GH RM Flash Cards Part 1

Question 1

Comparison of the core attributes of public and private exchanges

Answer 1

Sponsor: Government vs Employer
Enrollees: Individuals and small group vs Employees and retirees of sponsor
Types of coverage: Medical, prescription drug vs Medical, prescription drug, dental, vision, other voluntary benefits
Plan designs: Plans with AV 90%, 80%, 70%, 60% vs Exchange operator or employer defines the plan designs
Payer: Individuals, small groups, individual subsidies, small business tax credits vs Employers provide subsidy and members pay rest

Question 2

Common elements of private exchanges

Answer 2

1. Employee choice - private exchanges offer more plan design options than traditional employer-sponsored plans
2. Employee subsidies - the employer makes a defined contribution
3. Ancillary product offerings - dental and vision are offered alongside medical and pharmacy benefits
4. Online enrollment and decision making tools - tools allow members to evaluate their health care needs, understand their employer’s subsidy, and elect benefits that meet their needs
5. Benefits administration - end-to-end benefits administration including enrollment, eligibility, customer service, and billing

Question 3

Advantages and disadvantages of private exchanges

Answer 3

Advantages:
1. Increased employee choice
2. Cost-savings potential from increased competition across carriers and best-in-class carrier pricing
3. Increased consumerism from members buying-down benefits as a result of a transparent defined contribution approach
4. Robust online decision-support tools and customer service
5. Benefits administration simplification
6. Shift of financial and regulatory risks (for fully-insured models)
7. Cost predictability (for fully-insured models)
8. Improved cost transparency

Disadvantages:
1. Additional expenses for exchange operator financing
2. Less control over plan design, clinical management, and member outreach
3. The need for the employer to increase the defined-contribution amount over time
4. Other member concerns, such as loss of plan-sponsor support and less generous benefits

Question 4

Considerations for determining the employer’s optimal defined-contribution amount for a private exchange

Answer 4

1. Current funding approach - what is the employer’s current philosophy around subsidies and how does it compare to a defined-contribution approach?
2. Variations by coverage tier - does the employer want to subsidize dependents at a different level than the employee?
3. Member impact - how does this impact the member payroll contributions and what sort of dissatisfaction could arise?
4. Financial goals - does this change meet the employer’s financial goals?
5. Competitive pressures - how does the subsidy compare to the benefits provided by other organizations that compete for similar talent?

Question 5

Make up of an HDHP

Answer 5

1. HDHP has a specific meaning under the IRS code to be accompanied with an HSA
2. An eligible plan has cost share limits with minimum deductibles and caps on out-of-pocket max
   a) In 2019, self only coverage has a min deductible of $1,350 and OOPM cap of $6,750
3. The plan must have limited first dollar coverage
   a) The deductible must be met before any other cost sharing can be applied, except for preventative care
4. For self only coverage, an embedded deductible is used while for family coverage the deductible is aggregate

Question 6

Make up of an HSA

Answer 6

1. The savings account is owned by the individual employee
2. Either an employer or an employee can contribute to the account
3. The account can be used to pay the cost share of the HDHP or other qualifying expenses
4. Account contributions are exempt from personal income tax
5. Contributions are limited to a specific amount no matter if an employer, individual, or both are contributing to the account.
6. The account also acts like tax advantaged retirement account since amounts can be invested and accumulate interest tax free over time
7. As long as funds in the HSA are used for eligible medical expenses, they remain tax-free at the time of withdrawal

Question 7

Comparison of key features of health care accounts

Answer 7

Owner of account: HSA employee/individual vs HRA, FSA Employer
Contributor: HSA employee/individual and employer vs HRA employer vs FSA employee and employer
Tax deductible contributions: All yes. FSA except long term care contributions made by employer.
Contribution limits: HSA & FSA indexed, HRA unlimited except small employers have limits
Rollover funds: HSA yes, HRA yes not required and forfeited at termination, FSA small amount allowed
Tax free distributions: HSA medical, Rx, dental, vision, LTC premiums, Medicare premiums. HRA same as HSA and limited expenses, FSA Medical, Rx, dental, vision
Ineligible distributions: All amounts covered under another health plan
HDHP required: HSA yes, HRA & FSA no but can be used with HDHP

Question 8

Consumer choice and empowerment that is encouraged through the use of HDHPs

Answer 8

1. Saving for health care services - account fund ownership encourages regular deposits
2. Selecting appropriate treatment venues - for example, using urgent care instead of emergency room
3. Avoiding unnecessary care and/or avoiding those treatments that have marginal benefit
4. Brand to Generic drug substitution - lower cost and lower trend
5. Comparing quality ratings of providers - using online tools
6. Negotiating prices with providers, particularly for costs under the deductible
7. Improving their own health and taking other illness avoidance measures - financial incentives aligned with health improvement

Question 9

Situations where consumer engagement is less likely to have an impact even under an HDHP

Answer 9

1. Urgent care needs without time to engage in proactive consumer behavior
2. Individuals with higher cost chronic care needs are more likely to hit their out-of-pocket limit

Question 10

Important impacts of HDHPs

Answer 10

1. The probability that a market average risk member will exceed a given deductible
2. As members have access to account funds to help pay for point of service claims, it will erode the savings impact of the HDHP
3. The account funding in the above table is assumed to be half of the deductible
4. The impact of account funding is likely to be on the lower side of the cited ranges if the employee owns the account (HSA), but on the higher side if an employer owned account such as an HRA or FSA is used

Question 11

On a raw level, factors that primarily drive HDHP cost savings

Answer 11

1. The relative health of individuals selecting the different plans
2. The utilization impact arising strictly from plan design and funding
3. Cost savings resulting from increased consumer engagement
4. Note that HDHPs have not shown a clear ability to bend the cost curve beyond initial impact

Question 12

Factors that could make HDHPs more effective

Answer 12

1. Cost transparency: price shopping in this market is still difficult
   a) Prices can be different based on network discounts
   b) Many providers don’t even know the costs of their own procedures
   c) Claims costs may differ because of factors that are not known before a procedure
2. Discussions between providers and patients particularly in:
   a) Value based care arrangements
   b) “Reference based” plans
3. Pre-funding of HSAs at the beginning of the calendar year
4. Allowing more first dollar coverage to curb the fear of members forgoing necessary care
5. Lengthened consumerism: allow more design flexibility, allow a longer coinsurance period (lower deductible paired with a higher out-of-pocket max)

Question 13

Categories of regulatory guidance that have been proposed to change HSAs

Answer 13

1. Expansion of plans that can be paired with HSAs
   a) Allow HSAs to be paired with all ACA bronze and/or catastrophic plans
   b) Line up ACA and HDHP OOPM limits
   c) Allow Medicare-eligible individuals to use HSAs
   d) Allow anyone to use an HSA
2. Expansion of contributions made to HSAs
   a) Allow HSA contribution limits to match the HDHP MOOP
   b) Allow spousal catch-up contributions in family HSAs
3. Expansion of major medical use of HSA funds to a broader variety of expenses
   a) Allow use of HSA funds to pay for health care premiums
   b) Allow use of HSA funds to pay for over-the-counter health supplies
   c) Allow use of HSA funds to pay for direct primary care arrangements
4. Expansion of non-major medical use of HSA funds
   a) Allow use of HSA funds to pay for fitness equipment
   b) Allow use of HSA funds to pre-fund LTC needs

Question 14

Reasons for using the functional approach for designing and evaluating employee benefits

Answer 14

1. Benefits must be organized to be as effective as possible in meeting employee needs
2. Avoiding waste in benefits can be an important cost-control measure for employers
3. It is important to analyze where current benefits may overlap and costs may be saved
4. A systematic approach is needed to keep benefits current, cost effective, and in compliance with regulations
5. A systematic approach is needed to ensure that the various benefits can be integrated with each other

Question 15

Steps in applying the functional approach for employee benefit plan design and evaluation

Answer 15

1. Classify employee and dependent needs or objectives into logical functional categories
2. Classify the categories of persons the employer may want or need to protect
3. Analyze current benefits with respect to employee needs and the categories of covered persons
4. Determine any gaps in benefits or overlapping benefits in the current plan
5. Consider recommendations for plan changes to meet any gaps in benefits and to correct any overlapping benefits
6. Estimate the costs or savings from each of the recommendations made
7. Evaluate alternative methods of financing or securing the benefits
8. Consider other cost-saving or cost-containment techniques for both current and recommended benefits
9. Decide upon the appropriate benefits, methods of financing, and sources of benefits, by using the preceding analysis
10. Implement the changes
11. Communicate benefit changes to employees
12. Periodically reevaluate the employee benefit plan

Question 16

Common loss exposures covered by employee benefit plans

Answer 16

1. Medical expenses for employees (active & retired) and their dependents
2. Losses due to employees’ disability (short-term & long-term)
3. Losses due to the death of active employees, their dependents, and retired employees
4. Retirement needs of employees and their dependents
5. Capital accumulation needs or goals
6. Needs arising from unemployment or from temporary termination or suspension of employment
7. Needs for financial counseling, retirement counseling, and other counseling services
8. Losses resulting from property and liability exposures
9. Needs for dependent care assistance (e.g. child-care or elder-care services)
10. Needs for educational assistance for employees and their dependents
11. Needs for LTC for employees (active & retired) and their dependents
12. Other employee benefit needs or goals (incentive programs)

Question 17

Categories of persons the employer may want to or be required to provide benefits for

Answer 17

1. Active full-time employees
2. Dependents of active full-time employees
3. Retired former employees
4. Dependents of retired former employees
5. Disabled employees and their dependents
6. Surviving dependents of deceased employees
7. Terminated employees and their dependents
8. Employees (and dependents) on temporary leaves of absences (such as for military duty)
9. Active employees who are not full time (such as part-time employees and directors)

Question 18

Considerations for analyzing current benefits in the employee benefit plan

Answer 18

1. Types of benefits - a common approach is to prepare an outline or table showing how the different types of benefits meet the various employee needs
2. Levels of benefits - the analysis should also show the amount of those benefits that is currently provided under various scenarios
3. Probationary periods - analyze any periods during which newly-hired employees are not yet eligible to receive benefits, to determine whether they are appropriate
4. Eligibility requirements - various requirements should be analyzed. For example, should survivors of deceased employees continue to be covered, for what benefits, and for how long?
5. Employee contribution requirements - determine how much employees will be required to contribute to the cost, and whether the plans will be mandatory or voluntary
6. Flexibility available to employees - determine the choices that will be given to employees in selecting their benefits
7. Actual employee participation in benefit plans - determine what percentage of employees enroll in each benefit, which may indicate whether the benefit meets employee needs

Question 19

Common functions for administering employee benefits

Answer 19

1. Benefits plan design - create a benefit program that addresses the needs of the organization and can be effectively administered and communicated
2. Benefits plan delivery - involves serving plan participants through various activities. Must meet legal standards for quality service (e.g. comply with ERISA and COBRA standards)
3. Benefits policy formulation - management must make decisions on questions and issues that arise. These decisions must be codified into policies.
4. Communications - must effectively communicate benefit programs and plan provisions, which is challenging due to workforce diversity, regulatory requirements, and plan complexity. Legal standards require certain communications (e.g., summary plan descriptions, benefit statements, and statement of COBRA rights)
5. Applying technology - involves setting up a database containing information on all the employer’s different benefit plans. This information should be secure and easily accessible to the employer and its employees.
6. Cost management and resource controls - benefits directors must evaluate proposals from insurers and develop the firm’s risk-management approach
7. Management reporting - information systems are needed to monitor financial results, utilization, and compliance. Reports are needed in order to:
   a) Compare to the competition
   b) Measure achievement of human resources objectives (through industry surveys, employee surveys, and focus groups)
   c) Assess and manage program risks
8. Legal and regulatory compliance - must comply with fiduciary, funding, and other requirements as prescribed by law. Many standards were codified as part of ERISA.
9. Monitoring the external environment - involves monitoring various factors that impact benefit management activities

Question 20

Activities required for service plan participants

Answer 20

1. New employee benefits orientation
2. Policy clarification on benefits eligibility, coverage, and applicability of plan provisions
3. Dealing with exceptional circumstances and unusual cases
4. Collection and processing of enrollment data, claims information, and requests for plan distributions
5. Benefits counseling and response to employee inquiries for active employees
6. Benefits counseling for employees who are terminating, retiring, disabled, or on leave

Question 21

Technological tools used by benefits directors to support customer-driven processes

Answer 21

1. Executive information systems - provide management information in summary format. Helps identify utilization patterns and cost factors.
2. Imaging and optical storage - eliminates paper records and allows sharing of documents over a network
3. Access to information over the internet - facilitates paper-less communication from the plan sponsor to insurance carriers, investment custodians, and third-party administrators
4. Client-server technology - integrates networked applications with desktop and mobile tools, allowing decentralized management and supporting self-sufficient plan participants
5. Employee self-service - allows customer-driven benefits modeling, retirement planning, and updating of personal data

Question 22

Methods for comparing benefit programs to the competition

Answer 22

1. Compare the benefits payable to representative employees under different circumstances
2. Compare actual costs to the employer for different benefit plans
3. Calculate relative values of the different benefits based on uniform actuarial methods and assumptions
4. Compare benefit plans feature by feature to isolate specific provisions that may be appealing to certain employee groups

Question 23

External factors that impact benefit management activities

Answer 23

1. General business and competitive conditions - benefit programs are increasingly important for attracting and retaining employees. There is a trend toward benefits outsourcing
2. Governmental policy - requires monitoring laws and subsequent regulations, as well as proposed legislation
3. Workforce demographic shifts - greater diversity has led to flexible benefit plan offerings. The aging of the workforce has created greater interest in retirement programs
4. New product development - must develop a means to evaluate new products and services, and to integrate them into existing plan offerings
5. New organizational structures - must redesign plans to fit the new structures and remain compliant
6. Technological enhancement and innovation - must keep abreast of technological changes and proactively plan the introduction of new technologies

Question 24

Reasons plans are outsourcing benefits administration

Answer 24

1. The complexity of administering benefits
2. The efficiencies of specialized service providers
3. The abilities of specialized providers to obtain favorable pricing because of their business volume
4. The ability of service providers to more readily implement technology and monitor regulations and market trends

Question 25

Considerations when setting employee contribution levels for an employer health plan

Answer 25

1. Total compensation philosophy - this includes how compensation is divided between salary and benefits. Some employers allocate a larger portion of total compensation toward benefits.
2. Benefits budget - many employer budgets are not keeping pace with increases in the cost of health care, so a greater portion of costs must be paid by employees
3. Benefit competitiveness - employers must consider the total benefit structure compared to other employers with whom they compete for talent
4. Collective bargaining - this leads to union groups often having better health coverage and subsidization than non-union groups at the same company
5. Legislative and regulatory issues - new laws may cause employers to change benefits or employee contribution levels. For example, the ACA affordability threshold resulted in some employers reducing required contributions.

Question 26

Approaches for setting employee contribution levels for an employer health plan

Answer 26

Two basic approaches:
1. Defined benefit - setting the employee’s contribution equal to a specified percent of premium
2. Defined contribution - the employer provides a defined dollar subsidy regardless of the plan choice
Other levers the employer may use:
1. Income-based contributions - require higher contributions from higher-paid employees
2. Dependent subsidy or spousal surcharge - require a greater level of contribution to cover dependents
3. Health incentives - implement wellness incentive programs where employees receive a premium reduction for healthy behaviors, such as completing a health risk assessment or receiving preventive services

Question 27

The elements of a data collection request to an employer in order to advise on Health & Welfare benefits

Answer 27

1. A Summary Plan Description which includes employee eligibility and plan design details for the various benefits available to employees
2. Documents detailing the costs for each benefit, splitting out the employer and employee portions
3. Contacts for medical, dental, vision, life and disability providers to request detailed claims and enrollment data for the various programs
4. A census file, including demographic data (age, gender, salary, years of service, etc.) as well as plan election information (medical, dental, vision plan elections and coverage tier)

Question 28

Examples of overarching philosophy, guiding principles, and objectives developed after merging two employer groups

Answer 28

1. Provide tools and resources to encourage employees to become better healthcare consumers
2. Promote accountability for lifestyle and healthcare choices
3. Ensure affordable payroll contributions for lower paid workers
4. Minimize barriers to seeking appropriate healthcare which may be caused by high out-of-pocket costs
5. Utilize best-in-class and industry-leading solutions to maximize financial efficiency
6. Limit year over year volatility for employees
   a) Minimize increase in payroll contributions
   b) Minimize disruption of existing patient/provider relationships, particularly PCPs
7. Maximize financial efficiency by offering high performance networks
8. Optimize employee health and well-being and productivity through effective care coordination and healthy lifestyles programs

Question 29

Examples of objectives for a new benefits structure after merging two employer groups

Answer 29

These are actionable items that should follow the guiding principles:
1. The new medical benefit structure should be as close to cost neutral to the current separate programs
a) Limit year over year trend in employer cost share for medical benefits to X%
b) Limit total benefits spend to a given cost on a per employee basis
2. Maintain current competitive position to comparator groups with respect to overall company subsidy with medical benefits
3. Offer medical benefits that cover the same percentage of charges as local employers along with similar payroll contributions
4. Minimize provider disruption, particularly disruption of member relationships with their PCP
5. Retain the parent company’s salary banded contribution structure to increase affordability for lower paid employees
6. Phase out old plan designs that are less prevalent
7. Retain a highly efficient staff model HMO plan (best-in-class)
8. Complete a vendor selection process to identify the best-in-class medical carrier with the lowest cost of care for the combined population
9. Minimize the number of employees who would be negatively impacted by benefits changes
10. Manage the impact of adverse selection
11. Implement medical plan designs that foster participation in HSAs

Question 30

Key terms needed to discuss the Employer Shared Responsibility (ESR)

Answer 30

1. Minimum Essential Coverage (MEC) - MEC plans cover all essential benefits, including hospitalization, outpatient and physician services, and prescription drugs
2. Full-Time Employee (FTE) - is an employee who works an average of 30+ hours/week, measured monthly (130 hours/month)
3. “Affordable” coverage is met if the FTE required contribution for self-only coverage under the medical plan does not exceed 9.5% of their household income for the taxable year
4. Minimum actuarial value (MV) - plan must pay at least 60% of covered expenses
5. Federal or State Insurance Exchange - an on-line marketplace where consumers may shop for qualified insurance coverage and request a federal subsidy

Question 31

Penalties that apply if the ACA enacted ESR rules are not met

Answer 31

1. U.S. Code Section 4980H(a) - Penalties may apply if an employer:
   a) Does not offer MEC to at least 95% of its full-time employees (and their eligible non-spouse dependents) and at least one FTE enrolls in an Exchange (state or federal) plan and receives a federal subsidy to assist with payment of the monthly insurance premium
   b) The penalty is $2,000 per year for each FTE less 30 employees. The fee is nondeductible for income tax purposes and the employer pays regardless of whether some employees elected employer provided coverage. The fee is increased annually after 2014
   c) The penalties do not apply to employers with fewer than 50 FTE in the prior year
2. U.S. Code Section 4980H(b) - Penalties apply if an employer:
   a) Offers MEC for at least 95% of its full-time employees, but coverage is not affordable or does not provide MV
   b) Penalty is $3,000 per year for each FTE who enrolls in an Exchange plan and receives a federal subsidy. The fee is nondeductible for income tax purposes and is increased annually after 2014
3. The employer must do some reporting to show compliance with MEC
   a) IRC Section 6055 reporting focuses on enrollment in MEC
   b) IRC Section 6056 reporting focuses on the offer of MEC to FTEs

Question 32

Steps to understand how benefit designs impact the company financials after merging two employer groups

Answer 32

1. Determine “total cost rates”, which represent the average expected cost PEPM paid by the plan (claims and administrative expenses)
   a) These rates are also often referred to as premium equivalent rate
   b) The rates will vary by coverage tier (Employee Only, Employee + Spouse, etc.)
2. Determine the enrollment distribution. Use current enrollment by plan and coverage tier and make “migration” assumptions about which plans employees will choose once the merger is complete
3. Determine employee contributions (can vary by salary and coverage tier)
4. The “company subsidy” is the difference between the total cost rates and the employee contribution
5. The total company cost is determined by cross-multiplying the company subsidy with the enrollment for each group of employees for whom the subsidy varies.

Question 33

Types of flexible accounts in Canada

Answer 33

1. Health spending account (non taxable if requirements are met) - may cover any health care expenses that would be tax deductible under the Income Tax Act, as long as they are not covered by the provincial plan or other private insurance
2. Personal account (taxable) - may cover a wide range of benefits, at the employer’s discretion, such as child care, financial counseling, or even sports equipment or gym memberships
3. Executive perquisite account (taxation depends on the taxability of the covered expense) - normally administered separately from the flexible plan

Question 34

Advantages to the employer of offering flexible accounts

Answer 34

1. Expand the types of benefits offered with little or no additional employer cost
2. Add a new benefit without subsidizing an expensive coverage area
3. Offer a benefit that might appeal to only a small segment of the employee population
4. Contain costs (by setting a defined contribution) while providing employees with flexibility over how funds are spent
5. Test the appeal of flexible benefits without committing to a full-choice program

Question 35

Additional advantages of health spending accounts

Answer 35

1. Deliver compensation tax effectively
2. Encourage employees to self-insure predictable and budgetable expenses (such as vision and dental)
3. Soften the impact of higher employee cost sharing
4. Replace existing coverage, allowing the employer to gain control of future cost increases
5. Obtain the maximum value from health benefits under the Quebec tax system

Question 36

Requirements for Canadian health spending account reimbursements to be tax-free

Answer 36

1. An employee’s election to allocate funds to the account must be made in advance of the plan year and must be irrevocable. An exception is allowed for family status changes.
2. The plan must require forfeiture of any unused account balances, using one of the following methods:
   a) One year rollover of unused balances - funds allocated to the account can be used to reimburse current year expenses or rolled over to next year’s account. Unused amounts are forfeited at the end of the second year.
   b) One year rollover of unpaid claims - roll over unpaid claims from the prior year to be paid by this year’s account balance. Funds remaining at the end of the year are forfeited

Question 37

Sources of funds for health spending accounts

Answer 37

1. New contributions by the employer
2. Employer savings from reducing medical plan costs
3. Employees directing employer-provided flexible credits to the account
4. Employees allocating a part of annual bonuses or company savings plan matches to the account

Question 38

Considerations for designing flexible accounts

Answer 38

1. Type of approach - decide whether to introduce a flexible account and which types of accounts to offer
2. How will the presence of the account impact other benefit choices?
3. Funding considerations - for example, decide if contributions to the accounts will be monthly or annually
4. Should there be limits on how much the employee can allocate to the flexible account?
5. How will mid-year changes be handled? - this will vary by account type and the reason for the change (family status change, termination, retirement, or death)
6. Disposition of funds at year end - funds are forfeited, rolled over, or paid in cash (personal or perquisite accounts)

Question 39

Advantages and disadvantages of health spending accounts replacing health and dental plans

Answer 39

Advantages for the employer
1. Fixed contribution (gives employer control over benefit cost increases)
2. Contributions to the account are tax deductible
3. The accounts are easy to administer and communicate
Advantages for the employees
1. The accounts provide flexibility as to how the money is spent
2. Benefits are non-taxable to the employee
3. Can be used to buy insurance
4. The employee can decide what expenses are covered
Disadvantages
1. Benefits are inadequate since there is no insurance
2. Inequities
a) A flat contribution per employee means families receive relatively less protection than singles
b) A percentage of pay contribution means lower-paid employees receive less protection than higher-paid employees
3. Inflation is borne by the employees

Question 40

Key learnings from disease management programs that ACOs should apply to be successful

Answer 40

1. Any DM program, to be successful, needs to employ high quality data analytics, as close to real-time as possible
2. Medical records need to have the analytical sophistication and workflow capabilities to support the program. ACOs emphasize electronic medical or health records, but many of these are simply a repository of data and are not universally used by providers.
3. Systems need to be aggregated before they can usefully support the ACO
4. The importance of economics
   a) Changing patient behavior in a way that produces a measurable financial outcome is a long and difficult undertaking
   b) Programs need to be focused on the patients who represent the greatest opportunity for cost reduction
5. The importance of planning and understanding the opportunity - economically successful programs must be focused. For example, they must identify what patients and what conditions will be managed.

Question 41

Structure of Medicare ACOs

Answer 41

1. An ACO is a network that is either physician-practice based or hospital based that shares responsibility for providing care to patients.
2. The Medicare Shared Savings Program has two models of gainsharing:
   a) One-sided - The ACO and CMS share 50/50 in any gains
   b) Two-sided - The ACO shares more of the gains, but is at risk for any losses
3. The ACO must meet certain requirements to be allowed to share savings with CMS:
   a) The ACO must meet certain quality standards in the following domains: patient / caregiver experience, care coordination / patient safety, preventive health, and at-risk population
   b) Savings must surpass a hurdle rate, which ranges between 2% for the largest ACOs and 4% for smaller ACOs
4. The ACO must manage all of the medical health care needs of at least 5,000 Medicare beneficiaries for at least three years
5. Patients do not enroll in the ACO. They are “attributed” to an ACO because they have received the plurality of their primary care from an ACO provider.
   a) The patient is assigned to a PCP who is accountable for providing quality care, reducing utilization, and convincing the patient not to seek care outside the ACO provider network

Question 42

Ways in which provider group-based ACOs are expected to generate savings

Answer 42

1. Implementing care coordination to manage the care of the patients who need additional services
2. Reducing the need for tests via access to integrated medical records and consistent management by the physician
3. Developing a network of efficient providers for referrals and limiting the use of less efficient and more expensive providers
4. Focusing on quality, which will result in fewer unnecessary services. And emphasizing preventive services will lead to savings as population health improves.
5. Redirecting care to cost-efficient providers
6. Reducing duplication of services and unnecessary care
7. Preventing medical errors

Question 43

Criteria for a beneficiary to be assigned to a participating ACO

Answer 43

1. The beneficiary must have a record of Medicare enrollment
2. The beneficiary must have at least one month of Part A and Part B enrollment, and cannot have any months of Part A only or Part B only enrollment
3. The beneficiary cannot have any months of Medicare group (private) health plan enrollment
4. The beneficiary may be assigned to only one Medicare shared savings initiative
5. The beneficiary must live in the United States or US territories and possessions
6. The beneficiary must have a primary care service with a physician at the ACO
7. The beneficiary must receive the largest share of his or her primary care services from the participating ACO

Question 44

Steps in the process for CMS to assign beneficiaries to an ACO

Answer 44

1. Step 1 - the beneficiary is assigned to a participating ACO when:
   a) The beneficiary has at least one primary care service furnished by a primary care practitioner, and
   b) More primary care services (measured by Medicare allowed charges) are furnished by primary care practitioners at the participating ACO than from the same types of providers at any other ACO
2. Step 2 - for a beneficiary who has not received any primary care services from a primary care practitioner, the beneficiary is assigned to the participating ACO if:
   a) The beneficiary received at least one primary care service from a specialist physician utilized in assignment at the participating ACO, and
   b) More primary care services (measured by Medicare allowed charges) are furnished by a specialist physicians utilized in assignment at a participating ACO than from any other ACO

Question 45

Calculation of average per capita expenditure for ACOs

Answer 45

1. Expenditures are calculated for ACO-assigned beneficiaries separately for the following Medicare enrollment types:
   a) ESRD - eligibility for Medicare as a result of end stage renal disease
   b) Disabled - eligibility for Medicare due to disability
   c) Aged/dual-eligible - eligibility for Medicare by age, and eligible for Medicaid
   d) Aged/non-dual-eligible - eligibility for Medicare by age, but not eligible for Medicaid
2. Expenditures are defined as the total Medicare Parts A and B FFS payments from any provider for Shared Savings Program eligible months
3. Claims are assessed after three months of run-out. And a completion factor is applied by CMS.
4. Average per capita expenditure = sum_k (claims_k * t_k) / sum_k t_k
   a) The k values represent the different beneficiaries and t_k is the exposure period of the kth beneficiary
   b) This calculation is done separately for each combination of Medicare enrollment type and benchmark and performance year

Question 46

Risk adjustment approaches for updating benchmarks to the performance years for Medicare ACOs

Answer 46

1. For newly assigned beneficiaries - the ACO’s CMS-HCC prospective risk scores are recalculated to adjust for changes in severity and case mix
2. For continuously assigned beneficiaries - for each performance year, the risk ratio is calculated as the ratio of the HCC score for that year relative to benchmark year 3. An overall risk ratio is calculated as a weighted average of the ratios for the different Medicare enrollment types.
   a) When the risk ratio is greater than one, demographic risk scores are used. This is done to negate some of the effect of diagnosis-driven increases in risk scores.
   b) When the risk ratio is less than one, HCC ratios are applied

Question 47

Formulas for the ACO’s initial and adjusted benchmark costs for Performance Year 1 (PY1)

Answer 47

1. C_0 = 1/3 C_B1 (1+t_B1)(1+t_B2)R_B3/R_B1 + 1/3 C_B2 (1+t_B2)R_B3/R_B2 + 1/3 C_B3
   Bt = Benchmark year t
   C_Bi = Cost PMPY in benchmark year i
   C_0 = Cost PMPY in initial year
   Trend Factors: 1+t_i
   Average risk scores: R_t is the average risk score applicable in year i
   In a 2015 rule, CMS changed the weights to be 1/3 for all the second and subsequent 3-year agreement periods to calculate C_0 (the weights for the first agreement period are 0.6, 0.3, and 0.1 with the largest weight applied to the most recent year)
2. Updated (adjusted) benchmark. The Benchmark year cost PMPY (C_0) is updated to the first performance year claim cost in two ways:
   * With the change in risk profile of the population: C’_PY1 = C_0 * R_PY1 / R_B3
   * By adding the absolute increase in National Parts A and B PMPY. This is not risk or trend adjusted.
   * The risk ratio R_PY1/R_B3 is calculated in accordance with ACO risk adjustment methodology

Question 48

Methodology for calculating ACO shared savings payments, one-sided model

Answer 48

1. Updated (adjusted) benchmark for PY i: C’_PYi
2. Actual spending
3. In each PY, savings = Updated benchmark - actual spending
4. Maximum sharing rate is 50% for one-sided models. Also called the quality performance sharing rate
5. Shared savings
   a) Shared savings rate = maximum sharing rate * quality performance score
   b) Shared savings = savings * shared savings rate
   c) Shared savings are capped at 10% of the updated benchmark in the one-sided model
   d) A minimum savings rate (MSR) is used to reduce the chance of payments due to random fluctuations. Savings must exceed this rate to trigger shared savings, but once the MSR is met, all savings are shared (even those below the MSR).

Question 49

Criteria to be considered an Advanced Alternative Payment Model (APM)

Answer 49

1. Involves more than a nominal risk of financial loss
2. Includes a quality measure component
3. Has the majority of participants using certified EHR technology
4. Examples include two-sided risk ACOs and medical homes expanded by CMS’s innovation center

Question 50

As of 2018 the ACO Tracks available and their potential gains/losses

Answer 50

1. Track 1: one-sided basis (gainsharing only)
   Potential savings are limited to 50% of gains to a maximum of 10% of benchmark costs.
2. Track 1+: two-sided basis. Potential gainsharing up to 50% of savings to a maximum of 10% of benchmark costs. Loss sharing is fixed at 30% of losses. Loss sharing is limited to 4% of benchmark costs OR 8% of FFS revenues.
3. Track 2: two-sided basis. Potential gainsharing up to 60% of savings to a maximum of 15% of benchmark costs. Loss sharing is between 40% and 60% of losses. Loss sharing is limited to between 5% and 10% of benchmark costs, depending on year.
4. Track 3: two-sided basis. Potential gainsharing up to 75% of savings to a maximum of 20% of benchmark costs. Loss sharing is between 40% and 75% of losses. Loss sharing is limited to 15% of benchmark costs.

Question 51

Description of the unintended incentive in ACO payment models

Answer 51

1. Current rules suggest CMS will calculate benchmarks for a new three-year period in the way original benchmarks were calculated. For example, a 60% weight will be applied to the most recent year.
2. This creates an incentive to increase spending in that year in order to increase the benchmark
3. Conversely, this removes the incentive to create savings in that year, penalizing ACOs that do so by giving them a lower benchmark
4. As a result of the unintended incentive, the current payment model may result in higher rather than lower Medicare FFS spending

Question 52

Proposed strategies for improving incentives in ACO payment models

Answer 52

1. Modify the benchmark weights to give equal weight to each of the three years that are used for calculating the benchmark
   a) This would reduce the incentive to increase spending in the last year before a new contract
   b) Alternatively, even more than three historical years could be used when calculating benchmarks
2. Introduce a form of “yardstick competition”
   a) Base an ACO’s benchmark not only on its own past performance, but also on the performance of other Medicare providers or on a local benchmark
   b) This would introduce competition into the payment model. The more an ACO lowered its spending relative to that of its competitors, the greater its cumulative rewards would be.

Question 53

Elements of network management

Answer 53

1. Articulate the goals of the network
2. Comply with applicable regulations
3. Ensure quality standards are met
4. Manage cost
5. Manage risk
6. Evaluate the network on an on-going basis

Question 54

Goals of a provider network for each major stakeholder

Answer 54

Administrator’s goals
1. Grow, or at least remain financially stable
2. Meet the needs of a specific population
3. Preserve market share
4. Provide negotiation leverage through size
Employer’s goals
5. Offer employees a benefit suite which may include different network options
6. Balance the trade-off between the cost of broader networks and employees’ satisfaction with benefits
7. Limit the provider disruption that employees face when choosing new benefits
Consumer’s goals
8. Minimize the total cost of coverage: payroll contributions and point-of-care cost sharing during the year
9. Have their existing physicians be in-network
10. Use a local network with a good reputation
11. Administration of the plan’s benefits to run smoothly, pay claims timely, have no unreasonable delay in care, and to not be surprised with bills
Provider’s goals
12. Earn a fair and predictable source of income
13. Spend as little time as possible on administrative functions, such as prior authorizations and dealing with coding and payment issues

Question 55

The three primary domains of network adequacy

Answer 55

1. Provider composition - most networks reflect a wide variety of provider types, like doctors, hospitals, nursing homes, therapists, pharmacies, medical equipment providers, and others
2. Geographical access - measured against a standard such as 95% of members have at least two primary care physicians available within 15 miles
3. Consumer protections from participating providers
   a) The provider cannot balance bill the member for any amount above the agreed-upon payment terms
   b) The provider cannot hold harmless the member (cannot bill for any amounts owed by the plan)

Question 56

Steps in selecting and applying a quality measure

Answer 56

1. Establish the validity of the measure with literature review and analysis
2. Assign the measure to a domain, which represents the goals to be met (i.e. effectiveness and safety)
3. Identify the algorithm for determining whether the quality measure has been met
   Algorithms from the National Quality Forum (NQF):
   a. Structural measures - qualifications and staffing levels of the provider
   b. Process measures - administration of care like adherence to evidence based medicine
   c. Outcome measures - an example here would be mortality rates following surgery
4. The final step, before use of the measure, is to update systems, work streams, and documentation

Question 57

Levers available to administrators to help control costs

Answer 57

1. Limiting benefits deemed not medically necessary
2. Managing the disease burden
3. Utilization management
4. Encouraging provider efficiency - measured with either the portfolio method or the total cost of care (TCOC) method
5. Reimbursement methodology

Question 58

Categories of reimbursement methods

Answer 58

1. Category 1 - Fee-for-service (FFS)
   Physician services
   a) Fee schedule reimbursement - a list of allowed amounts for all the applicable procedures
   b) Discount method reimbursement - determined by a discount off billed charges
   Hospital inpatient stays
   c) A service defined in terms of the entire stay may be reimbursed on a DRG basis
   d) A service defined as a day in the hospital may be reimbursed on a per diem basis
2. Category 2 - FFS with a link to quality and value with incentives paid out that are activities-based, not results-based
3. Category 3 - Alternative Payment Method (APM) built on FFS architecture
   a) Encourages efficient and effective care that is results-based, not just activity based
   b) The reimbursement in this category is often determined by an episode of care
   c) This reimbursement method may also include a risk bonus/penalty payment
4. Category 4 - Population based reimbursement
   a) The focus is on TCOC for a patient, in exchange for a steady source of income to the provider
   b) Includes capitation payments, global budgets, and percent of premium payments

Question 59

Advantages and disadvantages of Tiered Network Health Plans (TNHPs)

Answer 59

1. Advantages
   a) TNHP design savings - members save money with lower cost share, the health plan saves money with lower net claim costs, and premiums can also be lower as the above savings are realized
   b) Better health - high quality care further translates to an increased overall health care quality received
   c) Significant cost differential - increases the potential of driving plan members to the preferred provider
2. Disadvantages
   a) Markets with limited provider competition - decreased competition reduces the leverage of the TNHP to obtain high-value providers or networks
   b) Service vs. product - it is difficult to compare people-driven care quality to product-driven provider quality
   c) Negligible cost differential - some in-network preferred provider discounts are negligible to consumers, reducing the likelihood of shifting providers
   d) State requirements - some states limit how the health plan can structure the benefits of a plan and impose requirements for network adequacy
3. Anticompetitive and transparency laws, significant cost differentials in the tiers, high quality care, and a sufficient network size can all mitigate TNHP weaknesses

Question 60

Distinct steps to tiering providers

Answer 60

1. Limit preferred providers to those meeting a quality standard
2. For providers passing that quality standard, draw a line at a low-cost percentile, or choose the lowest cost provider in a designated region

Question 61

Components of the TNHP pricing formula

Answer 61

1. Claims under control: N% = % of total incurred claim dollars under the control of non-preferred providers
2. Cost differential: P% = 1 - Average preferred cost / Average non-preferred cost
3. Member liability differential: M% = 1 - AV for non-preferred providers / AV for preferred providers
4. Shift = the assumed percentage of non-preferred users switching to preferred providers (measured in dollars that move and not the number of members)
5. TNHP savings formula: % of total incurred claims saved = N% * [M% + Shift * (P% - M%)]
6. Equilibrium happens when M% = P%. This results in incurred claims cost being the same despite the members choice of provider.

Question 62

Ways in which bundled payments have been used

Answer 62

1. By providers to attract more business, including from self-pay patients and medical tourism
2. By providers to engage physicians (especially surgeons)
3. By providers to gain the cooperation of physicians to reduce hospital costs
4. By payers to reduce payments
5. By payers to encourage patients to use lower-cost or higher-quality providers

Question 63

Considerations in contracting for bundled payments

Answer 63

These include the key financial, operational, and quality issues
1. Defining the episode - what is the trigger date and when does the case end? Which services are included?
2. Evaluating catastrophic risk - need to do an outlier risk analysis that includes a classical stop loss analysis
3. Financial stability for low case loads - random fluctuation may be greater for provider groups with low case loads
4. Determining provider allocation of funds - the allocation should consider financial incentives for physicians to encourage them to promote more cost-effective care
5. Distinguishing case severity - could limit risk by removing higher-severity patients from the bundled payment approach
6. Quality outcome requirements - minimum thresholds may be needed to ensure quality is not compromised as services are reduced
7. Administrative complexity of supporting the contract
8. Risk-sharing alternatives - contracts that share financial risk between the provider and payer may be more viable than pure bundled payments
9. Potential for increased utilization - contracts for individual providers should not give them incentives to increase utilization to get a larger share of the bundled rate

Question 64

Process for developing episode-based measures of quality performance using a claims database

Answer 64

1. Opportunities are identified
2. Quality Measurement Event (QME) opportunity is attributed to physicians using fixed attribution rules
3. A compliance rate is calculated for each physician by comparing opportunities with successes
4. Performance can be assessed in terms of a relative compliance rate

Question 65

Major advantages of episode-based profiling

Answer 65

1. Administrative feasibility
2. Minimal administrative burden for data collection
3. Comparable performance against defined standards
4. The “episode” view can be considered more “patient-centered”

Question 66

Limitations of episode-based profiling

Answer 66

1. Misidentification of high and low performing physicians
2. Comparative bias of providers
3. Physicians’ cost efficiency scores may be inaccurate if:
   a) Episode responsibility is attributed incorrectly
   b) Cost outliers distort estimates of underlying performance
   c) Episodes considered in profiles are not representative of a physician’s usual practice
   d) Risk adjustment is inadequate to control for effects of patients’ comorbid conditions
   e) The number of episodes available for profile calculations is insufficient for reliable estimation
4. Inclusion of hospital costs in episode-based profiles represents other challenges
   a) Cost efficiency measures can be heavily influenced by hospital costs
   b) Hospital costs are largely beyond physicians’ control
   c) Adverse impact for physicians practicing in high-cost settings, academic medical centers

Question 67

How episode-based profiling is likely to improve and become more standardized over time

Answer 67

1. Electronically submitted claims will increase accuracy
2. Fully documented claims have more reliable episode profiles
3. Comorbidities and other risk-adjustment factors will be credited more accurately
4. Organized and supported practice infrastructure will distinguish performance characteristics
5. Catalyze the medical profession to developing administrable evidence-based performance measures

Question 68

The factors that determine the validity and reliability of cost profiles

Answer 68

1. Validity - indicates whether the method, of both assigning episodes of care to physicians and creating summary scores, will accurately represent physicians’ economic performance
2. The reliability is determined by three factors:
   a) The number of observations (i.e., episodes of care)
   b) The variation among physicians in their use of resources to manage similar episodes
   c) Random variation in the scores

Question 69

Steps to construct a physician summary cost profile

Answer 69

1. Group claims into meaningful clinical categories called episodes
2. Determine observed episode costs based on allowed charges
3. Episode attribution - assigning each episode to the physician
4. Construct physician summary cost profiles
   a) Calculated the average cost of each episode type assigned to physicians in each specialty
   b) Adjust the observed cost using the patient-specific risk score producing the expected cost
   c) A physician’s cost profile = [sum of observed costs / sum of expected costs] for all assigned episodes

Question 70

Equation for physician-specific reliability

Answer 70

Physician specific reliability = physician to physician variance / (physician to physician variance + physician-specific error variance)
a) Large variations in cost would have a large physician-specific variation
b) Physician-to-physician variance is larger when there is a wide distribution of cost profile scores

Question 71

Significant findings in the reliability of physician cost profiling

Answer 71

1. The median reliability of physician cost profiles, had a wide range by specialty
2. Overall, the majority of physicians did not have cost profiles that met common thresholds of reliability
3. Doubling the number of episodes produced only modest gains
4. It is recommended that users of physician cost profiles directly assess reliability
5. Surgical specialties in particular appear to have low reliability scores
6. Opportunities for cost control still exist among physicians with more reliable scores
7. Misclassification presents difficulties achieving cost control objectives
8. Developing better measures of cost performance at the physician level appears to be the most promising method to increase the reliability of cost profiles
9. Consumers, physicians, and purchasers are all at risk of being misled by the results produced by these tools

Question 72

Practical issues that have determined the success or failure of previous value-based arrangements

Answer 72

1. Engaging all stakeholders (e.g., policymakers, actuaries, and providers) is important
2. Payment reform is organization-specific - there is not one payment structure that is the best in all circumstances
3. Result of payment reform are decidedly mixed, with both successes and failures
4. Success in provider payment arrangements depends on good holistic risk management by the payment reform team
5. Organizations need various qualities to succeed under payment reform
6. Insurance companies have an important role in payment reform since they can pool and reduce insurance risk. Providers must be required to take on some insurance risk, which they must carefully monitor.
7. The mechanics and administration of payment models that incorporate provider risk have improved since the 1990s consumer backlash against them

Question 73

Definitions related to payment reform

Answer 73

1. Value-based arrangement - a payment model or contract agreement that reimburses services based on quality measures such as patient outcomes and efficiency, often at a predetermined price. It is the opposite of a volume-based arrangement.
2. Payment reform - the environment where more contracts move to value-based arrangements
3. Payment model - the arrangement between a payer and provider to reimburse the provider for services
4. Service delivery model - the manner in which providers organize and deliver care to patients. Can refer to an approach (such as telemedicine) or organization (such as an ACO).

Question 74

The actuary’s role in payment reform

Answer 74

1. Lead the pricing exercise
2. Help quantify the risk - help the provider understand the various risks the provider is taking when selecting a payment model
3. Calculate the correct price for the selected payment model
4. Help project and model cash flows

Question 75

Types of risk associated with payment arrangements, from the provider’s perspective

Answer 75

1. Utilization risk - the risk that changes in utilization will impact provider profitability
2. Technical risk - the risk of appropriately structuring technical elements of a contract
3. Insurance risk - the risk of variation in demand for medical services over time and the risk of differences in utilization within segments of the insured population. Examples include:
   a) Age, gender, and acuity differences
   b) Number of high-cost cases vs. average
   c) Year-to-year variation in patient demand for services
   d) Proportion of the population that has zero claims in a year
4. Performance risk - the risk of inefficiency, suboptimal quality, and high cost of care

Question 76

Types of provider payment models

Answer 76

1. FFS - providers are paid for each service they perform, either through a fee schedule or as a percent of charges
2. Global capitation - providers are paid a fixed rate for each member they agree to service. The payment is based on the average costs of the population, rather than the services provided.
3. Shared savings - providers typically get reimbursed using FFS, but they also receive a percentage of the savings they create by reducing utilization below a benchmark. Usually, providers only receive the bonus if they meet certain quality targets.
4. Diagnosis-related groups (DRGs) and case rates - the hospital is paid a single price, or case rate, for an admission rather than a price per day or for each service provided during the stay. There is often an outlier adjustment where the provider gets paid an outlier per diem rate if the admission exceeds a certain number of days.
5. Bundled payments - a single payment is made for an episode of care, which usually starts with a specific DRG or a surgery and extends for a specific future period (typically 30, 60, or 90 days)
6. Reference pricing - a benefit limit (i.e., the reference price) is established for a specific medical procedure or device. The patient must pay the difference between the allowed charge and the reference price.
7. Provider excess loss reinsurance - protects the provider from high-cost outliers. It is generally paired with one of the previous payment models.
8. Pay-for-performance (P4P) - any payment arrangement can include a P4P aspect by including incentives for higher quality of care or disincentives for lower quality. This adds performance risk.

Question 77

Methods used by health plans to control physician medical costs

Answer 77

1. Offering patients differential copayments to encourage them to visit high-performance physicians
2. Paying bonuses to physicians whose pattern of resource use are lower than average
3. Publicly reporting the relative costs of physicians’ services
4. Enlisting various provider payment methods
5. Limiting what services are reimbursable and requiring medical necessity for services performed
6. Tying reimbursement to quality outcomes and using value-based care arrangements
7. Creating a tiered physician network that focuses members toward highly efficient providers
8. Requiring prior authorization for services
9. Performing care management techniques

Question 78

Risks to the provider under FFS

Answer 78

1. Utilization risk - for most services, the provider’s profit increases as utilization increases
2. Technical risk - this risk is low because FFS is easy to implement, design, and monitor
3. Insurance risk - providers have very little insurance risk. They are not at risk for the year-to-year variation in claims cost of a specified population.
4. Performance risk - this risk may exist if the claims administrators do not carefully monitor nonspecific codes

Question 79

Risks to the provider under global capitation

Answer 79

1. Utilization risk - changes in utilization have the opposite impact as in a FFS model. Profit increases for providers as utilization decreases.
2. Technical risk - this risk is quite high. A provider organization will need complex structures in place to allocate money among various providers.
3. Insurance risk - all of the insurance risk is transferred to the provider. The provider takes on the risk that members will need more services than was expected when negotiating the capitated rate.
4. Performance risk - the provider is at high risk since it takes on the financial responsibility for all of the care the patient receives

Question 80

Risks to the provider under shared savings

Answer 80

1. Utilization risk - because of the complexity of contracts, this risk is hard to quantify
2. Technical risk - this risk is high due to the complexity of calculating benchmarks, reconciling savings, measuring quality, and distributing savings and losses
3. Insurance risk - there is a risk that year-to-year variation in claims costs will result in claims costs that are different than the benchmark
4. Performance risk - there is significant risk regarding whether care management efficiencies can be achieved and whether the benchmark can be met

Question 81

Risks to the provider under DRG/case rates

Answer 81

1. Utilization risk - increased admissions lead to increased profits. But the provider has an incentive to reduce the length of stay because for longer stays the provider has additional costs but no additional reimbursement.
2. Technical risk - this risk is low to medium because DRGs have existed for some time and there are established models for creating DRG groupings
3. Insurance risk - the provider is at risk for longer lengths of stay, but not for incidence risk
4. Performance risk - the hospital must be cautious of discharging patients too early. That could increase the risk of readmissions, which carries financial penalties from Medicare.

Question 82

Risks to the provider under bundled payments

Answer 82

1. Utilization risk - when the number of episodes increases, provider profits can increase. But within an episode, the provider will need to decrease medically unnecessary services in order to make a profit.
2. Technical risk - this risk is quite high due to challenges such as defining conditions, coordinating care, and partnering among different providers
3. Insurance risk - the provider is at risk for members who have higher allowed costs than the average episode
4. Performance risk - there is risk related to proper discharge planning and communication

Question 83

Risks to the provider under reference pricing

Answer 83

1. Utilization risk - members will be less likely to use provider services as their out-of-pocket share increases
2. Technical risk - there is risk related to educating the policyholder on reference pricing
3. Insurance risk - some patients may need high-cost care, in which case the insurance risk is shifted to the patient and away from both the insurer and the provider
4. Performance risk - patients who are charged high amounts for procedures may be unhappy with both their providers and their insurers

Question 84

Risks to the provider under provider excess loss reinsurance

Answer 84

1. Utilization risk - this risk is shifted to a reinsurer
2. Technical risk - this risk will vary with the structure of the stop-loss contract. The most common approach is a coinsurance arrangement, which has low technical risk.
3. Insurance risk - the provider’s risk of high outlier costs is somewhat mitigated
4. Performance risk - this risk is highly dependent on the structure of the reinsurance policy

Question 85

Domains of quality from the Agency for Healthcare Research and Quality

Answer 85

1. Access to care - whether a patient can readily obtain needed services. Performance measures include the number and geographic distribution of providers.
2. Structure of care - whether care is provided by appropriate providers who use up-to-date technology. Measures include assessment of referral policies and use of electronic health records.
3. Process of care - whether services have been provided to appropriate member subpopulations. One measure is hospital readmission rates.
4. Outcome of care - whether treatment has been effective. Measures include what percentage of patients with diabetes meet blood sugar targets.
5. Experience of care - whether patients are satisfied with the care they have received. Is generally measured by surveys.

Question 86

Factors to consider when modeling payments and cash flows for a provider payment model

Answer 86

1. What types of unintended behaviors may occur due to incentives created by the payment model?
2. What other factors would jeopardize achievement of forecasted results?
3. How will results achieved during the model test be replicated?
4. Will the structure and the dimensions of the payment model change over time?
5. Will there be a phased-in approach?
6. How will the payment model promote continuous improvement of the service delivery model?
7. What key factors, including other delivery and payment reforms, may affect this progression?

Question 87

Formula for determining Medicare allowed amounts

Answer 87

1. Weights are determined based on
   a) Relative value units (RVUs) - these are categorized by Current Procedural Terminology codes. There are three components for each RVU: work/practice cost (w), facility/cost of living (f), and malpractice (m).
   b. Gegoraphic Practice Cost Index (GPCI) - these are based on provider ZIP codes
2. Medicare allowed amount = (GPCI_w * RVU_w + GPCI_f * RVU_f + GPCI_m * RVU_m) * conversion factor
3. Payments are also adjusted for various reasons, such as who performs the service (e.g., professional surgeon vs. assistant surgeon) and where the service is performed

Question 88

Profit formula for ACOs in the MSSP

Answer 88

Net gain/loss = - Revenue reductions + Bonus/share of the revenue reductions - Start-up costs of the ACO - Administrative cost of operating the ACO + reduction in direct expenses

Question 89

Considerations when negotiating terms of commercial ACO contracts

Answer 89

1. Target costs - how are the baseline costs developed? Is there rebasing from one year to the next?
2. Risk adjustment - the actuary can help the payment reform team understand the benefits and impacts of the different risk adjusters to use in creating the target cost
3. Trend - will the baseline and measurement years be trended, and at what rate?
4. Shared Savings - what are the savings rate and loss rate, and are the targets achievable?
5. Attribution - the attribution method is extremely important, but the details can be quite complex.
6. Random variation - is the number of members attributed to the ACO large enough that gains and losses will not just be due to statistical fluctuation?
7. Stop loss - the ACO and the payer may wish to negotiate specific and aggregate stop loss
8. Data and reports - the ACO will need member-level detail on enrollment, medical claims, and pharmacy claims. It will also need detailed reporting in order to reconcile gains and losses.
9. Quality - are there sufficient number of measures to ensure reliable results and reasonably determined benchmarks and targets?
10. Infrastructure cost support - will there be a care coordination fee to help the ACO get up and running with its infrastructure?

Question 90

Elements of a DRG contract

Answer 90

1. DRG/case rate schedule - shows the case rate for each DRG for an initial length of stay and the per diem for days beyond that level
2. Maximum days - the number of days for which the case rate applies. Cases that exceed that length of stay are then paid a per diem rate for each additional day.
3. Carve-outs for specialty drugs and implant devices - additional payments may be made for these items
4. Stop loss - a contract may also have a stop loss to be applied on a case level
5. Transplants - payment for transplants is usually negotiated separately
6. Readmissions - the contract must state whether payment will be made for readmissions

Question 91

Steps for pricing bundled payments

Answer 91

1. Obtain claims data
2. Select DRGs or conditions - look for enough volume, a population that will have similar treatment patterns, and potential for savings that is due to variation in care. Knee and hip procedures are popular selections.
3. Define the episode - specify the full time period and mix of services for which the organization is financially responsible and at risk. Typically includes:
   a) Anchor stay - period of time between admission and discharge
   b) Post-discharge period or post-anchor event period - typically covers 30, 60, or 90 days from the discharge date
   c) Post-episode period - covers 30 days past the episode end date as a quality control to make sure providers are not waiting until the end of the episode to provide services
4. Define exclusion criteria - should be easy to implement and not overly specific
5. Estimate cost of the bundle - done by analyzing claims data
6. Identify savings opportunities - these will be different for every episode and every organization. For example, discharging more knee replacement surgery patients to their home instead of a rehabilitation center will lead to savings.

Question 92

Major issues with pay-for-performance methods

Answer 92

1. Unintended incentive to avoid the most severely ill patients
2. Gaming the system by miscoding diagnoses or services
3. Selecting patients on the basis of the likelihood of a positive outcome
4. Compliance with treatment protocols rather than need
5. Unmeasured objectives could be ignored

Question 93

Functions (or components) of patient-centered medical homes

Answer 93

1. Comprehensive care - provided through several different care providers
2. Patient-centered - a relationship-based process to educate patients and allow them to define the levels of care with which they are comfortable
3. Coordinated care - incorporating the entire health care system in order to facilitate communication about the patient and discuss best practices among different provider groups
4. Accessible services - providing multiple channels for the patient to be able to reach out and gather information or receive care
5. Quality and safety - implementing quality improvement measures while taking into account the patient’s progress, concerns, and overall well-being

Question 94

Roles of the payment reform team

Answer 94

1. Actuary - quantify risks and prepare financial models
2. Chief financial officer - set a budget and allocate resources to keep the health system within the budget
3. Clinicians - provide high-quality care in order to achieve customer satisfaction and good outcomes
4. Coding specialists, data analysts, and information technology specialists - make sure other team members are receiving timely and accurate information
5. Policymakers - address systematic issues such as shortages of primary care physicians

Question 95

Qualities an organization needs to succeed under payment reform

Answer 95

1. Highly integrated system
2. Effective care management initiatives
3. More efficient health system than the rest of the market
4. Select and restricted networks
5. Collaborative relationship between the provider organization and payers to reduce costs
6. Reasonable methods to establish capitation rates, episode payments, and other payments
7. Equitable methodology for allocating global capitation payments or quality incentives among the individual participating providers

Question 96

Components of the Value-Based Care (VBC) capabilities framework

Answer 96

1. VBC overall strategy - Defines objectives and quantifies impact to organization
2. High-performing network management - the composition and delivery of high-quality, efficient care by the provider network necessary to support the VBC strategy
3. Population health management - the care management programs necessary to support the high-performing network in addressing the overall needs of the target populations
4. Enterprise financial risk management - the enterprise financial risk management of the VBC contracts, both upstream with payers and downstream with providers
5. Data management - data will support VBC performance management process
6. Consumer engagement - stratification and identification of activities to engage certain cohorts
7. Analytics and reporting - required to support the development and execution of the VBC strategy
8. Enabling technology - enables better care delivery and improvement in overall health outcomes
9. Business operations excellence - development and implementation of continuous VBC improvements
10. Product leadership - encourages responsibility and accountability for the development of new initiatives
11. Organizational change and talent acceleration - it is key to identify required skill sets to support VBC and to assess current talent and determine gaps

Question 97

Provider reimbursement model continuum for VBC

Answer 97

Below models are listed from high to low with respect to the risk managed by the provider and the sophistication required for administering the payment method
1. Global payment / capitation - payment type includes managing a population
2. Shared risk - payment type includes managing a population
3. Shared savings - payment type includes managing a population
4. Bundle payment (risk among providers) - payment type includes managing an event / condition
5. Bundle payment (single bearer of risk) - payment type includes managing an event / condition
6. Pay for performance - payment adjusts with attained measurable targets
7. Pay for activity / coordination - payment is based on service or activity
8. Fee for service - payment is based on service or activity

Question 98

Metrics and data used by actuaries to evaluate the risks providers face moving to VBC payments

Answer 98

Metrics
1. Mix of business for revenues and margins across various payers
2. Mix of business by service, provider type, or place of service
3. Cost to charge ratios and expected margin
4. Fixed and variable costs
5. Capital investments current and planned
6. Quality measures
7. Current revenue and cost contracting arrangements
8. Market share in total, by attributed populations and by service line
9. The amount of risk a provider is legally allowed to take
10. Types of services in which a provider is legally allowed to have ownership
11. Pharmacy services, both medical and retail
12. Full claims dataset
Marketplace data
1. Uninsured versus insured populations in the area the provider serves
2. Insured populations broken out by segment
3. Projections for population growth or contraction
4. Competitors, traditional providers, or new entries
5. Market opportunity analysis
6. Disruption
7. Local, state, regional, and national changes in policies

Question 99

Types of care management methods

Answer 99

1. Pre-authorization - requires a provider to obtain approval before performing a service
2. Concurrent review - monitoring a member’s care while the member is still receiving care in a hospital or nursing home
3. Case management - typically involves a health care professional who coordinates the care of a patient with a serious disease or illness (such as stroke, AIDS, or cancer)
4. Demand management - refers to certain passive forms of informational intervention, often provided over the telephone. Includes nurse advice lines and shared decision making.
5. Disease management - focuses on chronic conditions with certain characteristics that make them suitable for clinical intervention
6. Specialty case management - a care manager who has expertise in a particular area coordinates care for patients in that area
7. Population health management - the entire membership of a health plan is evaluated, using statistical tools to identify potential high-cost patients who can benefit from some type of voluntary intervention program
8. Patient-centered medical home - this model returns to the physician the responsibility for coordinating all of the patient’s care
9. Accountable Care Organization (ACO) - a network of doctors and hospitals share responsibility for providing patient care. The PCP is accountable for providing quality care and reducing utilization.
10. Non-traditional provider interventions and care settings - pharmacists and different types of clinics can be used to provide various interventions
11. Gaps in care and quality improvement programs - improving clinical quality and addressing gaps in care is a major focus of ACOs and the Electronic Health Record meaningful use initiative
12. Telehealth, telemedicine, and automated monitoring systems
    a) Telehealth encompasses a broad spectrum of technology-enabled health care services
    b) Telemedicine is the electronic transmission of medical information to remote specialists who help diagnose and treat patients
    c) Automated (or patient) monitoring systems provide patient data to providers. The data can trigger alerts so that the provider can make appropriate interventions.
13. Bundled payment initiatives - these initiatives bundle payment for multiple services across a single episode of care. The goal is to improve coordination and quality of care and lower costs by aligning the financial incentives of multiple providers.

Question 100

Characteristics of chronic conditions that make them suitable for disease management programs

Answer 100

1. Once contracted, the disease remains with the patient for the rest of the patient’s life
2. The disease is often manageable with a combination of pharmaceutical therapy and lifestyle change
3. Patients can take responsibility for their own conditions
4. The average annual cost is sufficiently high to warrant spending resources to manage the condition
5. The expected cost of the non-adherent patient is high

Question 101

Principles for establishing a patient-centered medical home

Answer 101

1. Personal physician - each patient has a personal physician trained to provide comprehensive care
2. Physician-directed medical practice - consists of a team of individuals taking responsibility for the patient’s ongoing care
3. Whole person orientation - appropriately arranging care with other qualified professionals
4. Care coordinated and integrated across all elements of the health care system and the patient’s community
5. Quality and safety - includes patient-centered outcomes, evidence-based medicine, and continuous quality improvement
6. Enhanced access through open scheduling, expanded hours, and E-visits
7. Reimbursement structure to support and encourage this model of care

Question 102

Types of interventions conducted by pharmacists

Answer 102

1. Drug utilization review - these programs manage price by substituting lower-cost alternatives for higher-cost drugs, and they manage utilization by requiring prior authorization for certain drugs
2. Medication Therapy Management (MTM) - Part D plans are required to have MTM programs, which aim to improve medication use and reduce adverse events for beneficiaries that have multiple chronic conditions, are taking multiple Part D drugs, and are likely to incur annual costs of at least $4,000 for all covered Part D drugs
3. Pharmacist-delivered care management programs - pharmacists can collaborate with PCPs on medication optimization and medication safety. These programs often focus on drug adherence, which is measured in one of two ways:
   a) Medication possession ratio = number of days supply in the patient’s possession / number of days during the measurement period during which the patient could have had the drug
   b) Proportion of days covered = number of days of coverage / total number of days in the measurement period

Question 103

Components of an MTM program for Part D

Answer 103

1. Performing or obtaining necessary assessments of the patient’s health status
2. Formulating a medication treatment plan
3. Selecting, initiating, modifying, or administering medication therapy
4. Monitoring and evaluating the patient’s response to therapy
5. Performing a comprehensive medication review to identify, resolve, and prevent medication-related problems
6. Documenting the care delivered and communicating essential information to the patient’s other primary care providers
7. Providing verbal education and training designed to enhance patient understanding and appropriate use of medications
8. Providing information, support services, and resources to enhance patient adherence to drug regimens
9. Coordinating and integrating MTM services with other health care management services

Question 104

Types of clinics that can be used to provide basic health care

Answer 104

1. Retail convenient care clinics - many pharmacies, hospitals, and grocery chains have opened retail clinics staffed by nurse practitioners. These clinics offer care on a walk-in basis for common, non-urgent illnesses, and are generally open during evenings and on weekends.
2. Employer worksite clinics - these are most common at very large employers. They may cover various types of care, such as preventative services, acute care, primary care, pharmacy, disease management, and wellness.
3. Urgent care clinics - freestanding centers that are staffed by a full range of clinicians, who are directed by physicians. They are generally open longer than physician practices, and they offer a full range of ambulatory services, including many that are offered at hospital emergency departments.
4. Federally qualified health centers (FQHCs) - these are designated by the federal government to provide health care to the underserved and uninsured. An example is a community health center.

Question 105

Benefits of being designated an FQHC

Answer 105

1. Reimbursement for services provided under Medicare and Medicaid
2. Medical malpractice coverage
3. Eligibility to purchase medications for outpatients at reduced cost
4. Access to National Health Service Corps
5. Access to the Vaccine for Children Program
6. Eligibility for various other federal grants and programs

Question 106

Possible reasons why DM studies show improved clinical outcomes but not cost savings

Answer 106

1. The measurement of financial outcomes is not stable enough, or measurement techniques are not sensitive enough, to detect positive financial outcomes
2. Programs are either not focused on financial outcomes or not structured to optimize financial outcomes
3. Program sponsors do not understand the economics of DM programs and therefore do not optimize the programs for financial return
4. Improvements in quality of care do not always lead to lower costs. Some improvements may actually increase costs, but still be worth the investment.

Question 107

Key metrics in the design of disease management programs

Answer 107

1. The number and risk-intensity of members to be targeted - the number must be large enough to produce savings that offset implementation costs, but not so large that marginal costs exceed marginal savings
2. Types of interventions to be used in the program - such as mail or automated outbound dialing
3. The number of nurses and other staff needed for the program, and program costs
4. The methodology for contacting and enrolling members
5. The rules for integrating the program with the rest of the care management system
6. The timing and numbers of contacts, enrollments, and interventions
7. The predicted behavior of the target population if there were no intervention, and the predicted effectiveness of the intervention at modifying that behavior

Question 108

Financial measures for disease management programs

Answer 108

1. Return on investment - this is the most common metric. DM programs typically use Gross ROI.
   a) Net ROI = (gross savings - cost)/cost
   b) Gross ROI = gross savings/cost
   c) Program costs generally include direct costs (such as salaries), indirect costs of supporting activities, management costs, overhead costs, and set-up costs
   d) Gross savings come from decreased utilization as a result of the DM program or intervention
2. Total savings - this metric may be more useful, since it represents the dollar savings for the plan
   a) Average savings equals total savings net of program cost, divided by the total populatoin
   b) Marginal savings per chronic member equals the increase in savings (net of costs) due to intervention on the marginal population, divided by the number of members in the marginal population

Question 109

Components of the Risk Management Economic Model

Answer 109

1. Prevalence of different chronic diseases
2. The cost of the chronic disease
3. Payer risk - the most savings for the plan will come when the plan is at financial risk for all of the patient’s costs
4. Targeting and risk - members should be prioritized based on the probability of experiencing the targeted event. Those with the highest risk ranks will be selected for the program.
5. Estimated cost of the targeted event
6. Contact rate - the rate at which the company is able to make contact with targeted members
7. Engagement (or enrollment) rate
8. Member re-stratification rates - the initial risk rank of the member will be re-stratified after the nurse interacts with the member and assesses the member’s risk. Factors that affect whether the member should be re-stratified include the accuracy of the diagnosis, risk factors present, the ability of the DM program to intervene for the condition, the patient’s readiness to change, and the patient’s self-management skills.

Question 110

Common chronic diseases addressed by disease management programs

Answer 110

1. Ischemic heart disease
2. Heart failure
3. Chronic obstructive pulmonary disease
4. Asthma
5. Diabetes

Question 111

Description of opportunity analysis for care management programs

Answer 111

1. Definition: a data-driven analytical process that extends traditional predictive modeling by matching opportunities within a population to care management programs and services
2. To perform the analysis, the following components are required
   a) Knowledge of member benefit design
   b) Information on any evidence-based care management programs currently in place or that could reasonably be introduced
   c) Eligibility and claims data for the past 2-3 years
3. Is retrospective. It looks at past data to identify pockets of opportunity.
4. Is applied prospectively. Once a profile of an opportunity population is identified, all current members meeting that profile can be included in the program.

Question 112

Models typically used to stratify members in a care management program

Answer 112

1. Stratify members according to the predictive risk score - but at the top of that list are many members who represent a low opportunity for cost savings
2. Condition-specific model - focus on members with a specific condition, such as diabetes. But any program targeted at a specific condition may miss the greater opportunity of addressing the co-morbid conditions of that population.
3. Rules-based approach - clinicians use a set of rules to identify patients for care management. But the literature suggests that clinicians are not particularly good at identifying patients for management.

Opportunity analysis is designed to address the shortcomings of these models

Question 113

Components for designing a care management program using opportunity analysis

Answer 113

1. Analytics - members are segmented by medical conditions into subpopulations that are amenable to different types of interventions. Utilization data is compared to a benchmark to highlight areas with the most potential for utilization management savings.
2. Searching the evidence base for knowledge of what works and what does not work
   a) A literature review is done to find programs that are efficacious (the evidence can be trusted), cost-effective (the benefits exceed the cost), and generalizable to the population to be managed
   b) A three-step approach is used: search for relevant publications, assess the quality of evidence, and determine generalizability
3. Weighing the economics
   a) The population is risk ranked using a predictive model, which also determines the expected cost for each person
   b) This cost is compared to the person’s cost without the intervention to determine savings
   c) The savings is compared to the cost of the intervention to determine at what point in the risk ranking it is economically feasible to intervene

Question 114

Reasons for using opportunity analysis for identifying patients for care management interventions

Answer 114

1. Studies have shown that clinicians are not particularly good at identifying high-risk patients
2. The economics of program planning cannot be ignored in a system with limited resources
3. This structured approach is important for understanding which subpopulations are amenable to intervention and the likely value of that intervention
4. The structured financial model provides a framework against which actual outcomes may be compared, identifying areas where the program needs to be corrected or improved

Question 114

Steps for implementing a care management program using opportunity analysis

Answer 114

1. Develop a predictive model to populate the risk distribution
2. Establish a production analysis and reporting unit. Develop the necessary reports and a reporting application.
3. Determine the likely number of care managers required
4. Develop a budget for the program, accounting for all required resources
5. Hire and train care managers to conduct interventions and manage patients
6. Develop a plan, including estimates of the number of patients identified and engaged
7. Roll out the intervention and enroll patients
8. Operate the program, track outcomes, and modify as necessary

Question 115

Description of propensity score matching

Answer 115

1. Propensity score matching is a technique used for making a participant group comparable to a nonparticipant group. It can control for observable variables such as age, gender, and geography, but it does not control for important unobservable influences such as willingness to change behavior.
2. Each member in the participant group is matched with a member of the nonparticipant group based on the closeness of their propensity scores rather than just individual characteristics
3. The propensity score, p, is the probability that the member will be in the participant group.
   a) It is calculated using logistic regression based on that member’s values for the independent variables (such as age and gender)
   b) This process reduces a large number of variables to a single score
   c) Members with similar scores can then be matched, even if they are not matched evenly on the independent variables
   d) There should still be relatively close matches on those other variables.

Question 116

Steps for applying propensity score matching to a study

Answer 116

1. Run logistic regression to create a propensity score. Should consider as the independent variables any observable factors that may influence a person’s decision to participate in the program.
   a) The regression equation is log[p/(1-p)] = alpha + beta X + e
   b) The propensity score, p = exp[alpha + beta X]/(1+exp[alpha + beta X])
   c) Observable factors include education level, distance, occupation, or medical condition
   d) Binary decision - the response variable is assigned either a score of 1 (in the group) or 0 (out of the group)
2. Use propensity scores to match each participant to a nonparticipant using one of the following techniques
   a) Nearest neighbor matching - the first member of the comparison population with the closest propensity score is selected, either with or without replacement
   b) Caliper matching - a match is made if the member and match’s propensity scores are within a fixed distance
   c) Mahalanobis metric matching - this metric is used to measure the dissimilarity between two vectors
   d) Stratification matching - observations are stratified and then matched by stratum
3. Test the model for appropriateness and bias - testing for bias is difficult because the propensity score match only adjusts for observable variables. Models should be parsimonious (should use only the minimum number of variables necessary to achieve a stable model).

Question 117

Advantages and disadvantages of propensity score matching

Answer 117

Advantages
1. Allows matching on composite score instead of directly on individual characteristics
2. Allows similar individuals to be easily grouped, since members with similar propensity scores will have similar characteristics
Disadvantages
1. Close matching can be difficult, resulting in a small number of matched treatment members relative to the total treatment group
2. Only controls for observable, and not unobservable variables
3. Score should not be used as the standalone criterion (matched individuals should still be “close” on other variables)
4. There will always exist a trade-off between number of matches and “closeness” of the score

Question 118

Comparison of propensity score and risk adjustment

Answer 118

Similarities
1. Both reduce the effect of multiple risk factors (such as age, sex, and diagnoses) to a single score, using multiple regression
2. Both have the goal of adjusting populations to be on a similar basis
Differences:
1. The propensity score is usually based on a wider range of independent variables. But the risk score will almost always take into account more detailed diagnosis variables.
2. Propensity score matching is the method of choice in health services research
3. Risk adjustment uses the entire population, while propensity matching can result in many members of the population being discarded

Question 119

Description of the actuarially-adjusted historical control methodology

Answer 119

1. Objective criteria are used to determine which members will be included in the baseline and intervention populations
   a) This is an open group method, since the populations are not identical. A closed group (or cohort) method uses the exact same population in both periods.
   b) But the populations are comparable, and assumed to be equivalent, because the same selection criteria is used in each period
2. Savings are not directly measured. They are derived as the difference between:
   a) An estimated statistic projected from the baseline period. The key component is the health care trend factor used for this projection.
   b) The actual statistic from the measurement period
3. Formulas for calculating savings:
   a) Savings = [ChrUtil_{prior yr} * (1+trend)-ChrUtil_{actual}] * Chronic Members * Cost per service
   i) ChrUtil is the utilization rate per chronic member
   ii) The trend rate comes from the health plan’s non-chronic population
   b) Savings PMPM = savings / member months

Question 120

Issues related to determining and controlling exposure for a disease management study

Answer 120

1. Managed versus measured populations - the population to be measured does not need to be the same population that is being managed
2. Eligible members - eligibility is first determined for health plan membership, then for DM services
3. Member months - in any given month, a member is uniquely classified into a single category. Members can move between categories from one month to the next.
4. Chronic and non-chronic (index) members - the assignment of chronic status is determined monthly
5. Excluded members - some members are eligible for health plan membership, but are not eligible for inclusion in the DM program
6. Measured and non-measured members - tests for inclusion in the measurement period may include the continuous coverage test and a claim-free period
7. Enrolled, targeted, and reachable members - to avoid bias in the results, outcomes should be measured for all targeted members (whether enrolled, not enrolled, or unreachable)

Question 121

Reasons a member may be excluded from a disease management program

Answer 121

1. The member class is not receptive to disease management
2. The member is a candidate for a program administered by another vendor (such as mental health)
3. The pattern of claims that the member exhibits is subject to sharp discontinuity, and can thus distort a trend calculation
4. The member’s claims are significant, and the experience is likely to dominate the group, or introduce noise to the calculation

Question 122

Conditions that would exclude a member from a disease management program

Answer 122

1. End-stage renal disease (ESRD) - this condition is excluded because management of the condition may delay cost, but it cannot ultimately reduce or postpone these costs
2. Transplants - claims are high up to a period shortly after the transplant, at which point the claims are reduced and stabilized
3. HIV, AIDS, mental health - privacy issues make it difficult or impossible for a vendor to receive complete data feeds, or manage the member
4. Members who are institutionalized - these members may not be reachable, or may not benefit from disease management interventions
5. Members with catastrophic claims - these members are not manageable by the DM program, and are often subject to management by another program
6. Members who are eligible for other management programs

Question 123

Challenges when calculating disease management savings

Answer 123

1. Applying the proper trend rate - the trend of the non-chronic population is typically used because the chronic trends are impacted by the disease management efforts. This non-chronic trend must be adjusted for the average risk of the populatoin.
2. Demonstrating equivalence between the baseline and measurement periods - must account for the change in the mix of new, continuing, and terminating members and any changes in conditions and co-morbidities. This can be done by re-weighting the claim costs that are used in the savings calculations.

Question 124

How vendors can impact medical cost

Answer 124

1. Utilization management - Based on medical necessity, appropriateness of care, and medical redundancy
2. Site of care - Shift specified types of care to less expensive venues
3. Diagnosis or patient type - Identify and manage patients with specific diagnosis. Savings are often achieved from reducing unnecessary inpatient admissions or emergency department visits.
4. Severity / downcoding - Identify and reverse inappropriate upcoding or “code creep”

Question 125

Matching models used to measure care management vendor savings

Answer 125

1. Pre/post analysis - Compare experience period to a base period with adjustments for trend
2. Participating/nonparticipating analysis - Populations are measured in the same period, so trend is not an issue
3. Regression/trend line analysis - A more complex form of pre/post analysis
   a) Control population data is used to generate a regression equation to project values
   b) The difference between the projected values and actual values represents the savings
4. Matched cohort analysis - A more complex form of participating/nonparticipating analysis
   a) A number of variables are used to match risk-equivalent members from test and control populations
   b) The difference in costs between each matched pair represents the savings
5. Propensity score matching - An advanced method of matching test and control members that estimates the predicted probability that each member receives a treatment based on observed characteristics
   a) Bias from confounding variables is reduced, and a large sample size is required
6. Coarsened exact matching - Defined variables are coarsened into ranges or bins
   a) Allows a greater degree of exact matches between test and control populations

Question 126

Adjustments / considerations to data or neutralizing factors used in savings calculations

Answer 126

1. Scope - Changes in scope must be documented, and savings analysis adjusted
2. Trend - Changes in average cost per service and average utilization must also be considered
   a) Utilization adjustment should include impacts of the care management vendor
3. Class of claims - Are savings measured in terms of billed, allowed, paid, or some combination
4. Seasonality - Data from partial year may need adjustments for seasonal patterns of utilization
5. Episodic care - Consider claims associated with a vendor’s specific set of procedures
6. Care shifting - Consider providers shifting care to other types of procedures that are not impacted by the vendor’s care management program
7. Risk adjustment - Average risk level may vary over time and risk factors are used to adjust for such variance
8. Overlap - Under various initiatives there is a risk of giving undue credit for generated savings
9. Credibility - Consider credibility if vendor activities only affect a small number of people, or a short experience period
10. Delay in claim impact - A care management initiative may take time to reach full effectiveness

Question 127

Methods of payment to care management vendors

Answer 127

1. PMPM fee - A fee that is paid for each eligible member as defined in the contract
2. Capitation - Full risk is transferred from the payer to the vendor for a fixed payment PMPM
3. Risk share - The vendor is awarded a percentage of the savings achieved

Question 128

Strengths and weaknesses of the propensity score matched population-based cancer cohort study

Answer 128

Strengths
1. This was a large population study using consistent exposure and outcome definitions over a long period
2. Propensity scores matched patients, thereby reducing selection bias
3. The study controlled for previously unmeasured confounding variables (e.g., worse pain, Activities of Daily Living (ADL) dependency, depression, cognitive decline, and health instability)
Weaknesses
4. The study matches those who had similar propensity to have received early palliative care, but this may not represent the entire population of cancer decedents
5. The study does not directly measure patient preferences, which is a confounding variable for use of early palliative care

Question 129

Key conclusions from the propensity score matched population-based cancer cohort study

Answer 129

1. Patients receiving early palliative care were more likely to receive supportive home care in their last month of life
2. Patients receiving early palliative care were less likely to receive hospital care in the last month of life
3. Policies and educational strategies to support early palliative care may reduce the risk of dying in hospital and receiving aggressive end-of-life care
4. Policies that prohibit palliative care services, like forgoing curative treatments, are disincentives to earlier and concurrent access to palliative care

Question 130

Goals of care (GOC) for emergency department palliative care intervention during COVID-19

Answer 130

1. The focus of GOC conversations with patients
   a) Conveying the prognosis in a clear and simple way
   b) Exploring patients’ goals and values
   c) Making care recommendations based on elicited goals
2. The GOC outcomes for patients
   a) Full code - the default option - pursue all life-sustaining treatments including intubation and CPR
   b) Do-not-resuscitate (DNR) only - pursue all life-sustaining treatments except CPR
   c) DNR/do-not-intubate, continue medical treatment - pursue all life-sustaining treatments except intubation and CPR
   d) Comfort-directed care - forgo life-sustaining treatments, deliver symptom-focused treatment only

Question 131

Steps for implementing risk adjustment into a Medicaid managed care program

Answer 131

1. Decide which risk adjustment system will be used - there are various commercially-available models. Should choose a system based on the data used and the ability to customize it.
2. Decide what types of data should be used in the risk adjustment system - includes demographic information and claims and pharmacy data
3. Decide which Medicaid eligibility groups will be risk-adjusted and which subpopulations may be excluded
4. Decide whether the risk adjustment system should be prospective (use experience period data to estimate future morbidity) or concurrent (use data from the current period to estimate morbidity for that period)
5. Decide whether to base the risk adjustment factors on the individuals enrolled during the rating period or during the experience period
6. Decide whether to customize the risk weights inherent in the risk adjustment model - may be needed due to differences in the state program as compared to the population used to develop the model
7. Decide on criteria for including individuals in the risk adjustment calculations - many states require at least six months of eligibility exposure
8. Develop criteria for claims records to be included in the risk adjustment model
9. Determine the phase-in schedule and whether or not risk corridors will be used

Question 132

Goals of risk adjustment for the Arizona Medicaid program

Answer 132

1. Align payment with the relative health risk of members at each health plan
2. Be accurate and unbiased
   a) Accurate - there should be a relatively high correlation between the projected cost of the population and the actual cost
   b) Unbiased - the methodology should not overcompensate for some risk factors at the expense of others
3. Be as simple as possible while accomplishing other goals
4. Minimize the administrative burden of developing and implementing the methodology
5. Be budget neutral

Question 133

Methodology used to develop the Arizona Medicaid risk adjustment model

Answer 133

1. Model selected - Symmetry’s Episode Risk Groups (ERG) model
2. Type of data used - diagnosis codes and procedural information from medical data and National Drug Codes from pharmacy data
3. Data timing - three months of claim run-out was used
4. Eligibility groups - risk adjustment was applied to prospective, non-reconciled risk groups
5. Model calibration - the model was recalibrated by developing risk weights through a linear regression model based on Arizona Medicaid data, and then credibility weighting those rates with the model’s original risk weights
6. Geographic issues - risk adjustment will take place at the geographical service area and risk group level
7. Individual approach - risk scores calculated during the experience period will follow the individual during the rating period. This will accurately reflect movement of individuals between health plans.
8. Risk factors are updated once per year
9. Risk factors for new members - members with at least six months of enrollment (“long” cohort) during the experience period will be given a claims-based risk factor. Other members (“short” cohort) will be given a risk factor that is the average of an age-gender factor and an adjusted plan factor.
   a) Adjusted plan factor = (average ERG risk score of long cohort / pure age-gender factor of long cohort) * pure age-gender factor of short cohort
10. Phase-in - risk adjustment is being phased in such that only 80% of the 2009 rate is risk adjusted
11. Risk factors for newborns - a different approach is needed because newborns do not have prior year claims from which to develop condition-based risk scores. Claims of the prior cohort of newborns in the experience period are used to project newborn experience in the rating period.

Question 134

Formulas for calculating an MCO’s risk score for the Arizona Medicaid program

Answer 134

1. Average ERG risk score for long cohort
   a) An unadjusted risk score is calculated as the sum over all risk factors and demographics of the risk weights multiplied by frequencies. The frequencies are the portion of the cohort with each risk factor or demographic.
   b) For the Transitional Aid to Needy Families group, the final risk score equals the unadjusted risk score divided by a scaling factor
2. Total average risk score = % of members in long cohort * average ERG risk score for long cohort + % of members in short cohort * risk factor for short cohort
   a) Risk factor for short cohort = 50% * adjusted plan factor for short cohort + 50% * pure age-gender factor of short cohort
3. The above formulas are calculated for the given MCO and for all MCOs in total. The MCO’s relative risk score = MCO total average risk score / average risk score for all MCOs.
4. Relative risk score with phase-in = 80% * relative risk score + 20%
5. A budget neutrality adjustment may also be applied to get the final relative risk score

Question 135

Formulas for calculating final capitation rates for the Arizona Medicaid program

Answer 135

1. Capitation rate to be risk adjusted = base capitation rate - bid risk contingency - bid admin cost - 2% premium tax
2. Risk-adjusted capitation rate (before retention) = capitation rate to be risk adjusted * risk adjustment factor (relative risk score)
3. Final risk-adjusted capitation rate = risk-adjusted capitation rate (Before retention) + bid contingency + bid admin cost + 2% premium tax

Question 136

Common hypotheses for the member selection patterns observed in Medicare Advantage plans versus traditional Medicare FFS

Answer 136

Those enrolling in Medicare Advantage plans have been observed to be materially healthier. Theories for why include:
1. Healthy enrollees are less reluctant to change benefit plans, so they are more likely to sign on with Medicare Advantage
2. Managed care organizations restrict access to certain network health care providers. Since less healthy Medicare enrollees generally have established provider relationships, they are more reluctant to leave traditional Medicare and risk losing access to their preferred providers.

Question 137

Impacts of Medicare risk adjustments on Medicare Advantage Organizations (MAOs)

Answer 137

1. MAOs are responsible for capturing complete and accurate diagnoses for their members’ health conditions
2. MAOs must validate their risk adjustment data for audits conducted by CMS, referred to as Risk Adjustment Data Validation (RADV) audits
3. Medicare risk model changes can have a greater impact on a MAO than it does on a national basis. MAOs need to conduct their own new model vs old model analysis to estimate the differences.
4. Medicare risk adjustment is a complicated process involving a large amount of operational complexity for MAOs
5. MAOs do not compete on selecting members who are better risks. To be successful, MAOs focus on better outcomes, improved population health, and controlling per capita cost.

Question 138

Methodology for calculating member risk scores for Medicare Advantage Part C

Answer 138

1. A member’s risk score is the sum of weights that reflect that member’s characteristics. This includes:
   a) An age/gender score
   b) A health condition score based on the coefficients attached to 79 different health hierarchical condition categories (HCCs)
2. A member may have multiple HCCs, and weights are included for each applicable HCC
3. There are also several weights that result from interactions between HCCs
4. Weights are applied hierarchically. So if a member has multiple HCCs in the same hierarchy, only the weight for the most severe HCC is counted. The weights of the less-severe HCCs are “trumped.”
5. Condition scores are prospective factors. Diagnoses in the prior year are used to predict Medicare health claim costs in the current year.
6. For members that are new to Medicare, CMS provides only age/gender factors. These factors are higher than those for ongoing beneficiaries because the full responsibility for predicting future cost is assigned to only the age/gender factors.

Question 139

Categories of Medicare Advantage members

Answer 139

Members are split into these different categories for determining Part C risk scores. Each category has its own age/gender and HCC factors. Categories for ongoing members:
1. Community, Non-dual eligible, Aged
2. Community, Non-dual eligible, Disabled
3. Community, Dual eligible - Full benefits, Aged
4. Community, Dual eligible - Full benefits, Disabled
5. Community, Dual eligible - Partial benefits, Aged
6. Community, Dual eligible - Partial benefits, Disabled
7. Institutional
Categories for new enrollees:
1. Non-Medicaid and not originally disabled
2. Medicaid and not originally disabled
3. Non-Medicaid and originally disabled
4. Medicaid and originally disabled

Question 140

Experience items included in the Medicare Bid Pricing Tool (BPT)

Answer 140

The BPT is an Excel workbook pricing form for each of Part C and D, which CMS requires Medicare Advantage plans to use. The following past experience items are projected forward two years from the base year to the contract year.
1. Average population risk score
2. Enrollment level (in member months)
3. Revenue
4. Claims
5. Non-benefit expense
6. Profit

Question 141

CMS requirements for projected risk scores in the BPT

Answer 141

The formula for projecting risk scores is established by CMS. But each Medicare Advantage Organization (MAO) is allowed to develop its own trend rate to use in that projection. The projected risk scores must:
1. Be based on the methodology for calculating the risk scores as discussed in the Rate Announcement
2. Be calculated using the CMS-HCC risk adjustment model
3. Reflect the expected risk score trend at the bid level (developed by the MAO)
4. Be appropriate for the expected population (developed by the MAO)
5. Be adjusted for FFS normalization (provided by CMS)
6. Include the appropriate Medicare Advantage coding adjustment factor (provided by CMS)

Question 142

Considerations for projecting risk scores in the BPT, other than those prescribed by CMS

Answer 142

1. The expected trend in risk scores from changes such as better diagnosis coding
2. The risk scores of new entrants
3. Population change must be estimated
4. A mortality factor should be considered, as claims of deceased patients are heavily skewed
5. Most MAOs perform longitudinal analysis on their membership stratified into “stayers”, “leavers”, and “joiners”

Question 143

Reasons the ACA was enacted

Answer 143

1. Increase the quality and affordability of health insurance
2. Lower the uninsured rate by expanding public and private insurance coverage
3. Reduce the costs of healthcare for individuals and the government

Question 144

Ways in which the ACA addresses antiselection and instability created by the guaranteed issue requirement

Answer 144

1. Subsidies are available for applicants with limited income
2. Employers are required to provide insurance. And all residents ineligible for employer coverage must purchase individual coverage, or pay a penalty.
3. A risk adjustment mechanism transfers revenue from plans with relatively low-risk populations to plans with relatively high-risk populations. Risk corridors also transferred revenue from profitable to unprofitable plans.

Question 145

Rating factors allowed by the ACA

Answer 145

1. Age (limited to a 3:1 rate variation)
2. Geographic location
3. Family size
4. Tobacco use (rates can be increased 50% for tobacco users)

Question 146

Reasons why the ACA uses a concurrent risk adjustment model

Answer 146

1. For the first year of the ACA, most exchange participants were expected to be previously uninsured. So no historical data was available to perform a prospective calculation.
2. Prospective risk adjustment models are less accurate than concurrent models, as demonstrated in different Society of Actuaries comparative studies
3. The churn rate of members through the exchanges has been high, so even in later years many plans still will not have claims data on members

Question 147

The ACA risk transfer formula

Answer 147

T_i = [PLRS_i * IDF_i * GCF_i / sum_i (s_i * PLRS_i * IDF_i * GCF_i) - AV_i * ARF_i * IDF_i * GCF_i / sum_i (s_i * AV_i * ARF_i * IDF_i * GCF_i)] * P_i
1. T_i is the transfer amount per billable member month. A positive amount means the plan receives a payment, while a negative amount means a payment by the plan.
2. PLRS_i is the plan liability risk score, reflecting the plan’s actuarial value as well as the plan’s enrollee health status risk
3. IDF_i is the induced demand factor, reflecting anticipated induced demand associated with the plan’s cost sharing (metal) level
4. GCF_i is the geographic cost factor, reflecting the medical cost structure in the geographic location of the plan’s enrollees.
5. AV_i is the actuarial value
6. ARF_i is the plan’s allowable rating factor
7. s_i is the plan’s share of marketwide enrollment
8. P_s is the marketwide average premium. P_s = sum_i P_i s_i.

Question 148

Practical issues with applying risk adjustment models

Answer 148

1. Risk transfer models generally assume that risk and cost are correlated, so a 1% increase in risk is assumed to increase costs by 1%. But not all cost-risk relationships are linear. As a result, these models overcompensate some plans and undercompensate other plans.
2. The Medicare Payment Advisory Commission (MedPAC) identified the following issues related to Medicare HCCs:
   a) Although the CMS-HCC risk adjusters map diagnosis codes to 189 HCCs, only 70 HCCs are actually used for risk scoring. Some fairly prevalent medical conditions are not accounted for.
   b) There is considerable variation within HCCs in terms of patient severity and experience
   c) Certain racial groups and income levels are likely to be higher consumers of healthcare, but this is not reflected in the model
   d) Because the model only uses one year of data for determining risk scores, for some chronic conditions the model under-predicts since the patient doesn’t have a claim each year
   e) The standard model does not include a factor for the number of conditions. But MedPAC has found that this factor would lead to more accurate predictions.
3. Several issues exist in ACA risk adjustment

Question 149

Problems with the Massachusetts risk adjustment model

Answer 149

1. Risk adjustment applies to the gross premium, not the cost of insurance or pure premium. So transfers include part of the expense margin.
2. The model has been shown to be biased against zero-condition members, particularly at the younger ages
3. There is also a bias against limited network and other lower cost plans. Risk transfers have been observed to exceed net income for some of these plans.
4. Risk adjustment operates at the state, rather than regional, level. This also creates a bias.

Question 150

Issues and potential improvements for the national ACA risk adjustment model

Answer 150

1. The model is not accurate for adults with partial year enrollment
2. Lack of historical data - the ACA uses only one year of claim data in a concurrent model, which fails to properly reflect the risk of chronic members who may not have a claim in some years.
3. Only a fraction of members trigger conditions - this could be because a provider fails to code a condition or because the condition present is not mapped to an HCC
4. Because risk scores do not track costs well at the extremes, high-risk members may experience costs that are disproportionate to their risk scores.
5. Prospective vs. concurrent models - sufficient data may now exist to move to a prospective model, but CMS has rejected making this change because it believes the concurrent model is best for this population
6. Market-share - insurers with small market shares and with premiums that are much different than the statewide average are likely to see revenue transfers that are unrelated to their own premiums

Question 151

Options for improving the HHS-HCC risk adjustment methodology

Answer 151

1. Improve the accuracy of the model for partial year enrollees
   a) Length of enrollment could be included as a new indicator variable
   b) Or separate models could be produced for different enrollment period groups (months 1-4, 5-8, and 9-12)
   c) The second approach appears to predict more accurately, but it may present false precision when predicting costs for conditions with small sample sizes and it adds to the complexity of the risk adjustment methodology, which already includes separate models by age and metal level
2. Use prescription drug utilization as a predictor in the model
3. Pooling of high cost enrollees
4. Evaluating concurrent and prospective risk adjustment models

Question 152

Benefits of adding prescription drug utilization to the HHS-HCC risk adjustment model

Answer 152

1. Imputing missing diagnoses - drug utilization data may capture the existence of some conditions that are missing in diagnoses entered on medical claims, particularly for chronic conditions.
2. Severity indicator for a specific diagnosis - the presence of certain drugs can indicate the severity of illness for some HCCs
3. More timely, standardized data - drug data can be available more quickly than medical claim data, is often more complete, is often easier to access, and is more standardized because it does not vary with provider coding patterns
4. Mitigates the financial disincentive to prescribe expensive medications - a risk adjustment model that incorporates prescription drug utilization will compensate plans that cover high-cost medications, reducing the incentive for planst o restrict access to these medications

Question 153

Concerns about adding prescription drug utilization to the HHS-HCC risk adjustment model

Answer 153

1. Risk adjustment models that use drug information are not as common as models based only on medical information, so they are not as well understood or accepted
2. Gaming, perverse incentives, and discretionary prescribing
   a) Gaming occurs when a drug is prescribed in order to trigger a higher payment. Drug models are particularly susceptible to gaming because some relatively low cost drugs are linked to high medical costs.
   b) Financial incentives may inappropriately influence treatment decisions
3. Sensitivity of risk adjustment to variations in prescription drug utilization - many factors other than health status affect drug utilization, and risk adjustment based on drug information will reflect these factors
4. Added administrative burden (to calibrate and apply the model), operational complexity, and costs (due to data reporting requirements and frequent updates)
5. Availability of outpatient drug data only - some drug models omit drugs provided in a hospital setting, which may make hospitalized patients appear to be less severely ill
6. Multiple indications for most drugs - many drug classes are widely prescribed “off label” for indications that are not FDA-approved. So utilization of these drug classes does not always indicate the presence of a specific diagnosis.

Question 154

Factors other than health status that affect drug utilization

Answer 154

1. Plan and physician prescribing patterns
2. Cost sharing features
3. Drug utilization management features
4. Proclivities of providers for using drug versus non-drug treatments for a medical condition
5. The income level of enrollees

Question 155

Criteria for evaluating hybrid risk adjustment models

Answer 155

Hybrid models are those that incorporate both diagnoses and prescription drugs
1. Clinical face validity - should be clinical validity in the relationship between the risk markers (diagnoses and drugs) and health care expenditures, and in the relationship between drugs and associated diagnoses
2. Empirical / predictive accuracy - drugs added to the model should increase the model’s accuracy in predicting health expenditures
3. Incentives for prescription drug utilization - adding drugs should be done in a way that minimizes incentives for over-prescription of drugs to maximize risk transfers, but does not discourage needed drugs
4. Sensitivity to variations in prescription drug utilization - should incorporate variations in drug utilization that measure differences in enrollee health status, not variation due to other factors
5. Incentives for diagnosis reporting - accurate and complete diagnosis reporting should not be discouraged by reducing predicted expenditures when additional diagnoses are appropriately reported

Question 156

Approaches for adding prescription drug utilization to a risk adjustment model

Answer 156

1. Statistical predictive power approach - drug classes are included in the model on purely statistical grounds.
   a) Advantage - this approach allows for a linkage between a drug and poor health in general
   b) Disadvantage - by omitting clinical considerations it makes interpretation of model coefficients difficult and leads to less clinical face validity
2. Conceptual approaches for adding drug utilization to a diagnosis model to create a hybrid model
   a) Imputation - using drug data to impute missing diagnoses. The predicted incremental cost is the same regardless of how a health condition is identified, whether by a drug indicator only, a diagnosis indicator only, or both indicators.
   b) Severity - using drug data as a severity indicator for a specific diagnosis. Only if the drug class and a specific diagnosis are both present will the model predict incremental costs beyond the diagnosis alone.
   c) Rx dominant - individuals taking a drug are assumed to be more severely ill (have higher projected costs) than individuals not taking the drug who have only the associated diagnosis marker
   d) Flexible, generalized empirical framework - each drug-diagnosis pair enters the model with three indicator variables: a diagnosis indicator, a drug class indicator, and an interaction indicator. Each indicator has a coefficient that predicts the incremental costs for that indicator.

Question 157

Criteria for selecting drug-diagnosis pairs for a hybrid model

Answer 157

1. Select drugs with patterns of non-discretionary prescribing
2. Avoid drugs where there are incentives for over-prescribing
3. Avoid drugs where there are variations in prescribing across providers, practices, and areas
4. Carefully consider selection of high-cost drugs. In some cases, including the drug in the model may reduce the incentives for insurers to strive for greater efficiency.
5. Avoid drugs indicated for multiple diagnoses
6. Avoid drugs indicated for diagnoses not included in the HHS-HCC model
7. Carefully consider selection of drugs in an area exhibiting a rapid rate of technological change (which could make cost predictions inaccurate when based on previous years of data)

Question 158

HHS considerations when selecting drug-diagnosis pairs to include in a hybrid HHS-HCC model

Answer 158

1. Empirical considerations - a wide range of exploratory data analysis was performed to determine pairs to consider. Then stepwise regression was used to determine which drug classes added the most predictive power to the existing HHS-HCC model.
2. Clinical considerations - doctors and pharmacists were consulted to provide deeper insights into the medical links between health conditions and the drug groups being considered, and to identify the potential for gaming for each drug being considered
3. Additional considerations
   a) Imposing model restrictions based on days’ supply or number of prescriptions in order to trigger a drug indication
   b) Whether to split certain drug classes or restrict a drug-diagnosis interaction to certain drugs within a class
   c) HHS examined different models that include imputation-only versus imputation and severity approaches
   d) Prophylactic use of drugs - drugs are sometimes used in persons at risk of disease but who do not actually have the disease
   e) Multiple indications for drugs - drug classes are often indicated for multiple diagnoses

Question 159

Market forces that led to a stable and sustainable individual insurance market

Answer 159

Stable and sustainable market forces
1. Individual enrollment at sufficient levels and a balanced risk pool
2. Stable regulatory environment that facilitates fair competition
3. Sufficient insurer participation and plan offerings to provide insurer competition and consumer choice
4. Slow spending growth and high quality of care
Unstable and unsustainable market forces
1. Uninsured rates too high, with not enough young and healthy enrollees
2. Issuers leaving the market
3. Consumers have fewer choices for richer and wider network plans

Question 160

Key factors for a healthy balanced risk pool with limited market selection

Answer 160

1. The risk stabilization programs - risk adjustment, reinsurance, and risk corridors
2. Outreach and advertising - These were especially effective for individuals eligible for subsidies
3. Medicaid expansion - A study found that expansion was correlated with lower individual premiums
4. Ability to develop adequate rates - Requires a stable regulatory environment and issuers need data/knowledge of the risk pool
   To encourage young and healthy enrollment
5. The individual insurance mandate
6. Subsidies for individuals
7. An open enrollment period and limited special enrollment periods (SEPs)

Question 161

Results from the 2015 individual market study

Answer 161

1. Lean metal level plans were profitable and rich plans were not (issuers mostly stopped offering platinum)
2. The richer silver cost-sharing reduction (CSR) plans were profitable
3. PPO plans were less profitable than HMO plans
4. After risk adjustment, sicker patients are not necessarily driving losses
5. After risk adjustment, younger demographics tend to be less profitable
6. Partial year enrollees and SEP enrollees are relatively less profitable than full year enrollees (improved in 2017 methodology changes)
7. Results were different by market, with small group showing profitability in the richer metal level plans

Question 162

Changes made to the risk adjustment program

Answer 162

1. Durational impact - In 2017, an adjustment was added for partial year enrollees. Improving profitability by member duration.
2. Administrative load - In 2018, the 14% admin load is no longer included in the risk adjustment transfers
3. Inclusion of pharmacy data - In 2018 the risk adjustment model will include pharmacy data
4. Updated weights - Updates to weights should more accurately capture relative costs by medical condition
5. In 2018, a large claims pooling mechanism is included in the risk adjustment model (60% share above a $1 million threshold)

Question 163

Impacts on insurers from ACA risk adjustment changes over time

Answer 163

Model impacts - includes only the model changes over time, the population is held fixed
1. The “condition” component of the risk score (HCC plus RxC) is an increasing proportion of the total risk score
2. Composite risk scores are decreasing
Market impacts - impacts include annual model changes as well as enrollment changes
1. Risk adjustment represents a large portion of ACA premium
2. Variability of risk adjustment as a % of premium has remained high in both individual and small group markets
3. Risk adjustment shows some stability at the market level, but it is very much an issuer-specific experience
4. Many insurers do experience large swings in ACA transfers every year which is difficult to account for when setting premium rates. Up to 30% of insurers reverse position (from receivable to charge or vice versa) from the prior year
5. The risk adjustment transfer payment approach is sensitive to both enrollment count (insurer size) and the change in enrollment counts (market shifts)

Question 164

Ideas for future ACA risk adjustment model improvement

Answer 164

1. Further developing coefficients, reflecting larger portions of EDGE data and recent market changes
2. Changing HCC/RxC values and categorizations to leverage the precision of ICD-10 codes
3. Refreshing the CSR-induced utilization factors
4. Introducing a nonlinear model to the calibration process
5. Reflecting additional factors in the transfer calculation, including issuer network characteristics or issuer premium levels, among others
6. Incorporating other factors with predictive power, such as social determinants of health and other socioeconomic data (such as credit scores)
7. Updating governance procedures to allow either the incorporation of more up-to-date information or more time for issuers to understand a model change
8. Enhancing risk adjustment data validation to better align ultimate risk transfers with program goals and/or to minimize disruptive effects

Question 165

The intent of ACA risk adjustment

Answer 165

1. Bridge the gap between allowable ACA rating factors and rating factors that would be developed absent the ACA rating rules
2. Allow insurers to operate in the “indifference ideal” and be ambivalent to any characteristics of the insured
3. Foster the development of markets where health plans compete on quality, efficiency, and value, not on risk selection
4. Transferring funds from plans with lower-risk enrollees to plans with higher-risk enrollees
5. Broadly complement the rating rules by offsetting all variations in plan actuarial risk due to risk selection, beyond the premiums plans are able to collect
6. This differs from a traditional risk classification system that develops rating factors, and premiums, that reflect expected medical claim cost

Question 166

Activities of actuaries operating under current ACA risk adjustment

Answer 166

1. Provide quantifying assessments of the gap between allowable rating factors and risks absent the ACA rating rules
2. Use risk adjustment results as an input in metal level risk selection rating formulas
3. Understand the premium alignment legislation of the state in which they are operating and whether their environment is changing

Question 167

The risk segmentation process in the individual market that is outside the intent of ACA rating rules

Answer 167

1. Silver (CSR) enrollees and platinum enrollees have similar platinum level benefits
2. Platinum enrollees generally elect platinum metal level due to health status
3. Silver enrollees generally elect silver metal level due to income and CSR eligibility
4. Platinum enrollees have high utilization because the population is less healthy
5. Silver enrollees have low utilization because the population is lower income and has a broad health status mix
6. Platinum plans should be priced differently than silver plans due to different population characteristics and plan selection rationale, rather than different benefits

Question 168

Actuarial standards for the use of data

Answer 168

1. Data that is completely accurate, appropriate, and comprehensive is frequently not available, so the actuary should use available data that allows the actuary to perform the analysis
2. Considerations in selecting data
3. Review of data
4. The actuary should use appropriate data
5. Reliance on data and other information supplied by others - the accuracy of this information is the responsibility of those who supply it. The actuary may rely on this information, but should disclose this reliance.
6. Confidentiality - the actuary should handle data containing confidential information consistent with Precept 9 of the Code of Professional Conduct
7. Limitation of the actuary’s responsibility - the actuary is not required to audit the data or determine whether data supplied by others is intentionally misleading

Question 169

Considerations in selecting data to use in an actuarial analysis

Answer 169

1. The scope of the assignment and the intended use of the analysis
2. The desired data elements and possible alternative data elements
3. Whether the data is appropriate and sufficiently current
4. Whether the data is internally consistent
5. Whether the data is reasonable given relevant external information that is readily available
6. The degree to which the data is sufficient for the analysis
7. Any known significant limitations of the data
8. The availability of alternative data, and the benefit and practicality of obtaining this data
9. Sampling methods that were used to collect the data

Question 170

Responsibilities regarding the review of data

Answer 170

1. The actuary should review the data for reasonableness, unless such a review is not necessary or practical
2. Make a reasonable effort to identify data values that are questionable or relationships that are significantly inconsistent
3. Consider taking further steps, when practical, to improve the quality of the data
4. Request prior data and compare it to current data for consistency
5. If review is not necessary the actuary should disclose that a review was not performed
   a) Provide the reason why and any resulting limitation on the use of the work product
   b) Take into account the purpose of the assignment, any relevant constraints, and any prior review of the data

Question 171

Categories of appropriateness of data used in an actuarial analysis

Answer 171

1. The data is of acceptable quality to perform the analysis
2. The data requires enhancement before the analysis can be performed, and it is practical to obtain additional or corrected data
3. Judgmental adjustments or assumptions can be applied to the data, or the analysis results, to allow the actuary to perform the analysis
4. The data is likely to have significant defects
5. The data is so inadequate that it cannot be used to satisfy the purpose of the assignment

Question 172

Required documentation related to data quality

Answer 172

1. The source of the data
2. Any limitations on the use of the actuarial work product due to uncertainty about data quality
3. Whether the actuary reviewed the data, and any limitations due to data that was not reviewed
4. A summary of unresolved concerns the actuary may have about questionable data values
5. A summary of any significant steps the actuary has taken to improve the data
6. A summary of significant judgmental adjustments or assumptions the actuary applied to the data or to the results
7. The existence of results that are highly uncertain or potentially biased due to the quality of the data
8. The extent of the actuary’s reliance on data and other information supplied by others
9. Disclosures in accordance with ASOP #41 if:
   a) Any material assumption or method was prescribed by law
   b) The actuary relies on other sources and thereby disclaims responsibility for any material assumption or method
   c) The actuary has otherwise deviated materially from the guidance of this ASOP

Question 173

Recommended practices for actuarial communications

Answer 173

1. Actuarial communications should meet the following requirements:
   a) The form and content of the communication must be appropriate for the given circumstances
   b) The communication should be clear
   c) Each communication should be issued within a reasonable time period
   d) All actuaries responsible for the communication should be clearly identified
2. The actuary should complete an actuarial report if the actuary intends the findings to be relied upon by any intended user
3. Some circumstances (such as regulations) may constrain the content of an actuarial report. In these cases, the actuary should follow the guidance of this standard to the extent reasonably possible.
4. The actuary should recognize the risk of unintended users misusing an actuarial document, and should take reasonable steps to ensure it is clear and presented fairly.

Question 174

Disclosures required in an actuarial report

Answer 174

This report states the actuarial findings and identifies the methods, procedures, assumptions, and data used
1. The intended users of the report
2. The scope and intended purpose of the assignment
3. The acknowledgement of qualification as specified in the Qualification Standards
4. Any cautions about risk and uncertainty
5. Any limitations or constraints on the use or applicability of the findings
6. Any conflict of interest
7. Any information on which the actuary relied that has a material impact on the findings and for which the actuary does not assume responsibility
8. The information date (date through which data and other information has been considered)
9. Subsequent events (may have a material effect on the actuarial findings)
10. If appropriate, the documents comprising the actuarial report

Question 175

Disclosure requirements for assumptions and methods used in an actuarial report

Answer 175

1. The communication should identify the party responsible for each material assumption and method
2. If the assumption or method is prescribed by law, disclose the applicable law, the assumption or methods affected, and that the report was prepared in accordance with the law
3. If a material assumption or method is selected by another party, the actuary has three choices:
   a) If it does not conflict with the actuary’s professional judgment, no disclosure is needed.
   b) If it significantly conflicts with the actuary’s professional judgment, then disclose this fact
   c) If the actuary is unable or not qualified to judge its reasonableness, then disclose this fact
   In the case of either b or c, also disclose the affected assumption or method, the party who set it, and the reason it was set by this party, rather than by the actuary

Question 176

Considerations when selecting a risk adjustment model

Answer 176

1. Intended use - consider the degree to which the model was designed to estimate what the actuary is trying to measure
2. Impact on program - consider whether the risk adjustment system may cause changes in behavior because of underlying incentives
3. Model version - if a new version of a previously utilized model is used, consider the materiality of changes to the model
4. Population and program - consider if the population and program to which the model is being applied are consistent with those used to develop the model
5. Timing of data collection, measurement, and estimation - consider the impact of timing differences between when the model is developed and when it is applied
6. Transparency - consider whether the model provides an appropriate level of transparency for the intended use
7. Predictive ability - consider the predictive ability of the model and the characteristics of the various common predictive performance measures
8. Reliance on experts - consider whether the individuals incorporating their specialized knowledge into the model are experts in risk adjustment
9. Practical considerations - consider practical limitations, such as the cost of the model, the actuary’s familiarity with the model, and its availability