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Medical Loss Ratio: New Developments and What’s to Come

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Navigant’s Ernest Dixon and Melissa Hulke provide a brief background of the MLR, an analysis of the preliminary data on MLR rebates, and a thorough discussion of the nuances of the MLR regulations and …

Navigant’s Ernest Dixon and Melissa Hulke provide a brief background of the MLR, an analysis of the preliminary data on MLR rebates, and a thorough discussion of the nuances of the MLR regulations and relevant legal and compliance issues to consider when analyzing or reporting MLR data. The slides also address the impact of the MLR regulations and incentives on plans’ relationships with pharmacy benefit managers, providers, and brokers.

For more insight on MLR, visit http://www.navigant.com/insights/hot-topics/medical-loss-ratio/.

Published in: Business, Economy & Finance

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  • 1. Medical Loss Ratio: New Developments and What’s to ComeThis 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, edixon@navigant.com Melissa J. Hulke, CPA, ABV, CFF, Navigant Consulting, Phoenix, AZ, melissa.hulke@navigant.com Michael M. Maddigan, Esquire, O’Melveny & Myers LLP, Los Angeles, CA, mmaddigan@omm.com Moderator: Anne W. Hance, Esquire, McDermott Will & Emery LLP, Washington, DC, ahance@mwe.com 1
  • 2. Agenda Regulatory Background HHS Technical Guidance Impact on Individual States Analysis of Preliminary Data Notable Areas of Interest 2
  • 3. REGULATORY BACKGROUND 3
  • 4. Regulatory Background What is Medical Loss Ratio (MLR)? Traditional MLR = Medical care claims Premiums 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. 4
  • 5. Impact of ACA on MLR ACA creates consistent federal standard and modifies the calculation Medical care claims + Expenses for activities that improve health care qualityACA MLR= Premiums – federal and state taxes and licensing or regulatory fees 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 5
  • 6. 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) 6
  • 7. 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) 7
  • 8. 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) 8
  • 9. HHS TECHNICAL GUIDANCE 9
  • 10. 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 Deadlineshttp://cciio.cms.gov/resources/regulations/index.html#mlr 10
  • 11. 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) 11
  • 12. Annual Reporting Form - AttestationDepartment 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 StatementThe 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.____________________________ Chief Executive Officer/President____________________________  Chief Financial Officer 12
  • 13. Aggregation of Experience Must submit report in State where the policy was issued, except for: 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’s or MEWA’s principal place of employer welfare association (MEWA) business Dual Contract Group Health Coverage May combine under certain conditionsIndividual business through an association Issue state of the Certificate of Coverage 13
  • 14. 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 14
  • 15. 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 15
  • 16. IMPACT ONINDIVIDUAL STATES 16
  • 17. ANALYSIS OFPRELIMINARY DATA 17
  • 18. Analysis of Preliminary Data by Entity Date Estimate Entity Total Rebate Estimate Estimate Was Made Based on December HHS $0.7 billion to $1.6 billion 2009 NAIC 2010 per year in 2011 to 2013 June 2011 NAIC $1.95 billion for 2010 2010 SHCE April 2012 Commonwealth $1.93 billion for 2010 2010 SHCE Fund April 2012 Kaiser Family $1.3 billion for 2011 2011 SHCE Foundation 18All entities relied on data submitted to NAIC.
  • 19. $1.3 Billion – Where is it Going? Other States TX, FL, NY, 49% NJ, PA, 51%Source: Kaiser Family Foundation, April 2012 19(excludes California)
  • 20. $1.3 Billion - Where is it Going? Large Group Individual Market Market $426M, or 32% $541M, or 40% Small Group Market $377M, or 28% 20Source: Kaiser Family Foundation, April 2012
  • 21. % of Enrollees Receiving Rebates Individual Small Group Large Group 19% 31% 28% 69% 72% 81% No Rebate Rebate 21Source: Kaiser Family Foundation, April 2012
  • 22. Highest 5 States – by Market $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $- TX (total $186M) FL (total $149M) NY (total $142M) NJ (total $106M) PA (total $105M) Individual Small Group Large Group 22Source: Kaiser Family Foundation, April 2012
  • 23. NOTABLE AREAS OF INTEREST 23
  • 24. Notable Areas of Interest Fraud Expenses “Spread” to Pharmacy Benefit Managers Third Party Vendors Insurance Brokers Interrelated Expense Categories 24
  • 25. Fraud ExpensesACA MLR = Medical care claims + Expenses for activities that improve health care quality Premiums – federal and state taxes and licensing or regulatory fees 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) 25
  • 26. Fraud ExpensesACA MLR = Medical care claims + Expenses for activities that improve health care quality Premiums – federal and state taxes and licensing or regulatory fees What can be included in fraud prevention and detection?  No definitions in  Regulations  Federal Register  Form  Form instructions Policy “pros and cons” 26
  • 27. “Spread” to Pharmacy Benefit Managers 7/18/11 HHS Technical Guidance – “retail spread” not included in incurred claims May see changes in contract terms 27
  • 28. 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 28
  • 29. Insurance Brokers 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 29
  • 30. Carving Out Expenses Include in MLR IT expenses • Needed to improve healthcare quality Expenses for • Prospective prescription drug utilization Utilization review review aimed at identifying potential activities that drug abuse interactions improve healthcare quality Marketing • Activities primarily designed to implement, promote, and increase expenses wellness and health activities • Fraud reduction expenses up to the Fraud expenses amount recovered that reduces incurred Medical care claims claims 30
  • 31. 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 31
  • 32. 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-ProfitCompany Name: NAIC Company Code: Domiciliary State: MLR Reporting Year: Description of Expense Element (by Type) NEW Detailed Description of Expense Allocation Methods 1 2 3 3. Quality Improvement Expenses Improve 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 32
  • 33. Ripple Effect Confusion around data aggregation  Individual market  Small group market  Large group market 33
  • 34. Ripple Effect Rebates issued August 1, two months after data reported What if an error is discovered after August 1? 34
  • 35. QUESTIONS? 35
  • 36. Medical Loss Ratio: New Developments and What’s to Come © 2012 is published by the AmericanHealth Lawyers Association. All rights reserved. No part of this publication may be reproduced in anyform 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 asthe position of the American Health Lawyers Association.“This publication is designed to provide accurate and authoritative information in regard to the subjectmatter covered. It is provided with the understanding that the publisher is not engaged in renderinglegal or other professional services. If legal advice or other expert assistance is required, the servicesof a competent professional person should be sought”—from a declaration of the American BarAssociation 36