health insurance 201 – managing costs€¦ · medical admin $20.00 $85,000 3.0% medical admin...

© 2018 HOLMES MURPHY & ASSOCIATES

HEALTH INSURANCE 201 –

MANAGING COSTS

HOLMES MURPHY

2019


FULLY INSURED

VS.

SELF FUNDED

BASICS OF INSURANCE


WHAT IS INSURANCE??

Transfer of risk

• Exposures are pooled for greater predictability

Law of large numbers:

• The greater the number exposures

• Less variation in loss pattern

• More predictable losses

Cost of insurance is function of:

• Expected losses (paid claims and required reserves)

• Administrative costs (billing, claims, customer service, overhead)

• Required statutory payments (assessments, premium taxes)

• Predictability of loss (risk charges)

• Distribution costs (sales commissions)

• Profit


BENEFIT FUNDING METHODS

Benefits are typically financed one of three ways

• Insured

• Partially-insured

• Self-funded

Health care

benefits

Life Insurance

AD&D

Disability:

Short-term

Long-term

Insured Self-Insured Minimum

Premium


CONTINUUM OF RISK

Amount of Risk

Assumed by Insurers

Amount of Risk

Assumed by Employer


ASSUMPTION OF

RISK

The employer does not pay

premiums; instead, it pays fixed

costs (administrative fees and

stop-loss premiums) and

variable costs (employee health

care claims).

PAYMENTS PAYMENTS

PLAN DESIGN

COMPLIANCE

The employer pays

monthly premiums to an

insurance carrier.

The employer assumes the

risk.

The insurance company

assumes the risk.

Employers have more

control and freedom in

their plan designs.

Employers are more

limited by insurers’ plan

design options.

The plan must follow any

ACA/Federal guidelines

but does not follow state

regulations.

The plan must comply with

state regulations.

SELF - INSURED PLANS FULLY - INSURED PLANS


FUNDING ARRANGEMENT DETAILS ITEM FULLY-INSURED SELF-INSURED

Summary and Key

Advantages

A “winner take all” arrangement with

premiums being set in advance based on

expected future incurred claims and

expenses. Provides full insurance protection

and budgetable cash flow with no deficit

carry forward

Claims are funded by the client as

benefits are paid. The client pays the

administrator a fee for administrative

services. Client will hold their own claim

reserve

Benefit Plan Designs Plans must be filed with each state based on

state mandates

Fully-customizable; avoids state

mandates

Risk Retention Insurance company Client

(up to stop loss limits)

Claim Funding and

Variability Insurance company; client pays predictable

monthly premium

Client

(insurance company may fund SL claims)

Funds Claims After

Termination Insurance company

Post-termination cash liability applies;

terminal liability stop loss can extend the

contract coverage period after plan year

end.

State Premium Taxes Yes, taxes apply No

(except on SL premium)

HIPAA Insurance company must comply Must name a privacy offer and

comply with HIPAA

Impact of Savings Savings are reaped by the insurance

company

Savings directly reduce overall benefit

costs

Fiduciary Responsibility Insurance company has final claim

determination and liability

Employer has final claim determination

and liability

Billing Administration Monthly consolidated premium invoice Weekly claim wires

Monthly stop loss & admin fee invoices


FULLY INSURED – THE DETAILS


HOW PREMIUMS ARE

DEVELOPED Large groups (over 100 lives):

• A blend of your medical and pharmacy claims experience and the insurance

companies manual rates

• Adjustments are made to reflect any changes or anticipated changes in:

• Demographics

• Plan design

• Delivery system

• Utilization patterns

• Exposure units


HOW PREMIUMS ARE

DEVELOPED Small groups (under 100 lives):

• Rates based upon claims experience of pool or community and insurer’s desired

retention (expenses)

• Not based upon claims experience of any individual policyholder

• Insurance company bears entire risk (either wins or loses)

• Can result in policyholder paying premiums higher than actual costs, a typical

example would be paying community rates to HMOs in a dual choice

environment

• Very little flexibility in plan design, administration, pricing, etc.


FULLY-INSURED PREMIUM

COMPONENTS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Expected Paid Claims

Reserve

Expenses/Retention

Pooling Charge

Margin


HOW PREMIUM DOLLARS

ARE USED

2%

5%

5%

3%

70%

15% 2%

2%1%

85%

10%

Small Group Large Group

Commissions Claims

Risk Charge Administration

Premium Taxes Profit


2/1/17 - 1/31/18 2/1/16 - 1/31/17 Manual Rate*

Total Paid Claims $2,427,706

Pooling at $175,000 (exclude claims above) -$19,292

Net Paid $2,408,414

Average Covered Employees 270

Avg Per Employee Per Month $748.83

Annual Trend 9.5%

Trend Months to Effective Date mid-pt 21

Trend Factor 1.166

Pooling Expenses @$175k 1.080

2018 -19 Expected Claims PEPM $943.19 $844.04

Experience Weight 75% 25%

Blended Expected $785.03

Credibility 38.5%

Blended Projected Claims

Retention - Expenses (17%)

Projected 2018 - 19 Claims + Retention - PEPM

State Premium Taxes

ACA Fees

Needed Premium 2018 - 19 - PEPM

Current Premium

Projected Needed Increase as of today

* Prior year projected and Manaul rate from last renewal adjusted for trend

$0.17

$1,076.15

$867.90

24.0%

$918.40

61.5%

$867.05

$177.59

$1,044.64

$31.34

FULLY INSURED

RENEWAL WORK-UP


MINIMUM PREMIUM

Self Funded with training wheels

• Hybrid of both fully insured and self-funded

• Employer pays a minimum monthly premium

• Insurance company sets a claims attachment point

• Employer pays all claims under the attachment point (cash flow

advantage of self-funded)

• Claims over the attachment point are paid by the insurance

company


SELF-FUNDED (ASO)

• Employer retains risk up to a certain point

• Often uses stop loss insurance to limit financial exposure:

• Aggregate - limits loss of aggregate claims to a predetermined

level

• Specific - limits loss on any individual claim to a predetermined

level

• Employer is responsible for paying all claims up to the

stop loss level

• Employer pays an administrative fee to a third party for

administration and access to managed care networks,

medical management, etc.


SELF FUNDED RATE

DEVELOPMENT

Current Fees PEPM Annual % Increase Projected Fees PEPM Annual

Medical Admin $20.00 $85,000 3.0% Medical Admin $20.60 $88,000

Utlization $3.37 $14,000 3.0% Utlization $3.47 $15,000

Rx Admin $3.35 $14,000 0.0% Rx Admin $3.35 $14,000

Caféteria $5.36 $23,000 0.0% Caféteria $5.36 $23,000

Network $16.87 $72,000 0.0% Network $16.87 $72,000

Envision Rx $4.71 $20,000 0.0% Envision Rx $4.71 $20,000

Stop-Loss/Cobra/Positive Pay $3.71 $16,000 0.0% Stop-Loss/Cobra/Positive Pay $3.71 $16,000

Transplant $13.61 $58,000 0.0% Transplant $13.61 $58,000

Stop Loss $73.97 $314,000 20.0% Stop Loss $88.77 $377,000

ACA Fees $0.43 $2,000 ACA Fees $0.00 $0

Total Admin: $145.38 $618,000 Total Admin: $160.45 $682,000

Current Other Costs PEPM Annual % Increase Projected Other Costs PEPM Annual

HMA Consulting $24.72 $105,000 0.0% HMA Consulting $24.72 $105,000

Total Other: $24.72 $105,000 Total Other: $24.72 $105,000

Total Admin $145.38 $618,000 Enrollment Total Admin $160.45 $682,000

Total Other $24.72 $105,000 354 Total Other $24.72 $105,000

Total Costs $170.10 $723,000 Total Costs $185.17 $787,000

$15.07 8.9%


PROJECTING COSTS

Annual Cost

2018-2019 Plan Year 2019-2020 Plan Year

Revenue Budget Reforecast Before Chg After Chg Savings

City Contribution $5,469,000 $5,469,000 $5,517,000

EE Contribution $1,379,000 $1,391,000 $1,402,000

Total Premium $6,848,000 $6,860,000 $6,919,000

Cost

Gross Cost $6,444,000 $6,225,000 $6,919,000 $6,919,000 $0

Employee Contribution $1,279,000 $1,279,000 $1,291,000 $1,302,000 $11,000

Net Cost $5,165,000 $4,946,000 $5,628,000 $5,617,000 $11,000

Net $ Increase off Budget ($219,000) $463,000 $452,000

Surplus/(Deficit) $623,000 ($59,000) $0


PLAN DESIGN

CONCEPTS


PLAN DESIGN

CONSIDERATIONS

Competitive

Plans vs. Peers/

Benchmark

Good Cultural

Fit with the City

Adequate

Options for

Employees

Drive Desired

Behavior


AREAS OF OPPORTUNITY


PHARMACY


FORMULARIES

OPEN FORMULARY CLOSED FORMULARY

All non-formulary drugs are available

Do not cover non-formulary drugs

except for medical necessity

KEY RX STRATEGY CONSIDERATIONS

• Contract terms and definitions

• Coalitions vs Direct

Best in Brand

purchasing

• Mail vs Retail

• Contract Pharmacy Network

• Role of disruption

Delivery

Optimization

• Generic/ Brand Tiering

• Specialty Tiering / Coupons

• 90- day steerage

Benefit Alignment

• Distribution network

• Place of Service Specialty Strategy

• Value of Medical integration

• Clinical efficacy

• Role of Disruption

Clinical Solutions

27

RX COALITIONS – IS BIGGER

ALWAYS BETTER? – Across the board coalitions look to maximize negotiation power through larger membership

base

– Organizations behind coalitions vary: large consulting firms, broader based purchasing

cooperatives, public sector, labor organizations, health plans, integrated delivery systems

– Many incorporate scope of services beyond just the Pharmacy contract and may require

membership dues

– Considerations for joining a coalition may include:

Direct PBM Relationship Coalition

Pro Con Pro Con

Ability to customize

contract terms (i.e., audit,

market check)

Individual negotiation

required

Value of Group Purchasing

in pricing

Generally most beneficial

to small groups

Flexibility in plan design

and clinical approach

Independent oversight

required Audit Support

May need to compromise

to gain group consensus

Higher level of service with

individualized attention

More resources needed to

manage benefit program /

make decisions

Market check support

May not have flexibility for

formulary and clinical

program decisions

Retain independent

decision making

Reduced economies of

scale/purchasing leverage Collective Decision making Lack of independence

28

TIME | MAY 2015

http://time.com/3858309/attention-spans-goldfish/

GOLDFISH= 9 SECONDS

HUMANS ONLINE= 8 SECONDS


BASICS OF NETWORK


MANAGED CARE CONTINUUM

Indemnity

Managed indemnity

Preferred provider organization

Point of service

Point of service (HMO)

Open panel HMOs (i.e., mixed, IPA)

Closed panel HMOs (i.e., staff, group)

Quality

Control

Cost

Effectiveness

Increasing cost effectiveness and quality control


PREFERRED PROVIDER

ORGANIZATION (PPO)

PPO

In Network Out of Network

PCP Specialists Hospitals Unlimited Provider

Access

• No provider contracts

• No discounts

• Some large case medical mgmt.

(i.e, management, pre-

certification

• Open access

• Contracted providers

• Negotiated discounts

• Utilization/medical

management

• Open access in

network


POINT OF SERVICE (POS)

Open Access Model

POS


PCP

Unlimited Provider

Access Specialists Hospitals


POINT OF SERVICE PLAN (POS)

WITH GATEKEEPER

Gate Keeper Model

POS


PCP Unlimited Provider

Access

Specialists Hospitals


ACO / HEALTH MAINTENANCE

ORGANIZATIONS (HMO)

ACO Model vs. Open Access HMO

HMO

Specialists Hospital Ancillary

Providers

PCP

HMO

Specialists Hospital Ancillary

Providers

HMO Type

Relationship of

Providers to Plan

Typical Practice Location

(for Providers)

IPA HMO Contractual Independent practice location

Group HMO Contractual/possible Medical group clinic-location

medical group employees

Staff HMO Salaried employees Facility owned by plan (i.e., Kaiser)

Mixed HMO Contractual/possible Varies - independent practice locations

medical group employees and/or medical group clinic

PCP


BASICS OF PROVIDER

CONTRACTING


OVERVIEW OF NETWORK

STRUCTURE

Network Manager

Inpatient Outpatient

Hospital Physician Ancillary


HOSPITAL CONTRACTING

• Two major categories of distinction: Inpatient vs. Outpatient

• Contracting for inpatient services has several methodologies:

• Diagnosis related groupings (DRG)

• Per diems

• Discount fee-for-service

• Capitation

• Drivers of reimbursement methodology:

• Access/geography (rural vs. Inner-city location)

• Penetration of managed care in marketplace

• Sophistication of providers and contract managers negotiating deals

• Direction of volume

• Hospital stop loss contracts


OTHER FRINGE

BENEFITS


HEALTH AND WELFARE

BENEFITS

• Indemnity

• PPO

• POS

• HMO

• Indemnity

• PPO

• DMO

• Basic Life

• Supplemental

Life

• Dependent

Life

• AD&D

• Business/

• Travel

• Accident

• Salary

Continuation

• STD

• LTD

• EAP

• First

Responder

EAP

• Work/Life

• FSA

• Vision

• Educational

Assistance

• Group Legal

Medical Dental Disability Fringe

Benefits

Life and

Accidental

Death

Health and

Welfare


OTHER CONSIDERATIONS FOOD FOR THOUGHT….


Leave Strategies

Mental Health Strategies

Long Term Care (LTC)

Police and Fire Additional

Benefits

health insurance 201 – managing costs€¦ · medical admin $20.00 $85,000 3.0% medical admin...

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