Considerations for LIBOR transition and U.S. Annuity Valuations
There are significant implications of the impending discontinuation of LIBOR and transition to SOFR for U.S. annuity liability valuations.
Beginning July 1, 2022, most group health plans and health insurance issuers will be required to publish provider-specific reimbursement rates in machine-readable files on the internet due to the Transparency in Coverage final rule.1
While the Hospital Price Transparency rule has required hospitals to report contractual payment rates since January 1, 2021, compliance is a work in progress, with around 61% of provider organizations posting the required data elements as of June 3, 2021.2 Among the posted files, Milliman has identified various challenges for users seeking to analyze the data.3 Taken together, provider-specific payment rates largely remain a mystery. Finalized in late 2020, the sweeping Transparency in Coverage final rule requires most group health plans and health insurance issuers in the individual and group markets to embark on a multiyear journey that begins with posting provider-specific reimbursement rates and ends with providing member-specific, on-demand cost-sharing estimates for any desired service, including prescription drugs.
The health plan and hospital transparency rules, alongside other recent regulations, signal an increasing interest from the federal government in public availability of commercial payment rates. These new reporting requirements have the potential to meaningfully expand transparency into the commercial market.
|Hospital: Hospital Price Transparency||Health Plan: Transparency in Coverage|
|Scope||Hospital services only||All covered services: hospital, physician, Rx, DME, other|
|Includes Non-Contracted Providers||N/A||Yes|
|-Billed Charges||•||Non-contracted providers only|
|-Discounted Cash Prices||•|
|-Payer Specific Rates||•||•|
|-Underlying Fee Schedule||•|
|Includes Non-Contracted Providers||N/A||Yes|
|Defined File Schema||No||Yes|
|Frequency||At least annually||Monthly|
|Penalties||Daily penalties for noncompliance||Penalties and enforcement efforts to be determined|
The Transparency in Coverage final rule generally seeks to empower consumers as they make decisions about accessing the healthcare system, with the expectation that increased transparency will help consumers factor cost into their healthcare decisions. This regulation recognizes that consumers face increasing out-of-pocket exposure and seeks to address the fact that patients frequently do not know the cost of care until long after it has been provided. Further, this regulation seeks to bring a new level of transparency to the billed charges and reimbursement for out-of-network providers, supporting consumers considering care from out-of-network providers.
The Transparency in Coverage final rule was issued by the U.S. Department of Treasury, the U.S. Department of Labor, and the U.S. Department of Health and Human Services (HHS). Collectively, the departments anticipate that the disclosure of provider-specific reimbursement rates will spur competition, ultimately driving costs down.4 Some of this cost reduction may be driven by consumers making more informed decisions. This new level of transparency could also aid employers and health plans in securing more favorable reimbursement from providers. Of course, this phenomenon goes both ways, and some providers may seek increased reimbursement after learning more about how their competition gets paid.
By creating radical transparency in the healthcare market, this regulation seeks to eliminate a key barrier that challenges countless stakeholders attempting to research, innovate, regulate, and advocate for patients. Many efforts to understand and improve healthcare, such as patients evaluating costs of potential treatment options or identifying their most cost-effective options for elective procedures, are hindered by a lack of transparent cost information. While ingesting and capitalizing on this data will take significant effort, expertise, and resources, making that investment presents opportunities and may ultimately bring value to consumers.
It should be noted that health plan transparency reporting requirements are still somewhat in flux as a legal challenge has been filed, the initial reporting deadline was recently pushed back six months (originally slated for January 1, 2022), and HHS has signaled that it intends to make revisions to the prescription drug reporting requirement.
The Transparency in Coverage requirements apply to most group health plans and health insurance issuers in the individual and group markets, including both insured and self-funded group health plans. As with many requirements that draw their authority from the Patient Protection and Affordable Care Act (ACA), these transparency requirements do not apply to grandfathered health plans, excepted benefits, healthcare-sharing ministries, short-term limited duration insurance (STLDI), and account-based plans like health reimbursement arrangements (HRAs) that only reimburse for claims.
The sweeping scope of this regulation is noteworthy. While many states have some legislation promoting price transparency, state law typically cannot apply to self-insured group plans governed by ERISA. By including self-funded groups in the scope of this rule, the vast majority of commercially covered healthcare consumers will ultimately have access to provider-specific cost information.
The enforcement of this new transparency regulation will be left to the states, though the federal government is expected to help states design effective processes for enforcement. Given the complex and expansive requirements of this regulation, there is expected to be leeway provided to correct errors and omissions as long as the plan or issuer demonstrates diligence and a good faith, reasonable interpretation of the law.
The new transparency requirements come in stages over the next several years.
As originally outlined, the Transparency in Coverage rule requires group health plans and health insurance issuers to disclose provider-specific reimbursement rates via three machine-readable files:
Federal guidance from August 20, 2021, indicated that federal agencies will not begin enforcement of the first two requirements until July 1, 2022, and are delaying enforcement of the prescription drug pricing data requirement pending further rulemaking.
All three of these files must report this information at the place of service (POS), tax identification number (TIN), and national provider identifier (NPI) level. All three of these files must be published monthly.
Additionally, effective in the 2020 medical loss ratio (MLR) reporting year (i.e., for reports filed on or after July 31, 2021), health plans and issuers will be permitted to include broadly defined “shared savings payments” in the numerator of their MLR calculations. This provision permits health plans to financially incentivize members to shop for cost-effective care by counting the incentive as a claims expense, increasing the MLR and potentially reducing any MLR rebate that might otherwise be owed.
Effective January 1, 2023, group health plans and health insurance issuers will be required to make cost-sharing information available for 500 defined items and services. The audience for this information is participants and beneficiaries covered by the health plan and the cost-sharing estimates must be provided in plain language. The list of 500 services is broad, including common services like office visits, imaging, lab work, and cancer screenings, as well as often shoppable surgeries such as hysterectomies and knee replacements. These estimates must incorporate all forms of cost sharing and be customized to reflect the member’s accumulation to the deductible and out-of-pocket maximum. Estimates must be provided in real time via the internet and in hard-copy format (upon request).
Effective January 1, 2024, the cost-sharing information requirement expands from the 500 defined items and services to include all covered items and services.
The provider-specific payment rate files will be required to include specific content elements:
Name and identifier for each coverage option, for example employer identification number (EIN) and/or health insurance oversight system (HIOS) ID.
Billing codes, including Current Procedural Terminology (CPT), Healthcare Common Procedure Coding System (HCPCS), diagnosis-related group (DRG), and National Drug Code (NDC) codes, as applicable, along with code descriptions.
This file must include negotiated amounts in up to three forms:
There are many variations of provider contracts and the regulation addresses some of them. With capitation arrangements, for example, while capitation rates are typically tied to patient characteristics such as age, sex, area, and/or risk score, the rate required to be reported is the “base negotiated rate,” which does not reflect the patient-specific adjustments. Without additional detail on how the capitation rate is calculated, this base rate will be essentially impossible to translate to a meaningful payment rate, although it may be useful for providers to compare relative to other providers.
As another example, in cases where some portion of a provider’s revenue is tied to performance under a value-based contract (e.g., based on quality outcomes or total cost of care), the health plan must only report the underlying negotiated fee schedule, not adjusted for the actual or potential incentive. The health plan has the option to disclose additional detail in its machine-readable files, but we think most are unlikely to include optional details in their machine-readable files as they will be focused on required data elements.
Historical out-of-network billed charges and allowed amounts for items and services rendered by a particular provider during the 90 days that began 180 days prior to the publication date of the file.
For the out-of-network file, in order to address patient privacy concerns, data will only be reported in cells (e.g., NPI/TIN/POS/procedure code/plan combinations) that have at least 20 data points. We expect that this requirement will result in sparsely populated out-of-network files.
Similar to the out-of-network medical claims file, the prescription drug machine-readable file is not required to include historical net price for any particular cell (e.g., pharmacy/NDC combination) with fewer than 20 data points.
Cost-conscious consumers should be the big winners of the Transparency in Coverage final rule. While many consumers do have access to cost-sharing estimates now, this information comes in many forms, often is not comprehensive, may not incorporate actual cost-sharing accumulation, and may be confusing or incomplete. This regulation seeks to make patient cost-sharing estimates widely available, consistent, and accurate. While data published in 2022 could help consumers to some extent, the data will likely be quite difficult to digest, and the real impact likely will not be felt until 2023 when patient-specific cost-sharing estimates are available. Of course, given the inconsistent nature of state enforcement, consumers are likely to have mixed experiences based on how actively their states insist on compliance with the new requirements.
Health plans may reap some of the benefits of increased consumerism, but also face new challenges due to the extensive transparency reporting requirements. Contract negotiations with providers may take on a new dimension as providers come armed with the health plan’s own information about how competing providers are paid. Further, employers and brokers may evaluate health plans with a new level of scrutiny if they believe that their discounts are not as competitive as they would like. Finally, health plans will bear the brunt of the administrative burden associated with this regulation. Developing machine-readable files comes with a significant initial investment as well as regular ongoing maintenance, and the challenges will likely continue for years while health plans determine how to provide patients with accurate, timely, personalized cost-sharing estimates.
Transparent information on provider payment rates will likely help some providers and hurt others. Higher-cost providers may need to find new ways to justify their rates, such as demonstrating quality, efficiency, or better patient experience, particularly if one health plan observes another plan receiving more favorable rates from the provider. Lower-cost providers may find that information about their competitors will help them in contract negotiations or to increase market share. Of course, digesting these massive machine-readable files and comparing payment rates on a consistent basis will likely be challenging, and providers will devote varying amounts of resources to making sense of this information, with larger provider organizations likely to have an advantage simply due to scale and available resources.
Employers (typically aided by their brokers) may find value in better understanding the rates that providers and health plans negotiate. Armed with this information, some employers may attempt direct-to-provider arrangements for bundles or accountable care organizations (ACOs). Of course, the effort involved in direct contracting is significant and reimbursement is only one piece of the puzzle. Alternatively, employers may request narrow or tiered networks from insurers or third-party administrators (TPAs) in order to benefit from lower-priced providers.
Employers stand to benefit from any increased consumerism from their employees. As employees and their covered dependents are increasingly able to shop for cost-effective care, the employer will share some of the savings (potentially passing savings back to employees), either directly or via lower future premium trends.
Like health plans, pharmacy benefit managers (PBMs) may have their hands full developing machine-readable files, as well as integrating with health plan systems to provide personalized cost-sharing estimates beginning in 2024.11 With transparent negotiated rates, PBMs may face more scrutiny from employers and/or health plans and issuers. Of course, prescription drug reimbursement is generally quite complicated, with discounts, rebate guarantees, incentive payments, and other price concessions and channel incentives. It is conceivable that the level of data reported in the machine-readable files will not add significant perspective about the performance of the PBM, even as it illustrates relative pricing that each health plan uses to adjudicate member cost sharing. If allowed to go into effect as currently structured, the historical net price will still incorporate some subjectivity with regard to “reasonable allocation” of rebates, discounts, charge-backs, fees, and additional price concessions, which could diminish the usefulness of this information.
In their role as the primary regulators of health insurance, states are the primary enforcers of this regulation, with support from the federal government. With such expansive requirements, complicated provider contracts, and a very broad scope, it is plausible that states will struggle to interpret and understand both the regulation and the information reported. Enforcement may be a significant burden for states with limited resources. Along the same lines, regardless of resource constraints, certain states may not make enforcement a priority. At the same time, many states actively engage with their health insurance markets, and are thus more likely to push for this information.
There will be many challenges as health plans and issuers seek to interpret, implement, and comply with these new reporting requirements. The required level of reporting is extremely granular and the requirement to report negotiated amounts at the service code level, by POS/TIN/NPI (and a similar level of detail for prescription drugs and pharmacies), will result in massive files. Developing and maintaining these files, much less ensuring accuracy at this level of detail, will be a significant effort.
The size of these files may diminish the reach and usefulness of the reported payment rate information. Entities seeking to work with this data directly will need the expertise and capacity to manage such large data sets. For example, while low-cost providers stand to gain by learning about how their competition is paid, the need to devote significant resources to actually process and interpret the data sets may preclude them from actually being able to benefit from this new information while maintaining the cost efficiencies that allow them to be lower-cost.
Provider contracts can be complex and health plans and issuers are likely to encounter nuances in their contracts that are not specifically addressed in the regulation and require interpretation. Reporting outlier provisions, reimbursement as a percentage of billed charges, the impact of modifiers, and percentage of premium capitation rates are examples of ambiguities that are not fully resolved in the regulation. Given the complexities in provider reimbursement, judgment calls will be necessary, and the sheer variety of these arrangements is likely to limit comparability of reports among different payers or, in some cases, even among different products offered by the same payer.
The required file schema (as well as example files and some technical support) has been published by the federal government on GitHub.12 The GitHub site also includes an issues log and discussion venue that may be useful as plans and issuers develop their machine-readable files.
Work should be well underway to prepare machine-readable files to post on July 1, 2022. Similar to the hospital transparency regulations that took effect January 1, 2021, it is likely that compliance with the regulation will be a work in progress for some time and that significant effort will be necessary to make sense of the information that is made available.
1Transparency in Coverage: Final Rule. Retrieved September 10, 2021, from https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/CMS-Transparency-in-Coverage-9915F.pdf.
2Barrington, A., Boschert, J., Gall, M., & Lewis, D.C. (June 2021). Hospital Price Transparency: June 2021 Update – Early implementation trends for new regulations. Milliman Brief. Retrieved September 10, 2021, from https://us.milliman.com/en/insight/hospital-price-transparency-june-2021-update-early-implementation-trends-for-new-regulations.