93-01: Premium Credits Using Certified Managed Care Programs
* This bulletin was repealed by 08-05
To: All Workers Compensation Insurers
From: Jay Angoff, Director
Re: Premium Credits for Employers Using Certified Managed Care Programs
Date: January 15, 1993
This Bulletin is to advise workers' compensation insurers of a new program which has begun in Missouri. This program is the result of the recent enactment of legislation by the Missouri General Assembly and the subsequent promulgation of regulations by the Department of Insurance. The program is designed to increase the use of managed health care organizations (MCOs) as a method of controlling the increasing medical and indemnity costs associated with workers' compensation injuries. Under this program, employers who agree to utilize MCOs which have been "certified" by the Department will be rewarded with a reduction in their workers' comp premiums.
The Department of Insurance began working on this concept in April 1992 with the introduction of a proposed regulation -- 20 CSR 500-6.700 -- which called for the granting of a 5% credit on workers' compensation premiums to any employer using a preferred provider organization (PPO) meeting certain specified standards. The Department concluded it had the authority to authorize such a program under the provisions of Chapter 287, RSMo. Any question on this issue was resolved by the Missouri General Assembly with the passage of House Bill 975 during the 1992 legislative session. That bill constituted the first phase of the General Assembly's workers' compensation reform efforts, and it specifically authorized the granting of such premium reductions.
Because the critical section of House Bill 975 was subject to an emergency clause, the Department felt it necessary to begin the implementation of the program as soon as possible. A hearing was held on the previously introduced regulation on June 2, 1992. Comments where received from a number of entities and, as a result, modifications where made to the proposal. While the central concept of the proposal was retained, the Department recognized the need to establish an ongoing task force to continue to develop and refine the program. An amended regulation which reflected the Department's modifications was filed with the Secretary of State on August 31, 1992. The regulation became effective November 1, 1992 on an emergency basis. Meetings of the task force authorized by the regulation were held on September 24, 1992 and October 29, 1992. At these meetings, a wide variety of topics were discussed. The Department certified its first PPO on December 4, 1992. To date, four PPOs have received certification. A number of additional certifications are currently awaiting final approval by the Director.
The Department recognizes that this program is unique to Missouri, and that it is still in a state of evolution. Some members of the insurance industry are more aware of its existence than others; this may be particularly true for those insurance companies which handle Missouri accounts at service centers located in other states. Insurance companies should inform the necessary personnel within their companies of the existence of this program as soon as possible, in order to avoid unnecessary confusion. Some period of adjustment will be necessary as this program takes effect, and the Missouri Department will take this into account as questions and disputes arise.
Regulation 20 CSR 500-6.700 requires that those employers seeking a premium discount first enter into a contract with an MCO which has been "certified" by the Missouri Department of Insurance. The regulation also sets forth standards for granting such certifications. If there is any question regarding whether the MCO in question has been certified, the representative of the insurer should request a copy of the certificate issued to the MCO by the Director of Insurance. Certified MCOs will be informed of the potential need to produce such documentation.
The premium credit currently required under this program is 5%, for a maximum of three years. After this initial three-year period, the employer's experience modification factor should adequately reflect the benefits of the use of the managed care system. The 5% figure was deemed reasonable by the Department in light of the dual goals of
- providing a discount which was large enough to encourage employers to seek out and contract with MCOs and
- requiring only such a discount as was reasonable in light of the reported experience of insurers and self-insurers who had already implemented such programs.
The 5% credit shall be calculated after any experience modification factors, assigned risk adjustment factors, and Missouri contracting classification factors have been applied to the manual premiums of employers, but before the application of second injury fund surcharges, expense constants, or any premium discounts. (See attached calculation form.)
Insurers should be aware of two situations where an employer may not be entitled to the full 5% premium credit during a given policy year. The first situation is where only part of an employer's operations occur within the area served by the certified MCO. For example, if 50% of the employer's payroll involves its operations in St. Louis, and 50% involves operations in Kansas City, and the MCO's geographic service area includes only St. Louis, the employer may be entitled to only half of the regular 5% premium credit. Note, however, there might be several caveats to the above statement. For example, the employer might decide to contract with a second MCO in the Kansas City area, or it might agree to cover the costs necessary to transport injured workers to the MCO's territory. Insurers will be required to provide a discount, but only on that portion of an employer's operations which are actually covered by the MCO's program. The size of this percentage will depend on the circumstances. The Department suggests insurers use the employer's payroll figures as a basis for any determination along these lines. The above logic also applies to multi-state risks.
The second situation where an insurer may not need to grant the full 5% credit for a given policy year is where the employer has contracted with a certified MCO after the renewal date of the policy. Regulation 20 CSR 500-6.700 gives insurers the option of requiring their employers to notify them of an intention to sign up with a certified MCO before the renewal date of their policies. This provision was included, in part, to give insurers the option of offering their employers the services of the insurer's own MCO -- where one was in place -- before these employers contracted with other MCOs. It is not clear whether any insurers have taken advantage of this provision. Where they have not communicated such a notification requirement, it is likely that a number of their employers will be requesting discounts after their policy renewal dates. Based on a suggestion from the task force, the Department has decided to specify that until the end of the first quarter of 1993, insurers will be required to provide a premium discount to such employers, but will be allowed, at their option, to pro-rate the 5% discount to reflect any time period between the renewal date and the date upon which the employer is operating under the certified managed care program. In addition, insurers will have the option of providing any pro-rated discount at audit, at the end of the policy period.
Another question which has been asked is whether the established utilization review functions of an insurer can be overruled by an MCO. The Department's current position is that certified MCOs should be given the opportunity to make the utilization review and case management decisions regarding an injured employee, absent some agreement between the insurer and the MCO to the contrary. However, if an insurer wants its utilization review personnel to oversee and track the performance of the MCO, they have that option. The Department hopes that at some point in the future, after having gained some experience with this program, performance evaluation standards for MCOs will be established and such insurer oversight may prove valuable.
The Department has decided that the 5% premium credit need not be provided to employers operating on a "retro" plan, although an insurer may choose to allow this. The Department feels the logic behind the use of a retro plan provides more than enough incentive for the employer to strive to control its losses without the need for the managed care discount.
The Department has been asked how agent commissions should be calculated on policies where the employer has received a managed care discount. For the most part, the issue of commissions is up to insurers and their agents. As a general rule, however, the Department's view is that commissions should be based on net premiums, after the application of a managed care discount.
There has been some question regarding how the fees for the operation of a certified MCO will be paid. Obviously, there will be costs associated with an MCO's functions, such as setting up provider networks, providing utilization review and case management services, re-pricing bills, and so forth. Regulation 20 CSR 500-6.700 does not directly specify who shall pay for these services, and it was only after the regulation was filed that identifying the responsibility for paying these fees became a concern. Usually, when an insurance company contracts voluntarily with an MCO, the MCO is reimbursed for its services by the insurer under a negotiated arrangement. It would be the Department's desire that this practice be extended to certified MCOs operating under this state program as well. The Department is of the opinion that appropriate managed health care services are an integral part of an insurer's workers' compensation insurance product, as are other activities, such as determining job classifications, collecting premiums, issuing policies, paying claims and performing audits. The Missouri General Assembly's agreement with this general opinion can be inferred from the Assembly's passage of amended Section 287.320, RSMo, in House Bill 975. Given that it is now the public policy of the state of Missouri to encourage the use of managed care programs as one method of controlling workers' compensation costs, insurers should anticipate a regulatory mandate that they pay any "reasonable" fees associated with the services of a certified MCO. While the Department would prefer to grant insurers the flexibility to negotiate such fee arrangements on their own, it will consider establishing appropriate guidelines if widespread cooperation by companies is not forthcoming.
In closing, the Department would like to communicate to insurers, MCOs, agents, employers, and health care providers, that the Department intends, to the best of its institutional ability, to see that this program functions as an effective method of controlling workers' compensation costs in Missouri. In doing so, the Department will remain open to the comments and suggestions of all parties concerned. No doubt, problems will develop which need to be addressed. However, if our experience to date provides any guidance, such problems will be amendable to reasonable resolution. We trust that all parties will be willing to engage in the kind of partnership which will assure the success of this program.
MISSOURI WORKERS' COMPENSATION PREMIUM COMPUTATION
This table is a guideline for figuring the premium factors and adjustments applicable to workers' compensation insurance written in Missouri.
|Payroll/$100 X Rate
|X||ARAP (If Applicable)
|X||20% (1.20) Rate Diff. (If Applicable)
|X||MCCPAP (If Applicable)
|X||Certified MCO 5% (.95) Credit (If Applicable)
|X||3% (1.03) Second Injury Fund Surcharge
|-||Premium Discount (If Applicable)|
|= $XXXXX.XX TOTAL ESTIMATED ANNUAL PREMIUM|
If the policy is to be issued using the minimum premium, the 3% Second Injury Fund Surcharge should be calculated on the minimum premium (which includes the expense constant charge).
EMF Experience Modification Factor
ARAP Assigned Risk Adjustment Program
MCCPAP Missouri Contracting Classification Premium Adjustment Program
MCO Managed Care Organization