HSAM 6020 Week 1 Presentation

1. Case 1: New
England
Healthcare
Premium
Development
JOE SQUIRE
JESSICA OSSELBORN
MEGAN SCHMIDT

2. Overview
This case developed insurance premium rates to be offered
to a buyer consortium for 75,000 individuals by New
England Healthcare.
In developing these monthly premiums, consideration was
given to both individual and family rates as well as offering
low, moderate and high-cost plans to the consortium

3. Key Terms
PMPM (per member per month): this is how much revenue is
needed for each enrolled member each month to cover
insurance payouts and overhead for the company to remain
financially viable

4. Method for
Calculating
Premiums
1. Base per-member-per-month (PMPM) cost was estimated for each covered benefit
of the plan (Facility & physician services and non-medical expenses (overhead/admin
fees))
2. Each base PMPM was adjusted using cost adjustment multipliers to reflect the dollar
amount of copayments to providers as well as the estimated impact of the copayment
and benefit options on utilization (see example below).
3. Limitations were set on the benefits packages to offer 3 tiers: low, moderate and
high-cost plans broken down by family and individual costs. This final cost, the
premium paid monthly by members, is also known as the total PMPM amount.
Adjustment multipliers based on copay and estimated use of the service

5. Question 1: Acute Care PMPM
New England healthcare felt they could reduce acute care service utilization from historical utilization
(500 inpatient days/1000 members) by instituting simple care management strategies and then
reduce cost by negotiating better contracts (historical daily cost $2,800).
The PMPM based on historical utilization and cost: $116.67
Care management impact: 400 inpatient days/1000 members
Cost negotiation impact: $2000 daily inpatient cost
New Acute Care Base PMPM (not adjusted for copay/cost): $66.67
Savings of $50 per-member-per-month ($3,750,000/year savings)

6. Question 2:
Medical
PMPMs
Other per-member-per-month costs
were calculated using historical data
for cost and utilization.
Skilled nursing: 25.2 days/year per 1000
Mental Health: 64.4 days/year per 1000 members
Emergency: 41.7 cases/year per 1000 members
Outpatient: 132 visits/year per 1000 members
Historical Historical Base
Cost Data Utilization PMPM Cost
I. Medical Expenses
Facility Services:
Inpatient:
Acute $ 2,000.00 0.4000 $ 66.67
Skilled nursing $ 650.00 0.0252 $ 1.37
Mental health $ 740.00 0.0644 $ 3.97
Substance abuse $ 0.41
Surgical procedures $ 1,800.00 0.0417 $ 6.26
Emergency department $ 250.00 0.1320 $ 2.75
Outpatient procedures $ 3.43
Total facility services PMPM amount $ 84.85

7. Question 3:
Physician
PMPMs
Physician services were calculated
with historical costs as well. Specialist
office visits, surgical services and al
other services were pre-calculated in
historical costs while primary care
service were calculated as below:
Primary Care Services: $200,000
capitated payment for all members
(200,000/75000) = $2.66 PMPM
Base
PMPM Cost
Physician Services:
Primary care $ 2.66
Specialist care
Office visits $ 92.65
Surgical services 9.00
All other services 23.67

8. Question 4:
High-Cost
Premium
The high-cost plan premium was calculated using
the average 10-year US inflation rate and cushions
for administrative and reserve coverage.
The PMPM bid assumed no copays for any service
and maximum limitations on services provided
(i.e. 90 days of mental health care versus 30 days)
Monthly Premiums Rate for the high-cost plan is:
$388.58 for individuals
$1072.43 for families
HIGH-COST PLAN
Inflation adjustment 2.46%
Administrative expense percent 15.00%
Profit/reserves percent 5.00%
PMPM bid $ 319.56
Premium rates:
Single $ 388.58
Family $ 1,072.43

9. Question 5:
Low-Cost
Premium
The low-cost plan premium was also calculated
using the average 10-year US inflation rate and
slightly less cushions for administrative and
reserve coverage since overall payout cost was
estimated to be lower for users of this tier.
The PMPM bid assumed max copays for any
service and minimum limitations on services
provided (i.e. 30 days of mental health care versus
90 days)
Monthly Premiums Rate for the low-cost plan is
38% lower than the high-cost plan at:
$240.15 for individuals
$662.78 for families
LOW-COST PLAN
Inflation adjustment 2.46%
Administrative expense percent 15.00%
Profit/reserves percent 5.00%
PMPM bid $ 197.49
Premium rates:
Single $ 240.15
Family $ 662.78

10. Question 6:
Which Plan
Should be
Offered?
The Mid-Cost Plan
The mid-cost plan premium was also calculated
using the average 10-year US inflation rate and
slightly less cushions for administrative and reserve
coverage since overall payout cost was estimated to
be lower for users of this tier.
The PMPM bid assumed midrange copays for any
service and midrange limitations on services
provided (i.e. 60 days of mental health care versus
90 days)
Monthly Premiums Rate for the mid-cost plan is 30%
lower than the high-cost plan at:
$298.92 for individuals
$824.97 for families
MID-COST PLAN
Inflation adjustment 2.46%
Administrative expense percent 15.00%
Profit/reserves percent 5.00%
PMPM bid $ 245.82
Premium rates:
Single $ 298.92
Family $ 824.97

11. Question 7:
Consortium
Subsidies
The consortium accepted the mid-cost plan but
will be subsidizing 50% of the cost for its
members to encourage participation and create a
larger pool and offset their risk of losing money as
well as hopefully improving the health of their
members over the long term by allowing them to
purchase affordable health insurance.
Monthly Premiums Rate for the mid-cost plan
subsidized by 50% is:
$149.46 for individuals
$298.92 for families
MID-COST PLAN
Inflation adjustment 2.46%
Administrative expense percent 15.00%
Profit/reserves percent 5.00%
PMPM bid $ 245.82
Premium rates (subsidized 50%
by consutrium):
Single $ 149.46
Family $ 298.92

12. Thank you!
JOE SQUIRE
JESSICA OSSELBORN
MEGAN SCHMIDT