The Self-Insured Institute of America, or SIIA, is known for sponsoring great educational conferences, and the most recent Taft-Hartley session in Chicago was no exception. Many of the day’s speakers talked about how the Affordable Care Act, or ACA, is changing the healthcare landscape, sometimes for better, sometimes for worse. One particular area of concern that speakers and panelists discussed was the so-called Cadillac tax, which purportedly is intended to discourage overly rich benefit plans by imposing a 40 percent excise tax on any amount over the threshold (presently set at $10,200 for individuals and $27,500 for families, starting in 2020).
According to sponsors of the ACA, the tax “originally was intended to help pay for other portions of health care reform and to keep employers from offering overly generous plans that allow for what can often be unnecessary and expensive procedures. The underlying premise is that plans with fewer benefits shift a greater cost of health care expenses onto employees, causing them to be more judicious about asking doctors whether appointments or tests are necessary and ultimately reducing strain on the health care system.”1
The problem is that the tax will hit many plans that don’t have “overly generous” benefits but which are expensive for any number of other reasons. For example, a self-funded plan may pay the tax not because of rich benefits but because one or two of its insured persons are treated for an expensive condition. According to Forbes, “depending on how this tax is implemented, as many as 26% of employers and their employees could face this tax in the first year, including a large number of middle income workers who receive their health coverage through their employers. And that percentage of businesses and people affected is projected to increase to 40% within ten years.”2
So what is a plan sponsor to do if it wants to avoid the tax? Many plans have reduced benefits or have reconfigured their plan structure to have workers pay a greater share of health costs out of pocket. That is far from an ideal solution, however, and will lead to dissatisfaction among workers and plan sponsors alike. A smart solution is to incorporate several cost-reducing components and not rely on any single initiative. One component that should always be integral to the solution is claim review.
Many third party administrators and payors review claims for coding accuracy and apply bundling and other coding edits; however, most payors do not conduct routine medical record reviews or look for complicated coding schemes. Paying claims is a complicated effort and requires many processes to work well with one another, and most TPAs and health plans just don’t have the capabilities in-house to review claims at a granular level to ensure that charges are accurate on every claim. That is why payors and TPAs are increasingly retaining claim review companies to identify claim errors on their behalf.
As a national leader in claim review services, Nokomis Health can be a part of the solution to minimizing the Cadillac tax risk. With our proprietary claim review engine ClaimWiseTM we are able to review our payor clients’ post-adjudicated, pre-paid claims within one business day and ensure that they are paying only valid charges. We know when to obtain specific medical records and confirm that charges are supported by documentation. We act as a claims safety net for our clients: we double check all basic code edits (NCCI, invalid codes, bundling, etc.) to make sure that none were missed, and we use sophisticated analytics and proprietary rules to ensure that only valid charges are paid. We typically achieve savings of 4 to 8 percent (even after reviews by other vendors have been completed) and at times our findings lead to even greater savings. Our appeal rate is less than 5 percent due to the precise application of denials, which are all supported by external coding guidance.
The following chart demonstrates the positive impact that claim review can have on a company’s exposure to the Cadillac tax. The baseline assumption is that the current cost per family is $25,000 per year and that costs will increase by 5% per year with no intervention. With claim review, we reduce plan costs by 5% in the first year, and then maintain inflation at 4% per year. The tax threshold begins at $27,500 in 2018 dollars and is indexed to general inflation (CPI), assumed to continue at 3% per year. Without claim review, this plan sponsor will pay the tax at inception in 2020, but with claim review, the plan sponsor will stay below the threshold through 2027, thereby saving a tremendous amount of money.
Political pundits speculate that the next Congress and president will repeal the Cadillac tax, but that is far from certain. One barrier to repealing the tax is to identify an alternative funding source, as the tax is needed to fund the expansion of coverage that came about due to the ACA. But even if the tax is repealed, it is prudent for all plan sponsors to make claim review a core function of their claim adjudication process. As one client explained it to me, the savings generated by Nokomis Health on their behalf completely mitigated their annual cost increase and allowed the employer to maintain its current benefit set. Without our services, they would have had to either reduce benefits or lay off workers.
The bottom line is that claim review should be an essential component of every plan sponsor’s cost containment arsenal. Regardless of whether a plan is at risk for paying the Cadillac tax, it should ensure that all claims are reviewed and are valid. That makes good business sense regardless of how the political winds may blow.
1US News and World Report, Aug. 8, 2015 http://www.usnews.com/news/articles/2015/08/14/cadillac-tax-to-face-congressional-scrutiny