Tag Archives: group health insurance

Commercial health insurance financial results provide insight into ACA program stability

Milliman has released its annual report on the commercial health insurance market’s financial results, which provides a clear picture of health insurers’ financial experience in a given year. The report, based on medical loss ratio data submitted to the Centers for Medicare and Medicaid Services (CMS) and released in the fall of 2016, provides a final accounting of insurers’ financial results after “3R” transfer payments have been completed. Today’s report details results for 2015, the second full year of implementation of the Patient Protection and Affordable Care Act (ACA). The report also summarizes estimated effectuated insurance marketplace enrollment through 2016 and corresponding federal expenditures on premium and cost-sharing assistance. As the United States approaches a potential new round of healthcare reform, Milliman’s report is a helpful tool in analyzing the effect of current ACA financial assistance components to consumers and the impact on the health insurance industry from the insurance marketplaces and “3R” programs.

Key takeaways from Milliman’s report include:

• Underwriting margins in the individual market deteriorated from a 6.0% earned premium loss in 2014 to a 9.6% loss in 2015. The 2015 underwriting losses were due in large part to the risk corridor program funding shortfall.
• With no funding currently scheduled, the cumulative risk corridor payment shortfall has reached $8.3 billion, with nearly 90% owed to insurers in the individual market.
• Since 2013, individual market enrollment has increased from 10.9 million to 17.5 million, driven by the introduction of the insurance marketplaces and associated premium assistance. Conversely, the fully insured small group enrollment has shrunk from 17.3 million to 14.7 million, which is attributable primarily to fewer small employers offering coverage.
• The insurance marketplaces continued to take on a greater role in the individual health insurance market, with 56% of estimated 2016 market-wide enrollment attributable to coverage purchased in the marketplaces, relative to only 36% in 2014.
• From 2014 to 2016, the percentage of individual market enrollees receiving premium assistance has increased from 31% to 47%. Similarly, enrollment in cost-sharing reduction plans is estimated to have increased from 21% to 32% of national individual market enrollment.

Milliman’s overview of financial results provides a comprehensive look at insurers’ financial experience as well as the number of Americans impacted by marketplace subsidies under the ACA. As new healthcare proposals are debated in Washington, we believe this report provides a valuable tool for policymakers and insurers looking to better understand how insurance markets may react to future regulatory and legislative changes.

To receive regular updates of Milliman’s healthcare reports, contact us at here.

2014 commercial health insurance: Overview of financial results

The commercial health insurance markets in the United States in 2014 experienced a significant change relative to prior years. These changes were most dramatic in the individual health insurance market, with the conversion from medical underwriting to adjusted community rating in many states, as well as the implementation of the federal and state insurance marketplaces, facilitating premium assistance to many Americans who were previously uninsured. The 2014 edition of Milliman’s annual report on the commercial health insurance market provides an overview of financial results in the individual and group insurance markets. The report also focuses on enrollment changes in the individual market and the impact of the Patient Protection and Affordable Care Act of 2010’s (ACA) risk adjustment and risk corridor programs.

Mid-market group medical plan trends

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.”

On track to have Social Security numbers for group health plan reporting?

Employers that sponsor group health plans are reminded that the Patient Protection and Affordable Care Act (ACA) requires the reporting of employees’ minimum essential coverage for calendar year 2015 and that doing so will necessitate the collection of taxpayer identification numbers (TINs) for all covered individuals, including employees and their dependents. Although the statements for 2015 must be furnished to individuals by Feb. 1, 2016, and filed with the IRS by Feb. 29, 2016 (paper) or March 31, 2016 (electronically), the requesting of Social Security numbers (SSNs) needs to begin now.

Under tax code section 6055 reporting, employers (or parties reporting on behalf of employers) are required to report TINs for all covered individuals. In most cases, TINs are the individuals’ SSNs. This reporting will enable the IRS to confirm that the individuals have minimum essential coverage and are not subject to the penalty for not having appropriate health insurance. The IRS will match the information about dependents on individuals’ tax returns (e.g., Form 1040) with the names and TINs reported by employers. (See also Client Action Bulletin 14-4R)

As reporting entities, group health plan sponsors must make reasonable efforts to obtain TINs, and may do so via oral, written, or electronic means. The efforts should be documented. The IRS’s final rule, issued in March 2014, outlined the following general steps as a reasonable effort:

• Make an initial solicitation for the TIN at the time the relationship with the employee is established, such as at initial enrollment or upon hire, unless the reporting entity already has the employee’s TIN and uses that TIN for all relationships with the employee.
• If TINs are not received at that initial solicitation, the first annual solicitation is generally required by Dec. 31 of the year in which the relationship with the employee began (Jan. 31 of the following year if the relationship begins in December).
• If the TINs are still not provided, a second solicitation is required by Dec. 31 of the following year.
• If at this point the TINs are still not provided, the reporting entity has acted in a responsible manner and need not continue to solicit TINs for those individuals.

A failure to receive a TIN does not authorize the employer to terminate coverage. Reporting entities also are permitted to voluntarily report TINs for individuals not enrolled in coverage.

The final rule allows for the reporting of dates of birth in lieu of TINs, but only if the reporting entity is either informed that an individual has no TIN or unable to obtain a TIN after making the aforementioned reasonable efforts. In addition, if an employee adds a new dependent, the employer must again take reasonable efforts to obtain a TIN for that new dependent. Renewed efforts to solicit TINs for individuals already covered are not required.

Employers may use truncated taxpayer identification numbers in lieu of the full identification number when providing the information to the employee. A TIN is truncated when the first five of the nine digits are replaced by asterisks or X marks (e.g., 123-45-6789 becomes XXX-XX-6789). The full TIN must be used in the forms submitted to the IRS.

Noncompliance with the section 6055 reporting requirements subjects the employer to the penalties for a failure to file correct information return and/or for a failure to furnish correct employee statements. The IRS will grant temporary relief from these penalties for incorrect or incomplete information reported on returns and statements filed and furnished in 2016 (relating to coverage in 2015), but only for entities that can demonstrate they made good faith efforts to comply with the requirements.

For additional information about the 6055 information reporting requirements, please contact your Milliman consultant.

Overview of health insurer financial results in 2013

With the enactment of the Patient Protection and Affordable Care Act (ACA), health insurers have had to comply with several requirements. The insurer experience in 2013 reflects the third year insurers have been required to comply with federal minimum loss ratio requirements. This Healthcare Reform Briefing Paper by Milliman’s Paul Houchens, Jason Clarkson, and Colin Gray provides an overview of health insurer financial results in 2013.

Here is an excerpt from the report:

How have financial results changed since 2010?

With four years of insurer financials available, assessments of the ACA’s impact on insurer expense structure and profitability prior to the 2014 rating reforms can be made. Figure 2 provides the incremental change in costs from 2010 to 2013 for insurers reporting financial results during all years between 2010 and 2013. For example, in the individual market, earned premium PMPM has increased approximately $27 from 2010 to 2013.

Figure 2 indicates that premium increases in the group insurance markets tracked very closely with claims expense increases. However, in the individual health insurance market, growth in claims expenses outpaced premium growth by nearly $10 PMPM. This is the primary reason why the medical loss ratio percentage increased by 5.5% in the individual insurance market from 2010 to 2013, despite an increase in administrative expenses on a PMPM basis.

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Figure 3 provides a visual representation of changes in each market’s financial structure from 2010 through 2013. Total administrative and claims expense are represented by the red shaded bars, while carrier earned premium is represented by the green outline surrounding the bars. As illustrated by this figure, the gap between earned premium and the sum of administrative and claims expenses has remained consistent in the group markets from 2010 through 2013, yet has been eliminated over the four-year period in the individual market.

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IRS allows more mid-year group health election changes for cafeteria plans

Sponsors of group health plans under a cafeteria plan (under tax code section 125) may amend the plan to permit participants to make mid-year election changes in two new instances, under recently issued Internal Revenue Service (IRS) guidance. In Notice 2014-55, the IRS expands the situations under which participants may revoke a group health coverage election mid-year, but does not permit such changes for healthcare flexible spending arrangements (health FSAs).

Notice 2014-55 allows the group health plan sponsor to accommodate participants who want to prospectively revoke an election during a plan year in two situations:

1. The participant’s hours have been reduced to the point where they are expected to work fewer than the 30-hour threshold for “full time” work of the Patient Protection and Affordable Care Act (ACA). The change in election is permitted even if the reduction in expected hours worked does not result in the employee ceasing to be eligible under the group health plan.
2. The participant voluntarily chooses to drop employment-based coverage to purchase exchange coverage without having a period of dual or no coverage.

In the first situation, participants must represent to the employer that they will be enrolled in “minimum essential coverage” by the first day of the second month following the revocation date. In the second situation, they must represent that they will be enrolled in exchange coverage by the date immediately following the loss of employment-based coverage. A plan sponsor may rely on participants’ “reasonable” representations of their enrollment statements.

An election to revoke coverage on a retroactive basis is prohibited.

In general, section 125 cafeteria plan sponsors must amend the plan by the last day of the plan year for which the change is effective and operate the plan in accordance with the guidance. For 2014, however, Notice 2014-55 permits plan sponsors to adopt the amendment applicable to the start of the 2014 plan year by the end of the 2015 plan year. Notification to plan participants about the amendment is required.

For additional information about the IRS’s guidance permitting these cafeteria plan changes, please contact your Milliman consultant.