Member Level Rating Challenge #2: The Monthly Invoice

This is the second in an ongoing series looking at some of the thorny operational challenges created by the shift to member-level rating as required by the Affordable Care Act. See here for background on the series.

Here's an interesting area that you might not think of as being affected by the shift in rating methodology required by the ACA: the invoice that small business owners receive from their insurance carrier each month. We're not talking about the new consolidated invoices that will be created by the SHOP Exchanges (that's a different animal altogether). We're talking about the insurance bills received by small businesses that buy their coverage through their old familiar channels, which means, in most cases, through their neighborhood insurance broker.

"Why would rating changes affect the bill?" you might ask. "The rates were calculated during the sales process. Now the customer is just paying what he or she owes each month." Yes, but, a small business health insurance bill is a little different from the power bill or the landscaping bill.

Two key factors:

1. A health insurance bill is a snapshot in time 
2. A health insurance bill often triggers an enrollment transaction

This all a shorthand way of saying that the monthly insurance bill represents a snapshot of what employees (and their dependents) are enrolled in health insurance coverage at a particular point in time--that is, the point at which the bill was generated. And, that snapshot of coverage very often is what reminds a small business owner that he or she needs to submit some sort of enrollment change.

Every health insurance carrier does things a little differently (a common theme that constantly plays into Exchange and healthcare reform issues), but two common features of the group medical insurance bill is the coverage summary and detailed roster.

The coverage summary provides counts of the number of employees enrolled into each coverage level of each plan offered by the company. For example, a company that offers its employees the choice of a PPO and a High-Deductible Health Plan (HDHP) might see the following summary:

Plan	Employee Only	Employee + Spouse	Employee + Children	Family	Subtotal
PPO	2	1	2	0	5
HMO	1	3	4	1	9
Total	3	4	6	1	14

The detailed roster would show employee by employee what each person is enrolled in, offering the detail behind, for instance, which 4 employees chose the Employee + Children level of the HMO.

It might look something like this:

Last Name	First Name	Plan	Coverage Level	Premium
Adams	John	PPO	Employee Only	$198.23
Anderson	Margaret	PPO	Employee Only	$198.23
Carter	Ann	HMO	Employee + Spouse	$318.29
Hendrick-Smith	Nancy	PPO	Employee + Family	$498.73

etc.

Now, in the old world of rating, this is pretty much all you need to know to figure out where the total amount that's printed on the "Please Pay" line comes from.  Once you bought the plans for the year, you pay the same for each employee enrolled in the Employee-Only coverage level of the PPO, which is why John Adams and Margaret Anderson share the same premium on the detailed roster. Take the total number of employees enrolled into each coverage level of each plan, multiply it by the premium for that particular plan and coverage level, then sum it all up and that's your bill.

Flash forward to the new world of member-level rating. Now, the summary may still have some use in getting a quick tally of the number of employees enrolled in plans ("Wait, 14? We only have 13 now, since we canned Jakey last week.") But, it no longer tells you everything you need to know in order to figure out where the total bill came from, and for a simple reason: the rate charged for each employee's policy is now based upon the age, tobacco use, and location of each dependent being covered. 

The detailed roster, in its current form, at least, isn't going to be much use, either. Nancy Hendrick-Smith may have enrolled her full family in the PPO, but that isn't enough to determine the rate. Instead, we need to know Nancy's spouse's age and tobacco use and the age and tobacco use for each of her children, too.

Now, suppose next month Nancy has a baby and adds him to her policy. In theory, she still has "family coverage", and in the old world her employer would be charged the same rate for both months.  Not in the new world. Assuming she still has fewer than three children, then the premium charged for Nancy will go up for month 2, since it's calculated on a per-member rate, and she just added a new member to her coverage. Under the old summary and detailed roster format, the employer would have no way of seeing why the premium charge for Nancy's family went up this month over the previous one. He or she needs to see the full detail not just for each employee but also for each depended being covered under the employees' policies. 

So, to wrap it up, here are some basic implications for billing:

1. Carriers will need to rethink the summary section of invoices to determine whether there is a more relevant set of summary information that will let small business owners quickly review and evaluate whether their bill is correct. Perhaps, instead of count of number of employees enrolled in coverage levels, it will show the total number of employees and dependents enrolled in each plan. 

2. The detailed roster will need to be expanded to present not an employee-by-employee roster but rather a full roster of employees and dependents, with each line itemed out and explaining the premium being charged for each.

3. Carriers can expect an increase of calls to their customer service centers in the first months of 2014, since their small group customers are suddenly going to see something different than what they are used to and will be bound to have questions.

Just one of many examples of the potentially unforeseen downstream ripples of what seems like, in theory, a relative simple change in the way premiums are calculated.