What is ADVERSE SELECTION in Health Insurance?

Posted on July 7, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

ADVERSE SELECTION

By staff reporters

The tendency of people who are less than standard health insurance risks to seek or continue insurance to a greater extent than other individuals.  This so called “selection against the insurer”, or “anti-selection”, is a form of stacking the deck and is also found in the tendency of policy owners to take advantage of favorable options in health insurance or managed care contracts.

Or, a particular health plan, whether indemnity or managed care, is selected against by the enrollee, and thus an inequitable proportion of enrollees requiring more medical services are found in that plan.

Example:   Low enrollee out-of-pocket costs might lure those individuals requiring more health services into an HMO rather than an indemnity-plan because the former does not have a deductible.

Therefore, the HMO would have a greater proportion of less-healthy enrollees, thereby driving up costs and increasing financial risks. Also occurs with one of the following:

  1. When a premium doesn’t cover costs. Some populations, perhaps due to age or health status, have a great potential for high utilization.
  2. Some population parameter such as age (e.g., a much greater number of 65-year-olds or older to young population) that increases the potential for higher utilization and often increases costs above those covered by a payer’s capitation rate.

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On Nursing Capitation Reimbursement?

Posted on July 7, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

Partial-Risk Medicare Nursing Capitation Economics is Still Not Working!

By Dr. David E. Marcinko MBA MEd CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

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Capitated reimbursement is predominantly, but not exclusively, within the realm of physician providers. But, a decade ago Community Nursing Organization project examined an innovative approach to community nursing and ambulatory care services for Medicare beneficiaries. The hypothesis was that provision of such services would promote the timely and appropriate use of health care and to reduce the use of costly acute care services.

Organizations participating in the CNO demonstration were paid a fixed per-member-per-month capitated rate for covered services. But, the participating CNOs were only at risk under capitation for a subset of Medicare benefits [partial-capitation or carve-out]. The financial incentive was to minimize utilization covered under the capitated payment, but not necessarily to minimize utilization of services not covered because traditional Medicare, not the CNO, would be at risk.

Assessment

Final results indicated that the CNO model under partial capitation led to increased Medicare costs based on findings consistent across several analytic approaches. The cost differences between treatment and control or reference groups persisted after the application of increasingly complex risk-adjustment methods.

Moreover, the differences increased over time and were robust to changes in the way CNO participation was defined.

Lastly, there was no statistically significant evidence of increase in physical or social functioning of the treatment group, as compared with the control group. CNOs cost more without providing any health benefits along dimensions measured

[Source: Voluntary Partial Capitation: The CNO Medicare Demonstration Project, Austin Frakt, Steve Pizer, Robert Schmitz, and Soeren Mattke – Health Care Financing Review 2005).

Your thoughts are appreciated.

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How MCOs Intensify Accounting IBNRs

Posted on July 7, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding the Uncertainty of Loss

By Dr. David E. Marcinko MBA MEd CMP

Because of the high degree of uncertainty inherent in the estimates of ultimate losses underlying the liability for unpaid claims, the IRS will not allow a Managed Care Organization to deduct an IBNR because the financial statements are based on an estimate (IRS, 134-155).

Loss Based Deductions

Unless the taxpayer healthcare entity qualifies for the insurance company exclusion, the IRS does not allow any taxpayer entity to deduct losses based on estimates. However, the precedent has been set that the IRS will accept an amount for IBNR claims if the amount is supported by actuarial projections and/or valid receipts of claims that the company has in-house prior to the filing of the tax return.

Time Line Controversy

There has been some controversy as to how long a reporting time period the IRS will allow to include those estimates. The time period ranges from three to six months to file a claim (IRS, 137). The process by which these reserves are established requires reliance upon estimates based on known facts and on interpretations of circumstances, including the business’s experience with similar cases and historical trends involving claim payment patterns, claim payments, pending levels of unpaid claims, and product mix, as well as other factors such as court decisions, economic conditions, and public attitudes.

Assessment

There has been no clear indication from the IRS that it will accept an accrual for these losses and entities. Therefore, healthcare organizations deducting such losses may eventually find themselves in a position where the IRS may challenge the relating deductibility of those losses.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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What Is an IBNR Medical Claim?

Posted on July 7, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

Significance Often Under Appreciated

By Dr. David Edward Marcinko; MBA, MEd, CMP™

[Publisher-in-Chiefdem2]

As some Medical Executive-Post readers and subscribers are aware, hospitals that filed bankruptcy a decade ago include: a two-hospital system in Honolulu; one in Pontiac, MI; Trinity Hospital in Erin, Tennessee; Century City Doctors Hospital in Beverly Hills, and four hospital system Hospital Partners of America, in Charlotte. Today,

one can only wonder about the impact of Incurred But Not Reported claims on their plight?  

IBNR Definition

According to the www.CertifiedMedicalPlanner.org, an IBNR claim is a concept that signifies healthcare services have been rendered but not invoiced or recorded by the healthcare provider, clinic, hospital, or organization.

Cause and Affect

IBNRs are usually the result of a commercial prospective payment risk contract between managed care organizations and healthcare providers, an IBNR claim refers to the estimated cost of medical services for which a claim has not been filed, or monitored by an IBNR collection systems or control sheet.

IBNR Types

More formally, IBNRs are a financial accounting of all services that have been performed but, as a result of a short period of time or “lag,” have not been invoiced or recorded. The medical services that will not be collected should be accounted for using the following accrued but not recorded (ABNR) entry:

Debit — accrued payments to medical providers or healthcare entity

Credit — IBNR accrual account

Example:

An example of an IBNR is hospital Coronary Artery Bypass Graft [CABG] surgery for a managed care plan member. Out of the capitated or prospective payment funds, the surgeon and/or healthcare organization has to pay for all related physical and respirator therapy, and rehabilitation services, as well as ancillary providers, drugs, and durable medical equipment [DME], as contractually obligated. This may also include complication diagnosis and extensive follow-up treatment.

Accordingly, the health plan will not be completely billed until several weeks, months, or quarters later or even further downstream in the reporting year after the patient is discharged. In order to accurately project the health plan’s financial liability, however, the health plan and hospital must estimate the cost of care based on past expenses.

Accounting Cost Controls

Since the identification and control of costs are paramount in financial healthcare management, an IBNR reserve fund (an interest bearing account) must be set up for claims that reflect services already delivered but, for whatever reason, not yet reimbursed.

From the accounting perspective, IBNR is accrued as an expense and is related as a short-term liability each fiscal month or accounting period.

Otherwise, the organization may not be able to pay the claim, if the associated revenue has already been spent. The proper handling of these “bills in the pipeline” is crucial for proactive providers and health organizations that are exploring arrangements that put them in the role of adjudicating claims or operating in a sub-capitated system.

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Stetho-Claim

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Assessment

IBNRs are especially important with newer patients who may be sicker than prior norms.

Recoverables that hospitals post as part of their large reserve charges are also, in many cases, IBNR losses. They may be recorded as IBNR claims on their balance sheets. Once these losses start becoming actual losses, the hospital may look to the insurer to pay a part of the claim. This causes disputes between the payor, provider, and/or healthcare organization.

Conclusion

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