MI L L I MA N

Commercial Rating Structures

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

HI GHLI GHTS
The Commercial Rating Structures have several features to enhance their
exibility and usefulness, including:
The Managed Care Rating Model (MCRM) is an automated spreadsheet
developed primarily from the Managed Care Rating section of the Rating
Structures. The MCRM also incorporates many rating variables and worksheets
described in other sections of the Rating Structures, including the provider
reimbursement worksheets and claim probability distributions.
A separate Prescription Drug rating section provides for more detailed analysis
of prescription drug costs and benets. Various cost per prescription continu-
ance tables can be used to model unit price variation and the effectiveness
(expected versus nominal) of higher stated plan copays. The Prescription Drug
Rating section is accompanied by the Prescription Drug Rating Model, which
automates the entire prescription drug rating process.
The Rating Structures are updated and expanded annually. The Rating
Structures are continuously monitored as we use them in measuring the
experience or evaluating the rates of our clients, and as we compare them
with other data sources.
F EATUR E S
Major Medical Rating Structure
Managed Care Rating Structure
Prescription Drug Rating Structure
Basic Tables
Deductible Tables
Trend Factors
Cost Management
Mandated Benets
Rating Examples
Appendices
Managed Care Rating Model
Rx Rating Model
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MI L L I MA N
Commercial Rating Structures
Major Medical Rating Structure
The Major Medical Rating Structure provides a exible basis for estimating claim
costs for traditional health plans such as Comprehensive Major Medical, Base, Base
Plus Supplementary Major Medical, Supplementary Major Medical, Wrap-around
and Superimposed plans. Using this rating structure, claim costs may be developed
for various benet packages with various types and amounts of deductibles,
coinsurance provisions, plan maximums, and contract provisions. Detailed rating
worksheets and step-by-step instructions are included to guide the user in the
calculations.
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Commercial Rating Structures
Major Medical Rating Structure continued
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MI L L I MA N
Commercial Rating Structures
Managed Care Rating Structure
The Managed Care Rating Structure is used to calculate claim costs for detailed benet
categories on a composite per member per month basis. This rating structure allows a user
to modify the composite claim cost for age/gender mix of the members, geographic area,
health care management, benet plan coverage, trend and negotiated reimbursement.
Well managed targets provide a basis for benchmarking experience and modeling changes
in claim cost with improvements in efciency.
The Managed Care Rating Structure includes worksheets and data tables to assist in
the calculation of provider capitation rates, premium rate calculations by rating tier,
and open-network rating. In addition, the Managed Care Rating Structure includes
a discussion of the issues to be considered when rating benet plans containing both
managed care (i.e. copays) and major medical (i.e. deductible and coinsurance) features.
The Managed Care Rating Structure includes the section Consumer Driven Health Plan
Rating Considerations. In addition, the section Point-of-Service/Preferred Provider Organi-
zation Plans includes a discussion of selection issues involved with such plans, as well as
other employee choice options.
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Commercial Rating Structures
Managed Care Rating Structure continued
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MI L L I MA N
Commercial Rating Structures
Prescription Drug Rating Structure
The Prescription Drug Rating Structure and accompanying rating model can
be used to determine claim costs for a wide variety of prescription drug benet
plans. The Rating Structure recognizes variables for age/gender mix, area, benet
coverage, reimbursement, pharmacy and physician incentives, mail order avail-
ability, and cost management programs. Additional information is provided by
drug therapy class and for highly utilized drugs.
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MI L L I MA N
Commercial Rating Structures
Basic Tables
The Basic Tables summarize the underlying utilization and charge level assump-
tions used throughout the Rating Structures. Utilization and charge level infor-
mation is provided by age and gender for employees, spouses and children for
each of the 60 benet catagories. Additional information, such as length of stay, is
provided where appropriate.
Composite costs are expressed on a per employee, per spouse, per adult, per child
and per member basis. Employee composite costs are based on an employee distri-
bution representative of the U.S. adult labor force.
The Basic Tables for maternity services are presented in a different format than
the other tables to reect the varying incidence of pregnancy between female
employees and female spouses.
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MI L L I MA N
Commercial Rating Structures
Deductible Tables
The Deductible Tables provide per member deductible values for various benet
combinations and deductible levels. Also shown is the monthly claim cost for the
same benet combinations and deductible levels. Alternate Deductible Tables are
provided for Supplementary Major Medical plans that cannot directly use the
Deductible Tables.
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MI L L I MA N
Commercial Rating Structures
Trend Factors
The claim costs presented in the Rating Structures are representative of claims
incurred on July 1. For an experience period with a midpoint other than July 1, an
adjustment is necessary to reect estimated changes in the utilization and cost of
medical care.
Medical trend assumptions will vary signicantly depending on factors that are
often unique to each situation. Such factors include type of plan, benet structure
and geographic area. Moreover, these factors tend to be dynamic, requiring
continuous analysis and subjective evaluation. For these reasons, it is difcult to
establish a set of recommended trend factors for all users of the Rating Structures.
Rather, we have developed a framework for establishing trend assumptions for a
variety of situations.
This section includes considerations in establishing trend assumptions, guidelines
for current year secular trend factors and a trend assumption worksheet.
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MI L L I MA N
Commercial Rating Structures
Cost Management
The starting claim costs are intended to be representative of utilization and charge
levels for health benet plans provided through a loosely managed health care
delivery system.
Many health care plans offered today include cost containment features that may
result in signicant changes in these underlying utilization and cost assumptions.
The effectiveness of cost management programs will vary widely depending upon
a number of factors, including the environment in which the program is imple-
mented, the nature of the program, and the duration since implementation. For
this reason, it is not possible to establish a set of cost management adjustment
factors that would apply uniformly for all plans.
The information in this section is intended to assist the user in developing
cost management adjustment factors appropriate for the specic situation
involved. This section includes consideration of the major factors affecting cost
management savings and a discussion of the general effectiveness of various cost
management programs.
Mandated Benets
State mandated benets were rst introduced during the 1960s. Today, every state
requires mandated benets or mandated offerings, resulting in over 800 such
mandates in total for all states combined.
The mandates applicable to each state are continually changing, so the Rating
Structures do not attempt to identify which mandates are applicable in each state.
The Rating Structures contain detailed claim cost information on some, but not
all, mandates.
The claim costs associated with many mandates can be developed from information
contained in the Rating Structures. The information in this section is intended to:
Dene mandated benets and mandated offerings;
Provide general information about the types of mandates currently in effect;
Provide information about the applicability of these mandates;
Identify general considerations in determining the claim costs to be
expected for these mandates, or interpreting the claim costs included in the
Rating Structures; and
Provide specic utilization and claim cost information concerning several
of these mandates.
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MI L L I MA N
Commercial Rating Structures
Rating Examples
The Rating Examples section contains detailed illustrations of traditional and
managed care rating procedures. This material is often used as a training tool for
new users.
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MI L L I MA N
Commercial Rating Structures
Appendices
The appendices contain the following:
A detailed description of the approximately 60 benet categories, including
any assumed coverage limitations as well as CPT-4 and HCPCS code mappings.
The demographic assumptions underlying the Basic Tables detailed by rating
tier (one-tier through ve-tier).
A discussion of provider reimbursement structures, including a physician fee
schedule analysis worksheet.
Hospital length-of-stay distribution tables for various inpatient benets and
levels of average length of stay.
Information for adjusting claim costs from a large group basis to an
individual or small group basis.
A discussion of the group-specic experience rating process, including
various considerations when using credibility in rating.
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MI L L I MA N
Commercial Rating Structures
Managed Care Rating Model
The Managed Care Rating Model (MCRM) is a menu-driven Excel-based spread-
sheet that incorporates all aspects of the methodology described in the Managed
Care Rating section of the Commercial Rating Structures. The MCRM simplies
the application of area factors, trend factors, age/gender factors, contractual and
coverage utilization adjustments, and negotiated reimbursement adjustments for a
variety of provider reimbursement arrangements. The model also allows for simple
application of healthcare management adjustments. The MCRM is included with
the lease of the Commercial Rating Structures.
Copays (Steps 30 a and b)
In-Network
Fixed Percentage
Type of Service Copay Copay
Hospital Inpatient
Medical $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 Outpatient
Emergency Room $0.00 0.0%
Surgery 0.00 0.0%
Physician
Maternity Deliveries $0.00 0.0% 10 Number of Visits/Copays
Maternity Non-Deliveries 0.00 0.0% 3 Number of Visits/Copays
Office/Home Visits 0.00 0.0%
Urgent Care Visits 0.00 0.0%
Therapeutic Injections 0.00 0.0% 0.3 Copays per Service
Allergy Testing 0.00 0.0% 20 Tests Per Visit
Allergy Immunotherapy 0.00 0.0% 0.6 Copays per Service
Immunizations 0.00 0.0% 0.5 Copays per Service
Well 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 Consults
Physical Therapy 0.00 0.0% 3 Procedures Per Visit
Chiropractor 0.00 0.0%
Podiatrist 0.00 0.0%
Outpatient Psychiatric 0.00 0.0%
Outpatient Alcohol & Drug Abuse 0.00 0.0%
Other
Ambulance $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 Navigator
Click 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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