Victoria Boyarsky | Robert Parke

Healthcare costs have been on the rise over the last few years and there are growing concerns over the financial stability of the Medicare program. There are also concerns regarding the aging of the Baby Boomers, the increase in average age of enrollees, and an insufficient tax base to cover future funding of the Medicare program. The Patient Protection and Affordable Care Act (PPACA) attempts to address some of these growing concerns by implementing laws and programs aimed at reducing healthcare costs. The Medicare Shared Savings Program (MSSP) as well as the Pioneer program are two such initiatives.

This paper compares the MSSP and Pioneer ACOs and outlines their key features in terms of six major areas: payment arrangements, beneficiary alignment, interim payment methodology, benchmark methodology, trending methodology, and calculation of shared savings/losses.

Ksenia Draaghtel | Diane Laurent

Risk adjustment models have been extensively used for renewal underwriting in group health markets. The typical risk adjuster output offers a single risk score that represents an individual’s overall health status risk. But segregating risk by service category better represents the differences in utilization and cost within each component, and is an important aspect in actuarial pricing. Inpatient, outpatient, physician, and pharmaceutical services possess different characteristics with respect to the utilization frequency, cost severity, speed of claim payment, and underlying trends.

This article presents the results of two simulation studies that indicate that separating the risk by service category significantly improves profitability.

Paul R. Houchens

Beginning in 2014, the individual health insurance market, with the exclusion of grandfathered plans, will require all policies to be guaranteed issue and community rated. The individual mandate is intended to reduce the degree of adverse selection that would otherwise occur in such an environment.

This paper focuses on the individual mandate’s penalties in relation to the expected out-of-pocket premium for bronze-level coverage in the individual market, which for individuals age 30 and older will be the least expensive qualified coverage available for purchase.

The relationship between the individual mandate penalty amounts and the bronze plan premium will vary significantly across different population segments and interacts with the following demographic and premium rating variables:

• Household income
• Age
• Family type

By modeling estimated penalty amounts relative to estimated out-of-pocket premium amounts, several conclusions can be made about the mandate’s impact. Insurance carriers, regulators, and state policymakers should take these considerations into account when trying to estimate the individual mandate’s impact on adverse selection, insurance participation, and insurance plan selection in the new individual insurance market.

Joanne Fontana

While many of the tenets of the Patient Protection and Affordable Care Act (PPACA) focus on medical insurance, its implementation will also have a major impact on how dental insurance is offered, what services are covered, and the cost of dental coverage.

The inclusion of “pediatric services, including oral and vision care” as a required coverage in the essential health benefit (EHB) package creates an interweaving of medical and oral health services rarely seen prior to healthcare reform, causing new complexities in selling and administering dental insurance.

As the PPACA is implemented, it will be critical to consider the inclusion of dental insurance thoughtfully in order to prevent unintended consequences to the dental insurance marketplace affecting insurers, consumers, and providers alike.

Jill S. Herbold

Health insurance issuers report administrative expenses by category in the Supplemental Health Care Exhibit, a new exhibit for insurer annual statements in 2010.

This report examines the following administrative expense categories for the large group, small group, and individual insured markets:

• Expenses for improving healthcare quality
• Claims adjustment expenses
• Agents' and brokers' fees and commissions
• Direct sales salaries and benefits expenses
• Other general and administrative expenses

The companies included in this report are all health insurance issuers in the United States that submitted Supplemental Health Care Exhibits with their 2010 annual statements and that had positive earned premium (including high-risk pools), incurred claims, and member months for 2010.

Jill S. Herbold

Section 2718(b) of the Public Health Service Act, as added by the Patient Protection and Affordable Care Act (PPACA), requires health insurance issuers to provide rebates to enrollees when the issuer’s medical loss ratio does not exceed 85% for the large group insured market and 80% for the individual and small group insured markets. This requirement is effective beginning in 2011, with rebates first payable in 2012.

This report examines the 2010 preliminary medical loss ratios of health insurance issuers, including the allowable adjustments in the medical loss ratio calculation, and presents illustrative rebate estimates based upon 2010 experience.

Jill Van Den Bos

In May of 2011, the Centers for Medicare and Medicaid Services (CMS) unveiled a program to spur growth of accountable care organizations (ACOs) prior to the full implementation of the Medicare Shared Savings program. The Pioneer ACO model is a good fit for hospitals or large medical practices with a demonstrated history of care coordination and quality improvement. These organizations are pioneers in the sense that they have already embarked on organized care practices and have some of the needed infrastructure in place and are therefore leading the way for others. As such, it is expected that Pioneer ACOs will be able to demonstrate methods for achieving both cost savings and care improvement in the Medicare fee-for-service (FFS) population.

Participants in this program will have the potential to be financially rewarded for per-patient savings, but they are also at risk for a loss should patients cost more than expected in aggregate.

This white paper discusses the elements of risk associated with Pioneer ACOs as well as potential strategies for controlling costs and identifying opportunities for savings.