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Confidential & Trade Secrets
Copyright © 2017 Sherlock Company. All Rights Reserved. www.sherlockco.com
Photograph by A. Aubrey Bodine • Copyright © Jennifer B. Bodine
ADMINISTRATIVE COSTTRENDS OF MEDICARE -FOCUSED PLANS IN 2016
SHERLOCK BENCHMARKSDouglas B. Sherlock, CFA
President, Sherlock [email protected]
September 28, 2017
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Confidential & Trade Secrets
Copyright © 2017 Sherlock Company. All Rights Reserved. www.sherlockco.com
Background on Medicare Advantage Long term cost trends Changes in cluster costs Reasons for cost increases Taxes Costs by Cluster: Percent and PMPM Costs by Product: Percent and PMPM
APPENDICES Last year’s values Functions in each cluster of expenses About the Sherlock Benchmarks
TOPICS
Racing workboats are a metaphor for businesses striving for performance improvement.
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BACKGROUND ONMEDICARE ADVANTAGE
15.5%19.0%
21.7%23.1%
23.8% 24.9%26.5%28.5%
30.3%31.9% 32.2%33.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Figure 2. Sherlock Benchmark SummaryMedicare Advantage Share
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FIRST OVERALLGROWTH SINCE 2013.
Medians. Rates of change hold universe and product mix constant.
29.8%
1.4%
8.1%
‐5.3%
6.6%3.1%
6.7%
7.3%
3.8%
‐6.7%‐3.2%
0.8%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
2011 2012 2013 2014 2015 2016
Account and Membership Administration Total Expenses
Figure 1. Sherlock Benchmark SummaryMedicare Plans' Rates of Change for Account and Membership Administration and Subtotal, Constant Mix
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Figure 3. Sherlock Benchmark SummaryMedicare Plans' Median Changes in Per Member Per Month Expenses
Functional Area As Reported Constant Mix As Reported Constant MixSales and Marketing -1.6% -4.0% 6.3% 4.2%Provider & Medical Management -7.7% -9.9% -3.4% -3.1%Account & Membership Administration 6.0% 6.6% 3.8% 3.1%Corporate Services -10.5% -11.5% 13.9% 14.6%Total Expenses -4.1% -3.2% 0.1% 0.8%
2015 Data 2016 Data
Constant-Mix adjusts to exclude product-mix differences.
AMONG CONTINUOUSLY PARTICIPATINGPLANS, GROWTH TRENDS FLIPPED FROMNEGATIVE TO POSITIVE
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SOURCES OF GROWTH IN MEDICARE -FOCUSED HEALTH PLANADMINISTRATIVE COSTS IN 2016
Chg. Greatest Change Highest WeightSales & Marketing 6.3% Marketing Rating & Underwriting1
Med & Provider -3.4% Prov. Net. Mgmt & Svs Medical Management Acct & Memb. 3.8% Claims Information Systems Corp. Serv. 13.9% Corp. Exec. & Gov. Corp. Exec. & Gov. Total 0.1% Corp. Exec. & Gov. Information Systems
1 One plan did not have Commissions last year, but reported Commissions this year.
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Chg. Greatest Change Highest WeightSales & Marketing 4.2% Marketing Commissions1
Med & Provider -3.1% Prov. Net. Mgmt & Svs Medical Management Acct & Memb. 3.1% Claims Information Systems Corp. Serv. 14.6% Corp. Exec. & Gov. Corp. Exec. & Gov. Total 0.8% Corp. Exec. & Gov. Information Systems
SOURCES OF “REAL” GROWTH INMEDICARE - FOCUSED ADMINISTRATIVECOSTS IN 2016
1 One plan did not have Commissions last year, but reported Commissions this year.
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AFFORDABLE CARE ACT TAXES
Miscellaneous Business Taxes (mainly ACA) now comprise 13% of total administrative expenses for commercial insured products.
Plans posted median Miscellaneous Business Taxes for commercial insured products of $10.84 in 2016. In 2010, they reported $2.25.
Increased by 9.0% PMPM, compared with an increase of 20.8% in 2015 and down from the surge of 3,224.6% in the year before.
Includes Transitional Reinsurance Fee, Risk Adjuster User Fee, Exchange User Fee, PCORI/CERF fees and an Annual Fee on Health Insurers of $4.39, $12.24 for Exchange members.
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Median$11.25
8.5217.44
7.97$44.72
COMPARED WITH VALUES IN APPENDIX A, COSTS WERE4.4% LOWER IN 2016. ALL CLUSTERS WERE LOWER EXCEPTSALES AND MARKETING. CHANGES IN THE UNIVERSE WEREMOST RESPONSIBLE, WHILE MIX ALSO CONTRIBUTED.
2015 Values
Figure 4. Sherlock Benchmark SummaryMedicare Plans' Costs by Functional Area Cluster, 2016 DataPer Member Per Month
Functional Area25th
Percentile Median75th
PercentileCoefficient of
VariationSales and Marketing $10.64 $12.38 $15.68 50%Medical and Provider Management 6.87 7.22 7.84 18%Account and Membership Administration 15.18 17.16 20.29 31%Corporate Services 6.38 7.46 9.01 36%Total Expenses $37.14 $42.76 $51.56 28%
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PMPMS VARY BY PRODUCTS.
Figure 5. Sherlock Benchmark SummaryMedicare Plans' Costs by Product, 2016 DataPer Member Per Month
Product25th
Percentile Median75th
PercentileCoefficient of
VariationMedicare $65.13 $81.11 $85.70 30%
Advantage $64.95 $77.60 $84.55 30%SNP $114.01 $125.17 $131.03 14%
Medicaid Total $18.50 $23.85 $27.55 27%HMO $18.50 $24.23 $28.92 29%CHIP $14.85 $17.40 $21.50 36%
Commercial Insured Total $31.16 $35.76 $40.65 20%HMO $37.86 $41.20 $47.61 18%POS $38.33 $41.63 $48.28 20%Indemnity & PPO $38.63 $47.99 $52.08 28%
Commercial ASO $19.75 $22.53 $26.20 34%Medicare Supplement $45.63 $61.26 $69.68 61%
Comprehensive Total $37.14 $42.76 $51.56 28%
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PERCENTS VARY BY PRODUCT, BUT SOMETIMESORDERED DIFFERENTLY FROM PMPMS.
Figure 6. Sherlock Benchmark SummaryMedicare Plans' Costs by Product, 2016 DataPercent of Premium Equivalents
Product25th
Percentile Median75th
PercentileCoefficient of
VariationMedicare 7.6% 8.6% 9.4% 30%
Advantage 7.6% 8.3% 9.5% 31%SNP 8.8% 9.2% 10.1% 15%
Medicaid Total 7.1% 7.2% 7.5% 17%HMO 7.1% 7.2% 7.3% 17%CHIP 7.1% 7.2% 8.8% 24%
Commercial Insured Total 8.8% 10.0% 11.5% 16%HMO 9.2% 9.8% 10.2% 19%POS 7.7% 9.1% 10.0% 28%Indemnity & PPO 8.3% 11.1% 12.2% 34%
Commercial ASO 4.7% 6.6% 7.6% 37%Medicare Supplement 26.0% 27.7% 29.2% 65%
Comprehensive Total 7.8% 8.6% 9.3% 16%
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Figure 7. Sherlock Benchmark SummaryMedicare Plans' Costs by Functional Area Cluster, 2016 DataPercent of Premium Equivalents
Functional Area25th
Percentile Median75th
PercentileCoefficient of
VariationSales and Marketing 2.0% 2.6% 3.3% 32%Medical and Provider Management 1.2% 1.4% 1.5% 15%Account and Membership Administration 2.8% 3.3% 3.5% 29%Corporate Services 1.3% 1.5% 1.6% 25%Total Expenses 7.8% 8.6% 9.3% 16%
TOTAL EXPENSES WERE ESSENTIALLYUNCHANGED. CORPORATE SERVICESCLUSTER DECLINED. THE ORDER OFIMPORTANCE OF THE CLUSTERS IS LIKETHE PMPM MEDIANS.
Median2.2%1.6%3.4%2.2%8.6%
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COMPARISONS WITH BLUE AND IPS UNIVERSES
Figure 8. Sherlock Benchmark SummaryMedicare Advantage Product Characteristics by Universe, 2016 Data
Medicare PlansIPS
PlansBCBS Plans
Combined Plans
Total CostsPer Member Per Month
25th Percentile $64.95 $85.78 $73.51 $73.54Median 77.60 119.63 93.69 83.4175th Percentile 84.55 128.67 114.20 115.05Coefficient of Variation 30% 52% 27% 43%
Percent of Premiums and Equivalents25th Percentile 7.6% 11.3% 8.7% 8.3%Median 8.3% 12.6% 11.4% 9.9%75th Percentile 9.5% 15.2% 16.7% 14.4%Coefficient of Variation 31% 70% 35% 55%
Plans offering Medicare 10 6 10 26Medicare Advantage Members (millions) 0.66 0.21 1.00 1.87Comprehensive Total Members (millions) 4.03 5.99 38.27 48.29
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Medicare costs PMPM were $42.76 versus $44.72 last year. Actual performance and differences in universe were primarily responsible, while mix also contributed.
First administrative expense growth since 2013. As-reported increased by 0.1%. Constant mix grew by 0.8%.
Sales and Marketing and Corporate Services cluster flipped from a decline to an increase. Account and Membership decelerated and the decline in Provider and Medical Management was muted.
Corporate Executive and Governance was the fastest growing, while Information Systems was the most important source of growth.
MEDICARE PLANSOPTIMIZING UNDERUNCERTAINTY
Photograph by A. Aubrey Bodine • Copyright © Jennifer B. Bodine
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APPENDIX A. MEDICARE - FOCUSED PLANADMINISTRATIVE COSTS IN 2015
Appendix A. Sherlock Benchmark SummaryMedicare Plans' Costs by Functional Area Cluster, 2015 DataPer Member Per Month
Functional Area25th
Percentile Median75th
PercentileCoefficient of
VariationSales and Marketing $9.11 $11.25 $12.15 54%Medical and Provider Management 7.24 8.52 9.99 63%Account and Membership Administration 14.78 17.44 19.53 33%Corporate Services 6.33 7.97 9.42 27%Total Expenses $39.50 $44.72 $57.95 29%
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APPENDIX B. MEDICARE - FOCUSED PLANADMINISTRATIVE COSTS IN 2015
Appendix B. Sherlock Benchmark SummaryMedicare Plans' Costs by Functional Area Cluster, 2015 DataPercent of Premium Equivalents
Functional Area25th
Percentile Median75th
PercentileCoefficient of
VariationSales and Marketing 1.9% 2.2% 2.5% 27%Medical and Provider Management 1.4% 1.6% 1.8% 62%Account and Membership Administration 3.0% 3.4% 3.6% 27%Corporate Services 1.7% 2.2% 2.9% 45%Total Expenses 7.8% 8.6% 10.5% 19%
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APPENDIX C. MEDICARE - FOCUSED PLANADMINISTRATIVE FUNCTIONS
Each product is segmented into each of
these functions.
Appendix C. Sherlock Benchmark SummaryMajor Functions Included in Each Administrative Expense Cluster
Sales & Marketing Account & Membership AdministrationRating and Underwriting Enrollment / Membership / Billing
(b) Risk Adjustment (a) Enrollment and Membership(c) All Other Rating and Underwriting (b) Billing
Marketing Customer Services(a) Product Development and Market Research (a) Member Services(b) Member and Group Communication (b) Printed Materials and Other(c) Other Marketing Claim and Encounter Capture and Adjudication
Sales (a) Coordination of Benefits (COB) and Subrogation(a) Account Services (e) Other Claim and Encounter Capture and Adjudication (b) Internal Sales Commissions Information Systems Expenses(c) Other Sales (a) Operations and Support Services
External Broker Commissions (b) Applications MaintenanceAdvertising and Promotion (1) Benefit Configuration
(a) Media and Advertising (2) All Other Applications Maintenance(b) Charitable Contributions (c) Applications Acquisition and Development
(d) Security Administration and Enforcement
Provider & Medical Management Corporate ServicesProvider Network Management and Services Finance and Accounting
(a) Provider Relations Services (a) Credit Card Fees(b) Provider Contracting (b) All Other Finance and Accounting(d) Other Provider Network Management and Services Actuarial
Medical Management / Quality Assurance / Wellness Corporate Services Function(a) Precertification (a) Human Resources(b) Case Management (b) Legal(c) Disease Management (1) Compliance(d) Nurse Information Line (3) All Other Legal(e) Health and Wellness (c) Facilities(f) Quality Components (e) Audit(g) Medical Informatics (f) Purchasing(h) Utilization Review (g) Imaging(i) Other Medical Management (h) Printing and Mailroom
(i) Risk Management(j) Other Corporate Services Function
Corporate Executive and GovernanceAssociation Dues and License/Filing Fees
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Voluntary – Since providers are users, they have stake in the metrics. Other than required metrics, scope is also voluntary.
Strong definitions – Developed with participants. Activities and cost centers listed, supported by ongoing clarifying discussions.
Highly granular - Ready identification of outliers, as well as drill-down capabilities.
Practice effect – High percent of repeaters: 71% of Blue and 81% of IPS repeated from last year. 71% of Blues have seven or more years of participation, and 76% of IPS plans have five or more years of participation.
Checks - In survey instrument and in analytical module; Anomalies investigated.
Data Validation – Reconciled to audit. Preliminary results provided for proofing.
Business model - No conflicts of interest; no “Tragedy of the Commons.”
APPENDIX D. CAREFUL QUALITY ASSURANCE
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APPENDIX E. SUMMARY OF THE REPORTS AND GUIDELINES
The financial metrics report analyzes costs segmented by function and by product. They are standardized by PMPMs and by Percent.
The staffing and compensation report analyzes the staffing ratios, per employee compensation and propensity to outsource. We supply estimates of staffing ratios by product.
The operational metrics include operational metrics unique to particular functions such as the average speed of answer in member services and the time between claim receipt and payment approved. While completion of many of these metrics is optional, you will receive the results of your universe.
Medical management metrics are comprised of results for all universes. These include the costs to manage various cases and diseases. This is optional like the operational metrics.
Health care utilization metrics are also comprised of results for all universes. Unit cost and volumes are provided for each product for 40 health care services and products.
The CFO Letter summarizes and analyzes the financial metrics, staffing, and compensation reports. After eliminating the effect of product mix differences, variances from norms are identified and functions are ranked in order of importance. We calculate the value of the factors of staffing ratios, compensation and non-labor costs, and their relative contribution to each functional variance.
The Common Guidelines provide detailed definitions of activities and calculation notes.
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APPENDIX F. STRONG NETWORK, BROAD ACCEPTANCE The Sherlock Benchmarks is now in 20th consecutive year, or 780 plan-years. Health plans serving more than 60% of all insured Americans are licensed
users of the Sherlock Benchmarks since January 1, 2015. Approximately 40 health plans serving approximately 50 million people
with health insurance are participants in this year’s Sherlock Benchmarking study.
There are 20 Independent/Provider-Sponsored health plans providing 10 million people with Comprehensive products participating this year.
Of the 14 members of the Alliance of Community Health Plans that are not focused on public programs or are staff-model plans, 7 are participating in this year’s Sherlock Benchmarking Study for Independent / Provider –Sponsored health plans.
Most of the largest members of the Health Plan Alliance that are not focused on public programs participated in this year’s Study.
Of the 34 U.S.-based Blue Cross Blue Shield primary licensees, fourteen serving 38.3 million people, participated in this year’s Study.