Do private exchanges provide true health plan savings?

The rate of employers adopting a private health exchange has not met the industry’s initial expectation. In his Bloomberg BNA article “The elusive nature of private exchanges,” Milliman consultant Mike Gaal discusses the shortfall in private exchange enrollment figures and also offers perspective on operators’ inability to demonstrate employee healthcare cost savings.

Here is an excerpt:

Generally speaking, it is reasonable to say that a private exchange platform will allow an employer to reduce its overall administrative burden and outsource tasks, such as plan administration and vendor management, to the private exchange operator.

But what of the promise of plan savings? What, exactly, is inherently included in the private exchange platform that is not present in a traditional self-funded model? When answering this question, it is important to ensure that the employer and private exchange operator are speaking the same language as it relates to defining healthcare costs and healthcare trend. Semantics can play a crucial role when trying to define healthcare cost control….

While the focus for most employers is on either the net employer claim costs or the net employer costs, the true measure of year-over-year healthcare trend (as it relates to long-term cost control) is the change in the gross allowed claim costs. However, because the concept of employer healthcare trend is often defined as the employer-only change in healthcare costs year over year, employers do not always have a full view of how well their programs are managing overall (i.e., gross allowed) healthcare costs.

In this context, many private exchange operators are able to project low annual healthcare trends, particularly in the first year of implementation. But what is not always transparent to the employer is that significant savings might be derived through cost shifting to employees (via lower average actuarial values and/or higher member contributions), not through a reduction in total (gross allowed) healthcare costs….

Cost shifting as a result of benefit buy-downs does not create an impetus to migrate to the private exchange environment, because most employers understand that they have the ability to offer plan choice and a defined contribution environment outside of a private exchange.

To create a compelling reason for movement, private exchange operators must be able to clearly outline and articulate the fundamental difference that exists in the private exchange environment that is not available to large self-funded employers. Through early 2016, the evidence supports a conclusion that the inability to address the explicit advantage in controlling overall active healthcare costs is likely the key issue that has driven lower-than-anticipated adoption rates of private exchanges, especially among large self-funded employers, while small- to middle-market employers seem to be driving the majority of growth over the past two years.

For more Milliman perspective on private health exchanges, click here.

Are Medicare Advantage penetration rates good predictors of Medicare fee-for-cost trends?

A new analysis by Milliman’s Andrew Mueller and Brian Larsen shows a strong relationship exists between higher/lower Medicare Advantage (MA) market penetration rates and lower/higher Medicare fee-for-service (FFS) cost trends. Based on this, they developed for consideration a modest adjustment to the Medicare Payment Advisory Commission’s (MedPAC’s) reported MA payment to FFS cost ratio.

The adjusted ratios indicate that estimated 2015 MA plan payment rates are slightly lower than FFS costs might be, absent significant MA market penetration. While the adjusted ratio is modestly different from MedPAC’s ratios, it may present a reasonable alternative to the MedPAC ratio often used to assess MA value.

To read their entire analysis, click here.

Supplementing insurer’s Medicare product portfolio

Some carriers can benefit from offering Medicare Supplement (MedSupp) as an alternative to Medicare Advantage (MA). In this article, Milliman consultants Ken Clark and Scott Bentley discuss the following four reasons why carriers should consider adding MedSupp to their Medicare product line:

• Enrollment of seniors who otherwise won’t enroll in MA
• Enrollment of seniors in service areas where developing an MA provider network isn’t practical
• A potential hedge against a decrease in the value of MA products for consumers
• Simplicity and flexibility for the health plan

Regulatory roundup

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

Resources for frequently asked ACA questions
The Congressional Research Service (CRS) has updated its report entitled “Patient Protection and Affordable Care Act (ACA): Resources for frequently asked questions.” The report provides resources to help congressional staff respond to constituents’ frequently asked questions (FAQs) about the law. The report lists selected resources regarding consumers, employers, and other stakeholders, with a focus on federal sources. It also lists CRS reports that summarize the ACA’s provisions.

To download the report, click here.

IRS health tax tip: What to do if you don’t receive your healthcare information forms
The Internal Revenue Service (IRS) released IRS Healthcare Tax Tip 2016-28, explaining what should be done if an individual has not received Form 1095-A, 1095-B, or 1095-C. The tip provides guidance about what individuals should do if they are expecting to receive any of these forms but do not have them by the time they are ready to file their tax returns.

For more information, click here.

IRS posts Q&A on employer healthcare arrangements
The IRS has posted several questions and answers related to employer healthcare arrangements on its website.

For more information, click here.

The power of personalization

tenBroek-HeidiKernich-DanaMaking decisions about health coverage is difficult. Medical jargon, network limitations, and vague pricing contribute to the minefield of confusion experienced by even educated employees. According to a recent survey, only 14% of Americans can accurately define basic healthcare terms such as deductible, copay, coinsurance, and out-of-pocket maximum.1 In order to be smart consumers of healthcare—making the best decisions for themselves and keeping costs in check for employers footing the majority of the bill—employees must be able to understand the coverage offered to them. Personalizing health coverage communications can help employees, and ultimately their employers.

Marketers have demonstrated for years that personalization works:

• Personalized emails deliver six times higher transaction rates (customer actions such as sales or subscriptions) than non-personalized emails2
• 73% of consumers prefer to do business with companies that use personalization to make their shopping experience more relevant3
• 86% of consumers say personalization plays a role in their purchasing decisions4

If it works, use it! Personalized materials provide more focus for better decision making and leave employees feeling less overwhelmed by confusing information. Creating these materials isn’t as difficult as employers might think. Here’s an example of how an employee enrolled in a standard preferred provider organization (PPO) plan could be introduced to the potential cost savings of a high-deductible plan:

The power of personalization

1Lowenstein, G. (September 2013). Consumers’ misunderstanding of health insurance. Journal of Health Economics 32, no. 5: 850-862.
2Experian Marketing Services (December 2013). 2013 Email Market Study: How Today’s Email Marketers Are Connecting, Engaging and Inspiring Their Customers. Retrieved February 11, 2016, from
3 Nasri, G. (December 10, 2012). Why consumers are increasingly willing to trade data for personalization. Retrieved February 11, 2016, from
4Infosys (December 2013). Study: Rethinking Retail: Insights From Consumers and Retailers Into an Omni-Channel Shopping Experience. Retrieved February 11, 2016, from

The cost of inpatient death associated with acute coronary syndrome

The cost of hospitalization for acute coronary syndrome (ACS) is expensive and continues to rise. In terms of direct medical expenditures, ACS costs Americans more than $150 billion annually, with approximately 60% to 75% of these costs related to hospital admission and readmission. No prior studies have addressed the cost of inpatient mortality during an ACS admission. This article, co-authored by Milliman’s Jill Van Den Bos and Travis Gray, compares ACS-related length of stay, total admission cost, and total admission cost by day of discharge/death for patients who died during an inpatient admission with a matched cohort discharged alive following an ACS-related inpatient stay.

This article was published by PubMed.

Regulatory roundup

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

Agencies release notice seeking approval of ACA summary of benefits and coverage disclosures
The Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) have released a notice seeking approval and public comments from the Office of Management and Budget (OMB) on the revision to the summary of benefits and coverage and uniform glossary under the Patient Protection and Affordable Care Act (ACA). The ACA directs the U.S. Department of Health and Human Services (HHS), the DOL, and the U.S. Department of the Treasury, in consultation with the National Association of Insurance Commissioners (NAIC) and a working group comprised of stakeholders, to develop standards for use by a group health plan and a health insurance issuer in compiling and providing to applicants, enrollees, policyholders, and certificate holders a summary of benefits and coverage explanation that accurately describes the benefits and coverage under the applicable plan or coverage.

To read the entire notice, click here.

Report on the health coverage tax credit
The Congressional Research Service (CRS) released a report entitled “The health coverage tax credit (HCTC): In brief” (R44392), which describes the eligibility criteria for the HCTC and the types of health insurance to which the tax credit may be applied. It briefly describes the administration of the HCTC program and receipt of the credit by eligible taxpayers. The report concludes with a summary of the HCTC’s statutory history.

To read the entire report, click here.

Case study: and CMS management of the federal marketplace
The HHS’s Office of Inspector General has published a case study entitled “ CMS management of the federal marketplace.” The objective of this case study was to gain insight into the implementation and management of the federal insurance marketplace by the Centers for Medicare and Medicaid Services (CSM), focusing primarily on The review spans five years, providing a chronology of events and identifying factors that contributed to the website’s breakdown at launch, its recovery following corrective action, and implementation of the marketplace through the second open enrollment period.

To read the entire case study, click here.

Financial analysis of ACA health plan issuers

The Patient Protection and Affordable Care Act (ACA) includes risk mitigation programs, also known as the 3 Rs, for individual and small group health insurance markets. The 3 Rs include a permanent risk adjustment program, a transitional reinsurance program for the individual market, and a temporary risk corridor program. The transitional reinsurance and temporary risk corridor programs span from 2014 through 2016, while risk adjustment is a permanent program. The intent of these programs is to mitigate adverse selection and enhance market stability. The 3 Rs also affect financial reporting, and ACA health plan issuers faced many challenges when estimating the financial impact of the 3 Rs on 2014 financial statements. Our research suggests that ACA health plan issuers developed 2014 financial statements in a particularly uncertain environment. In this paper, Daniel Perlman and Dave Liner summarize 2014 3R estimates compared with actual amounts published by the Center for Consumer Information and Insurance Oversight (CCIIO).

State of the 2016 Medicare Advantage industry changes as a result of continued rate pressure

In this research report, Milliman’s Brett Swanson, Ari Kramer, and Julia Friedman highlight key changes in beneficiary premiums and benefits for the 2016 Medicare Advantage (MA) market as well as the reasons for and the magnitude of the decrease of value-add within the MA market between 2013 and 2016, with a more detailed look at changes between 2015 and 2016. It also summarizes the components of the Patient Protection and Affordable Care Act (ACA) and subsequent legislated actions driving the downward payments to Medicare Advantage organizations (MAOs). This report also aims to assist MAOs in making strategic decisions during 2017 bid preparations.