In this article, Milliman’s David Liner and Jason Siegel analyze data from the Centers for Medicaid and Medicare Services (CMS) on risk adjustment transfers for the 2014 benefit year. The article examines some components of the risk adjustment program and proposes strategies that issuers of new and existing plans should consider to ensure optimal risk transfer payments.
Here is an excerpt:
New health plans face a number of competitive disadvantages related to risk adjustment as discussed in this paper. However, these disadvantages can be mitigated with effective optimization strategies. Note that many of these strategies apply to existing health plans as well and should be explored by any issuer in the ACA markets.
There are at least three components to an impactful risk adjustment optimization strategy:
1. Robust administrative system
2. Coding accuracy initiatives
3. Provider and enrollee engagement
An optimization strategy that does not include each of these components will not optimize risk adjustment outcomes.
A robust administrative system serves as the foundation for risk adjustment optimization strategies. A sound administrative system is required for valid data submission and enables health plans to effectively pursue coding improvement initiatives. System audits are an effective technique for validating a recently implemented administrative system.
…Another best practice involves developing elaborate algorithms on top of large commercially available datasets, using all possible elements from a health plan’s data to identify potentially missed diagnoses. This approach relies on identifying patterns among at least medical procedures, comorbidities, specialist office visits, and prescription drug utilization. Best in class models are set up to handle numerous interactions between these data elements and maximize the extrapolation power of these data through machine learning techniques.
Provider engagement is also a key strategic component because diagnosis coding starts with providers. Levels of engagement may range from education only to elaborate compensation schedules. Educating providers on the importance of valid diagnosis coding may improve risk adjustment outcomes. An additional level of provider engagement may be achieved by incentivizing optimal coding through reimbursement arrangements. Achieving a high level of provider engagement may require more effort in the short term than other strategies, but can also produce benefits over a longer horizon.
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.
The U.S. Supreme Court’s recent decision to review the legality of the premium subsidies provision of the Patient Protection and Affordable Care Act (ACA) has major implications for the health insurance industry. In a new article, Milliman consultants Jason Siegel and Jason Karcher address several questions concerning the uncertainty the high court’s decision creates for insurers participating on the healthcare exchange.
Here is an excerpt:
How many people will use FFEs?
As mentioned earlier, APTCs are one of the major legs upon which the ACA stool stands. Individuals are required to maintain minimum essential coverage as long as it is affordable to them. Of those who enrolled in coverage through an FFE, 86% received these credits. Removal of these credits will likely reduce participation. A RAND Corporation study3 commissioned by the U.S. Department of Health and Human Services (HHS) estimates that this would decrease enrollment to 32% of what it would otherwise be. Impacts of decreased enrollment on economies of scale and volatility of claims experience should be considered when planning for 2016.
What will the morbidity of these individuals look like?
The removal of subsidies would encourage adverse selection, as there will be a tendency for the sicker of those who would otherwise receive subsidies to maintain coverage, while the healthier will tend to lapse. The same RAND Corporation study concluded that removal of the APTCs would result in a 43% increase in premiums in the individual market, which would primarily be due to the higher claims levels. Individual issuers should consider the extent to which these forces may impact their memberships and the memberships of their competitors when setting rates for 2016.
Will health plans still have sufficient incentives to participate in the exchange?
APTCs are only available to enrollees through the exchange, which has been a substantial incentive for insurers to offer their plans in the exchange market. In the absence of APTCs, the exchange user fee (3.5% of exchange premiums) may be too high relative to any remaining benefits of exchange participation. In recognition of this, the 2015 FFE contracts with health plans include a clause that these contracts may be terminated by the health plan4 in the event that APTCs are no longer available, subject to state and federal law. However, doing so may engender bad will from members who signed up through the exchange and enjoy the transparency it creates. This should be taken into account when considering exchange participation for 2016 and beyond.
To read the entire article, click here.
What will happen to a health plan that enrolls a different mix of members in 2014 than anticipated? Beginning in 2014, when major provisions of the Patient Protection and Affordable Care Act (ACA) become effective, including guaranteed issue and community rating, many people with poorer health will have the opportunity to purchase insurance—some for the first time—and at premium rates the same as those charged to their healthier peers. Insurers are wary of the unknown financial impacts inherent in this market shift.
To address this risk, the federal government introduced the “three Rs” to help insulate insurers. In this paper, Jason Petroske and Jason Siegel explore the net impact of these programs, in particular risk adjustment, when members of varying characteristics are enrolled in a plan. The authors investigate the financial impact to a health plan of enrolling a membership base with different demographic and morbidity characteristics than those that were anticipated when developing rates.
Risk adjustment helps protect health insurers from adverse selection. In order for insurers selling policies on the exchange to benefit from the ACA’s risk adjusters, they will need to focus on improving diagnosis coding, thinking through membership mix issues, and managing the care of their members.
In the article “Strategies for leveraging the ACA risk adjuster,” Milliman’s Jason Siegel discusses operational strategies that insurers selling health plans in the commercial market can use to improve their risk adjustment performance. Here is an excerpt:
…This is cause for concern because under the ACA risk adjustment program if physicians are deliberately not providing diagnosis codes for members, the health plans will incur the expenses of having less healthy members without the benefits of receiving the risk score adjustment and future potential payment from the risk adjustment model. There are different strategies health plans can potentially use to improve their coding abilities. Chronic medical conditions are one example of low-hanging fruit. These conditions are sometimes poorly coded because other diagnoses could be part of a physician visit, instead of the underlying condition. However, these conditions might be identified using longitudinal data, and they offer additional opportunities for care management of the member on the part of the plan.
National drug codes (NDCs), which are used to identify unique drugs by name and strength, have also proven to be a powerful marker for member conditions. Because there are numerous drugs commonly used for specific clinical conditions, they might be an indicator of diagnoses missing from the member’s data. Coding systems such as the diagnosis-related groups (DRGs) and current procedural terminology (CPTs) also provide opportunities as potential markers that can be used to identify conditions a member might have.
The complexities and likely imperfections in the commercial risk adjuster create additional opportunities and risks as health plans evaluate the impact of enrolling a different membership mix than the rest of the market. One way in which this has been exhibited in Medicare Advantage is with respect to special needs plans (SNPs). Some carriers have proven adept at identifying arbitrage opportunities in the Medicare risk adjustment model, including situations in which the risk adjustment reimbursement for a certain set of conditions results in reimbursements higher than the actual claim burden of the individuals. Time will tell whether or not commercial plans are able to design competitive benefit packages aimed at high-needs populations. Of course, by introducing these plans carriers would take on the risk that changes to the risk adjuster in future years will make once profitable populations unsustainable.
This is an area of continuing research. Milliman is completing research now to better understand the relative profitability of different types of members in markets regulated by the ACA.
To really harness the power of improved coding and help members with chronic conditions, coding initiatives should be paired with care management protocols. If a health plan can manage care well, the costs associated with the member having a medical condition will decrease while the payment received through the risk adjuster will remain the same and the quality of care will go up. Predictive models capable of identifying missing diagnoses can result in a strategic advantage in terms of care management because potentially costly members can be identified earlier. Several external vendors can provide prior prescription drug data for new members, which could be used to identify care management opportunities from day one.
The October 2013 edition of Health Watch focuses on the “three Rs” of the Patient Protection and Affordable Care Act (ACA): reinsurance, risk corridors, and risk adjustment. Milliman consultants contributed three articles on these issues:
• The cover article, “Risk corridors under the ACA” by Doug Norris, Mary van der Heijde, and Hans Leida, examines the technical and strategic considerations of the risk corridor provision.
• In the article “Strategies for leveraging the ACA risk adjuster,” Jason Siegel outlines operational strategies that health plans could deploy to optimize their risk adjustment performances.
• Rob Damler’s article, “Medicaid expansion under the Affordable Care Act,” examines how expected increases to the Medicaid population could affect different demographics and risk compositions within existing state programs.