PPACA HEALTH REFORM UPDATE MEDICAL LOSS RATIO AND REBATE - - PowerPoint PPT Presentation

PPACA HEALTH REFORM UPDATE MEDICAL LOSS RATIO AND REBATE REQUIREMENTS

SHRM GUAM CHAPTER MONTHLY MEETING 06 JUNE 2012

Summary of Law Definitions Reporting Requirements Calculating Medical Loss Ratio Premium Rebates Notification Requirements

AGENDA

The provision providing for medical loss ratio requirements is

• Sec. 2718 of the Public Health

Service (PHS) Act, as added by

• Sec. 1001(5) of the Patient

Protection and Affordable Care Act (PPACA) (Public Law 111-48). It is codified at 42 U.S.C. Sec. 300gg- 18.

Summary of Law

• PHS Sec 2718 seeks to establish greater

transparency and accountability surrounding insurers’ expenditures for benefits versus administrative expenses and profit to “reduce” the cost of health care coverage.

• The statute also establishes medical loss

ratio (MLR) standards. Insurers must provide annual rebates to enrollees when spending for clinical services and quality improvement activities (in relation to the premiums charged) is less than MLR standards of 85% for the large-group market and 80% for the individual and small-group markets.

Summary of Law (cont’d)

• Under the statute, beginning in 2011,

insurers covering large groups must spend at least 85 cents per dollar of premium revenue

• n medical care or activities that improve

health care quality.

• Small-group and individual plans must

spend 80 cents per dollar.

• PHS Sec. 2718 requires the National

Association of Insurance Commissioners (NAIC) to develop uniform definitions and methodologies for calculating MLRs.

Summary of Law (cont’d)

For purposes of the MLR, the following definitions apply (45 C.F.R. Sec. 158.103): Enrollee – an individual who is enrolled in group health or individual insurance coverage for any length of time during an MLR reporting year. Health Plan – health insurance coverage

• ffered through individual coverage or a group

health plan Large Employer – an employer who employed an average of at least 101 employees (regardless of number of hours worked or full- time versus part-time status) during the preceding calendar year. Until 2016, a state may substitute 51 employees for 101 employees in its definition (see PPACA Sec. 1304(b)(1)(3)).

Definitions

MLR reporting year – a calendar year during which group or individual coverage is provided by an insurer. Policyholder – any entity that has entered into a contract with an insurer to receive health insurance coverage as defined under PHS Sec. 2791(b) (benefits consisting of medical care provided directly, through insurance or reimbursement). Situs of the contract – the jurisdiction in which the contract is issued or delivered as provided for in the contract Small Employer – an employer that employed an average of at least two but not more than 50 employees during the preceding calendar year. For 2016 and later years, a small employer will be defined as one that employs one to 100 employees (see PPACA Sec. 1304(b)(2)).

Definitions

• For each MLR reporting year, insurers

must submit reports on premium revenue and expenses related to group and individual coverage that is issued.

• These reports must be submitted by

June 1 of the year following the end of the MLR reporting year.

• Under this guidance, the first reports were

due by June 1, 2012 to HHS.

Reporting Requirements

• An insurer must submit a report for each

state in which it is licensed to provide coverage and report the experience of all policies issued in the state for the MLR reporting-year.

• The report must aggregate data

separately for the large-group market, the small-group market and the individual market (45 C.F.R. Sec. 158.120(a)).

• If an insurer covers employees of a

business in multiple states, reporting must be attributed to the applicable state based

• n the situs of the contract (45 C.F.R. Sec.

158.120(b)).

Reporting Requirements (cont’d)

• Insurers must report all premiums paid by a

policyholder or subscriber as a condition of receiving coverage.

• The annual report must also include insurer

expenditures for activities that improve health care quality such as case management, care coordination, chronic disease management, medication and care compliance initiatives and HIT expenditures related to quality initiatives (45 C.F.R. Sec. 158.150(b)(2)).

• The annual report also must include non-

claims costs, such as expenses for administrative services, and it must provide an explanation of how premium revenue is used

• ther than for healthcare delivery or quality

initiatives.

Reporting Requirements (cont’d)

Calculating MLR

• An insurer’s MLR is calculated as a

fraction.

• The numerator of the fraction is the

amount of incurred claims paid plus expenses for health care quality improvement activities.

• The denominator is the premium revenue,

minus federal or state taxes and licensing and regulatory fees.

• An insurer’s MLR figure is not based on

the experience of a single employer.

• MLRs are calculated using the data for

the MLR reporting year being calculated and the data for the two prior MLR reporting years.

Calculating MLR (cont’d)

• However for 2011 and 2012 there will

be insufficient data reported to use the three-year average. So, for the 2011 MLR reporting year, an insurer’s MLR is calculated using the data reported for the 2011 MLR year only (45 C.F.R. Sec. 158.220(b), (c)(1)).

• For the 2012 and 2013 MLR reporting

years, the numerator may include any rebate paid for the prior MLR reporting year (45 C.F.R. Sec. 158.221(b)(1), (2)).

Calculating MLR (cont’d)

• To address the special circumstances

faced by smaller insurers, these plans may adjust their MLRs by applying a credibility adjustment if the MLR is based on partially credible experience.

• Credibility of experience is based on the

total number of life years covered by an insurer.

• The adjustment modifies an insurer’s

reported MLR by adding to the reported percentage additional percentage points in recognition of the statistical unreliability of the reported number.

• Credibility adjustments allow insurers,

particularly smaller ones, to hit the medical spending targets, even if they don’t spend 80 percent on medical care.

Calculating MLR (cont’d)

Calculating MLR (cont’d) Table 1: Base Credibility Factor

Life-Years Base Credibility Factor <1,000 No credibility 1,000 8.3% 2,500 5.2% 5,000 3.7% 10,000 2.6% 25,000 1.6% 50,000 1.2% >75,000 0.0% (full credibility)

Credibility adjustment is the product of the base credibility factor multiplied by the deductible factor

Calculating MLR (cont’d) Table 2: Deductible Factor

Health Plan Deductible Deductible Factor <$2,500 1.000 $2,500 1.164 $5,000 1.402 >$10,000 1.736

• If an insurer’s MLR does not meet
• r exceed the minimum percentage

(85% for large groups, 80% for small groups and individuals), the insurer must provide a proportionate rebate.

• Rebates are calculated using

calendar-year activity, irrespective of a plan’s renewal date, based on a formula developed by the National Association of Insurance Commissioners (NAIC).

Premium Rebates

• The amount of the rebate is based on

the premium received (less appropriate taxes and fees), which is then multiplied by the difference between the required MLR and the issuer’s actual MLR for the year.

• Under the final regulations, issuers are

generally required to provide rebates to policy holders.

• When a rebate is issued to the

policyholder, it is the employer’s responsibility to distribute the rebate to plan enrollees, proportional to the premium amount paid (i.e. based on cost-sharing arrangement).

Premium Rebates (cont’d)

• Employers have options for how to handle

rebate funds to benefit participants (enrollees).

• The options for employers will vary

depending on whether the employer’s plan is subject to ERISA.

• For non-ERISA plans, the HHS guidance

distinguishes between governmental plans and non-governmental plans (such as certain church plans).

• You can refer to US Department of Labor

(DOL) Technical Release 2011-04 for more information regarding distributions from health insurers to policyholders and fiduciary requirements.

Premium Rebates (cont’d)

Employer Options for Use of Participant Portion of Rebate (source: Quarle & Barnes LLP)

ERISA-Covered Plans (per DOL Technical Release 2011-04) Non-ERISA, Governmental Plan (per CMS regulations) Non-ERISA, Non-Governmental Plan (e.g., Church Plan) (per CMS Regulations)

Reduce Participant Premiums?

• Yes. Fiduciary decision

whether to track participants with rebate (i.e., only provide premium discount for participants who were in plan during year which relates to rebate). Apparently could be used in current year or future year, but guidance unclear.

• Yes. Must be used to benefit

participants who are enrolled during year in which rebate is received. Only possible to use in future

• year. Unclear if new participants in

future year can receive reduced premium.

Yes, if insurer and employer agree

in writing to the use. Must be used to benefit participants who are enrolled during year in which rebate is received. Only possible to use in future year. Unclear if new participants in future year can receive reduced premium.

Provide Benefit Enhancements?

Yes. Not specifically allowed. Not specifically allowed.

Return in Cash to Participants?

• Yes. Fiduciary decision

and all factors should be considered. May be only option if plan has terminated. Technical Release unclear if cash amount can be paid to all current participants

• r only those who were in

plan during year which relates to rebate. DOL Technical Release does not address tax or withholding issues.

• Yes. Must be used to benefit

participants who are enrolled during year in which rebate is received. CMS guidance does not address tax

• r withholding issues.

Yes, if insurer and employer agree in

writing to the use. Must be used to benefit participants who are enrolled during year in which rebate is received. If insurer and employer do not agree

• n the use of the rebate, insurer must

distribute rebate to participants in equal amounts. CMS guidance does not address tax

• r withholding issues.

The HHS final rule on implementing MLR requirements includes a new notice requirement that will ensure all plan participants receive information on either the amount of their rebate or their insurer’s MLR, regardless of whether there is a rebate. Notification Requirement

The Rebate Notice must include the following information (must be sent out by August 1):

• A general description of the concept of an MLR
• The purpose of setting a MLR standard
• The applicable MLR standard
• The issuer’s MLR
• The issuer’s aggregate premium revenue minus any

federal and state taxes, and licensing and regulatory fees that may be excluded

• The rebate percentage and amount owed to enrollees

based upon the difference between the issuer’s MLR and the applicable MLR standard and

• The fact that the total aggregated rebate for the group

health plan is being provided to the policyholder and a description of how the rebate will be handled

Notification Requirement

• Sec. 2718 of the Public Service

Act

• Sec. 1001(5) of the Patient

Protection and Affordable Care Act

• DOL Technical Release 2011-4
• HHS Rules: CMS-9998-FC and

CMS-9998-IFC2 Reference Materials

Thank You.