Tag Archives: public exchanges

The State of the Nation’s Private Employer Exchanges: Crazy!

I’m not talking Patsy Cline’s “Crazy” or even Gnarls Barkley’s “Crazy”—I’m talking Peter-Frampton-re-release-the-same-song-and-get-totally-different-results kind of crazy!  In 1975, Frampton released “Show Me the Way” on his album Frampton, and no one cared.  The song was re-released in 1976 on the album Frampton Comes Alive—and topped the charts in both the U.S. and U.K. In Wayne’s World, the song was described as “required listening for all suburbia.”  It’s all marketing, baby!

What does this have to do with private exchanges? Most are just a re-release of technology that has been part of benefits administration enrollment for years.

The following is a short list of “new” capabilities and requirements that are typical for a private exchange:

  • Defined employer contribution, instead of defined benefit.
  • The ability to connect electronically to insurance carriers.
  • Decision support tools, to help determine employees’ best options.
  • Support for core insurance products such as medical, dental and vision.
  • Support for voluntary insurance products such as life, disability and accident.
  • Support for multiple insurance carriers (although some exchanges are single-carrier).
  • HRA and Section 125 pre-tax support.
  • Premium processing and billing support.
  • Support for insurance plan comparison and other employee shopping tools.

Nearly every function defined as “new” for a private exchange is not new—these functions have been part of group benefits administration systems for over a decade.  As I’ve said, the “new” private exchanges are 95% marketing hype and 5% enhanced decision support.

I have attended dozens of conference breakout sessions, read articles, talked to “private exchange” vendors and seen countless demos. The only word I can use to describe the whole group private exchange world is “crazy” — wonderful, “Show Me the Way” kind of crazy.

Given that we’ve been there and done that with the technology in the private exchanges, I can offer some informed observations about how they will play out as employees use them to select coverage under the rules established as part of Obamacare.

–It would be very difficult to move to an Expedia-type shopping model for employees’ insurance. Insurance carrier requirements for participation and underwriting through private exchanges make the disintermediation of the health insurance broker less likely than the disintermediation of the travel agent.  Few exchanges are even talking about vendor participation. It takes years to develop benefits administration systems simply because of the inherent complexity of insurance. A good technologically and customer service driven health insurance adviser is worth her weight in gold, and will continue to be.

–While Health Sherpa has been described as a somewhat functional equivalent to healthcare.gov, that claim is, well, crazy. Health Sherpa—although a great idea—has no ability to process eligibility, enrollment, carrier connectivity or anything required in a true benefits enrollment or exchange platform.  Health Sherpa is a clean front end for displaying plan options and rates but has no back end to support the followthrough required by the carriers or the federal or state governments.

–Recently, the president invited executives from a few of the nation’s top tech companies to the White House for a highly publicized meeting.  Why?  What do Yahoo and Amazon know about health insurance exchanges, enrollment, eligibility and carrier connectivity?  Exactly nothing!

If the president wanted more than a photo op, why didn’t he call Rich Gallun or Don Garlitz from bSwift or ask my company, benefitsCONNECT, to join the discussion? Between us, we accurately and electronically process many millions of enrollments—completely eliminating the need for paper. Either company could have saved this country hundreds of millions of dollars and produced a public exchange for Obamacare that actually works.

There’s actually one thing that’s new about private exchanges: While benefits administrations systems have become somewhat standardized, if you’ve seen one private exchange—you’ve seen exactly one private exchange. They are all different, from their front-end requirements to their back-end requirements.

As I said, it’s a craaaazy world we live in.

So What Is the Actuarial Value Of My Health Benefit Plan?

Introduction
Now that health care reform is gradually rolling out into the market, the concept of the “actuarial value” of a specific set of benefits is increasingly important. The Patient Protection and Affordable Care Act of 2010 defines four metallic categories of benefit plans ranging from Bronze to Platinum. The actuarial value of these categories range from 60% for Bronze increasing by 10% for Silver, Gold and capping out at Platinum at 90%. The benefit plans offered through the public exchanges will be required to offer benefit plans that are valued within ±2% of each of the metallic levels. This limitation is critical to benefit plan sponsors as they evaluate their current benefit plans.

Actuarial Value Defined
The actuarial value of a specific health plan is the ratio of net value of the actual benefits to the value of these same benefits without copays, deductibles, limits, and/or coinsurance or other items paid for by the individual covered under that plan. For example, in the case of a plan with an actuarial value of 70% (i.e., the Silver plan), this suggests that 30% of the cost is the responsibility of the individual and 70% is paid for by the health plan or carrier involved. Similarly a Gold plan (i.e., 80%) would cover 80% of the cost with the individual responsible for 20%.

As long as the plan has an actuarial value within 2% of the metallic target it would qualify for that metallic level. For example, a plan with an actuarial value in the range of 68% to 72% would qualify as a Silver Plan. A plan with a value outside of the 2% range would not quality as a specific metallic plan and could not be offered. As a result, it is critical to be sure you know the actuarial value of your plan and what metallic plan it qualifies for.

Actuarial Cost Model
The primary tool used to derive the actuarial value of a specific set of benefits is the actuarial cost model. This is a tool used by actuaries which presents detailed utilization, unit cost information, Per Member Per Month cost information, value of copays/ deductibles/ coinsurance, etc. The actuarial cost model typically includes assumptions for each of the major service types which could include as many as 50 or 60 categories of service. The standard definition used by our company includes the following categories:

Hospital Inpatient
  Medical Stays
Surgical Stays
Pediatric Stays
ICU/CCU
Neonatal ICU
Behavioral Health – Mental Health
Behavior Health – Substance Abuse Detox.
Behavioral Health – Rehabilitation
Maternity – Mother (Vaginal)
Maternity – Mother (C-Section)
Maternity – Well Newborn
Maternity – Other than delivery
Out-Of-Area
Skilled Nursing
Total – includes mat and snf
Hospital Outpatient
  Emergency Room
Outpatient Lab & Path Facility
Outpatient Surgery – Hospital Based
Outpatient Surgery – Free standing
Outpatient Surgery – Other
Home Health
Partial Day – Rapid Treatment Unit
Partial Day – < 24 Hour Observation Bed
Partial Day – Behavioral Health – Mental Health
Partial Day – Behavioral Health – Substance Abuse
Other Outpatient (PMPM)
Out-Of-Area (pmpm)
 
Radiology & Chemotherapy (Non-IP)
  CT/MRI/Nucl/Angio – Professional
CT/MRI/Nucl/Angio – Technical
Mammography
Radiation Therapy
Other Radiology – Professional
Other Radiology – Technical
Chemotherapy Services – Facility
Chemotherapy Services – Other
Out-Of-Area (pmpm)
Total
Physician Services – Primary Care
  Primary Care Surgery
IP Visits – Primary Care
Office Visits – Primary Care
Emergency Room Visits – Primary Care
Lab & Path – Primary Care Office
Consults – Primary Care
Immunization & Injection – Admin
Preventive Services
Cardiology – Primary Care
Pulmonology – Primary Care
Allergy – Primary Care
Behavior Health – Primary Care
Primary Care Management Fee
Total
Physician Services – Specialist
  Inpatient Surgery
Outpatient Facility Surgery
Office Surgery
Anesthesia Services
Inpatient Visits – Specialist
Inpatient Visits – Behavioral Health (Psych/Sub Abuse)
Inpatient Visits – Newborn
Office Visits – Specialist
ER Physician Visits
Radiology – Inpatient Professional
Lab & Path – Specialist Office
Lab & Path – Inpatient Professional
Lab & Path – Outpatient Professional
Consults – Specialist
Immunization & Injections – Serum
Physical Therapy
Speech Therapy
Occupational Therapy
Obstetrics – Delivery (Vaginal)
Obstetrics – Delivery (C-Section)
Obstetrics – Other
Well Woman Exams
Cardiology – Specialist Services
Pulmonology – Specialist Services
Allergy – Specialist Services
Neurology
Dialysis
Outpatient Behavioral Health – Specialist Services
Other Medicine
Out-Of-Area (pmpm)
Total
Prescription Drugs
  Generic
Formulary – Brand Name
Non-Formulary – Brand Name
Mail Order Drugs
Total
Other Services
  Ambulance
Appliances & Prosthetics
Chiropractic Services
Podiatry Services
Vision Services – Exam
Visions Services – lenses, frames, etc.
Total

Categories are often modified based upon the needs of the actual situation. However, for each of the specific categories of service, the critical assumptions are presented. These assumptions are for a specific population, managed in a specific way, with specific demographics, assumed charge levels, assumed health status, and assumed benefits.

An example of a specific set of utilization and cost assumptions is shown in the following table:

Illustrative Cost Model For Hospital Patient Services

Hospital Inpatient Annual Admits Per 1000 Length Of Stay Annual Bed-Days Per 1000 Average Cost Per Day N/A Average Cost Per Stay PMPM Claim Cost
  Medical Stays 21.20 3.90 82.68 $4,522.82 N/A $17,639.01 $31.16
Surgical Stays 14.50 4.45 64.53 $8,308.59 N/A $36,973.24 $44.68
Pediatric Stays 7.50 4.20 31.50 $5,628.40 N/A $23,639.29 $14.77
ICU/CCU 4.50 4.30 19.35 $9,045.65 N/A $38,896.28 $14.59
Neonatal ICU 2.20 5.50 12.10 $4,116.77 N/A $22,642.26 $4.15
Behavioral Health – Mental Health 2.50 6.50 16.25 $3,483.58 N/A $22,643.26 $4.72
Behavioral Health – Substance Abuse Detoxification 1.10 5.40 5.94 $1,809.13 N/A $9,769.30 $0.90
Behavioral Health – Rehabilitation 0.30 10.50 3.15 $1,340.10 N/A $14,071.00 $0.35
Maternity – Mother (Vaginal) 11.60 2.35 27.26 $5,156.02 N/A $12,116.64 $11.71
Maternity – Mother (C-Section) 3.90 3.95 15.41 $6,030.43 N/A $23,820.20 $7.74
Maternity – Well Newborn 15.50 2.20 34.10 $1,356.85 N/A $2,985.06 $3.86
Maternity – Other than delivery 0.91 2.10 1.91 $6,017.03 N/A $12,635.76 $0.96
Out-Of-Area 4.30 3.50 15.07 $7,236.52 N/A $25,327.81 $9.08
Skilled Nursing 1.80 11.45 20.61 $1,742.12 N/A $19,947.32 $2.99
Total – includes mat and snf 91.81 3.81 349.85 $5,202.06 N/A $19.821.75 $151.66

The utilization is shown on a “Per 1,000” basis and the claims cost is shown on a PMPM basis. PMPM stands for per member per month. The total shown above for Hospital Inpatient suggests that the overall inpatient hospital cost per covered life would be $151.66 per month prior to any offsets for deductibles, copays, coinsurance, provider discounts, medical management, demographic adjustments, etc. Similar assumptions are available for the rest of the categories previously shown. This information was developed for a typical commercially insured under age 65 population.

Developing Actuarial Values
Once the benefit design is determined, the information from the actuarial cost model is adjusted for variation in benefit design with the overall value of the benefits determined. The ratio of the value of the benefits to the overall value of covered services is the actuarial value of the benefit plan.

This is a fairly complex process. The government has developed their version of this process and has published a Federal AV Calculator. The final version of this was released on February 20, 2013. Most consulting firms have developed their own calculator to help their clients understand the process prior to the release of the Federal AV Calculator. Since the final calculator was released, there continues to be some serious concern by health actuaries as to the reasonableness of the federal calculator. We continue to use our own AV Calculator in addition to the Federal AV Calculator to better help our clients understand what variations in benefits lead to various AV values. This is a dynamic process with varying opinions depending upon the various plan designs and resulting AVs.

The following chart shows an illustrative result using our firm's AV calculator. This was prepared for a specific plan design in a specific geographic region. It is illustrative only to show the various components of cost variation.

View Chart

The above table shows each of the key variables affecting the actuarial value. Each is important to appropriately incorporate into the calculation. The starting Claim Cost in the first column is determined from the actuarial cost model previously discussed and will be adjusted for:

  • Geographic region
  • Health status
  • Smoking/non-smoking
  • Medical management
  • Utilization and cost inflation trend
  • Demographics

The first adjustment reflects the overall nature of the health benefit plan. A richer plan is associated with higher utilization, a lesser benefit plan is associated with lower utilization. The copay/deductible adjustment either raises or lowers the starting claims cost. The next step eliminates any costs that are excluded from the eligible expenses.

This particular example excluded brand drugs.

The next step evaluates the value of various copays (i.e., office visit copays, pharmacy copays, etc.). These are deleted from the value of the benefit costs since they are paid by the individual. Next coinsurance and deductible values are deducted. This example was developed for a $1,750 deductible 80% coinsurance plan. The last two adjustments are for the value of a family deductible limit and the out-of-pocket limit yielding the final cost. In this situation the final cost was $218.30. This was compared to the net value of benefits after excluded benefits (i.e., $309.85) with a ratio of 70.45% or a “silver” plan per our model.

Assuming this was consistent with the “authorized AV calculator” this plan could become a qualified plan under the Patient Protection and Affordable Care Act.

Complications
As you can see there are many different steps in the process to determine the actuarial value of a benefit plan. There are even more assumptions that have to be made to obtain these estimates of value. Armed with this information the plan sponsor can make informed decisions as to what benefit plan is appropriate and what they want to offer, if any.

These calculations are frequently based upon considerable amounts of professional judgment. Not all actuaries think alike so there oftentimes can be professional differences of opinion. It is critical that the plan sponsor obtain professional input they can trust and rely upon.

The American Academy of Actuaries is the primary organization granting credentials that are relied upon in the industry. One approach to obtaining relevant and reliable input is to insist that your advisor is a qualified health actuary with credentials from the Academy. In most situations, this individual would have both an FSA and MAAA credential and be a recognized member of the Society of Actuaries Health Section. Others are qualified to provide this type of input but valid actuarial credentials provide increased assurance that good input is being offered.