Five healthcare analytic trends

February 27th, 2015

By Andrew Naugle

Naugle-AndrewIt goes without question that the U.S. health insurance industry is in a state of flux. Americans are buying individual products through health insurance marketplaces, new insurance carriers have entered the market, and Medicaid has been expanded in 29 states and the District of Columbia. These market changes, in addition to other reform provisions already introduced and others just starting to take hold have subjected the market to an unprecedented level of change.

It is said that insurers like risk but hate uncertainty. What is for certain today is that the old strategies of accepting good risks and repelling poor risks are no longer a recipe for success. To thrive in this new environment, health insurers must make smart decisions using data to keep ahead of the competition.

Within that context, here are five areas where Milliman clients are using data and analytics in innovative ways to bring some order to the chaos:

1. Provider network optimization. Despite bending the cost curve, one of the great lessons of the health maintenance organization (HMO) era was that consumers value choice. For years, preferred provider organizations (PPOs) competed on network size; employers cared more about network disruption affecting their employees than the cost/volume trade-off. In the face of cost pressures, employers and consumers are now starting to accept that smaller networks may be worth the disruption. To meet this need, plans are deploying sophisticated modeling that combines traditional network access and adequacy measures with reimbursement and quality analytics to develop new “smart” networks.

2. Value-based incentive programs. It’s widely accepted that fee-for-service (FFS) reimbursement rewards volume over value. As a replacement for FFS, many payers are promoting value-based incentive strategies that shift reimbursement from fee schedules to bonus pools that pay additional incentives when quality and/or cost targets are met. Analytics are key to selecting measures, setting thresholds, and assessing provider performance. They also aid providers trying to operate under these new risk arrangements, identifying gaps in care, and benchmarking peer performance.

3. New trend dynamics. While predicting the actual numbers requires the proverbial “crystal ball,” the health insurance industry has a reasonably mature understanding of the drivers of healthcare cost trend. But things are getting more complicated as physician practice patterns change, populations age but live longer, millions of new consumers flood into the individual and Medicaid markets, and burgeoning innovation (e.g., telemedicine/telehealth, wearables, smartphones, home visits, retail clinics, etc.) disrupts how and where care is provided. Analytics are key to understanding the “trends in trend” in this new world.

4. Transparency. The healthcare market has earned a reputation for opaqueness. Consumers are more likely to rely on word-of-mouth when selecting a physician, the price of services depends on who’s paying and has little relationship with the actual cost of services, and information on outcomes and quality is kept locked away from prying eyes. Not so in a post-reform world. Consumers can now shop on the basis of price and quality. They can go online and find out how much an appendectomy costs at hospital A or B and which one has a higher success rate. Health plan quality ratings are there for all to see when selecting an exchange plan. Big data and analytics make all of this possible.

5. Care management efficiency. Gone are the days when health insurers had unlimited funding for care management programs. Today, plans must make judicious use of limited administrative dollars to meet medical loss ratio minimums while still managing complex and catastrophic cases. Analytics help plans optimize their care management programs, prospectively identifying those members most likely to benefit from care management, and then enrolling them in the right program.

With many of their traditional performance management tools neutralized by reform, health insurers have had to get smart about how they leverage data and information. They use analytics to design benefit plans, develop marketing strategies and consumer segmentations, select network providers, develop reimbursement strategies, improve clinical quality, and optimize their remaining cost and quality management tools. In today’s market, how a plan leverages analytics, turning data into actionable information, will make the difference between survival and demise.

This article first appeared at Milliman MedInsight.

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2015 health insurance marketplace competitiveness study

February 25th, 2015

By Javier Sanabria

Even though it’s only the beginning of 2015, insurers are already starting to think about 2016 rate filings. Using 2014-2015 Health Insurance Marketplace data, we looked for correlations between silver plan premiums and variables such as the number of carriers and plans in a rating area, available industry metrics, and the structure of provider networks in each rating area. The analysis in this healthcare reform paper by Milliman’s Doug Norris, Matthew Smith, and Samuel Bennett focuses on the second-lowest-cost silver plan offered in each market and discovers some interesting findings.

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Regulatory roundup

February 23rd, 2015

By Employee Benefit Research Group

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

IRS guidance on application of Section 4890D
The Internal Revenue Service (IRS) has issued Notice 2015-17 which provides transition relief from the assessment of excise tax under section 4980D for small employers (in particular, employers that are not applicable large employers) that reimburse or pay a premium for an individual health insurance policy for an employee. Notice 2015-17 also addresses the treatment for federal tax and for market reform purposes of arrangements reimbursing premiums of 2%-shareholder employees of S corporations. Finally, Notice 2015-17 addresses application of the market reforms to certain employer arrangements to fund Medicare premium payments or to provide a TRICARE-related health reimbursement arrangement (HRA).

To read the entire notice, click here.

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Spreading healthcare exposure across capital markets

February 20th, 2015

By Javier Sanabria

Health insurers are increasingly using risk-spreading tools to transfer exposure to the capital markets. A recent SNL Financial article reports that Aetna has agreed to an insurance-linked securities deal that will provide the company reinsurance protection.

Aetna Inc. is sponsoring Vitality Re VI Ltd. (Series 2015-1) in an insurance-linked securities deal that will give the insurer at least $200 million of protection on a reinsurance basis against sudden increases in health insurance medical benefit claims, Artemis reported Jan. 9.

…Under the new deal, Vitality Re VI will offer two tranches of series 2015-1 health insurance medical benefit risk-linked notes to investors. The preliminary size of the class A tranche is $140 million, while the preliminary size of the class B tranche is $60 million. Both tranches are linked to the insurer’s medical benefit ratio as a trigger, according to the report. The deal will provide Aetna coverage for three years, from 2015 through 2017.

…Milliman Inc. is providing the risk modeling and calculation agent services, Artemis said.

This article, co-authored by Milliman’s John Cookson and Hannover Re’s Keith Kennerly, offers perspective on how risk-spreading tools such as catastrophe bonds can help health organizations control their claims exposure. Here is an excerpt:

Risk-spreading tools that make use of the capital markets can help ACOs and other organizations, both large and small, mitigate the aggregate population risks. Given the trend spikes and volatility inherent to health risks, these capital structures would rely on a combination of transparency, predictive analytics, and specially-designed indices to provide insight into the actuarial risk and actuarial underwriting opportunity.

By providing a heightened degree of visibility into the underlying actuarial risks, organizations can have a higher comfort level in underwriting those exposures at much lower attachment points that are very close to current Medical Loss Ratios (MLR). This could also set the stage for transforming a large portion of healthcare spending from a cost into a tradable asset (investment opportunity) for capital markets participants/investors.

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Payer and provider “checklist” for alternative payment arrangements

February 19th, 2015

By Javier Sanabria

In an effort to reduce healthcare expenditures and improve quality and coordination of care, there has been a push for price transparency and realignment of provider accountability. As part of this push, there are now many risk-sharing agreements between providers and payers, all of which are attempting to move providers’ payments away from the fee-for-service model. This paper authored by Chris Dugan, Howard Kahn, and Rob Parke provides a “checklist” of key contractual provisions found in many risk-sharing arrangements, developed from work with both providers and payers.

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Regulatory roundup

February 17th, 2015

By Employee Benefit Research Group

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

IRS releases final guidance on ACA information reporting requirements
The Internal Revenue Service (IRS) has posted final instructions and forms for Patient Protection and Affordable Care Act (ACA) information reporting requirements for employers and health insurers under Internal Revenue Code sections 6055 (Forms 1094-B and 1095-B) and 6056 (Forms 1094-C and 1095-C). The IRS also released final transmission forms that will be used to submit the information to the agency. Instructions for electronic filing of the information returns are under development.

IRS posts information about transition relief related to employer shared responsibility
The IRS has posted transition relief and interim guidance related to the employer shared responsibility provisions under the ACA. To read the guidance, click here.

Also, to understand employer shared responsibility payments and how they are calculated, click here.

IRS publishes guidance on information reporting by providers of minimum essential coverage
Self-insured employers—that is, employers that sponsor self-insured group health plans—are subject to the information reporting requirements for providers of minimum essential coverage whether or not they are applicable large employers under the employer shared responsibility provisions. This means employers of any workforce size that self-insure must comply with these information reporting requirements.

Self-insured employers that are not applicable large employers use Form 1095-B and the transmittal Form 1094-B to meet the information reporting requirements for providers of minimum essential coverage.

Self-insured employers that are applicable large employers, and therefore are also subject to the information reporting requirements for offers of employer-sponsored health insurance coverage, must combine reporting under both provisions by filing a single information return, Form 1095-C, and transmittal, Form 1094-C.

For more information, click here.

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Federal exchange auto-enrollment: Emerging data and new proposals

February 11th, 2015

By Javier Sanabria

New information from the U.S. Department of Health and Human Services allows for further evaluation of the federal exchange auto-enrollment process, including the cost implications for consumers of auto-enrollment versus redetermination. For 2014 consumers, there are several key issues to consider when making purchasing decisions for 2015. And for insurers, the federal auto-enrollment period creates a number of interesting marketing dynamics.

This healthcare reform briefing paper authored by Milliman’s Jason Clarkson, William Gibula, and Paul Houchens discusses the potential impacts to the 2015 federal exchange market as a result of the federal auto-enrollment process and examines the effects that proposed 2017 changes to the process may have on insurers and consumers.

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The high cost of heart failure for the Medicare population: An actuarial cost analysis

February 5th, 2015

By Javier Sanabria

Major efforts to improve the care and reduce the cost of heart failure patients have recently been implemented. Despite these efforts, however, the rate of heart failure is rising and only small improvements in survival have been realized. The lack of novel therapies and limited improvement in medical management highlight the need for more focus on heart failure, especially among the Medicare population. Milliman consultants Bruce Pyenson, Kate Fitch, and Pamela Pelizzari provide some perspective in this report.

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Risk adjustment plus risk corridors: Offsetting impact

February 2nd, 2015

By Javier Sanabria

To mitigate risks to insurers during the transition to new health insurance rules, the Patient Protection and Affordable Care Act (ACA) includes three premium stabilization programs: the risk adjustment program, the transitional reinsurance program, and risk corridors (the three Rs). The accounting guidance and rules surrounding risk corridors are continually evolving, and there is significant uncertainty in the estimates of the three Rs and their impact on financial statements. Offsetting interactions of the risk adjustment program and risk corridors is key. Milliman consultants Aaron Wright and Shyam Kolli provide perspective in this healthcare reform paper.

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Risk adjustment considerations for shared savings agreements

January 26th, 2015

By Javier Sanabria

The role of risk adjustment in shared savings agreements can confound providers and payors. There are numerous uncertainties that impact the health status of a population. In their paper “Risk adjustment and shared savings agreements,” Hans Leida and Leigh Wachenheim offer several steps that can be taken to optimize the accuracy of risk adjustment results.

Here is an excerpt:

Consider the following criteria when selecting a model to be used with shared savings arrangements, in addition to overall predictive ability, as described above.

Population: Risk adjustment models are typically calibrated for specific populations—such as commercial, Medicare, or Medicaid. Avoid using a model developed for one population to calculate risk scores for a substantially different population without evaluating whether it still performs adequately. If an agreement includes more than one population (e.g., commercial and Medicaid), more than one model may be needed, although if multiple models are used, they must be normalized consistently.
Benefits: The risk scores generated by a model assume some underlying set of benefits and scope of coverage. There are a few areas to focus on in particular:
o Carve outs: Most medical (versus prescription-drug-only) models were developed assuming a broad set of benefits, including mental health. If specific services or conditions are excluded from the shared savings arrangement, it may be necessary to recalibrate the model.
o Prescription drugs: In some cases, the payor does not have detailed prescription drug data for a material portion of the population, even when the benefit is included in the scope of coverage and subject to shared savings. This is often the case when prescription drug benefits are processed by a third party or pharmacy benefit manager (PBM). If prescription drug data is not available for a significant portion of the population, consider using a model that does not require drug data.
o Paid vs. allowed costs: Risk adjusters are most commonly calibrated to predict variations in allowed costs—that is, costs including both the payor liability and member cost sharing. There are some risk adjusters, however, that are calibrated based on paid costs. For example, the U.S. Department of Health and Human Services-Hierarchical Condition Categories (HHS-HCC) model, used by CMS for calculating carrier-level risk adjustment settlements under the Patient Protection and Affordable Care Act (ACA), is calibrated based on estimated paid costs for five different cost-sharing levels. Many shared savings calculations are based on allowed costs, making a risk adjuster that is also based on allowed costs most appropriate. Allowed costs have the significant advantage of greatly reducing the need to adjust for changes in the average level and types of member cost sharing over time, although it is still important to consider whether changes in cost sharing might be impacting overall utilization over time. On the other hand, some of the “savings” on an allowed basis benefits a third party other than the payor or the provider—the insured member, who ends up paying less cost sharing in the form of deductibles, coinsurance, and copays. For populations with significant member cost sharing, consider whether an adjustment to the savings calculated on an allowed basis is needed to remove the portion that will impact member cost sharing. Otherwise, the payor may end up sharing “savings” that they never received.

For more Milliman perspective on healthcare reform, click here.

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