In this report, Milliman consultants summarize calendar year 2016 administrative costs of organizations reporting Medicaid experience under the Title XIX Medicaid line of business on the National Association of Insurance Commissioners (NAIC) annual statement. The primary purpose of the report is to provide reference and benchmarking information for certain key administrative expense categories used in the day-to-day analysis of Medicaid managed care organization (MCO) financial performance. It also explores the differences among various types of MCOs using available segmentation attributes defined from the reported financial statements.
This report by Milliman’s Jeremy Palmer and Chris Pettit summarizes calendar year 2016 financial results of organizations reporting Medicaid experience under the Title XIX Medicaid line of business on the National Association of Insurance Commissioners (NAIC) annual statement. The primary purpose of this report is to provide reference and benchmarking information for certain key financial metrics used in the day-to-day analysis of Medicaid managed care organization (MCO) financial performance. This report explores the differences among various types of MCOs using available segmentation attributes defined from the reported financial statements.
In India, recent regulatory changes mandating guaranteed renewability, lifetime coverage and restricted premium revision opportunities imply that any substandard risk in the current portfolio could potentially be retained for life. This necessitates a different approach to managing insurers’ growing portfolios.
This article by Milliman’s Lalit Baveja explains how insurers can benefit from treating their covered members using analytics based on population health principles. Such an approach requires a better clinical understanding of member populations to identify the most effective and cost-efficient strategies for managing members’ health and preventing hospitalizations and claims in the long run.
Health insurance is the fastest growing segment in India’s nonlife insurance sector. Health insurance costs are also increasing quickly. According to Milliman’s Lalit Baveja, insurers in the market should consider the benefits of administrative savings as a larger part of a cost containment strategy.
Administrative costs, customer acquisition costs and benefit payment (in the form of claims payouts) are the three key expense areas for insurers. Going forward, the importance of managing administrative expenses will increase as competition continues to put pressure on overall premiums. In line with other markets, the Indian regulator also restricts the percentage of premium income that can be used as management expenses to promote efficiency and the availability of funds for benefit payments after a defined inception period. Insurers themselves have a vested interest in keeping these costs manageable. Topline focus must be complemented with cost containment in both benefits and administrative costs to achieve desired profitability and sustainability. While claims cost containment requires effective provider contracting and optimal utilisation management (and is reliant on multiple providers and other intermediaries), acquisition costs are dictated by market forces. Administrative efficiency within internal operations is one area where an insurance company can effectuate changes more directly. Tracking and managing these administrative costs can be a challenge, and identification of areas where there is opportunity to optimise administrative spending can be an even greater challenge.
Lalit discusses how benchmarking is an effective tool that can help health insurers manage their administrative efficiencies and expenses. To learn more, read his article “Administrative benchmarks for health insurance in India.”
There are many reliable research statistics from the private sector and the federal agencies that support the evidence that medical costs are rising and the current pace is unsustainable. Medical cost trend has two primary components, the number of services provided to patients (utilization) and the cost of each of those services (unit cost). While utilization management can be important for achieving cost savings, some employers are now giving further attention to the significant price variation in unit cost. Chart 1 below provides an example of the price variation using the average reimbursement as a percentage of Medicare in Buffalo, New York; Indianapolis, Indiana; Ventura, California; and nationwide. As shown, going from Buffalo to Indianapolis reflects an 80% increase in cost, based on unit price alone.
We regularly encounter employers who don’t fully understand the impact of provider reimbursement variation on their medical plans’ financial performances. This comes as no surprise, given the limited transparency and complexity of current provider reimbursements.
Limited transparency of provider reimbursement (allowed charges)
For employers, the industry standard technique of benchmarking commercial allowable charges has historically been traditional discount analyses, which compare discounts to billed charges. However, these approaches do not provide the required rigor and precision to understand medical service reimbursement analysis—both across markets and within a given market. This is because billed charges are not standardized across providers or different services. As a result, the exact same discount could mean very different things, depending on the provider and service—in some cases, price differences of over 300%. In addition, providers often optimize their billed charges to enhance reimbursement on contracts based on billed charges.
Employers generally have had a difficult time measuring unit cost, which is solely due to the complexity of various medical procedures. There is a large amount of price variation within each inpatient diagnosis-related group (DRG) and outpatient type of service. Chart 2 below provides a powerful illustration of how reimbursement can vary significantly across even a single inpatient DRG or outpatient service category. The chart compares the commercial reimbursement for inpatient joint replacement and an outpatient MRI in three different metropolitan areas with what the government would pay under Medicare allowable. The variation in inpatient joint replacements, a large bundle of complicated services, is much lower than outpatient MRIs, which reflects a specific service that generally has little variation in intensity compared with a joint replacement.
A benchmarking analysis helps employers review their health plan data so they can find solutions to manage costs without shifting them to employees. It can also help employers mitigate the potential effects of the excise tax in 2018. In this article, Milliman consultant Marcella Giorgou identifies areas an employer can address so the plan can operate more efficiently.