Action Bulletin looks at interim procedures for the external review process that non-grandfathered self-insured group health plans become subject to under the Patient Protection and Affordable Care Act (PPACA). This has implications for sponsors of group health plans, whether they purchase insurance or are self-insured and regardless of whether or not they are grandfathered.
Reform
external review, Grandfathered status
The Health Beat blog revisits a study from last year, “Imagining 16 to 12.” Here is an excerpt summarizing the article:
Could we bring our nation’s health care bill down from 17% of GDP to 12%? An intriguing study from Milliman, the independent consulting and actuarial firm, says”yes.” Looking at actuarial data from some of our best and most efficient health care plans, Milliman’s analysts conclude that, in theory, it would be possible to trim our bloated health care system by 25%.
Before you dismiss the idea, consider this: not that long ago, we brought health care inflation down to less than 3% a year for six years running (1994-1999). During that time, the nation’s health care bill remained flat as a percentage of GDP.
And Milliman points out that today, our most efficient , high quality health plans are achieving similar savings by “reducing unnecessary inpatient stays” and “inappropriate imaging.” The site of service also changes to emphasize lower cost settings—for example, home care instead of nursing-home care, or office-based primary care instead of emergency room care. The authors of the Milliman report acknowledge that 12% is only a “target for what is possible, not a budget.” They are not suggesting that we try to cap health care spending at 12% of GDP.
But the actuarial firm points that that in the not-so-distant past (1991) health cared did consume just 12% of GDP. Now it equals 17% of the economy. Granted, medical technology continues to advance, but have we really made that much progress since the ‘nineties?
Read the full article here.
Cost, Reform
16 to 12, Bruce Pyenson, Kate Fitch, Sara Goldberg
A new article in Business Insurance looks at the complexity of modeling the impact of healthcare reform. Here is an excerpt:
To determine whether a health benefit plan might become subject to the 40% excise tax that begins in 2018 and apply to premium costs that exceed certain amounts, modelers look at plan design as well as employee and employer contributions, and then project year-to-year increases in medical costs based on estimated future trends.
“Some employers could have Cadillac plans if health care costs continue their current trajectory,” said Robert Schmidt, a consulting actuary in the Boise, Idaho, office of Milliman Inc. “It depends in part on geography. If an employer operates in Southern California, their premiums are higher than they would be in Idaho.”
“Another variable is how rich the benefits are. A lot of employers, especially in the collectively bargained sphere, have low deductibles and low out-of-pocket maximums,” Mr. Schmidt said, which could elevate their health plan’s cost beyond the thresholds that trigger the tax. The thresholds are $10,200 for individual coverage and $27,500 for family coverage.
“Even if they aren’t quite Cadillac in 2018, the threshold only goes up by (the Consumer Price Index) plus 1%. So unless health care costs fall below that, more and more plans will be Cadillac plans,” Mr. Schmidt said.
Reform
Cadillac plan, Robert Schmidt
The latest Client Action Bulletin examines a new interim final rule related to the Patient Protection and Affordable Care Act (PPACA). The interim final rule—which offers guidance on claims, appeals, and reviews—implements a provision included in the PPACA and applies to all non-grandfathered group health plans.
Reform
Grandfathered status
Accountable care organizations (ACOs) need to properly deploy medical management in pursuit of certain utilization and cost targets. This dynamic is explained as part of a recent briefing paper on the nuts and bolts of ACOs. Here is an excerpt:
ACO’s should focus initial medical management efforts on reducing leakage to hospitals and specialists that are not part of the ACO. This will increase volume to ACO providers and help offset revenue loss due to improved utilization management. Inpatient utilization management is another target for initial medical management efforts particularly since inpatient costs make up approximately 30% of total costs for a commercially insured population and 37% of total Medicare Part A and B spend. Successful ACOs will focus medical management efforts both on avoiding potentially unnecessary admissions and on reducing inpatient hospital leakage (admissions to hospitals not associated with the ACO). Potential reductions in admission vary significantly by admission type, so identifying real opportunities requires analyzing historical data to identify impactable and non-impactable admissions. In particular, ambulatory care sensitive admissions, preference sensitive admissions, and readmissions are considered as impactable (see Definitions). Claims data logic available from the Agency for Healthcare Research and Quality and published reports can help identify benchmark rates for these impactable admissions—and a sense of how many can actually be eliminated.
See the full paper for more detail and for citations.
Accountablity, Reform
ACOs, Cathy Murphy-Barron, David Mirkin, Kate Fitch
A new article in Insurance News Net looks at the the implications of health reform on pharmaceutical benefits. Here is an excerpt:
What’s Happening Now: 2010 Changes
RDS Tax Exemption Eliminated – The tax exemption to employers who receive the Retiree Drug Subsidy (RDS) for providing qualifying prescription drug coverage for retirees eligible for Medicare has been eliminated. Even though this change does not occur until the beginning of 2013, if plans are currently receiving the RDS, it has the immediate accounting impact of creating a deferred tax liability for their other post-employment benefit (OPEB) obligations. Some analysts have estimated that S&P 500 companies will take a combined one-time hit of $4.5 billion to first quarter 2010 earnings as a result of this change. For example, AT&T has disclosed their estimate that the change will cost them $1 billion, Verizon reported $970 million, Deere & Co. reported $150 million, and Caterpillar Inc. reported $100 million. As a result, companies may consider alternate options for providing benefits or cut future benefits to offset some portion of the impact.
Read more…
Pharma, Reform
The Patient Protection and Affordable Care Act (PPACA) calls for the creation of accountable care organizations (ACOs) as a more cost-effective way of paying for healthcare. In order to succeed, ACOs will have to establish actuarial cost and utilization targets and use medical management to achieve those targets. This process of benchmarking and managing toward targets requires a delicate balance of actuarial and clinical know-how.
A new briefing paper offers a practical guide for approaching this analytic and management imperative. In addition to identifying the steps required, it identifies the medical management priorities for an effective ACO and highlights some of the risks involved.
Accountablity, Reform
ACOs, Cathy Murphy-Barron, David Mirkin, Kate Fitch
A new Client Action Bulletin looks at guidance for group health plans and other group insurers. The guidance pertains to several short-term reforms, including the prohibitions on lifetime and annual limits, preexisting condition exclusions, and rescissions.
Reform
Recent Comments