IBNR and closing down a co-op

Charles Gaba asks a very good technical question on how to close down a co-op in New York state.

#ACASignups CAN ANY INS COMPANY DATA/BILLING EMPLOYEES answer this question? https://t.co/17LrZ6bxN7 #ACA #Obamacare pic.twitter.com/njdUw2ywuS

— Charles Gaba (@charles_gaba) November 7, 2015

This is doable. The easiest model for the insurance geeks is to think about ESI deductible and out of pocket credits when sales over promises to a new employee group in order to poach them from a competitor and then makes the plumbers figure out how to fill what was an empty promise (no, I am not bitter about that two hundred and sixty hour month for a twenty nine person group that a sales man promised a package that we would normally deliver for five thousand fully insured lives, not at all).

In Employer Sponsored Insurance, groups can be poached mid-contract.  Usually the poaching insurer will promise that the people who are covered will be no worse off regarding cost-sharing with the new policy than they would have been under the old policy.  The way this is done is through the creation of deductible credits.  The insurer who is losing the business sends an initial claims file of all the covered lives to the poaching insurer.  The poaching insurer analyzes the file and determines how much deductible and out of pocket money (in and out of network).  The poaching insurer than creates dummy deductibles so when new claims come in, there is already some deductible dollars attributed to each member.

This is usually fairly straightforward unless sales makes unbelievable promise.  This sounds simple.

The biggest issue is the matter of claims run-out.  In health insurance, the concept of Incurred But Not Reported (IBNR) is critical to short term projections.  IBNR means there is a subset of claims for services rendered to eligible members that have not been submitted yet.  It is an estimated accounts payable.  Health Republic, the New York Co-Op in question is due to close on November 30th.  I guarantee you that on December 1st, less than half of all claims that were performed in November will have come into the Health Republic claim system.  By January 1st, the vast majority of November claims will have been received by the claims system of Health Republic, and by February 1st, they should expect to see 97% or more of all November claims.

Commercial insurers usually cap claims at either six months or one year of run-out for initial submission from the date of service, and insurers tend to have between three and six months to pay clean claims.  That varies depending on the contracts between the insurer and their provider networks.  So In a worst case scenario, deductible credits will be generated for at least eighteen months.  Deductible refund checks will be written by the new insurer to compensate the member for their double counted deductible for services rendered in December 2015 that the new insurer initially believed were covered by the deductible.

Since Health Republic is being taken over by the state and I assume the state can hire/contract with a few dozen Health Republic claims processors and two or three system architects, it should not be that hard for a standard file format to be sent to any other insurer that is picking up Health Republic members on a deductible credit/hold harmless basis for the month of December.  It should be easier because the remains of Health Republic has the mission of transitioning membership to other insurers instead of having the poached insurer transition membership grudgingly with an extraordinarily ugly and messy data format and sloppy transcription errors.

The other major issue for receiving insurers is how to handle transition of care problems.  Members of Health Republic who were receiving care at hospitals/providers that were in the Health Republic network but not in the network of the new insurer will often have a transition of care (TOC) plan.  A TOC is a limited network expansion where a provider is considered in network for a very limited set of members for a limited period of time (3, 6 12 months most commonly).  The member who was receiving care at a Health Republic only provider would see in-network cost-sharing and authorization apply for a limited time.  At the end of the TOC, that provider, assuming they don’t sign a new contract, is considered out of network.  It buys time for care to be transferred to in-network docs.  Again, this is not particularly complicated plumbing, it is time consuming and legal/contracting will have a good amount of work arguing with the state regulator and the TOC providers as to what the receiving insurer will pay out, but it is doable.

These two steps, deductible/OOP credits and TOCs, can aid a transition that minimizes the pain for current Health Republic members if that is the course that New York state regulators choose to go down.  It will be easier for insurers with a large pre-existing commercial/ESI book of business to replumb their system on the fly than small Exchange only start-ups (such as Oscar) or Medicare/Medicaid managed care only companies but everyone should be able to jury-rig something that works (well enough) by December 1.