GASB 74/75: Are you ready?

June 4th, 2015

By Jeff Bradley

Bradley_JeffThe train has left the station and is on its way—the Governmental Accounting Standards Board (GASB) will shortly finalize standards 74 and 75, which will require for the first time that the net liability for publicly sponsored retiree healthcare plans (and other postemployment benefits) be stated on balance sheets.

GASB expects that final rules will be issued close to the end of June 2015.

It is expected that the new accounting treatments will mirror those of GASB 67/68, which require public sector plan sponsors, as well of those of cost-sharing employers, to book an accounting expense for sponsoring the plan and to show net pension liabilities on financial balance sheets.

GASB 67/68 also mandated the use of fair market value of assets and a standard actuarial cost method to be used to value net the net pension liability.

GASB 74, which relates to reporting by benefit plans, is expected to be effective for plans for fiscal years ending June 30, 2017, and later. This will replace the old GASB 43 standard.

GASB 75, which relates to reporting by state and local governments, is expected to be effective for fiscal years ending June 30, 2018, and later. This will replace the old GASB 45 standard.

In this regard, plan sponsors, especially those that have cost-sharing arrangements with contributing employers, should be ready to book a liability for fiscal years ending on or after June 30, 2017. In addition, liabilities and accounting expenses for contributing entities will need to be booked for fiscal years ending on or after June 30, 2018.

For unfunded plans, liabilities will be calculated using a discount rate equal to the yield for 20-year, tax-exempt municipal bonds with an average rating of AA or higher. For well-funded plans, an expected rate of return on assets may be used as long as the plan’s funding policy is expected to make or keep the plan fully funded. For plans in between, a blended discount rate will be used.

Many other changes are expected in the new standards. We recommend you contact your Milliman consultant for more details.

This blog was originally published at

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Mid-market group medical plan trends

June 2nd, 2015

By Javier Sanabria

Based on an analysis conducted by Milliman’s Terry Bierman and Sarah Coates, the following three trends have emerged in mid-market group medical plans the last 10 years.

1. Consumer-driven health plans (CDHPs) have become more prevalent.
2. Changes in plan designs have shifted more out-of-pocket expenses to employees.
3. Premiums have outpaced inflation, but the percentage of that premium paid by employees electing single coverage has remained relatively constant.

To learn more about the development of these trends, read Bierman and Coates healthcare reform paper entitled “The changing employer-sponsored group medical plan.”

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Regulatory roundup

June 1st, 2015

By Employee Benefit Research Group

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

Agencies issue ACA implementation FAQs on limitations in cost sharing, provider non-discrimination
The U.S. Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) have issued “FAQs About Affordable Care Act Implementation (Part XXVII).” The frequently asked questions (FAQs) discuss limitations on cost sharing under the Patient Protection and Affordable Care Act (ACA) and provider nondiscrimination.

To read the entire FAQ, click here.

DOL issues new model FMLA notices and medical certification forms
The DOL has published new model Family and Medical Leave Act (FMLA) notices and medical certification forms with an expiration date of May 31, 2018.

To view all the forms, click here.

HHS requests comments regarding the requirements for the health plan identifier
HHS has issued a request for public comments regarding the Health Plan Identifier (HPID), including requirements regarding health plan enumeration and the requirement to use the HPID in electronic health care transactions.

The HPID is a standard, unique health plan identifier required by HIPAA. On September 5, 2012, HHS published the final rule that adopts unique identifiers for health plans. HHS notes that, since the publication of the HPID final rule, the nation’s healthcare system has experienced sweeping changes, including implementation of the ACA’s marketplaces. Therefore, HHS requests public comment on certain points outlined in the information request.

To read the entire request, click here.

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Prescription drugs propel healthcare costs upward

May 29th, 2015

By Scott Weltz

Weltz-ScottUntil recently, prescription drugs have not materially altered the trajectory of the Milliman Medical Index (MMI). With drug costs being roughly 15.9% of the annual healthcare expense of our typical family of four, drug trends must be very different from other categories of care to materially influence overall healthcare cost trends. Nevertheless, they are doing just that. As discussed below, a combination of forces is creating the perfect pharmaceutical storm. Employers and families alike feel the financial consequences more than ever when a prescription is filled.

Specialty drugs
Specialty drug expenditures have grown over the past 25 years to the point where they now account for one of every three dollars spent on prescription drugs. While various definitions of specialty drugs are used in the industry, they nearly all have a common denominator: They are expensive. Medicare defines specialty drugs as those costing more than $600 per prescription. But the costs can be much higher than that. The category includes the well-publicized treatments for hepatitis C, some of which cost more than $1,000 per dose. Many subclasses of specialty drugs have huge potential to improve health outcomes, but also come at a significant cost. Experts project that the pipeline for specialty drugs is substantial and likely will not subside in the near future as manufacturers focus their efforts on targeted genetic profiles and rare disease states.

Compounded drugs
Compounded drugs have become one of the most costly components of pharmacy spending over the past several years. In fact, several recent national news stories have focused on this phenomenon. The U.S. Food and Drug Administration (FDA) defines compounding as “a practice in which a licensed pharmacist, a licensed physician, or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist, combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.” Many of these drugs (often custom creams and ointments) have questionable clinical value, and compounding pharmacies are receiving much higher prices for compounds than the individual ingredients they comprise. As a result, drug trends have accelerated for compounded drugs, which is due in part to more limited regulation for them than for other drugs, along with increases in the average wholesale price (AWP) of these drugs. Pharmacy benefit managers (PBMs) have responded with specialized programs targeting the inappropriate use of this emerging drug class.

“Patent cliff” aftermath
Over the past few years, many brand-name drugs have lost patent protection, including some of the highest-grossing drugs in history such as Lipitor, Plavix, and Nexium. This “patent cliff” benefited consumers because generic versions became available at much lower costs. Now that many of the heavily utilized brand-name drugs have lost patent protection, the year-over-year price reductions produced by generic shifts have slowed as well. In addition, there is also evidence that generic price trends are on the rise, where in past years they have been flat or even negative. Manufacturer consolidation and reduced competition, particularly among generic manufacturers, may be a contributor to the increase in cost.

AWP increases
By some accounts, the cost of brand-name drugs is accelerating at a rate of over 10% annually, with generics increasing at a slower rate, but still higher than in the recent past. In large part, this has to do with the AWP increases themselves and with the fact that many payers’ contracts are tied to a discount off the AWP. Because most employer prescription drug contracts are based on discounts from the AWP, consumer prices are at the mercy of the manufacturer’s price increases.

Read more…

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Medical professional liability profitability continues to decline from peak levels

May 28th, 2015

By Javier Sanabria

In 2014, surplus grew slightly, leaving the medical professional liability (MPL) industry in a financial position roughly consistent with where it’s been since the end of 2011. The release of prior-year reserves has spurred the increased capitalization and favorable operating ratios in the MPL industry of late. Additionally, the industry’s pattern of declining frequency has ended, and indemnity severity trends have remained manageable. MPL insurers continue to face declining market share, which is due to the continued acquisition of physician practices by hospitals and healthcare systems and the preference of newly trained physicians to join them. Milliman consultants Chad Karls and Susan Forray provide perspective in this article.

Reprinted from the Second Quarter 2015 issue of Inside Medical Liability, Physician Insurers Association of America. Copyright, 2015.

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Regulatory roundup

May 26th, 2015

By Employee Benefit Research Group

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

IRS updates FAQs on reporting of offers of health insurance coverage by employers
The Internal Revenue Service (IRS) has updated its questions and answers regarding the reporting of health insurance coverage offered by employers (Section 6056). The topics include: (1) Basics of employer reporting, (2) Who is required to report, (3) Methods of reporting, and (4) How and when to report the required information.

To read the entire set of frequently asked questions (FAQ), click here.

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Milliman MedInsight’s analytic platform named a leader in IDC MarketScape report

May 20th, 2015

By Todd Fessler

Milliman today announced that its popular healthcare analytic platform, MedInsight, has been named a leader in the IDC MarketScape study, entitled “U.S. Payer Data Analytics 2015 Vendor Assessment, doc #HI255269, April 2015.” The company is one of eight vendors evaluated in the report.

MedInsight is positioned as a leader of this IDC MarketScape report—which provides an evaluation of the leading payer data analytic platforms—because of high satisfaction ratings from clients in terms of the high degree of flexibility, advanced analytics, and analytic tools supporting multiple types of users.

The report notes that Milliman’s strengths include the MedInsight Data Confidence Model—a methodology applied as a data warehouse is being created, and then leveraged on an ongoing basis for client data management—as well as the MedInsight benchmarking function that enables clients to benchmark organizational performance against Milliman’s health research database.

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“The MedInsight mission is to provide analytic leadership and decision confidence to our clients. The fast-moving and uncertain nature of the healthcare industry demands a nimble and growing analytic platform,” said Kent Sacia, Milliman principal. “The IDC MarketScape report affirms the MedInsight team’s hard work toward that mission as we continuously commit to adding value to our clients.”

The IDC MarketScape vendor analysis model is designed to provide an overview of the competitive fitness of information and communications technology (ICT) suppliers in a given market. The research methodology utilizes a rigorous scoring methodology based on both qualitative and quantitative criteria that results in a single graphical illustration of each vendor’s position within a given market. The capabilities score measures vendor product, go-to-market, and business execution in the short term. The strategy score measures alignment of vendor strategies with customer requirements in a timeframe of three to five years. Vendor market share is represented by the size of the circles. Vendor year-over-year growth rate relative to the given market is indicated by a plus, neutral, or minus next to the vendor name.

For more information about Milliman’s MedInsight products, click here.

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Healthcare costs climb to $24,671 for a typical American family in 2015

May 19th, 2015

By jeremy.engdahl-johnson

Milliman today released the 2015 Milliman Medical Index (MMI), which measures the cost of healthcare for a typical American family of four receiving coverage from an employer-sponsored preferred provider organization (PPO) plan. In 2015, costs for this family will increase by 6.3% ($1,456), resulting in a total cost of $24,671. The employer pays $14,198 of this and the employee—through payroll deductions and cost sharing at the time of service—pays $10,473. Of this year’s total $1,456 increase, $467 was a result of prescription drugs, a 13.6% increase after a five-year period in which prescription drug costs averaged annual increases of 6.8%.


“For the last several years we’ve noted that the Milliman Medical Index was only indirectly affected by the Affordable Care Act, since the employer-sponsored insurance market was not a focus of the early reforms,” said Chris Girod, coauthor of the Milliman Medical Index. “But now we have the prospect that this family’s health plan—which, in terms of actuarial value, is in a ‘gold’ plan—may trigger the ‘Cadillac tax‘ that goes into effect on high-cost health plans in 2018. Whether or not our typical family of four finds themselves affected by the Cadillac tax will depend on whether future trends exceed recent levels, with people insured through smaller employer-sponsored plans potentially being more susceptible.”

This year’s 6.3% cost increase follows last year’s all-time low of 5.4%. Most of the components of care analyzed by the MMI (physician, outpatient, inpatient, other) experienced trends in line with recent years, but the sharp increase in prescription drug costs heightened the overall rate of increase.

“The rate at which prescription drug costs increased this year doubled over the average increase of the prior five years,” said Scott Weltz, coauthor of the MMI. “This was driven by a combination of factors, including the introduction of new specialty drugs, a continued increase in compound drugs, and price increases for both brand name and generic drugs.”


“Healthcare costs for this family have doubled in the past decade, and tripled since we began tracking this information in 2001,” said Sue Hart, coauthor of the MMI. “As has been the case throughout the time we have studied costs for this family, the rate of increases far outpaces the consumer price index.”

Employees and employers have shared the burden of this cost increase. The MMI is somewhat unique among health cost studies because it measures the total cost of healthcare services used by the family of four, including out-of-pocket expenses paid at time of service, and it separates the costs into portions paid by employer versus employee. For the fifth consecutive year, employees have assumed an increasing percentage of the total cost of care.


To view the complete MMI, go to

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Milliman Medical Index coming next week

May 15th, 2015

By jeremy.engdahl-johnson

Milliman will release its 2015 Milliman Medical Index (MMI) on Tuesday, May 19, at 11:00 a.m. EDT. The MMI measures the cost of healthcare for a typical American family of four receiving coverage from an employer-sponsored preferred provider organization (PPO) plan. The MMI is unique because it examines not only the costs paid by the employer, but also the costs assumed by employees.

Check in on Tuesday to find out how much healthcare costs have increased for this family. Last year those costs reached $23,215.

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ACA implications for home and community-based services

May 15th, 2015

By Javier Sanabria

The Patient Protection and Affordable Care Act (ACA) modifies Section 1915(i) of the Social Security Act to help states expand home and community-based services (HCBS) through Medicaid. States exploring this option need to understand the financial implications related to the implementation of Section 1915(i).

Milliman’s Rob Damler and Marlene Howard discuss several features and considerations of the 1915(i) state plan option in their Contingencies article entitled “Medicaid and the ACA.” Here is an excerpt:

One of the most significant modifications to Section 1915(i) was the addition of Section 1915(i)(7), which allowed states to define target populations for the delivery of the HCBS benefit package. This section waives the comparability requirement established in the DRA version of Section 1915(i). The CMS final rule proposed that the parameters for the target populations be defined by “diagnosis, disability, Medicaid eligibility groups, and/or age.”

The waiver of the comparability requirement allowed states to do the following:

• Define multiple target populations for 1915(i) and tailor multiple HCBS packages that could be individually allocated to each population; and
• Vary the amount, duration, and scope of a single 1915(i) service between various target populations.

…The ACA also expanded eligibility for the 1915(i) state plan option to individuals with incomes up to 300 percent of the Supplemental Security Income Federal Benefit Rate. If states choose to use this income eligibility definition for a 1915(i) service package, individuals must meet an institutional level of care as well as the needs-based criteria defined by the state. If states maintain the income eligibility threshold of 150 percent of FPL as established by the DRA, individuals do not have to meet an institutional level of care.

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