Risk Adjustment

Comparing the statistical performance of various risk scoring methodologies

Kennell staff conducted a study for the Society of Actuaries (SOA) to compare the statistical performance of a variety of commercial risk adjustment models. Over 40 models from 11 distinct vendors were compared across various attributes, including correlation (R-squared) and mean error at the individual level. In addition to these measures, the research team developed additional measures of comparison to more closely align with the business problems that risk scoring models are used to solve. This study is an update to the SOA studies previously published in 1996, 2002, and 2007. The study is available at https://www.soa.org/Research/Research-Projects/Health/2016-accuracy-claims-based-risk-scoring-models.aspx.

Developing a DoD-specific risk adjustment model

Kennell developed a DoD-specific health-based risk adjustment model. We started with publicly available open-source risk adjustment models (diagnosis-based and pharmacy-based) and made extensive modifications to the clinical classification logic to accommodate the primary areas of concern for the DoD population, including specific attention to brain injury, mental health, and PTSD. The model coefficients were developed with a regression-based approach and incorporate hierarchies for conditions with varying levels of complexity. The model is being used by DoD for a variety of applications including program evaluation and projection of health care costs for specific sub-populations.

Preparing publications on the theory and application of risk scoring models.

Kennell staff teamed with research actuaries from Wakely Consulting Group and the University of Wisconsin to author a paper for publication by the Society of Actuaries. This paper explored the history, conceptual basis for, and mechanics of risk scoring methodologies in the context of risk adjustment. The paper is available at https://www.soa.org/Research/Research-Projects/Health/2016-risk-scoring-primer.aspx.

Premium Development

Developing annual capitation rates for enrollees to the U.S. Family Health Plan

Each year, Kennell assists the government in the development of capitation rates for the U.S. Family Health Plan (USFHP). The USFHP is a managed care option for DoD beneficiaries who reside within six defined service areas. In developing these capitation rates, Kennell uses DoD and Medicare data sources, develops risk adjustment factors, and makes estimates of future medical trends.

Developing annual member premiums for DoD programs.

Each year, Kennell develops member premiums for several premium-based health insurance programs. This includes TRICARE Young Adult, TRICARE Retired Reserve, and TRICARE Reserve Select. This process involves the tabulation of historical claim and administrative data, projections of future trends, and other actuarial adjustments.

Benefit Modeling

Estimating the effects of proposed policy changes and benefit reforms

Kennell has provided actuarial support to DoD as the Department has explored a wide range of options to update the cost-sharing structure of the TRICARE benefit. Kennell has developed complex models to analyze changes to TRICARE enrollment fees, deductibles, and a range of copays. The models account for direct revenue effects and indirect savings due to expected behavioral responses to increased enrollment fees or deductibles, including shifts between TRICARE Prime and TRICARE Standard and also shifts between reliance on TRICARE and reliance on employer-sponsored health insurance. Kennell developed a separate model specifically to analyze a range of possible changes to TRICARE’s pharmacy benefit, which includes three points of service (military treatment facility pharmacies, a national mail order pharmacy, and a retail pharmacy network), three copay tiers in both retail and mail order, and direct collection of rebates from drug manufacturers for brand name prescriptions filled in the retail network. In analyzing the effect of the numerous pharmacy options that have been considered, Kennell’s pharmacy reform model accounts for direct changes in copay revenue, shifts in demand among the three points of service, and shifts in demand from one tier to another within the same point of service. Both the pharmacy and non-pharmacy models are capable of forecasting ten years into the future, and the models have parameterized inputs to allow rapid sensitivity testing of alternative scenarios. While complex, the models have also been designed with transparency in mind, and they have been extensively reviewed within DoD and at various times by the Office of Management and Budget (OMB), the Government Accountability Office (GAO), and the Congressional Budget Office (CBO). The models’ multi-billion dollar savings estimates have repeatedly been incorporated in the Department’s official President’s Budget proposals for the MHS.

Evaluating the cost impacts of changes in dental benefit design

Kennell has supported the Defense Health Agency (DHA) in estimating the effects of proposed changes to dental benefit and program design. This work has included evaluation of changes in deductibles, benefit maximums, reimbursement policy, network design, and covered benefits. Kennell has also development cost estimates for dental programs including the TRICARE Dental Program and the TRICARE Retiree Dental Program.

Analyses of utilization and cost trends

Developing illustrative profiles for decision support on the Federally-facilitated marketplace

In close collaboration with LMI, Kennell worked to develop the underlying logic and data to provide illustrative out-of-pocket cost estimates for shoppers using the healthcare.gov insurance exchange. This involved tabulation of experience data from a nationally representative sample of individuals, categorization of utilization and costs into categories consistent with cost sharing parameter data, and trending those data to a future period.

Analyzing mental health costs for the TRICARE population

Due to the wars in Afghanistan and Iraq, the demand for mental health care for Service members and their families increased dramatically after 2003. For DoD we have tracked the use of mental health services and the cost of mental health care for the TRICARE population since 2002 and analyzed how the types of diagnoses, the patterns of inpatient and outpatient treatment, and costs have changed.