Third quarter financial results for medical professional liability writers, expectations for year-end results

December 11th, 2014

By Javier Sanabria

Medical professional liability (MPL) specialty writers are continuing to benefit from large redundancies in prior-year response levels as they have for several years. But a not so subtle transformation has emerged in the past few years. That transformation is that reserve runoffs are no longer bolstering the profit level. In fact, it could be argued that reserve runoffs are responsible for the profits as a whole. Milliman’s Brad Parker and Chuck Mitchell provide perspective in this article.

The article was originally published in the Medical Liability Monitor.

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Regulatory action needed to ease LTC rate increases

December 10th, 2014

By Javier Sanabria

Many long-term care (LTC) insurers are seeking premium rate increases that are due to financial challenges. In the latest issue of Contingencies, Milliman’s Dawn Helwig examines three key assumptions—morbidity, lapse/mortality rates, and interest rates—affecting LTC rates. She also discusses the need for regulatory action “to make the rate increase landscape more predictable” and efficient.

Here is an excerpt:

It’s necessary to find a balanced solution for approving rates that will provide stability in coverage for insureds. Such a solution will preserve the private LTC market and prevent future reliance solely on public programs like Medicaid. In order to achieve this balance, more coordination is needed between regulators and companies in early filing and approval of actuarially justified rate increases. Closed blocks of business must be able to be restored to adequacy to promote long-term stability.

Some possible solutions that have been mentioned include:

• Allowing more policyholder options at rate increase times (benefit reductions).
• Improving communication with policyholders about their options and (if approved) future planned rate increases.
• Requiring companies to annually review their business and to certify whether or not rates need to be increased.
• Allowing rate increases based on updated assumptions that are actuarially supported, regardless of whether the existing block of business has developed enough experience to be considered credible (i.e., regardless of whether the updated assumptions can be demonstrated in the company’s actual experience).
• Requiring companies to file their future plans as part of a rate increase, including what will happen favorably or unfavorably from what was assumed in this filing.
• Allowing increases to be spread out over multiple years. This may require modifying the rate stability requirement that makes an actuary file the full increase needed in order to certify that rates are adequate using moderately adverse requirements.

To read the entire article, click here.

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Regulatory roundup

December 8th, 2014

By Employee Benefit Research Group

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

National health expenditures continued slow growth in 2013
Health spending continued to grow at a slow rate last year, the Office of the Actuary (OACT) at the Centers for Medicare and Medicaid Services (CMS) recently reported. In 2013, health spending grew at 3.6% and total national health expenditures in the United States reached $2.9 trillion, or $9,255 per person. The annual OACT report showed health spending continued a pattern of low growth—between 3.6% and 4.1%—for five consecutive years.

For more information, click here.

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On track to have Social Security numbers for group health plan reporting?

December 5th, 2014

By Employee Benefit Research Group

Employers that sponsor group health plans are reminded that the Patient Protection and Affordable Care Act (ACA) requires the reporting of employees’ minimum essential coverage for calendar year 2015 and that doing so will necessitate the collection of taxpayer identification numbers (TINs) for all covered individuals, including employees and their dependents. Although the statements for 2015 must be furnished to individuals by Feb. 1, 2016, and filed with the IRS by Feb. 29, 2016 (paper) or March 31, 2016 (electronically), the requesting of Social Security numbers (SSNs) needs to begin now.

Under tax code section 6055 reporting, employers (or parties reporting on behalf of employers) are required to report TINs for all covered individuals. In most cases, TINs are the individuals’ SSNs. This reporting will enable the IRS to confirm that the individuals have minimum essential coverage and are not subject to the penalty for not having appropriate health insurance. The IRS will match the information about dependents on individuals’ tax returns (e.g., Form 1040) with the names and TINs reported by employers. (See also Client Action Bulletin 14-4R)

As reporting entities, group health plan sponsors must make reasonable efforts to obtain TINs, and may do so via oral, written, or electronic means. The efforts should be documented. The IRS’s final rule, issued in March 2014, outlined the following general steps as a reasonable effort:

• Make an initial solicitation for the TIN at the time the relationship with the employee is established, such as at initial enrollment or upon hire, unless the reporting entity already has the employee’s TIN and uses that TIN for all relationships with the employee.
• If TINs are not received at that initial solicitation, the first annual solicitation is generally required by Dec. 31 of the year in which the relationship with the employee began (Jan. 31 of the following year if the relationship begins in December).
• If the TINs are still not provided, a second solicitation is required by Dec. 31 of the following year.
• If at this point the TINs are still not provided, the reporting entity has acted in a responsible manner and need not continue to solicit TINs for those individuals.

A failure to receive a TIN does not authorize the employer to terminate coverage. Reporting entities also are permitted to voluntarily report TINs for individuals not enrolled in coverage.

The final rule allows for the reporting of dates of birth in lieu of TINs, but only if the reporting entity is either informed that an individual has no TIN or unable to obtain a TIN after making the aforementioned reasonable efforts. In addition, if an employee adds a new dependent, the employer must again take reasonable efforts to obtain a TIN for that new dependent. Renewed efforts to solicit TINs for individuals already covered are not required.

Employers may use truncated taxpayer identification numbers in lieu of the full identification number when providing the information to the employee. A TIN is truncated when the first five of the nine digits are replaced by asterisks or X marks (e.g., 123-45-6789 becomes XXX-XX-6789). The full TIN must be used in the forms submitted to the IRS.

Noncompliance with the section 6055 reporting requirements subjects the employer to the penalties for a failure to file correct information return and/or for a failure to furnish correct employee statements. The IRS will grant temporary relief from these penalties for incorrect or incomplete information reported on returns and statements filed and furnished in 2016 (relating to coverage in 2015), but only for entities that can demonstrate they made good faith efforts to comply with the requirements.

For additional information about the 6055 information reporting requirements, please contact your Milliman consultant.

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Regulatory roundup

December 1st, 2014

By Employee Benefit Research Group

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

HHS releases bulletin clarifying HIPAA privacy rule in emergency situations
The U.S. Department of Health and Human Services (HHS) has released a bulletin to ensure that HIPAA-covered entities and their business associates are aware of the ways in which patient information may be shared under the HIPAA Privacy Rule in an emergency situation, and to serve as a reminder that the protections of the Privacy Rule are not set aside during an emergency.

The bulletin describes situations in which covered entities and business associates may disclose protected health information in an emergency, while also emphasizing that in an emergency situation, covered entities must continue to implement reasonable safeguards to protect patient information against intentional or unintentional impermissible uses and disclosures.

To read the entire bulletin, click here.

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Potential implications of ACA’s three-month grace period

November 26th, 2014

By Javier Sanabria

Under the Patient Protection and Affordable Care Act (ACA) enrollees who qualify for subsidies are allowed a 90-day premium nonpayment grace period so long as they have paid their first month’s premium. This provision could have adverse effects for the healthcare industry if individuals only pay nine months of premiums for a year’s worth of coverage.

A recent Health Affairs article by Milliman consultant Hans Leida and Manatt’s Michael Kolber offers perspective on how premium rates and exchange participation may be affected by individuals who game the grace period provision.

It is unclear how many individuals are likely to take advantage of this loophole. It seems likely that CMS’s new approach for the federally facilitated exchanges will reduce the number of gamers in those markets somewhat. In states that do not adopt CMS’s approach (or some other method to reduce gaming), the impact will likely be greater.

However, it is also likely that the impact will be smaller in the first years of the exchanges. Many of those newly enrolled through the exchanges are unfamiliar with health insurance in general and the ACA’s arcane rules in particular, and may not realize the potential for gaming. Others may have objections to gaming the system, or may be averse to the perceived risk of being in a grace period.

On the other hand, given the significant potential cost savings for gamers, it seems plausible that—eventually—many low-income individuals will adopt this strategy in order to further reduce their premium costs. For example, the nationwide average monthly premium for the second lowest cost silver plan is approximately $260 for a 35 year old. At that rate, a single enrollee at 250 percent of the federal poverty level would have a monthly net premium of approximately $193 after subsidy.

Over three months, this would amount to $579 of net premium that could be avoided through gaming. The insurer in this case would receive only $67 (the subsidy in the first month) out of the total gross premium of $780…

If even a relatively small fraction chooses to do so, it could have real consequences for premium rates—perhaps requiring an increase of up to several percentage points. Insurers with a greater concentration of subsidy-eligible enrollees, including new market entrants such as consumer operated and oriented plans (CO-OPs) and traditional Medicaid managed care organizations, could see larger impacts.

To read the entire article, click here.

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Regulatory roundup

November 24th, 2014

By Employee Benefit Research Group

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

CMS extends deadline for reporting 2014 enrollment counts for reinsurance contributions
The Centers for Medicare and Medicaid Services (CMS) has extended the due date for contributing entities to submit their 2014 enrollment counts for transitional reinsurance program contributions to December 5, 2014. The January 15 and November 15, 2015, payment deadlines remain unchanged.

For more information, click here.

DOL updates mental health parity part of self-compliance tool and FAQs
The Employee Benefits Security Administration of the U.S. Department of Labor (DOL) has updated its website with the following:

• Updates to the mental health parity web page
Mental health parity part of the self-compliance tool
Mental health parity provisions questions and answers in the updated Compliance Assistance Guide

• Updated Compliance Assistance Guide
Health benefits coverage under federal law

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Overview of health insurer financial results in 2013

November 21st, 2014

By Javier Sanabria

With the enactment of the Patient Protection and Affordable Care Act (ACA), health insurers have had to comply with several requirements. The insurer experience in 2013 reflects the third year insurers have been required to comply with federal minimum loss ratio requirements. This Healthcare Reform Briefing Paper by Milliman’s Paul Houchens, Jason Clarkson, and Colin Gray provides an overview of health insurer financial results in 2013.

Here is an excerpt from the report:

How have financial results changed since 2010?

With four years of insurer financials available, assessments of the ACA’s impact on insurer expense structure and profitability prior to the 2014 rating reforms can be made. Figure 2 provides the incremental change in costs from 2010 to 2013 for insurers reporting financial results during all years between 2010 and 2013. For example, in the individual market, earned premium PMPM has increased approximately $27 from 2010 to 2013.

Figure 2 indicates that premium increases in the group insurance markets tracked very closely with claims expense increases. However, in the individual health insurance market, growth in claims expenses outpaced premium growth by nearly $10 PMPM. This is the primary reason why the medical loss ratio percentage increased by 5.5% in the individual insurance market from 2010 to 2013, despite an increase in administrative expenses on a PMPM basis.


Figure 3 provides a visual representation of changes in each market’s financial structure from 2010 through 2013. Total administrative and claims expense are represented by the red shaded bars, while carrier earned premium is represented by the green outline surrounding the bars. As illustrated by this figure, the gap between earned premium and the sum of administrative and claims expenses has remained consistent in the group markets from 2010 through 2013, yet has been eliminated over the four-year period in the individual market.


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Cost-sharing reduction subsidies: Financial impact of the simplified methodology

November 20th, 2014

By Javier Sanabria

The Patient Protection and Affordable Care Act (ACA) introduced two subsidies for low- and moderate-income individuals to help make health insurance more affordable. These include premium subsidies to lower the initial purchase price of a policy and cost-sharing reduction (CSR) subsidies to lower the cost sharing (e.g., deductibles, copays, etc.) absorbed by individuals at the time they receive care. CSR subsidies, however, are administered in a complicated manner. In many cases the federal government may not reimburse the full cost, leaving the remainder on the shoulders of health insurance companies.

This Healthcare Reform Briefing Paper by Daniel Perlman and Jason Siegel outlines the design of the CSR subsidies under the ACA and its implementing regulations. The paper also describes how, depending on the reimbursement methodology agreed upon between issuers and the federal government, the regulations as currently written may under-compensate issuers of silver-level plans. Issuers should consider the scenarios described in this paper when choosing one of the CSR reimbursement methodologies allowed by the federal government.

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Manual reenrollment may lessen impact on ACA subsidies and out-of-pocket costs

November 19th, 2014

By Javier Sanabria

Policyholders may receive a lower advanced federal subsidy than they otherwise would if they fail to visit the federal health insurance exchange to reenroll or update their financial information, resulting in higher out-of-pocket costs. Milliman actuary Paul Houchens discussed the auto-enrollment process with Trudy Lieberman, and explains how premium trends affect subsidies and out-of-pocket costs in this Rural Health News article.

The actuarial consulting firm Milliman has found that even small premium increases – in the 5 percent range – can lead to out-of-pocket increases of between 30 and 100 percent for those with low incomes if income information is not updated. Data suggest that most individuals with exchange policies have incomes of $25,000 or less and most families have incomes around $50,000, said Paul Houchens, an actuary with Milliman.

Houchens told me several reasons premiums will be higher this year for many exchange buyers. (Some will see decreases.) Insurers, which offered super low rates in the exchanges last year to entice more customers to their plans, are finding they need to increase their premiums. And in many parts of the country the benchmark plan (the second lowest cost silver level policy) on which subsidies are based has changed, meaning higher premiums for some people.

Premiums also go up each year gradually each year you get older. Because the Affordable Care Act allows insurers to charge older people three times more than younger ones, older people will certainly feel the pinch if last year’s subsidy is too low. They might get larger subsidies if they reapply.

This paper provides more perspective on the potential implications for policyholders and insurance companies related to changes in federal subsidies and the renewal process.

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