Session 34
Medicare Advantage
Bidding:
Do’s and Don’ts
Liz Hale, FSA, MAAA
CMS Office of the Actuary
elizabeth.hale@cms.hhs.gov
CCA Annual Meeting / October 2007 1
In this session
• Overview of Medicare Advantage
(MA) and Prescription Drug (PD) Bidding
– Basic Terminology
– Bidding Cycle
*****
• Getting started - What information is
available for preparing bids?
• Employer Groups
• Expectations during bid reviews
• Tips
CCA Annual Meeting / October 2007 2
Part I - Basic Terminology
• In general a bid is the plan’s revenue
requirement for:
– Benefit cost
– Non-benefit (administrative) expenses
– Gain or loss margin
• “The bid” , Basic Bid, Standardized Part D
bid, Plan A/B bid….
– Medicare-covered A/B services, i.e. Fee-for
service cost sharing
– Defined Standard Part D coverage
CCA Annual Meeting / October 2007 3
Basic Terminology
• Part D Benchmarks
– Part D National Average Bid Amount is based
on standardized bid and enrollment for
applicable PD bids.
• Transitioning from 2006 method of assigned
weights to weights based on current
enrollment.
– Part D Regional Low-Income Benchmark
Premium varies by PDP region.
• MA benchmarks
– Based on MA ratebook.
– Unique to each plan based on projected
enrollment mix by county.
– Regional PPO benchmark has a plan bid
component.
CCA Annual Meeting / October 2007 4
Bidding Cycle
• Bid Preparation – prior contract year
– February: 45-day Advance Payment Notice
– March: Call Letter with policy guidance
– Early April: MA Payment Capitation Rates (1st Monday)
and Part D benefit parameters
• Bid Submission
– Bids due 1st Monday in June of prior contract year.
• Bid Review Period
– Early June until bid approval the end of August.
– Early August: Benchmarks released.
– Through mid-August: MA Rebate reallocation period.
• Bid Audit
– Subset of plans audited selected in September.
– Field work occurs October through December.
CCA Annual Meeting / October 2007 5
Bid Submission - Purpose of Part D Bid
• Calculate Benchmarks
• Basis for Part D Premiums
• Basis for risk corridor payments (non-
employer group plans)
• Demonstrate actuarial equivalence
CCA Annual Meeting / October 2007 6
Bid Submission - Purpose of MA Bid
• Determine county-level payment rates for each bid
• Determine MA rebates (bid Plan A/B benchmark (Medicare-covered)
– Mandatory supplemental (non-covered) benefits not covered
by rebates
• Specify Part D Target Premium
– Dollar amount or low-income premium subsidy amount
CCA Annual Meeting / October 2007 7
Bid Submission - Requirements
• Bids uploaded electronically to Health Plan
Management System (HPMS)
• Each submission requires:
– Bid Pricing Tools (BPT)
– Plan Benefit Package (PBP)
• Supporting documentation of pricing
assumptions
– Initial bid submission
– Throughout bid review season
CCA Annual Meeting / October 2007 8
Bid Submission - Actuarial certification
• Initial certification due mid-June
– Attestation of compliance with ASOPs, laws,
rules, bid instructions…
– Attestation that bid development is reasonable for
the plan’s PBP.
– Thoroughly check benefits priced for with PBP.
• HPMS required access for certifying actuary
– Letter of appointment from plan each contract
year
CCA Annual Meeting / October 2007 9
Bid Submission - Pricing Assumptions
• Pricing based on actuarial principles and
techniques (Actuarial Standards of
Practice).
• Best estimate as of original bid
submission.
• Cannot introduce new information during
bid review.
• CMS recognizes that not all
arrangements/contracts are finalized
CCA Annual Meeting / October 2007 10
Bid Review
• OACT directs bid desk review by actuarial
contractors
• Determine reasonableness of assumptions
and methods.
• Rely on a statistical analysis to identify
outliers to direct focus of review.
• Most dialogue on bid issues occurs late June
through early August.
• OACT is involved in sensitive or unresolved
issues.
CCA Annual Meeting / October 2007 11
Bid Resubmissions
• Bid resubmissions must be consistent with the
assumptions originally submitted.
• MA rebate re-allocation
– No changes in Part D benefits or pricing.
– Re-allocate rebates to return to Part D Target
Basic Premium specified in MA BPT.
• Supplemental A/B benefits may not be substantially
redesigned.
• Preferred order of changes in CY2008 Call Letter.
• Slight change in administrative cost and gain loss
margin possible subject to CMS guidance.
– Required, optional or not allowed depending on
plan type and other factors.
CCA Annual Meeting / October 2007 12
Final Actuarial Certification
• Required in late August for all bids
• Attestation that bid development is reasonable
for the plan’s PBP.
• Most recent BPT and PBP.
– Take into account all changes during bid review.
CCA Annual Meeting / October 2007 13
*******
CCA Annual Meeting / October 2007 14
Part II
• Getting started - What information is available
for preparing bids?
• Employer Groups
• Expectations during bid reviews
• Tips
CCA Annual Meeting / October 2007 15
Getting Started
• Main sources of information
– U.S. Government Printing Office (GPO) web site
– CMS web site (public access)
– HPMS
• Google!
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GPO Web Site
• Medicare Modernization Act of 2003 (MMA)
– Parts C and D of Title XVIII – Health Insurance for
the Aged and Disabled.
• http://www.ssa.gov/OP_Home/ssact/title18/1800.htm
• Final Rule published in Federal Register
January 28, 2005
– Part 422 Medicare Advantage Program
• http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edock
et.access.gpo.gov/2005/pdf/05-1322.pdf
– Part 423 Medicare Prescription Drug Benefit
• http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edock
et.access.gpo.gov/2005/pdf/05-1505.pdf
CCA Annual Meeting / October 2007 17
CMS Web Site
• http://www.cms.hhs.gov/
• CMS Home >Medicare > Health Plans: xxxx
• CMS Home >Medicare > Prescription Drug
Coverage: Employer Group Waiver Plans
– http://www.cms.hhs.gov/EmpGrpWaivers/
• CMS Home >Research, Statistics, Data and
Systems > Files for Order: xxxx
CCA Annual Meeting / October 2007 18
CMS Web Site
• CMS Home >Medicare > Health Plans:
– Health Plans - General Information
– Benefit Pricing Tool, Bid Form, and Plan Benefit
Package
– Medicare Advantage Rates & Statistics
CCA Annual Meeting / October 2007 19
Health Plans – General Information
• CMS Home >Medicare > Health Plans -
General Information
• Related Links Inside CMS
2008 Combined Call Letter [pdf, 585Kb]
Historical Health Plans Reports, Files & Data
Plan Directory
Medicare Managed Care Manual
Managed Care Training
Prescription Drug Coverage
Medicare Advantage - Rates & Statistics
Monthly Contract and Enrollment Reports
CCA Annual Meeting / October 2007 20
CY 2008 Call Letter - Review for key issues
CCA Annual Meeting / October 2007 21
CY 2008 Call Letter - Review for key issues
CCA Annual Meeting / October 2007 22
CMS Web Site
• CMS Home >Medicare >Health Plans - Benefit
Pricing Tool, Bid Form, and Plan Benefit Package >
Contract Year 2008 Bid Page
– In progress September 2007
• Contract Year 2007 Bid Page - Downloads
– 2007 BPT Instruction [PDF, 288 KB]
2007 Call Letter [PDF, 574 KB]
– 2007 Bid Submission Users Manual is an all-
inclusive document incorporating the various steps
for completing and submitting the BPT and PBP.
CCA Annual Meeting / October 2007 23
CMS Web Site
Instructions For Completing The MA Bid Pricing Tool For CY 2008
Table of Contents
Introduction........................................................................................................................ 3
General Overview............................................................................................................. 5
Worksheet 1 - MA Base Period Experience and Projection Assumptions.............. 7
Worksheet 2 - MA Projected Allowed Costs PMPM................................................. 16
Worksheet 3 - MA Projected Cost Sharing PMPM ................................................... 19
Worksheet 4 - MA Projected Revenue Requirement PMPM .................................. 25
Worksheet 5 - MA Benchmark PMPM ........................................................................ 35
Worksheet 6 – MA Bid Summary ................................................................................ 42
Worksheet 7 – Optional Supplemental Benefits........................................................ 49
Two-Year Look-Back Form........................................................................................... 52
Appendix A – Actuarial Certification............................................................................ 55
Appendix B – Supporting Documentation .................................................................. 61
Appendix C – Part B-Only Enrollees........................................................................... 67
Appendix D – Medicare Advantage Products Available to Groups........................ 68
Appendix E – Plans Serving Qualified Medicaid Beneficiaries (QMBs) ................ 71
Appendix F – Rebate Reallocation and Premium Rounding................................... 73
Appendix G – Suggested Mapping of MA PBP Categories to BPT Categories... 84
Appendix H - BPT Technical Instructions................................................................... 86
Appendix I – Red-Circle Validation Edits.................................................................... 87
Glossary of Terms.......................................................................................................... 91
CCA Annual Meeting / October 2007 24
CMS Web Site
Instructions for Completing The Medicare Prescription Drug
Plan BPT for CY 2008
Table of Contents
Introduction........................................................................................................................ 4
Special Considerations.................................................................................................... 5
Worksheet 1 - Rx Base Period Experience................................................................ 17
Worksheet 2 - PDP Projection of Allowed/Non-Benefit............................................ 30
Worksheet 3 - Contract Period Projection for Defined Standard Coverage ......... 35
Worksheet 4 - Standard Coverage with Actuarially Equivalent Cost Sharing ...... 39
Worksheet 5 - Alternative Coverage ........................................................................... 41
Worksheet 6 - Script Projections for Defined Standard, Actuarially Equivalent, or
Alternative Coverage ..................................................................................................... 44
Worksheet 7 – Summary of Key Bid Elements ......................................................... 52
Appendix A – Actuarial Certification............................................................................ 54
Appendix B – Supporting Documentation .................................................................. 60
Appendix C – Employer/Union-only Group Requirements ...................................... 66
Appendix D – Calculation of the National Average Monthly Bid Amount.............. 67
Appendix E – Calculation of Low Income Benchmark Premium Amounts ........... 69
Appendix F - Bid Pricing Tool Technical Instructions............................................... 71
Appendix G – Red-Circle Validation Edits.................................................................. 72
Glossary of Terms.......................................................................................................... 77
CCA Annual Meeting / October 2007 25
CMS Web Site
• CMS Home >Medicare > Health Plans - Medicare
Advantage Rates & Statistics > Overview
• FFS Data
• Risk adjustment
• Part D Benefit Factors
– Notification of Changes in Medicare Part D
Payment
– Parameter amounts for std benefit and low-income
subsidy benefit
CCA Annual Meeting / October 2007 26
CMS web site
• CMS Home >Medicare > Health Plans -
Medicare Advantage Rates & Statistics >
Overview
• Actuarial Bid Questions
• Announcements & Documents
– Information on payment methodology
– Advance notices and announcements
• Ratebooks & Supporting Data
– Payment ratebooks, rate calculation data,
benchmarks
– Fee-for-service actuarial equivalent cost sharing
factors
– Prescription drug plan base beneficiary premium
CCA Annual Meeting / October 2007 27
CMS Web Site
• CMS Home >Research, Statistics, Data and
Systems > Health > Files for Order:
– Files for Order - General Information
– Limited Data Sets
• Limited Data Sets (LDS)
– Beneficiary level health information but exclude
specified direct identifiers.
– 5% Sample of FFS data
– Requires a formal request for CMS approval.
CCA Annual Meeting / October 2007 28
CMS Web Site
• Adjust FFS Data appropriately for pricing MA
plans
– FFS data for actuarial equivalence calculations
excludes ESRD, service categories with no cost
sharing (home health) and hospice services
provided outside MA plan.
– Adjustments to LDS
• Credibility – limited data in certain areas &
service categories
• Claims completion, population differences, etc.
– See MA bid instructions
CCA Annual Meeting / October 2007 29
CMS Web Site
• (2008) Bid Conference-OACT Video
Streaming/Podcast.
– Event Date 03/01/2008
– http://cms.hhs.gov/events/event.asp?id=360
– CMS Home > Site Tools & Resources > Event
Calendar > Upcoming Events
CCA Annual Meeting / October 2007 30
HPMS
• https://gateway.cms.hhs.gov
• Two levels of access available to certifying
actuary
– “Type of functionality”
– Described in Appendix A of bid instructions
– Actuarial Certification Profile Only or
– Actuarial Certification Profile and Plan Profile
CCA Annual Meeting / October 2007 31
HPMS
• Actuarial Certification Profile Only:
– Actuarial Certification Process
• HPMS March 9, 2007 release
• Application:
http://www.cms.hhs.gov/InformationSecurity/D
ownloads/EUAaccessform.pdf
– Upload Substantiation (supporting
documentation)
– View BPTs and PBPs for assigned plans
– HPMS Guidance on Home page
CCA Annual Meeting / October 2007 32
HPMS
• Actuarial Certification Profile and Plan Profile:
– HPMS Home> Plan Bid > Bid Submission
• MA, MSA, PD and 2-Year Lookback BPT
Spreadsheets
• MA, MSA, PD and 2-Year Lookback BPT
Instructions
• Bid User’s Manual
• Bid Pricing Tool Technical Instructions
– HPMS Home > Risk Adjustment
– Plan specific risk score data
– HPMS Guidance on Home page
CCA Annual Meeting / October 2007 33
HPMS
• HPMS Guidance on Home page
– Listed by release date
– Search by topic and/or date range
– Examples:
• CY2008 Actuarial Certification Process
• Part D National Average Monthly Bid Amount, PD
Basic Premium, PD Regional LIPS, MA Regional
PPO Benchmarks
• MA Payment Rates
• February 28, 2007 - “2008 Employer Group Waiver
Policy – Elimination of the Requirement for Entities
Offering EGWPs to Submit Part D Bids”
CCA Annual Meeting / October 2007 34
Employer Groups & Union Groups - MA
• “800-series” plans
• Two Options for employer coverage
– Individual-market products
– Employer-only or Union-only Group Waiver Plans
(EGWPs)
• Individual-market product offerings
– Without modification or through “Actuarial Swaps”
or “Actuarial Equivalence”.
– Plan retains supporting documentation.
• See bid instructions
CCA Annual Meeting / October 2007 35
EGWPs - MA
• Pricing approaches
– FFS build-up
– Composite
– Rebates must be used
• Flexibility allowed in providing coverage to
different groups
• Bid review includes consistency of pricing with
individual plans.
• MA only plans: Not necessary to submit
separate BPTs for CY and non-CY business.
CCA Annual Meeting / October 2007 36
EGWPs – Part D
• Two options for employer coverage
– Purchase customized benefits from a PDP or
MA-PD pursuant to CMS waivers.
– Contract directly with CMS to become a PDP
and provide customized benefits pursuant to
CMS waivers.
CCA Annual Meeting / October 2007 37
EGWPs – Part D
• Part D bid pricing tool not required for
EGWPs, i.e., “800-series plans”
• Payment based on Part D National Average
Bid Amount
– Low income cost sharing subsidy and
reinsurance payments based on actual
experience
– No catastrophic reinsurance for non-CY plans
CCA Annual Meeting / October 2007 38
Expectations
• Supporting documentation is prepared in
advance
– Filed with initial bid submission or available upon
request within 2 days
– “…with sufficient clarity that another actuary
practicing in the same field could make an objective
evaluation of the reasonableness of the work
product.” ASOP # 31.
• Benefit cost projections
– Based on experience data, if credible.
– Consistent with group expected to enroll.
CCA Annual Meeting / October 2007 39
Expectations
• Projected risk scores
– Plans with experience have risk scores to use for
projection purposes.
– Appropriate adjustments for coding intensity,
normalization, etc.
– Developed consistently with projection of manual
rates for plans without experience.
• Administrative expenses
– Related party agreements must be comparable with
competitive arrangements.
– Part D arrangements with PBMs must reflect full
costs of services prior to any PBM rebate withhold.
CCA Annual Meeting / October 2007 40
Expectations
• Rx Rebates/ Direct Indirect Remuneration
– Plans project full value of rebates or DIR
expected to be reported in contract year.
– This includes amounts withheld by providers.
• FAQ 2007 Part D reporting requirements
– http://www.cms.hhs.gov/PrescriptionDrugCovCo
ntra/Downloads/PartDReportingRequirementsF
AQ.pdf
– CMS Home >Medicare > Prescription Drug
Coverage Contracting > Plan Reporting and
Oversight: Downloads
CCA Annual Meeting / October 2007 41
Expectations
• Gain / loss margin
– Beginning CY2008 focus on margin generally at
organizational level
• Implicit cross subsidizations will be permitted
– Bids may not include anti-competitive practices
– MA group and dual-eligible SNP
• Bids have different competitive position
• Generally, will be tracked closely to individual
market
– MA-PD bids
• Overall margins of MA and Part D components
within reasonable range of each other
• For example +/- 1% or 1.5%
CCA Annual Meeting / October 2007 42
Tips for Efficient Bid Review
• Start preparing bids early
– Estimate payment rates
– Format supporting documentation
• Apply early for HPMS actuarial certification
access.
• Thoroughly check PBP for consistency with
BPT before bid submission and certification.
• Designate back-up for questions during bid
review.
CCA Annual Meeting / October 2007 43
MA Bidding: Do’s and Don’ts
Client Perspective
Ashley Mosko
Blue Cross and Blue Shield of Alabama
CCA Conference
October 23, 2007
Plan Information
• 3.7 million members
served nationwide
• 145,000 C Plus
members
• 8,000 each MAPD and
PDP
Background
• New plan to Medicare Risk
• Limited individual market perspective
• Conservative outlook
• Marketing approach
Blending
• Actuarial match
• Goals of organization
• Benefit Decoding
Schedule to Succeed
• Start early, model often
• Start earlier, model more often
• Sanity check built in
• Do not torture your Actuary!
Bid Pricing Tool v. Plan Benefit
Package
• Right staff in the right seat on the bus
• Translation of bid into benefit categories, cost
sharing, etc.
• Don’t touch that button! Checklist review.
Post Bid Review
• Good, bad and ugly
• Competitive Analysis
• Begin preparation for next year’s bid