Medical Loss Ratio: New Developments and What’s to Come
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1 Medical Loss Ratio: New Developments and What’s to Come This webinar is brought to you by the Payors, Plans, and Managed Care (PPMC) Practice Group June 5, 2012 1:00-2:30 pm Eastern Presenters: Ernest N. Dixon, CPA, CFF, Navigant Consulting, Phoenix, AZ, [email protected] Melissa J. Hulke, CPA, ABV, CFF, Navigant Consulting, Phoenix, AZ, [email protected] Michael M. Maddigan, Esquire, O’Melveny & Myers LLP, Los Angeles, CA, [email protected] Moderator: Anne W. Hance, Esquire, McDermott Will & Emery LLP, Washington, DC, [email protected]
Transcript of Medical Loss Ratio: New Developments and What’s to Come
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Medical Loss Ratio: New Developments and What’s to Come
This webinar is brought to you by the Payors, Plans, and Managed Care (PPMC) Practice GroupJune 5, 2012 1:00-2:30 pm Eastern
Presenters:
Ernest N. Dixon, CPA, CFF, Navigant Consulting, Phoenix, AZ, [email protected]
Melissa J. Hulke, CPA, ABV, CFF, Navigant Consulting, Phoenix, AZ, [email protected]
Michael M. Maddigan, Esquire,O’Melveny & Myers LLP, Los Angeles, CA, [email protected]
Moderator:
Anne W. Hance, Esquire, McDermott Will & Emery LLP, Washington, DC, [email protected]
Agenda
Regulatory Background
HHS Technical Guidance
Impact on Individual States
Analysis of Preliminary Data
Notable Areas of Interest
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REGULATORY BACKGROUND
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Regulatory Background
What is Medical Loss Ratio (MLR)?
Traditional MLR =
MLR existed long before the Affordable Care Act (ACA) and commonly has been used for evaluating the performance and soundness of managed care companies.
Prior to the ACA, many states had established their own MLR requirements or guidelines.
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Medical care claimsPremiums
Impact of ACA on MLR
ACA creates consistent federal standard and modifies the calculation
ACA MLR=
ACA MLR reported by market and by state Individual market Small group market Large group market
Deadlines June 1, 2012 deadline for reporting 2011 data August 1, 2012 deadline for sending notices and rebates
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Medical care claims + Expenses for activities that improve health care qualityPremiums – federal and state taxes and licensing or regulatory fees
Exclusions from ACA MLR Regulations
Self-insured plans
Government-sponsored programs Medicare Advantage, Medicare Part D, and Medicare Supplemental Medicaid Managed Care Children’s Health Insurance Program Other Federal or State-Sponsored Coverage (with certain
exceptions)
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Regulatory Background-45 C.F.R. § 158
March 2010: ACA enacted Section 2718 of the Public Health Service Act ACA tasked NAIC with establishing uniform definitions and standard
methodologies
December 2010: HHS Interim Final Rule and Technical Correction (75 FR 74864 & 75 FR 82277)
December 2011: HHS Final Rule (76 FR 76574)
December 2011: HHS Interim Final Rule for Rebate Requirements for Non-Federal Government Plans (76 FR 76596)
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Regulatory Background-45 C.F.R. § 158
March 2012: HHS Amendment for Student Health Insurance Policies (77 FR 16453) Specifies that student health insurance is a type of individual health insurance Not reportable until January 1, 2013
May 2012: HHS Amendment Relating to Notices (77 FR 28790) Issuers that meet or exceed minimum ACA MLR requirements to provide each
policyholder and/or subscriber a notice Specifies language of notices
May 2012 – HHS Interim Final Rule Correcting Amendment (77 FR 28788)
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HHS TECHNICAL GUIDANCE
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HHS Technical Guidance
12/17/2010 - Process for States to Submit Request for Adjustment 04/26/2011 - Quarterly Reports for “Mini-Med” and Expatriate Plans 05/13/2011 - Q&A Regarding ACA MLR Interim Final Rule 05/19/2011 - 2011 Quarterly Reports for “Mini-Med” & Expatriate Plans 07/18/2011 - Q&A Regarding ACA MLR Interim Final Rule 02/10/2012 - Q&A Regarding ACA MLR Interim Final Rule 03/30/2012 - ACA MLR Annual Reporting Procedures 04/20/2012 - Q&A Regarding ACA MLR Regulation 05/15/2012 - Guidance for ACA MLR Annual Reporting Form 05/15/2012 - Guidance for ACA MLR Rebate Notices 05/24/2012 - Guidance for ACA MLR Reporting Form 05/30/2012 - Guidance Confirming Filing and Rebate Deadlines
10http://cciio.cms.gov/resources/regulations/index.html#mlr
Annual Reporting Form CMS estimates of time to complete forms:
2,298 hours per issuer to develop policy and systems to prepare reports + 669 hours per issuer to complete forms
6 Parts Plus Attestation: Parts 1 & 2: Data Development Part 3: Expense Allocation Part 4: Expense Allocation Methodology Part 5: ACA MLR and Rebate Calculation Part 6: Rebate Disbursement Report Attestation
Issuers must also submit separate Excel files with totals for all ACA MLR data nationwide (a “Grand Total” report)
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Department of Health and Human ServicesMedical Loss Ratio Attestation Federal EIN : DBA/Marketing Name:
AmBest Number: Issuer ID: Merge Markets - Ind/SmGrp (MA Only)
Holding Company NAIC Group Code: Business in the State of: Not-for-Profit
Company Name: NAIC Company Code: Domiciliary State: MLR Reporting Year:
Address:
Attestation Statement
____________________________ Chief Executive Officer/President
____________________________ Chief Financial Officer
The officers of this reporting issuer being duly sworn, each attest that he/she is the described officer of the reporting issuer, and that this MLR Reporting Form is a full and true statement of all the elements related to the health insurance coverage issued for the MLR reporting year stated above, and that the MLR Reporting Form has been completed in accordance with the Department of Health and Human Services reporting instructions, according to the best of his/her information, knowledge and belief. Furthermore, the scope of this attestation by the described officer includes any related electronic filings and postings for the MLR reporting year stated above, that are required by Department of Health and Human Services under section 2718 of the Public Health Service Act and implementing regulations.
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Annual Reporting Form - Attestation
Aggregation of Experience
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Exception Guidance
Employer business through Group Trust Employer’s principal place of business or where the trust is located
Employer business through a multiple employer welfare association (MEWA)
Employer’s or MEWA’s principal place of business
Dual Contract Group Health Coverage May combine under certain conditions
Individual business through an association Issue state of the Certificate of Coverage
Must submit report in State where the policy was issued, except for:
August 1, 2012 – Notices & Rebates
Notices must be sent to all policyholders and subscribers
Issuers must provide notices to: Individual market subscribers Group policy holders (generally employers) and subscribers covered
during the ACA MLR reporting year from which the rebate is derived
In group plans, rebates may be paid to the group policy holders
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April 19, 2012 IRS FAQ
Issuers: Rebates to policyholders / subscribers are returned premiums Rebates reduce issuers’ taxable income Tax year is not specified
Recipients: If the employee received a taxable benefit from the deduction of premiums from income, then the rebates are generally taxable Cash rebate increases taxable income Credit against future premiums increases taxable income
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IMPACT ON INDIVIDUAL STATES
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ANALYSIS OF PRELIMINARY DATA
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Analysis of Preliminary Data by Entity
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DateEstimate
Was MadeEntity Total Rebate Estimate Estimate
Based onDecember
2010HHS $0.7 billion to $1.6 billion
per year in 2011 to 20132009 NAIC
June 2011 NAIC $1.95 billion for 2010 2010 SHCE
April 2012 Commonwealth Fund
$1.93 billion for 2010 2010 SHCE
April 2012 Kaiser Family Foundation
$1.3 billion for 2011 2011 SHCE
All entities relied on data submitted to NAIC.
$1.3 Billion – Where is it Going?
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TX, FL, NY, NJ, PA,
51%
Other States49%
Source: Kaiser Family Foundation, April 2012(excludes California)
$1.3 Billion - Where is it Going?
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Individual Market$426M, or 32%
Small Group Market
$377M, or 28%
Large Group Market
$541M, or 40%
Source: Kaiser Family Foundation, April 2012
% of Enrollees Receiving Rebates
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69%
31%
Individual
72%
28%
Small Group
No Rebate Rebate
81%
19%
Large Group
Source: Kaiser Family Foundation, April 2012
Highest 5 States – by Market
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$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
TX (total $186M) FL (total $149M) NY (total $142M) NJ (total $106M) PA (total $105M)
Individual Small Group Large Group
Source: Kaiser Family Foundation, April 2012
NOTABLE AREAS OF INTEREST
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Notable Areas of Interest
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Fraud Expenses
“Spread” to Pharmacy Benefit Managers
Third Party Vendors
Insurance Brokers
Interrelated Expense Categories
Fraud Expenses
ACA MLR =
Expenses to improve health care quality Excludes anti-fraud efforts
Medical care claims: Includes “The amount of claims payments recovered through fraud
reduction efforts not to exceed the amount of fraud reduction expenses.” (45 CFR § 158.140(b)(iv))
“Fraud reduction efforts include fraud prevention as well as fraud recovery.” (76 FR 76577)
Form instructions clarify that the amount is limited to “the lesser of the total fraud reduction expenses…and actual fraud recoveries.” (OMB 0938-1164)
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Medical care claims + Expenses for activities that improve health care qualityPremiums – federal and state taxes and licensing or regulatory fees
Fraud Expenses
ACA MLR =
What can be included in fraud prevention and detection? No definitions in
Regulations Federal Register Form Form instructions
Policy “pros and cons”26
Medical care claims + Expenses for activities that improve health care qualityPremiums – federal and state taxes and licensing or regulatory fees
“Spread” to Pharmacy Benefit Managers
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7/18/11 HHS Technical Guidance – “retail spread” not included in incurred claims
May see changes in contract terms
Third Party Vendors
Include all Clinical Risk-bearing Entities Physician-Hospital Organizations Behavioral Healthcare Organizations Independent Practice Organizations
Include total payment if four criteria are met Provide for delivery of clinical services Bears financial end utilization risk Coordination of care and sharing of clinical information Additional services must be related to the clinical services
Issuer related services should not be included
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Insurance Brokers
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Fees paid to brokers and agents do not count as medical care
Agents report 0%-70% rate cuts from issuers
Higher rate cuts for smaller plans
High variability amongst states
Carving Out Expenses
• Needed to improve healthcare qualityIT expenses
• Prospective prescription drug utilization review aimed at identifying potential
drug abuse interactionsUtilization review
• Activities primarily designed to implement, promote, and increase
wellness and health activitiesMarketing expenses
• Fraud reduction expenses up to the amount recovered that reduces incurred
claimsFraud expenses
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Medical care claims
Expenses for activities that
improve healthcare quality
Include in MLR
Detailed Descriptions of Methodology
Categories: Incurred claims Quality improvement Taxes Non-claims costs
ACA regulations specify that issuers should use the method that yields “the most accurate results”
Detailed description for each market in each State
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Annual Reporting Form – Allocation of QI ExpenseDepartment of Health and Human Services Federal EIN : DBA/Marketing Name:Medical Loss Ratio Reporting FormPart 4 - Expense Allocation Methodology Report AmBest Number: Issuer ID: Merge Markets - Ind/SmGrp (MA Only)
Holding Company NAIC Group Code: Business in the State of: Not-For-Profit
Company Name: NAIC Company Code: Domiciliary State: MLR Reporting Year:
Description of Expense Element (by Type) NEW1 2
3. Quality Improvement ExpensesImprove Health Outcomes
Activites to prevent hospital readmission
Improve patient safety and reduce medical errors
Wellness and health promotion activities
Health Information Technology expenses related to health improvement
Detailed Description of Expense Allocation Methods3
Ripple Effect
Confusion around data aggregation Individual market Small group market Large group market
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Ripple Effect
Rebates issued August 1, two months after data reported
What if an error is discovered after August 1?
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QUESTIONS?
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Medical Loss Ratio: New Developments and What’s to Come © 2012 is published by the American Health Lawyers Association. All rights reserved. No part of this publication may be reproduced in any form except by prior written permission from the publisher. Printed in the United States of America. Any views or advice offered in this publication are those of its authors and should not be construed as the position of the American Health Lawyers Association. “This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought”—from a declaration of the American Bar Association
