Commercial auto liability: Summary of 2021 statutory financial results
We summarize year-end 2021 financial results for U.S. auto liability writers, with detailed information on premium (up 21%), loss ratios, reserves, and surplus.
The Overpayment Rule, legislated by Congress through the Patient Protection and Affordable Care Act (ACA) in 2010 and finalized through the Centers for Medicare and Medicaid Services (CMS) rulemaking in 2014, has a requirement for Medicare healthcare providers and suppliers to return an overpayment within 60 days of being identified1. An overpayment is a payment made that exceeds “amounts due and payable according to laws and regulations”2. Because Medicare Advantage organizations (MAOs) receive capitated payments from CMS that are based on the health status of enrolled beneficiaries (as measured by medical diagnoses), their reporting of diagnoses is subject to the Overpayment Rule. But many insurers are wondering to what extent they must search for medical and diagnosis error to recognize when an "overpayment" has occurred? Negligence, which insurers may fear could simply be construed as not being proactively compliant in searching for overpayments, was cited in the 2014 rule as being fraudulent through the False Claims Act. The negligence standard3 of the Overpayment Rule created many questions and a potential liability that insurers sought to resolve.
Through the lengthy court battles that were set into motion starting in January 2016, we can discern some answers to the complicated questions insurers often have regarding the Overpayment Rule by a practical analysis of the two opposing rulings: 1) the D.C. District Court’s September 2018 ruling4, and 2) the August 2021 Court of Appeals partial reversal of the 2018 ruling5. Although the final chapter on the issue has yet to be written, important lessons can be learned from such review.
After five years of various court rulings, MAOs should know that the Overpayment Rule has once again been reinstated5, but without its previous negligence standard.3 Although the negligence standard has been overturned and the Opinion of the Court of Appeals (hereafter referred to as “the opinion”) says that “nothing in the Overpayment Rule obligates insurers to audit their reported data,” insurers should still search for errors and return overpayments to CMS within the 60-day timeframe established by the rule5.
The diagnosis codes reported on medical claims that MAOs submit to CMS are directly related to an insurer’s revenue from CMS. These diagnoses are used in CMS’s risk adjustment model to determine payment amounts from CMS to MAOs. The risk scores represent the expected relative healthcare cost burden of each beneficiary.
Before we dive into a more detailed overview, here’s a short summary of some practical implications that insurers should consider about the various court rulings that have impacted Medicare Advantage (MA).
The first case in the series of Overpayment Rule court battles undoubtedly eased requirements for MAOs. The ruling, which was decided by the D.C. District Court in September 2018, invalidated the Overpayment Rule, which required insurers to return overpayments from miscoded diagnoses within 60 days of discovery. The ruling also favors the plaintiff’s argument that “the 2014 Overpayment Rule unlawfully imposes a negligence standard,” a standard that ultimately had implications on the duties of an insurer in auditing its own codes to avoid submitting diagnoses that may lead to overpayments in the first place4.
On August 13, 2021, the D.C. Circuit Court of Appeals reversed the district court’s opinion5, overturning the 2018 decision that had limited the enforcement of the original Overpayment Rule. The Court of Appeals remanded the case to lower courts to enter judgment in favor of CMS. The Court of Appeals had three major conclusions that were in direct contrast to the initial ruling.
First, the court concluded that the Overpayment Rule “does not violate” the Medicare statute’s requirement of “actuarial equivalence.” The Court of Appeals stated that actuarial equivalence does not apply to the Overpayment Rule, as it is simply a "directive" of CMS. The court’s opinion states that actuarial equivalence "describes the goal… [that] Congress directed CMS to develop"; it does not separately remove an insurer’s basic obligation to "avoid known error in their payment requests" as the Overpayment Rule requires. Finally, the opinion points out that the factors assigned by CMS for the risk adjustment model were never challenged, a fact the court describes as "also fatal.”
The second conclusion is that the Overpayment Rule does not violate the Medicare statute’s requirement of “same methodology.” As stated in the opinion5, the "same methodology" Medicare statute "requires CMS to compute and publish, on an annual basis, the ‘average risk factor’ for traditional Medicare beneficiaries in each county," and that the "published average risk factor must be ’based on diagnoses... using the same methodology as is expected to be applied in making payments under… the subsection that includes the actuarial equivalence requirement.’" The Court of Appeals argues that the "same methodology" requirement aids the calculation of risk factors and by extension the bidding process, but it does not pose a "limit on the operation of the risk-adjustment model" nor does it determine whether any payment would be considered an "overpayment"5.
For the third argument, the court concluded that the Overpayment Rule is not an unexplained departure from prior policy. The Court of Appeals holds that the comments that CMS made in 2012 regarding the FFS adjuster were strictly made in reference to RADV audits, not the Overpayment Rule. In fact, the Court of Appeals argues5 that “because the Overpayment Rule does not violate, or even implicate, actuarial equivalence, CMS had no obligation to consider an FFS adjuster or similar correction in the overpayment-refund context.” Moreover, the court adds that RADV audits “are an error-correction mechanism that is materially distinct from the Overpayment Rule.” The Overpayment Rule simply requires an MAO to report and return payments that are known errors.
Perhaps as important as what was overturned by the Court of Appeals are the components that were specifically not overturned by the Court of Appeals5.
The operational definition of what is considered an "overpayment" was a point of contention in the ruling. Previously, the Overpayment Rule applied when a Medicare Advantage insurer “has identified an overpayment when the [insurer] has determined, or should have determined through the exercise of reasonable diligence [emphasis added], that the [insurer] has received an overpayment”4. Through language in the False Claims Act, the exercise of reasonable diligence has a negligence-based standard that does not allow “acting ‘in deliberate ignorance’” or “reckless disregard of the truth or falsity of the information”5. However, the district court in the initial case held the “Rule’s negligence-based liability inconsistent” with the False Claims Act’s “knowingly” standard, and also stated that the Rule violated the Administrative Procedure Act5. It is important to note that "CMS’s appeal does not challenge either of those two holdings regarding the Rule’s negligence standard”5.
In other words, the negligence standard ruled invalid by the initial case4 was not appealed by CMS and has not been overturned. The maintenance of this invalidated standard is also given further depth when the Court of Appeals states that "nothing in the Overpayment Rule obligates insurers to audit their reported data.” Other than the negligence standard being removed from the Overpayment Rule, the Overpayment Rule is effectively put back into place as it was before.
This report does not represent conclusive recommendations regarding diagnosis data reporting, nor does it represent a source of any legal advice. Milliman does not intend to benefit or create a legal duty to any recipient of this work.
Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. John Miller and Sylvia Hagin are actuaries at Milliman. They are members of the American Academy of Actuaries and meet the qualification standards to render the information contained herein. To the best of their knowledge and belief, the information is complete and accurate.
This paper is intended to summarize key aspects of various court rulings surrounding CMS regulations and programs concerning the Overpayment Rule as of October 2021. This information is not appropriate, and should not be used, for other purposes.
The authors relied on information provided in the court rulings listed in the references below. We accepted the information as stated, but note that law and interpretations will change with any changes or additional guidance published by CMS or through future court rulings. Our interpretations should not be relied on as legal interpretations. Overpayment Rule reporting is complicated, and readers should retain their own qualified professionals for advice appropriate to their specific needs.
1 Latham & Watkins (February 23, 2016). CMS Finalizes Long-awaited Rule Implementing ACA’s Overpayment Reporting Requirements. Retrieved November 1, 2021, from https://www.lw.com/thoughtLeadership/lw-CMS-Finalizes-Long-awaited-Rule.
2 CMS (March 2021). Medicare Overpayments. MLN Fact Sheet. Retrieved November 1, 2021, from https://www.cms.gov/outreach-and-education/medicare-learning-network-mln/mlnproducts/downloads/overpaymentbrochure508-09.pdf.
3 The negligence standard of the prior Overpayment Rule did not allow “acting ‘in deliberate ignorance’” or “reckless disregard of the truth or falsity of the information.”5
4 UnitedHealthcare Ins. Co. v. Azar. U.S. District Court for the District of Columbia. Retrieved November 1, 2021, from https://fcablog.sidley.com/wp-content/uploads/2018/09/United-Decision.pdf.
5 UnitedHealthcare Insurance Co, et al v. Xavier Becerra, et al. U.S. Court of Appeals for the District of Columbia Circuit. Retrieved November 1, 2021, from https://www.cadc.uscourts.gov/internet/opinions.nsf/BC04AB134EEF09A285258730004EFDC4/$file/18-5326-1910101.pdf.
6 CMS (October 26, 2018). Fee for Service Adjuster and Payment Recovery for Contract Level Risk Adjustment Data Validation Audits. Retrieved November 1, 2021, from https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-Risk-Adjustment-Data-Validation-Program/Other-Content-Types/RADV-Docs/FFS-Adjuster-Excecutive-Summary.pdf.
7 Austin, S. (April 3, 2019). District Court Relies on Azar’s Overruling of Overpayment Rule to Deliver Another Blow to DOJ’s MA Enforcement Efforts. Retrieved November 1, 2021, from https://www.lexology.com/library/detail.aspx?g=76537661-cc87-46c2-979b-507fe74350a9.
8 Morse, S. UnitedHealth loses Medicare Advantage overpayment argument on appeal. Healthcare Finance. Retrieved November 1, 2021, from https://www.healthcarefinancenews.com/news/unitedhealth-loses-medicare-advantage-overpayment-argument-appeal.
9 United States ex rel. Benjamin Poehling v. UnitedHealth Group, Inc. et al. Retrieved November 1, 2021, from https://fcablog.sidley.com/wp-content/uploads/2019/04/1144000-1144337-https-ecf-cacd-uscourts-gov-doc1-031130258322.pdf.
10 Walters Kluwer (January 30, 2020). Court will not reconsider vacated Medicare Advantage overpayment rule. Retrieved November 1, 2021, from https://lrus.wolterskluwer.com/news/health-law-daily/court-will-not-reconsider-vacated-medicare-advantage-overpayment-rule/105099/.