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University of Kentucky Health Insurance Task Force Meeting August 15, 2001 Agenda Year-by-year financial results under self-insurance Rationale going in Key Mercer recommendations Results Explanation Why did UK-HMO rates increase more than the 11% capitation rate increase?

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university of kentucky health insurance task force meeting august 15 2001
University of Kentucky

Health Insurance Task Force Meeting

August 15, 2001

agenda
Agenda
  • Year-by-year financial results under self-insurance
    • Rationale going in
    • Key Mercer recommendations
    • Results
    • Explanation
  • Why did UK-HMO rates increase more than the 11%capitation rate increase?
1997 1998 plan year
1997-1998 Plan Year
  • Rationale going in:
    • unknown; Mercer not involved until February 1998
    • likely used insured carrier rates that had already been quoted
  • Key Mercer recommendations:
    • none
  • June 30, 1998 result: $1.1 million deficit
  • Explanation of results
    • unknown (to Mercer)
    • medical inflation still very low during this period
1998 1999 plan year
1998-1999 Plan Year
  • Rationale going in:
    • Mercer hired in mid-February (1998) to produce rates in two weeks for July 1, 1998 effective date
    • No time for strategy discussions or changes
  • Key Mercer recommendations:
    • use of 4-tier structure for all plans
    • consistent tier factors across all plans
    • consider “single risk pool” rating
1998 1999 plan year cont
1998-1999 Plan Year (cont.)
    • summer planning meeting to address self-insurance “house-keeping” and strategy issues
      • took place 6/12/98
      • Mercer recommended simple enrollment tracking system to accurately monitor eligibility (Excel? Access?)
  • June 30, 1999 result: $1.5 million deficit
1998 1999 plan year cont8
1998-1999 Plan Year (cont.)
  • Explanation
    • Mercer financial analysis (earned premium vs. expenses)produced a $150,000 GAIN for plan year
    • Difference was on the revenue side
    • Mercer analysis based on insurance carrier claims andenrollment reports – carrier enrollment was overstated onthese reports
    • UK experienced revenue shortfall because there were actuallyfewer enrollees than reported to Mercer. This enrollmentdiscrepancy was not discovered until well after 1999-2000rates had been set.
1999 2000 plan year
1999-2000 Plan Year
  • Rationale going in:
    • Rates for 1999-2000 based on experience throughDecember 1998
    • At that time, no apparent major problems with UK strategyto rate each plan based on its own experience
    • Enrollment discrepancies were not known, so carrier reports were used (standard practice)
1999 2000 plan year cont
1999-2000 Plan Year (cont.)
  • Key Mercer recommendations:
    • consistent, 4-tier rate structure
    • single risk pool
    • in terms of what is covered, standardize some benefits(transplant coverage, prescription drugs) across all plans
  • June 30, 2000 result: $4.6 million deficit
1999 2000 plan year cont11
1999-2000 Plan Year (cont.)
  • Explanation:
    • Return of medical inflation
    • Rates inadequate by about $3 million; remainder due to other“one-time” charges
    • Inadequate rates – causes
      • Understated historical enrollment (baseline percapita experience too low because enrollment too high)
      • Enrollment shift in UK-HMO population (enrollment olderthan in previous year, so actual age/gender capitation payments higher than UK-HMO rate increase)
      • Poor transplant experience (very difficult to predict)
      • Anthem BCBS experience very poor
      • Humana began to assess previously uncollectedcapitation payments (that had not been rated for)
1999 2000 plan year cont12
1999-2000 Plan Year (cont.)
  • Explanation:
    • “One time” charges
      • Humana had failed to bill UK for certain capitationcharges since conversion to self-insurance (July 1997)
        • Humana requested $900,000 reimbursement
        • UK (with Mercer assistance) negotiated $400,000 settlement
      • Timing issue of cash claims
2000 2001 plan year
2000-2001 Plan Year
  • Rationale going in:
    • Emerging poor experience for 1999-2000 known based on Mercerfinancial modeling PRIOR to 2000-2001 rate setting
    • Rates based on experience through November/December 1999
    • August 1999 – Mercer warns of need for major corrective actions(rate increases, plan design changes)
  • Key Mercer recommendations:
    • No free coverage – everyone must pay
    • Single risk pool – same rate increase for all plans (to manageanti-selection)
    • Add $1 to $1.5 million to UK-HMO rates to account for additionalage/gender enrollment shift risk ($400,000 added)
    • Major plan design changes
2000 2001 plan year cont
2000-2001 Plan Year (cont.)
  • June 30, 2001 result: $700,000 deficit
  • Explanation:
    • Claims projection right on target
    • Humana withdrawal on June 1, 2000 forced unanticipatedenrollment shifts (obviously too late to change rates)
    • Humana population was older – they shifted to lower cost plans(less premium collected but claims remained the same)
2001 2002 strategy
2001-2002 Strategy
  • Rationale going in:
    • Experience of 1999-2000 plan year convinced UK staff to consider more major changes as recommended byWilliam M. Mercer, Incorporated
      • Single risk pool
      • Reduced number of vendors
      • Prescription drug carve-out (and other specialty vendors)
      • Totally new plan designs
      • Planning began in June 2000
      • Rate for anticipated UK-HMO enrollment shifts
      • No free coverage (rating structure must recognize that medical costs are increasing much faster than UK overall budget allocation)
    • Results to be determined
why did uk hmo rates increase more than capitation increase
Why did UK-HMO rates increase morethan capitation increase?
  • Discussed in depth August 8 (and summarized clearly in minutes)
  • Age/gender capitation matrix shifts risk of enrollment changes to UK health plan – result is shared risk between HMO andhealth plan
    • UK-HMO absorbs risk of adverse utilization and price fluctuations within each age/gender “cell”
    • UK health plan absorbs risk of transplants, durable medicalequipment, and out-of-area emergency services (capitationrates do not cover these items)
    • UK health plan absorbs risk of “older” enrollment thananticipated
  • Example?