We generally consider living a long life an important goal, and it certainly does beat the alternative. But one side effect of getting older is that, as we age, we typically acquire additional acute and chronic medical conditions, and the prevalence of many common chronic medical conditions increases significantly. Age/gender rating is an area in which actuarial considerations are often in direct tension with social or public policy considerations: there is a natural tension between the policy goals of making coverage more affordable for older people (with higher average costs) and the goal of encouraging younger people (with lower average costs) to purchase health insurance coverage.
In an article first published in the magazine The Actuary, Milliman consultants Doug Norris, Hans Leida, Erica Rode, and Travis (T.J.) Gray explore how age and gender affect costs and premiums in commercial healthcare.
Any upcoming changes to the Patient Protection and Affordable Care Act (ACA) will not likely be fully implemented until 2019 or 2020. The stability of the individual and small group health insurance markets during this period of transition will depend on the regulatory changes that are made in the interim and the transparency of those changes.
A new paper by Milliman’s Lindsy Kotecki and Hans Leida presents five key considerations for promoting market stability for the 2018 and 2019 benefit years under the assumption that they are transitional years with many current ACA rules in effect.
1. Don’t collapse the stool.
2. Extend risk mitigation programs.
3. Extending the transitional policy.
4. Consider interim rule changes carefully.
5. Transparency is key.
As 2016 approaches, healthcare insurers should already be thinking about the 2017 premium rates they will need to file for their Patient Protection and Affordable Care Act (ACA) business. In the article “Ten potential drivers of ACA premium rates in 2017,” Milliman’s Aaron Wright, Hans Leida, and Lindsy Kotecki discuss several factors that may influence ACA plan rates moving forward. The factors are listed below.
2. Changes to essential health benefits and the Centers for Medicare and Medicaid Services (CMS) Actuarial Value Calculator.
3. Additional data.
4. Continued migrations.
5. Carrier shuffling.
6. Ongoing political uncertainty: Court cases and elections.
7. Transitional reinsurance.
8. Risk corridors.
9. Risk adjustment.
10. Changes in fees and taxes.
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 U.S. Department of Health and Human Services (HHS) finalized an update to the risk adjustment model coefficients used to determine the payment transfer amounts for the 2016 Patient Protection and Affordable Care Act (ACA) market. The impact of these changes depends on each carrier’s mix of enrollees. But there are several consistent themes when comparing the updated coefficients with the current ones. For example, carriers that enroll a disproportionate share relative to the market of sicker or higher-risk individuals are likely to receive higher-risk transfer payments. And carriers that enroll a disproportionate share of healthier individuals are likely to receive lower transfer payments or will have to pay higher amounts to other carriers. Milliman consultants Hans Leida and Scott Katterman provide some perspective in this healthcare reform paper.
The role of risk adjustment in shared savings agreements can confound providers and payors. There are numerous uncertainties that impact the health status of a population. In their paper “Risk adjustment and shared savings agreements,” Hans Leida and Leigh Wachenheim offer several steps that can be taken to optimize the accuracy of risk adjustment results.
Here is an excerpt:
Consider the following criteria when selecting a model to be used with shared savings arrangements, in addition to overall predictive ability, as described above.
• Population: Risk adjustment models are typically calibrated for specific populations—such as commercial, Medicare, or Medicaid. Avoid using a model developed for one population to calculate risk scores for a substantially different population without evaluating whether it still performs adequately. If an agreement includes more than one population (e.g., commercial and Medicaid), more than one model may be needed, although if multiple models are used, they must be normalized consistently.
• Benefits: The risk scores generated by a model assume some underlying set of benefits and scope of coverage. There are a few areas to focus on in particular:
o Carve outs: Most medical (versus prescription-drug-only) models were developed assuming a broad set of benefits, including mental health. If specific services or conditions are excluded from the shared savings arrangement, it may be necessary to recalibrate the model.
o Prescription drugs: In some cases, the payor does not have detailed prescription drug data for a material portion of the population, even when the benefit is included in the scope of coverage and subject to shared savings. This is often the case when prescription drug benefits are processed by a third party or pharmacy benefit manager (PBM). If prescription drug data is not available for a significant portion of the population, consider using a model that does not require drug data.
o Paid vs. allowed costs: Risk adjusters are most commonly calibrated to predict variations in allowed costs—that is, costs including both the payor liability and member cost sharing. There are some risk adjusters, however, that are calibrated based on paid costs. For example, the U.S. Department of Health and Human Services-Hierarchical Condition Categories (HHS-HCC) model, used by CMS for calculating carrier-level risk adjustment settlements under the Patient Protection and Affordable Care Act (ACA), is calibrated based on estimated paid costs for five different cost-sharing levels. Many shared savings calculations are based on allowed costs, making a risk adjuster that is also based on allowed costs most appropriate. Allowed costs have the significant advantage of greatly reducing the need to adjust for changes in the average level and types of member cost sharing over time, although it is still important to consider whether changes in cost sharing might be impacting overall utilization over time. On the other hand, some of the “savings” on an allowed basis benefits a third party other than the payor or the provider—the insured member, who ends up paying less cost sharing in the form of deductibles, coinsurance, and copays. For populations with significant member cost sharing, consider whether an adjustment to the savings calculated on an allowed basis is needed to remove the portion that will impact member cost sharing. Otherwise, the payor may end up sharing “savings” that they never received.
For more Milliman perspective on healthcare reform, click here.