The Patient Protection and Affordable Care Act (ACA) includes risk mitigation programs, also known as the 3 Rs, for individual and small group health insurance markets. The 3 Rs include a permanent risk adjustment program, a transitional reinsurance program for the individual market, and a temporary risk corridor program. The transitional reinsurance and temporary risk corridor programs span from 2014 through 2016, while risk adjustment is a permanent program. The intent of these programs is to mitigate adverse selection and enhance market stability. The 3 Rs also affect financial reporting, and ACA health plan issuers faced many challenges when estimating the financial impact of the 3 Rs on 2014 financial statements. Our research suggests that ACA health plan issuers developed 2014 financial statements in a particularly uncertain environment. In this paper, Daniel Perlman and Dave Liner summarize 2014 3R estimates compared with actual amounts published by the Center for Consumer Information and Insurance Oversight (CCIIO).
The Centers for Medicare and Medicaid Services (CMS) recently announced that the 2014 transitional reinsurance program’s coinsurance rate would be 100% rather than 80% as originally stated. This is good news for insurers in the health exchange’s individual market whose reimbursement requests will be paid in full (and then some). In this article, Milliman’s Daniel Perlman, Doug Norris, and Hans Leida discuss the financial implications this change could have on insurers.
For issuers of ACA-compliant plans in the individual market, the increased coinsurance has a fairly obvious direct positive impact on 2014 financial performance: more will be collected than many issuers likely assumed when preparing annual statements for 2014. Any issuer that had computed its transitional reinsurance recovery accruals at year-end 2014 based upon the originally announced coinsurance parameter will now receive an additional 25% (because 100% / 80% = 1.25) given the change in coinsurance. The impact of this change will vary significantly by insurer, but could be material in relation to overall individual ACA market claim costs for many insurers. It may not be uncommon to see reductions in net paid claims of 2% to 4% as a result of this change.
The CMS announcement suggests that the reimbursement requests made by insurance companies may be low enough that the transitional reinsurance program could pay 100% of the coinsurance rate and carry a surplus into 2015. The authors estimated that this surplus would be between $1 billion and $2 billion. In fact, based on new information released by CMS on June 30, 2015, it is now known that the surplus carried forward will be approximately $1.8 billion, in the range the authors predicted.
If, even after the increase in coinsurance, total payouts are less than the $9.7 billion in reinsurance assessments collected, there will be additional funds to roll forward into 2015. These additional funds could help create the same (or similar) outcome for the 2015 plan year by increasing the size of the reinsurance pool by any amount carried forward from 2014. (This could conceivably happen for the 2016 plan year as well, for similar reasons.)
Is there a surplus available to carry forward to 2015, and if so, how big is it? We don’t know for sure…however…[there may be] somewhere between $1 billion and $2 billion unspent.
…The bottom line is that there would be more money available to make reinsurance payments for the 2015 plan year. This is good news for issuers of ACA-compliant individual market plans. However, issuers should be cautious about relying on further enrichment in the 2015 program parameters, as (among other concerns) it is possible that the current parameters have already assumed some amount of carryover.
The Patient Protection and Affordable Care Act (ACA) introduced two subsidies for low- and moderate-income individuals to help make health insurance more affordable. These include premium subsidies to lower the initial purchase price of a policy and cost-sharing reduction (CSR) subsidies to lower the cost sharing (e.g., deductibles, copays, etc.) absorbed by individuals at the time they receive care. CSR subsidies, however, are administered in a complicated manner. In many cases the federal government may not reimburse the full cost, leaving the remainder on the shoulders of health insurance companies.
This Healthcare Reform Briefing Paper by Daniel Perlman and Jason Siegel outlines the design of the CSR subsidies under the ACA and its implementing regulations. The paper also describes how, depending on the reimbursement methodology agreed upon between issuers and the federal government, the regulations as currently written may under-compensate issuers of silver-level plans. Issuers should consider the scenarios described in this paper when choosing one of the CSR reimbursement methodologies allowed by the federal government.
Depression is a prevalent and costly disorder. Existing research has shown that many patients suffering from behavioral health conditions, including depression, receive inadequate or no treatment for these disorders. Inadequate treatment often occurs when patients discontinue their prescribed courses of treatment.
The purpose of this research report is to attempt to quantify the impact of depression treatment persistence on post-treatment healthcare costs. Is persistent treatment associated with future healthcare cost savings? Do patients who receive more depression treatment or continue treatment have lower total healthcare cost growth post-treatment than those who received less treatment or discontinued treatment? We conducted a study from a large national medical claims database and compared the relative change in total healthcare costs from the pre-treatment period to the post-treatment period by cohort.
Our results suggest that there is a relationship between persistent treatment for depression and future healthcare cost trend reductions for certain treatment paths and patient cohorts. We conclude with a discussion of the results and of suggestions for future research on this topic.
Read the full report here.
Jill Van Den Bos and Daniel Perlman look at off-label drug use in the latest issue of Pharmaceutical Commerce. Here is an excerpt:
Clinical trials are clearly of great importance, but the extent of off-label use of the high-utilization drugs described above is a good illustration of one of the shortcomings of clinical trials; because they are conducted in a highly controlled environment, they may miss important facts about how drugs are used in the real world. As shown, the medical profiles of patients taking the drugs may differ significantly from what was anticipated in clinical trials. It is important for manufacturers to study real-world adherence patterns, concomitant medications, and comorbidities of actual patients once a drug is on the market.
Read the full article here.