Adrian Clark and Jim O’Connor assessed the three risk mitigation programs—risk adjustment, reinsurance, and risk corridors—established by drafters of the Patient Protection and Affordable Care Act (PPACA). Here is an excerpt courtesy of LifeHealthPro.com:
“Risk mitigation programs appear to reduce financial risks to health plans,” the actuaries write. “At the same time, overly restrictive premium rate limitations can lead to high federal risk corridor payments.”
If plans do not charge premiums that are high enough to meet claims and expenses, “federal payments under the risk corridor programs will be high to compensate partially for the inadequate premiums,” the actuaries say.
“The impact of inadequate rates on a health plan’s financial viability should also be considered. This result stresses the need for the rate review process to not only guard against unduly high premiums, but also to ensure that premiums are not set too low. This is especially important in 2017 and beyond, after the expiration of the risk corridor program.”
Plans in states with fewer coverage rules today might need bigger increases than plans in other states, the actuaries say.”
The study, commissioned by the Society of Actuaries (SOA), can be found here.
Reform
Adrian Clark, Cost, Jim O'Connor, reinsurance, risk adjustment, risk corridors
CNN/Money has published an in-depth article about the future of healthcare from a consumer/patient perspective. Here are a few highlights.
Beyond insurers, there are a few sources of data you can tap on your own.
Medicare publishes hospital readmission rates and patient reviews at Hospitalcompare.hhs.gov and is beginning to build a similar physician site.
In several states — including Massachusetts, Minnesota, and Oregon — nonprofits and government agencies are putting quality data online. Go to informedpatientinstitute.org to discover what’s available in your area.
“If we do it right, doctors should be improving care, but if the payment models are badly implemented, doctors may instead try to skimp on care,” says Elliott Fisher, a Dartmouth medical professor who helped develop the idea of ACOs.
If you hope to quit the daily grind before age 65, be sure to factor in the price of an individual policy when you are calculating how much you’ll need for retirement.
A healthy couple at 61 before 2014 could pay $1,160 a month if both spouses are healthy, or as much as $1,770 if both have a chronic condition, says Jim O’Connor, an actuary at Milliman.
Reform
ACOs, early retirees, Jim O'Connor, Transparency
New research commissioned by the National Association of Insurance Commissioners (NAIC) looks at credibility adjustment factors for use in medical loss ratio (MLR) refund calculations. Here is some background on why this is important:
Section 1001 of PPACA includes §2718(c), which directs the NAIC to establish uniform definitions and standardized methodologies for calculating measures of MLRs to be used in the determination of refunds in those situations in which a health insurance carrier’s MLR is less than the threshold required by PPACA. It further requires that such methodologies “take into account the special circumstances of smaller plans, different types of plans, and newer plans.” These considerations have introduced the need to address the normal statistical fluctuations that occur in the claims experience of health insurers. Such fluctuations tend to be greater for smaller plans and newer plans and vary for different types of plans. In order to adjust for these normal statistical fluctuations, the NAIC and HHS are considering introducing credibility adjustments based upon the size of an insurer’s business that is subject to the MLR requirements of PPACA (similar to what is done for refund calculations for Medicare Supplement business).
The calculation periods specified by §2718 appear to be based on annual experience up until January 1, 2014, at which time the refund formula is to be based on the average MLR for the previous three years for the plan. This variation in calculation methodology may produce different patterns of statistical fluctuation that could be addressed through the use of these credibility adjustment factors and the accumulated membership exposure, although such application for multiple years may not capture all statistical variation due to changing characteristics of insureds from one year to the next.
We understand that the NAIC has not finalized its decision on how many different sets of credibility adjustment factors it will use to address its charge to take the circumstances of different plans into account and the differences in the calculation periods specified by the law. The results of our analyses presented in this report provide sets of credibility adjustment factors that may be more or less detailed than what the NAIC will ultimately recommend to HHS.
Reform
Jim O'Connor, medical loss ratios
Money Magazine has a new article out on the effects of reform. Here is an excerpt:
Once the law phases in, in 2014, insurers will no longer be able to turn anyone down because of a pre-existing condition; from pregnancy to heart disease, they’ll all be covered. That’s on top of earlier changes that will restrict or block annual and lifetime limits on what insurers, including in employer plans, will pay. The law also restricts the practice of “rescission”—finding a reason to revoke coverage after someone gets sick. Rates won’t be tied to your health, although smokers may have to pay up to 50% more. The oldest people in a plan will pay no more than three times the rate paid by the youngest. In short, policies you buy yourself will be a lot more like the group plans you get at work. “For people ages 50 to 64, rates will come down a bit,” says James O’Connor, a consulting actuary with Milliman.
To put this in context, consider the cost decrease for older people alongside the potential for cost increases among younger people. O’Connor weighed in on this in a recent AP article:
“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.
Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.
Cost, Reform
age rating, Jim O'Connor
A new article by the Associated Press looks at how the healthcare reform law may affect premiums among younger men. Here is an excerpt:
On average, people younger than 35 who are buying their own insurance on the individual market would pay $42 a month more, according to an analysis by Rand Health, a research division of the nonpartisan Rand Corp.
The analysis, conducted for The Associated Press, examined the effect of the law’s limits on age-based pricing, not other ways the legislation might affect premiums, said Elizabeth McGlynn of Rand Health.
Jim O’Connor, an actuary with the independent consulting firm Milliman Inc., came up with similar estimates of 10 to 30 percent increases for young males, averaging about 15 percent.
“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.
Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.
This final caveat is important. In addition to an individual’s unique situation, any impact on premium will also depend on the particular insurance product in question and on the regulatory climate of a given state, not to mention various other factors.
Reform
age rating, Jim O'Connor
What follows is excerpted from AIS Health, which publishes Health Plan Week:
The co-op idea was proposed by SFC member Kent Conrad (D-N.D.) as an alternative to the controversial public insurance option. Conrad said he proposed the idea because the public option would not win the 60 votes needed to pass it in a full Senate vote and could doom the final reform bill. In a prepared statement, Conrad said “health care experts” predict co-ops will enroll 12 million customers, which would make them, collectively, the third-largest health insurer nationally.
While there are few details about how the envisioned co-ops might work, or whether they would reduce coverage costs, health plans worry that any government-backed entity could have unfair competitive advantages. “Any time an entity can be both a player on the field and the referee, there is every reason to believe there will not be fair competition,” says Robert Zirkelbach, a spokesperson for America’s Health Insurance Plans (AHIP), an industry trade group. He notes that AHIP has agreed to other proposals such as guaranteed-issue coverage and the elimination of pre-existing condition exclusions.
While Conrad has said the co-ops he envisions would be owned by their members, Devon Herrick, a senior fellow at the right-leaning National Center for Policy Analysis, says if co-ops are unable to attract enough members, there is a danger the government would step in. “Co-ops would have much of the same incentives and cost structures that nonprofit and for-profit insurers have,” he says. “Without a competitive advantage, it’s hard to see how they could lower premiums sufficiently to attract huge enrollment.”
While several heath care co-ops already compete against private health plans in some markets, it’s unclear how such a model would rein in coverage costs nationally. During an Aug. 12 audioconference sponsored by AIS, Allan Wearing, sales and marketing director at Group Health Cooperative of South Central Wisconsin, explained how its model differed from that of private health insurers. One of the biggest differences, he explained, is that providers receive a salary, rather than being reimbursed for each service provided. And because those providers are employees of the co-op, there is a financial incentive to focus on outcomes rather than to increase revenue through volume, he said. Wearing said his co-op’s costs are marginally less than those of its competitors primarily because of its fixed-fee contracts with its own doctors.
But co-ops could be costly to set up. Because they wouldn’t immediately have a network of providers, co-ops likely would need to rent networks until they were able to build their own, said James O’Connor, a principal and consulting actuary at Milliman Inc. and another speaker in the audioconference. They also would likely need to contract with insurance carriers for administration, marketing, claims adjudication and underwriting. “It could be a major expense [for co-ops] to develop their own systems,” he said.
To order a recording of the Aug. 12 audioconference, What Health Insurance Cooperatives Would Mean for Health Plans, call (800) 521-4323 or click here.
Reform
cooperative, Jim O'Connor
Weeks of closed-door meetings with members of the Senate Finance Committee may be coming to a head this week. Apparently the public plan and an employer mandate are not in the Finance Committee’s compromise bill and co-ops and certain insurance market reform are in. The details regarding inclusion of an individual mandate are still unclear.
As the details come out—and finally there are some specifics from Kent Conrad—it may be worthwhile to review what we know about healthcare co-ops, specifically how they behave in the presence or absence of a mandate. This is excerpted from a recent Q&A with Milliman principal Jim O’Connor on the topic:
Q: How would co-ops be affected by the presence of an individual or employer mandate?
A: It is probably valuable to first clarify some language. An “individual mandate” is a requirement that everyone obtain health plan coverage. An “employer mandate” is a requirement imposed on employers. Neither should be confused with a “benefit mandate,” which requires that health plans cover certain types or levels of benefits.
Individual and/or employer mandates, if constructed correctly, would likely bring a positive impact on the healthcare market overall, compared to a guaranteed issue environment without any such mandates. Contrary to popular opinion, a proportionately large number of the uninsured are relatively healthy. Bringing all of these uninsureds into the market would not only result in a positive impact on insurers overall in a guaranteed issue environment, but also help redirect people to more appropriate and less costly healthcare provider settings (e.g., uninsureds would no longer need to go through a hospital emergency room to get to see a doctor for routine and non-urgent care). However, it should be noted that although the uninsured utilize considerably fewer healthcare services (partially because they tend to be healthy, but also because they defer treatment as long as they can), when they get coverage they are likely to utilize an increased level of services, at least temporarily. This additional utilization would need to be anticipated.
If open enrollment periods were required, a sound mechanism to pool high risks of the unhealthy would help stabilize the market and financial operations of both co-ops and traditional commercial insurers. This could be done through high-risk pools or through a risk-adjuster mechanism similar to that used by the Medicare Advantage program. Depending on the effectiveness of the risk-adjuster method, health plans might not need to increase rates in anticipation of biased adverse selection. A mandatory high-risk pool might have a similar effect, especially if consistent government support were used to help fund the pool. By contrast, a voluntary high-risk pool, funded only by the insurers participating, would likely not be as successful in lowering rates.
Read the entire interview
Mandates, Reform, Universal coverage
co-op, Jim O'Connor, Mandates
Senator Kent Conrad recently introduced what he characterized as a compromise on the contentious issue of having a public plan under healthcare reform: a healthcare co-op. This interview with Milliman principal Jim O’Connor analyzes the co-op concept in more detail.
Q: What is a co-op and how does it differ from a public option?
A: A cooperative health plan, or co-op, is member-controlled rather than government-controlled, and is typically not a for-profit corporation. A co-op must negotiate its payment or reimbursement rates for hospitals and physicians in the market, and cannot dictate them through legislation and regulation like the government could under a public plan. With a co-op, the roles of government regulator and health plan providing coverage are kept separate. The co-op concept is oriented around member decision-making and control, distinguishing it from for-profit insurance carriers. Because it would compete against for-profit and other heath carriers, however, a co-op must offer products that are attractive to the public in a marketplace with choices and must employ prudent rating and enrollment practices if it is to be successful. Determining any requirements or restrictions on those practices, as they apply to all health plans, is one of the many important questions under reform.
Read more…
Competition, Government, Reform, Uninsured
Association Health Plans, co-op, Competition, cooperative, Group Health, Jim O'Connor
This weekend, the New York Times reported that healthcare leaders and politicians have been meeting for months to build consensus toward a point of agreement in healthcare reform: a requirement that every American carry health insurance. Will this work? Time will tell. Until then, we offer this interview about potential pitfalls in guaranteed issue as a cautionary tale. The success of any coverage requirement may depend on those who least want coverage.
Most Americans support a guarantee of health coverage, and some states have enacted 
guaranteed issue, which has implications for insurance markets.
We asked Milliman Principal Jim O’Connor to provide some perspective on this issue.
Q: Guaranteed issue can lead to adverse selection. Why is this?
Jim O’Connor: It’s human nature for people to seek out the best deal they can get. People who are young and healthy typically haven’t used the healthcare system much and are less inclined to seek health insurance coverage, whereas people who are less healthy are more likely to seek out insurance. Unless there’s some kind of screening of health insurance applications and a preexisting condition limitation, people tend to wait until they become sick before actually seeking health insurance. A purely guaranteed issue market, without certain controls, will be selected against because it will attract the sickest—and most expensive—people without attracting healthier—less expensive—populations. This results in adverse selection and spiraling health insurance costs.
Read more…
Electronic Health Records, Guaranteed issue, Reform, Underwriting, Universal coverage
guaranteed coverage, Guarantees, individual insurance market, Jim O'Connor
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