The Patient Protection and Affordable Care Act (the “ACA”) has caused healthcare payor organizations to focus additional scrutiny on administrative costs (claims adjudication, operating costs and salaries, commissions, marketing, call centers, and more), known in the industry as “SG&A” (selling, general and administrative) expenses. Milliman MedInsight leverages the power of health care data warehousing and industry-leading healthcare analytics and distribution to help clients better understand and manage their SG&A costs, as well as comparing them to competitors and peers.
SG&A expenses currently represent a significant portion of the overall healthcare cost in America; in addition, under the new health reform law, insurers are required to spend at least 85% of their premium revenue (80% in small group and individual markets) on clinical services (or certain administrative costs that the ACA allows to be classified as quality improvement expenses). These new requirements around the 80/85% number, which is known as the Medical Loss Ratio (the “MLR”), create increased emphasis on SG&A since, if a payor fails to meet this standard, they are required to provide annual rebates to each enrollee. Thus, to manage their MLR, insurers must have a good understanding of how to best track and manage their overall administrative expenditures.
This requirement, which applies to insured health plans, became effective January 1, 2011, with subsequent amendments and additional regulations applicable as of January 1, 2012. Many aspects of this rule are still open to debate and further regulation; for example, discussion continues as to what type of expenses can be categorized as quality improvement expenses and thus included in a payor’s MLR. Besides expenses that obviously would not count as MLR, such as marketing expenses or insurance agent commissions, the applicability of many other items is still open to regulatory consideration.
Milliman MedInsight includes a wide range of functionality designed to help clients achieve optimal SG&A spending across their operations. In addition to the administrative cost reporting available in MedInsight, which is derived from data submitted by the customer, Milliman produces a customized set of administrative benchmarks against which customers can compare costs by functional area, in order to help clients understand and manage SG&A expenses.
These benchmarks include source data from more than 100 payor organizations, and are adjusted to reflect each particular situation: Product mix, claims volume, customer service call volume, and referral volume. In addition, the benchmarks include efficiency and staffing metrics such as claims processing turnaround time, auto adjudication rates, and numbers of full-time employees (FTEs) required to optimize transaction processes, along with many other measures. All of these tools enable clients to identify potential improvement opportunities, by comparison against the benchmark administrative cost measures.
Because of the heightened emphasis on MLR requirements within the ACA, these tools can be used by payor organizations when considering how to manage their Medical Loss Ratio, in light of the new limitations imposed by Federal law. While it remains imperative for carriers to target traditional healthcare key performance indicators such as utilization, provider quality and efficiency, avoidable events and population health, keeping a close eye on administrative expenses is also critical. Milliman MedInsight enables organizations to do both.
For a more detailed case study entitled Adminstrative Cost Management and MedInsight in the Affordable Care Act Era on how this process unfolded for one MedInsight customer.