First quarter financial results for medical professional liability specialty writers

July 16th, 2014

By Javier Sanabria

Based on the collective financial results of 81 insurers specializing in medical professional liability (MPL) coverage, another good year appears to be in the offing for 2014, even as profit margins will likely decline relative to the levels seen in recent years. Pricing pressure continues to be fueled by increasing surplus levels and the desire to maintain exposures against increasing competition and the potential migration of physicians to self-insured employment settings. The largest remaining uncertainty lies in the likelihood that prior-year reserve releases can be sustained to the extent observed in recent years.

For more perspective download and read this article.

The article was originally published in the July 2014 issue of the Medical Liability Monitor.

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Regulatory roundup

July 15th, 2014

By Employee Benefit Research Group

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

IRS updates overview of PCORI fee
The Internal Revenue Service (IRS) has updated its overview of the Patient-Centered Outcomes Research Institute (PCORI) fee. The Patient Protection and Affordable Care Act (ACA) imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

The fee applies to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. The Patient-Centered Outcomes Research Institute fee is filed using Form 720, Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, for PCORI Form 720 is filed annually only, by July 31.

The web posting provides information on how to calculate the fee for specified health insurance policies and applicable self-insured health plans, as well as providing more detail on the reporting and paying of the fee. Links are also provided to the final regulations, questions and answers, a chart summary, and the Form 720.

For more information, click here.

GAO report: Early effects of MLR requirements and rebates on insurers and enrollees
The U.S. Government Accountability Office (GAO) has released “Private health insurance: Early effects of medical loss ratio requirements and rebates on insurers and enrollees” (GAO-14-580). The report was published after the GAO was asked to review the effects of the Patient Protection and Affordable Care Act (ACA) medical loss ratio (MLR) requirements on insurers and enrollees and how rebates would change if agent and broker payments were excluded from the MLR formula. The report examined:

• The extent to which insurers met the ACA MLR standards, and how much they spent on the MLR components of claims, quality improvement activities, and nonclaims costs.
• The amount of rebates insurers paid and how this amount would have changed with agents’ and brokers’ commissions and fees excluded from the MLR.
• The perspectives of insurers on the effects of the MLR requirements on their business practices.

To read the entire GAO report, click here.

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Auditing a health plan’s claims can reduce costs

July 11th, 2014

By Javier Sanabria

Employers looking to manage the cost of their healthcare plans should think about the value of conducting a claims audit. In this Employee Benefits News article (subscription required), Milliman consultants Brian Anderson and David Cusick consider how routine audits can detect flaws in a plan’s design, leading to better claims handling procedures and reductions in plan costs.

Here is an excerpt:

If feasible, it is a good idea to have claims audited every one or two years. At least as important, however, is the implementation audit. An implementation audit takes place shortly after a plan has been set up. A good time frame is 90 days after beginning work with a new vendor or any substantially new contract. Implementation audits are akin to taking off the training wheels. They help ensure that a plan has been set up correctly and that the plan sponsor is getting all of the benefits it contracted for during the implementation process. They happen after enough time has passed to gain a body of experience data but still soon enough to head off a major course change requiring extensive retroactive corrections.

Expect an audit to take three to six months. After that the recovery effort begins, in twofold fashion: recovering any money that the plan may have overpaid, and the equally important work of correcting errors in the system that were identified in the audit. Plan sponsors may engage an overpayment recovery vendor, or choose to handle it in-house.

The benefits of proactive auditing for the plan sponsor should be evident: to verify the integrity of vendor contracts and to meet fiduciary responsibilities. As with anything, there is no guarantee an audit will pay for itself every time. But it is not unusual for an audit to have findings about 3% to 5% of paid claims costs, with recoveries of about 1% to 2%. Today, for many reasons, claims audits are more effective than ever. They can be relied on to uncover something in the working of a plan that can be improved, isolated issues as well as systemic and redundant errors, contractual compliance questions, or basic data entry problems.

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Agencies issue final rule on the ACA’s orientation period

July 10th, 2014

By Employee Benefit Research Group

Employment-based orientation periods for group health plan eligibility under the 90-day waiting period limitation of the Patient Protection and Affordable Care Act (ACA) must not extend beyond one month before counting the 90-day period, according to a final rule released by the U.S. Departments of Labor, Treasury, and Health and Human Services. The final rule applies to group health plans and health insurance issuers offering group health insurance coverage for plan years beginning on or after January 1, 2015. Plan sponsors will be deemed in compliance through the end of this year by satisfying the provisions of the proposed rule that was published February 20, 2014—read this Client Action Bulletin for more perspective.

Under the 90-day waiting period requirement, group health plans and health insurance issuers offering group health insurance coverage may not impose a waiting period longer than 90 days for employees and their dependents. A waiting period is the time that must elapse before an individual who is otherwise eligible to enroll can become covered under the group health plan. Being “otherwise eligible” requires the employee to have satisfied plan-specified conditions, such as being in a certain job classification or obtaining a job-required certification.

The newly released final rule allows plan sponsors to apply a one-month orientation period for an employee to be eligible to enroll in a plan before counting the 90-day waiting period. The orientation period is measured by adding one calendar month and subtracting one calendar day, beginning with the eligible employee’s starting date. During this orientation period, the agencies “envision that an employer and employee will evaluate whether the employment situation is satisfactory for each party, and standard orientation and training processes will begin,” according to the final rule’s preamble.

The agencies also caution that compliance with the final rule will not be determinative of an employer’s compliance with the ACA’s shared responsibility provisions that require large employers (with 50 or more full-time-equivalent workers) to offer affordable, minimum value coverage.

For additional information about the newly issued final rule on the ACA’s orientation period, please contact your Milliman consultant.

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Regulatory roundup

July 7th, 2014

By Employee Benefit Research Group

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

Increased coverage of preventive services with zero cost-sharing under the ACA
The Office of Assistant Secretary for Planning and Evaluation of the U.S. Department of Health and Human Services (HHS) has published its report “Increased coverage of preventive services with zero cost-sharing under the Affordable Care Act.” The report shows that about 76 million Americans in private health insurance plans are newly eligible to receive expanded coverage for one or more recommended preventive healthcare services, such as a mammogram or flu shot, with cost sharing, because of the Patient Protection and Affordable Care Act (ACA).

Under the ACA most health plans must cover a set of recommended preventive services such as screening tests and immunizations at no out-of-pocket cost to consumers. This includes marketplace private insurance plans. The data are broken down across state, age, race, and ethnic group.

To read the entire report, click here.

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Top-down cost-allocation approach to universal healthcare

July 7th, 2014

By Javier Sanabria

A top-down cost-allocation approach may help developing countries set appropriate bundled rates for providers to participate in universal healthcare coverage. Such an approach focuses on averaging the costs of current utilization and actual expenses for hospital groups. One advantage of this practical approach is that it is feasible in situations with limited data.

In this new paper, Milliman consultants discuss their experience utilizing this top-down approach under India’s Meghalaya Health Insurance Scheme (MHIS). The following excerpt highlights the scheme’s objective:

In its first phase of rollout, the Meghalaya Health Insurance Scheme (MHIS) had limited benefits. The government wanted to expand its scope to better serve the population by providing a wider breadth of procedures, including tertiary care specialist procedures in oncology, neurosurgery and cardiac surgery. However, to make its second phase a reality, the Meghalaya scheme needed greater participation by private healthcare providers offering such specialist services. The state needed to offer realistic pay rates to private healthcare providers to attract participants.

Milliman helped the state identify the potential demand and gaps in benefits by conducting an extensive review of hospital utilization data, publications about disease burden and disease registries in the state. This was the basis of recommendations for additional surgical procedures that needed to be included in the scheme to ensure comprehensive coverage.

Milliman was asked to develop indicative prices for recommended additional surgical procedures under expanded benefits. To determine rates, Milliman used a top-down cost-allocation approach to estimate the cost of each procedure, using local hospital utilization and financial information. We developed specific tools to collect data from a representative group of hospitals.

Here are the outcomes and important considerations:

Using the top-down costing approach, we were able to estimate the costs of the following:

• Per-bed-day department cost for the five hospitals in the study
• Cost of 20 common surgeries in MHIS Phase I as a reference point for comparison with existing package rates
• Cost of 160 surgical and 20 medical conditions for tertiary care benefit expansion in Phase II

Developing the final package rates involves additional parameters, making adjustments for inflation trend, capacity utilization, quality, profit margins and specific variations among the participating hospitals. MHIS will need to apply various adjustments for these parameters to arrive at the final cost of each procedure for the social insurance scheme.

If providers are not keeping reimbursements in line with their expenditures to manage a clinical condition, there will be a tendency to pass on the shortfall to the members and deny or avoid admissions for procedures, potentially compromising the quality of care. This makes it critical that frameworks for costing are regularly updated. These frameworks also need to seek wider participation from providers. Apart from recurring medical inflation, wider provider participation and cost impact of new practices should be consolidated in updates.

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Regulatory roundup

July 1st, 2014

By Employee Benefit Research Group

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

GAO report: The range of average annual premiums in the small group market by state in early 2013
The U.S. Government Accountability Office (GAO) released a new report entitled “Private health insurance: The range of average annual premiums in the small group market by state in early 2013.” The report shows the range of average premiums for health insurance products sold to small employers in the small group market of each of the 50 states and the District of Columbia during the first quarter of 2013.

The average premiums reflected information from data submitted by insurers to the Center for Consumer Information and Insurance Oversight (CCIIO) within the Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS). They represented an annual average of the premiums paid per covered life by all small employers that purchased a particular product.

To read the entire report, click here.

HHS annual report to Congress on breaches of unsecured protected health information
The U.S. Department of Health and Human Services (HHS) issued an Annual Report to Congress on Breaches and Unsecured Protected Health Information for Calendar Year 2011 and 2012, describing the types and numbers of breaches reported to the Office for Civil Rights (OCR) (the office within HHS that is responsible for administering and enforcing the HIPAA Privacy, Security, and Breach Notification Rules) that occurred between January 1, 2011, and December 31, 2012. It also provides some cumulative data on breaches reported since the September 23, 2009, effective date of the breach notification requirements.

The report also describes actions that have been taken by covered entities and business associates in response to the reported breaches.

To read the entire report, click here.

Presentation: Coverage effects of limiting the tax exclusion of employment-based health insurance
The U.S. Congressional Budget Office (CBO) has published a 22-slide presentation given by Allison Percy from the Health, Retirement, and Long-Term Analysis Division, at the Fifth Biennial Conference of the American Society of Health Economists. Topics include:

• Effects of the tax exclusion.
• How big is the tax subsidy and how does it vary by income?
• Why would the effect be different today?
• How CBO and and the Joint Committee on Taxation (JCT) model health insurance coverage.
• How CBO and JCT model firms’ offers of employment-based coverage.
• Three approaches to limiting the tax exclusion.

To view the entire presentation, click here.

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S&P: Healthcare expenditures for commercial plans up 3.2% in the year ending February 2014

June 30th, 2014

By jeremy.engdahl-johnson

Data released today for the S&P Healthcare Claims Indices shows that healthcare costs rose 3.5% in the 12 months ended February 2014 compared to the 4.9% rise for the 12 months ended February 2013. Medical costs—inpatient and outpatient hospitalization plus professional services—rose 3.1% and prescription drugs rose 3.5% over the same period. All but prescription drugs rose at a slower pace than a year earlier.

Among the key components of medical costs, inpatient fee-for-service rose 2.6% compared to 4.3% in the earlier period while outpatient fee-for-service costs rose 4.9% compared to 6.3% in the earlier period. Prescription drugs expenditures were up 3.5% versus 1.5% one year ago. These figures, which represent the most current data available, are based on expenditures incurred in the 12 months ended February 2014.

“With the exception of prescription drugs, healthcare expenditures are growing more slowly than a year ago,” says David Blitzer, Managing Director and Chairman of the Index Committee and S&P Dow Jones Indices. “The overall trends in healthcare costs are lower than that seen a year or two ago, but remain one to two percentage points above the overall rate of inflation. The greater growth in prescription drug costs reflects a combination of higher prices for both generic and branded pharmaceuticals and shifting market shares between generic and branded.

“Among the principal lines of business, expenditures for large and small groups and administrative services only (ASO) plans show stable growth rates. Individual plans, where a participant is not part of a group plan based on employment, are the smallest segment as well as the most volatile. While the growth in costs moved down through 2013, the most recent data suggests a jump in expenditures for this category. Because this is the segment that the will be most affected by Obamacare going forward, it is likely to be closely watched as the new healthcare law is implemented in coming years.

“The rise in total healthcare costs at 3.2% over the 12 months ended with February 2014 is slightly greater than the increase in current dollar GDP from the first quarter of 2013 to the first quarter of 2014 of 2.9%. Moreover, the 2014 first quarter GDP was weakened by unusually severe winter weather and a small decline in consumer spending on health services. With healthcare cost trends moderating, the share of GDP devoted to healthcare may be stabilizing as well.”

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Milliman MedInsight picks Microsoft Analytics Platform System to boost performance and efficiency

June 25th, 2014

By jeremy.engdahl-johnson

Milliman announced that its MedInsight® product team has chosen Microsoft’s Analytic Platform System (APS) for its next generation MedInsight release later in 2014. This important technical decision comes after a formal proof of concept that resulted in significant gains in system performance, data loading and refresh cycle times, and data storage.

MedInsight is Milliman’s popular healthcare analytic platform used by hundreds of health plans, employers, at-risk providers/accountable care organizations (ACOs), state governments, community health coalitions, and third-party administrators. Consistently recognized for its superior data integration and warehousing capabilities, the MedInsight business has tripled in size since 2009 and is committed to advancing performance and functionality.

In recent years, the MedInsight team has taken on more complex clients including state all-payor claims database initiatives and large healthcare entities with massive volumes of data. The level of sophistication for analytic requirements has also grown; the types of querying routinely performed by clients have become elaborate and sometimes complicated. This market development—huge amounts of data combined with complex query needs—is one key reason why Milliman’s MedInsight team decided that it needed to augment and strengthen the core infrastructure.

Healthcare entities generate significant amounts of data every day. Clients depend on their analytic systems to turn raw data into business intelligence, all while accommodating their growing needs.

“We’re very pleased that Milliman selected Microsoft’s Analytics Platform System appliance to power their MedInsight application. These types of data-intensive and complex big data challenges are what we designed the Analytics Platform System to support and are looking forward to our joint customers reaping benefits from the solution,” said Eron Kelly, General Manager SQL Server Marketing at Microsoft.

Milliman’s MedInsight team has always been a leader in turnaround time for the typical monthly refresh cycle of data. “APS is a proven, integrated technology that optimizes the relationship between SQL Server software, inexpensive storage, compute resources, and data channels in a massively parallel processing environment,” said Roger Connolly, Milliman principal and Director of Product Development at MedInsight. “We expect client data refresh time to be reduced by as much as 75%, data retrieval time by as much as 90%, while simultaneously improving our long-term storage cost trajectory.”

For more information about Milliman’s MedInsight products, go to

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Federal health exchange risk adjustment model now available in Milliman Advanced Risk Technologies’ MARA software

June 24th, 2014

By jeremy.engdahl-johnson

Milliman has announced the expansion of its Milliman Advanced Risk Adjusters (MARA) software to include greater flexibility for calculating risk scores in and outside of health exchanges. The latest release includes the federal risk adjustment model developed by the U.S. Department of Health and Human Services (HHS) for use in the individual and small group marketplaces starting in 2014. The complex HHS-HCC model set, which employs the hierarchical condition category (HCC) grouping logic, requires specific diagnosis and demographic handling to calculate risk scores.

“Our latest product release is a testament to our commitment to provide healthcare organizations with on-demand risk scoring solutions in support of their reform initiatives,” said Diane Laurent, MARA’s managing director.

The HHS-HCC risk adjustment model is provided in a platform-independent software package that is easy to install in any environment. Clients who wish to tightly integrate the processing engine receive automated processing interface support. Milliman’s MARA product is proven technology with analytical support available from Milliman’s consulting actuaries and other industry experts.

“The MARA tools give the industry on-demand processing of metallic-level and cost-sharing reduction (CSR) risk scores, with completely transparent scoring. Adding the HHS-HCC risk adjustment model means plans and others have another powerful tool for understanding and managing risk in their own technical environments,” added Hans Leida, Milliman principal and consulting actuary.

In addition to the HHS-HCC risk adjustment model, MARA includes a library of more comprehensive, higher-performing risk adjustment tools that are widely deployed in solutions offered by leading healthcare technology providers, including business intelligence, care workflow solutions, and electronic medical records (EMR) vendors. MARA adds insight for population health activities in accountable care organizations (ACOs), primary care medical home programs, and other health-based budgeting, pricing, and risk-based performance measurement programs.

For more information, go to

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