M I L L I M A N

Commercial Rating Structures

The Milliman Health Cost Guidelines—Commercial Rating Structures are used to determine claim costs for health benefits provided through traditional fee-for-service plans, alternative delivery systems (such as HMOs, PPOs or systems using modified fee-for-service reimbursement methods), and freestanding or integrated prescription drug programs.

H I G H L I G H T S

The Commercial Rating Structures have several features to enhance their flexibility and usefulness, including:

• TheManagedCareRatingModel(MCRM)isanautomatedspreadsheetdevelopedprimarilyfromtheManagedCareRatingsectionoftheRatingStructures.TheMCRMalsoincorporatesmanyratingvariablesandworksheetsdescribedinothersectionsoftheRatingStructures,includingtheproviderreimbursementworksheetsandclaimprobabilitydistributions.

• AseparatePrescriptionDrugratingsectionprovidesformoredetailedanalysisofprescriptiondrugcostsandbenefits.Variouscostperprescriptioncontinu-ancetablescanbeusedtomodelunitpricevariationandtheeffectiveness(expectedversusnominal)ofhigherstatedplancopays.ThePrescriptionDrugRatingsectionisaccompaniedbythePrescriptionDrugRatingModel,whichautomatestheentireprescriptiondrugratingprocess.

• TheRatingStructuresareupdatedandexpandedannually.TheRatingStructuresarecontinuouslymonitoredasweusetheminmeasuringtheexperienceorevaluatingtheratesofourclients,andaswecomparethemwithotherdatasources.

F E AT U R E S

• Major Medical Rating Structure

• Managed Care Rating Structure

• Prescription Drug Rating Structure

• Basic Tables

• Deductible Tables

• Trend Factors

• Cost Management

• Mandated Benefits

• Rating Examples

• Appendices

• Managed Care Rating Model

• Rx Rating Model

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M I L L I M A N

Commercial Rating Structures

Major Medical Rating Structure

TheMajorMedicalRatingStructureprovidesaflexiblebasisforestimatingclaimcostsfortraditionalhealthplanssuchasComprehensiveMajorMedical,Base,BasePlusSupplementaryMajorMedical,SupplementaryMajorMedical,Wrap-aroundandSuperimposedplans.Usingthisratingstructure,claimcostsmaybedevelopedforvariousbenefitpackageswithvarioustypesandamountsofdeductibles,coinsuranceprovisions,planmaximums,andcontractprovisions.Detailedratingworksheetsandstep-by-stepinstructionsareincludedtoguidetheuserinthecalculations.

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M I L L I M A N

Commercial Rating Structures

Major Medical Rating Structure continued

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M I L L I M A N

Commercial Rating Structures

Managed Care Rating Structure

TheManagedCareRatingStructureisusedtocalculateclaimcostsfordetailedbenefitcategoriesonacompositepermemberpermonthbasis.Thisratingstructureallowsausertomodifythecompositeclaimcostforage/gendermixofthemembers,geographicarea,healthcaremanagement,benefitplancoverage,trendandnegotiatedreimbursement.Wellmanagedtargetsprovideabasisforbenchmarkingexperienceandmodelingchangesinclaimcostwithimprovementsinefficiency.

TheManagedCareRatingStructureincludesworksheetsanddatatablestoassistinthecalculationofprovidercapitationrates,premiumratecalculationsbyratingtier,andopen-networkrating.Inaddition,theManagedCareRatingStructureincludesadiscussionoftheissuestobeconsideredwhenratingbenefitplanscontainingbothmanagedcare(i.e.copays)andmajormedical(i.e.deductibleandcoinsurance)features.

TheManagedCareRatingStructureincludesthesectionConsumer Driven Health Plan Rating Considerations. Inaddition,thesectionPoint-of-Service/Preferred Provider Organi-zation Plans includesadiscussionofselectionissuesinvolvedwithsuchplans,aswellasotheremployeechoiceoptions.

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Commercial Rating Structures

Managed Care Rating Structure continued

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Commercial Rating Structures

Prescription Drug Rating Structure

ThePrescriptionDrugRatingStructureandaccompanyingratingmodelcanbeusedtodetermineclaimcostsforawidevarietyofprescriptiondrugbenefitplans.TheRatingStructurerecognizesvariablesforage/gendermix,area,benefitcoverage,reimbursement,pharmacyandphysicianincentives,mailorderavail-ability,andcostmanagementprograms.Additionalinformationisprovidedbydrugtherapyclassandforhighlyutilizeddrugs.

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M I L L I M A N

Commercial Rating Structures

Basic Tables

TheBasicTablessummarizetheunderlyingutilizationandchargelevelassump-tionsusedthroughouttheRatingStructures.Utilizationandchargelevelinfor-mationisprovidedbyageandgenderforemployees,spousesandchildrenforeachofthe60benefitcatagories.Additionalinformation,suchaslengthofstay,isprovidedwhereappropriate.

Compositecostsareexpressedonaperemployee,perspouse,peradult,perchildandpermemberbasis.Employeecompositecostsarebasedonanemployeedistri-butionrepresentativeoftheU.S.adultlaborforce.

TheBasicTablesformaternityservicesarepresentedinadifferentformatthantheothertablestoreflectthevaryingincidenceofpregnancybetweenfemaleemployeesandfemalespouses.

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M I L L I M A N

Commercial Rating Structures

Deductible Tables

TheDeductibleTablesprovidepermemberdeductiblevaluesforvariousbenefitcombinationsanddeductiblelevels.Alsoshownisthemonthlyclaimcostforthesamebenefitcombinationsanddeductiblelevels.AlternateDeductibleTablesareprovidedforSupplementaryMajorMedicalplansthatcannotdirectlyusetheDeductibleTables.

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Commercial Rating Structures

Trend Factors

TheclaimcostspresentedintheRatingStructuresarerepresentativeofclaimsincurredonJuly1.ForanexperienceperiodwithamidpointotherthanJuly1,anadjustmentisnecessarytoreflectestimatedchangesintheutilizationandcostofmedicalcare.

Medicaltrendassumptionswillvarysignificantlydependingonfactorsthatareoftenuniquetoeachsituation.Suchfactorsincludetypeofplan,benefitstructureandgeographicarea.Moreover,thesefactorstendtobedynamic,requiringcontinuousanalysisandsubjectiveevaluation.Forthesereasons,itisdifficulttoestablishasetofrecommendedtrendfactorsforallusersoftheRatingStructures.Rather,wehavedevelopedaframeworkforestablishingtrendassumptionsforavarietyofsituations.

Thissectionincludesconsiderationsinestablishingtrendassumptions,guidelinesforcurrentyearseculartrendfactorsandatrendassumptionworksheet.

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Commercial Rating Structures

Cost Management

Thestartingclaimcostsareintendedtoberepresentativeofutilizationandchargelevelsforhealthbenefitplansprovidedthroughalooselymanagedhealthcaredeliverysystem.

Manyhealthcareplansofferedtodayincludecostcontainmentfeaturesthatmayresultinsignificantchangesintheseunderlyingutilizationandcostassumptions.

Theeffectivenessofcostmanagementprogramswillvarywidelydependinguponanumberoffactors,includingtheenvironmentinwhichtheprogramisimple-mented,thenatureoftheprogram,andthedurationsinceimplementation.Forthisreason,itisnotpossibletoestablishasetofcostmanagementadjustmentfactorsthatwouldapplyuniformlyforallplans.

Theinformationinthissectionisintendedtoassisttheuserindevelopingcostmanagementadjustmentfactorsappropriateforthespecificsituationinvolved.Thissectionincludesconsiderationofthemajorfactorsaffectingcostmanagementsavingsandadiscussionofthegeneraleffectivenessofvariouscostmanagementprograms.

Mandated Benefits

Statemandatedbenefitswerefirstintroducedduringthe1960s.Today,everystaterequires“mandatedbenefits”or“mandatedofferings,”resultinginover800suchmandatesintotalforallstatescombined.

Themandatesapplicabletoeachstatearecontinuallychanging,sotheRatingStructuresdonotattempttoidentifywhichmandatesareapplicableineachstate.TheRatingStructurescontaindetailedclaimcostinformationonsome,butnotall,mandates.

TheclaimcostsassociatedwithmanymandatescanbedevelopedfrominformationcontainedintheRatingStructures.Theinformationinthissectionisintendedto:

• Definemandatedbenefitsandmandatedofferings;

• Providegeneralinformationaboutthetypesofmandatescurrentlyineffect;

• Provideinformationabouttheapplicabilityofthesemandates;

• Identifygeneralconsiderationsindeterminingtheclaimcoststobeexpectedforthesemandates,orinterpretingtheclaimcostsincludedintheRatingStructures;and

• Providespecificutilizationandclaimcostinformationconcerningseveral ofthesemandates.

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Commercial Rating Structures

Rating Examples

TheRatingExamplessectioncontainsdetailedillustrationsoftraditionalandmanagedcareratingprocedures.Thismaterialisoftenusedasatrainingtoolfornewusers.

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Commercial Rating Structures

Appendices

Theappendicescontainthefollowing:

• Adetaileddescriptionoftheapproximately60benefitcategories,including anyassumedcoveragelimitationsaswellasCPT-4andHCPCScodemappings.

• ThedemographicassumptionsunderlyingtheBasicTablesdetailedbyrating tier(one-tierthroughfive-tier).

• Adiscussionofproviderreimbursementstructures,includingaphysicianfee scheduleanalysisworksheet.

• Hospitallength-of-staydistributiontablesforvariousinpatientbenefitsandlevelsofaveragelengthofstay.

• Informationforadjustingclaimcostsfromalargegroupbasistoan individualorsmallgroupbasis.

• Adiscussionofthegroup-specificexperienceratingprocess,including variousconsiderationswhenusingcredibilityinrating.

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M I L L I M A N

Commercial Rating Structures

Managed Care Rating Model

TheManagedCareRatingModel(MCRM)isamenu-drivenExcel-basedspread-sheetthatincorporatesallaspectsofthemethodologydescribedintheManagedCareRatingsectionoftheCommercialRatingStructures.TheMCRMsimplifiestheapplicationofareafactors,trendfactors,age/genderfactors,contractualandcoverageutilizationadjustments,andnegotiatedreimbursementadjustmentsforavarietyofproviderreimbursementarrangements.Themodelalsoallowsforsimpleapplicationofhealthcaremanagementadjustments.TheMCRMisincludedwiththeleaseoftheCommercialRatingStructures.

Copays (Steps 30 a and b)In-Network

Fixed PercentageType of Service Copay Copay

Hospital InpatientMedical $0.00 0.0%Surgical 0.00 0.0%Psychiatric 0.00 0.0%Alcohol & Drug Abuse 0.00 0.0%Maternity Deliveries 0.00 0.0%Maternity Non-Deliveries 0.00 0.0%Skilled Nursing Facility 0.00 0.0%

Hospital OutpatientEmergency Room $0.00 0.0%Surgery 0.00 0.0%

PhysicianMaternity Deliveries $0.00 0.0% 10 Number of Visits/CopaysMaternity Non-Deliveries 0.00 0.0% 3 Number of Visits/CopaysOffice/Home Visits 0.00 0.0%Urgent Care Visits 0.00 0.0%Therapeutic Injections 0.00 0.0% 0.3 Copays per ServiceAllergy Testing 0.00 0.0% 20 Tests Per VisitAllergy Immunotherapy 0.00 0.0% 0.6 Copays per ServiceImmunizations 0.00 0.0% 0.5 Copays per ServiceWell Baby Exams 0.00 0.0%Physical Exams 0.00 0.0%Vision Exams 0.00 0.0%Hearing/Speech Exams 0.00 0.0%Consults 0.00 0.0% 20% Inpatient ConsultsPhysical Therapy 0.00 0.0% 3 Procedures Per VisitChiropractor 0.00 0.0%Podiatrist 0.00 0.0%Outpatient Psychiatric 0.00 0.0%Outpatient Alcohol & Drug Abuse 0.00 0.0%

OtherAmbulance $0.00 0.0%Durable Medical Equipment 0.00 0.0%Prosthetics 0.00 0.0%Glasses/Contacts 0.00 0.0%

Out-of-Network

For indemnity plans, use the "Aggregate Deductible and Out-of-Pocket Maximum" section to the right.

For managed care plans, click here to enter copays

NOTE: Percentage copays apply to the average reimbursement less the fixed copay.

It is Common to Have Copays on the Services Listed Above. Click Here to Enter Copays For Other Line Items.

Out-of-Network plans are usually indemnity plans instead of managed care plans (i.e., coinsurance and deductibles apply instead of copays).

Per Day User NavigatorClick on Appropriate Areas Below to Travel

Through User Input Sections

Demographics

Coverage Utilization Adjustments

Trends

Level of Healthcare Management

Headings and Documentation

General Model Setup

Contractual Utilization Adjustments

Hospital Outpatient Reimbursement

Physician Reimbursement

Hospital Inpatient Reimbursement

Prescription Drug Reimbursement

Other Reimbursement

Copays

Retention

Aggregate Deductible and Coinsurance

Allocation of Claim Costs

POS/PPO Plans

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