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Eric P. Goetsch, FSA, MAAA
Principal and Consulting Actuary
[email protected]
February 16, 2012
Ms. Linda Brown
Deputy Director of Budget, Finance,
and Administrative Services
Washtenaw Community Health Organization
555 Towner Street
Ypsilanti, MI 48197
[Sent via email: [email protected]]
Re:
Results of ISF Analysis for Medicaid Mental Health and Substance Abuse Services
Dear Linda:
We completed our funding analysis for the Community Mental Health Partnership of Southeast Michigan’s
(CMHPSM) Internal Services Fund (ISF) related to the shared risk contract with the State of Michigan for
Medicaid mental health and substance abuse services. This analysis should assist CMHPSM by
illustrating the annual ISF balances that may be required to adequately protect against potential future
deficits and the additional capital funding that may be required to maintain these balances.
The ISF is intended to reasonably protect CMHPSM from unexpected cost fluctuations related to its risk
contract with the State. CMHPSM’s agreement with the State limits its risk under this program to 7.5% of
its related income from the State. The appropriate level of the ISF should reflect this contractual
arrangement and the level of risk CMHPSM is willing to accept. Our analysis assumes any surplus made
by CMHPSM in a given year will be used as savings or added to the ISF and be used to offset higher
than expected treatment costs in future years. Similarly, we assumed any loss sustained by CMHPSM in
a given year will be offset using prior year savings or funds from the ISF, to the extent the funds are
available.
RESULTS
The scenarios we tested imply that the Medicaid ISF level is currently adequate to protect against
potential increases in mental health and substances treatment costs in the near future. However,
given the range of results of the various scenarios tested for the longer term, we recommend all
available Medicaid surpluses be used to fund the ISF, keeping in mind the maximum allowable
levels. These results are dependent on the projection assumptions contained in this letter. Different
assumptions will lead to different results; therefore, this letter should only be considered in its entirety.
The remainder of this letter discusses the process used to determine the recommended ISF funding level,
the components of the financial analysis performed, and three scenarios of future potential outcomes
CMHPSM should consider when making ISF funding decisions.
Offices in Principal Cities Worldwide
Ms. Linda Brown
February 16, 2012
Page 2
SETTING INTERNAL SERVICE FUND LEVEL
In order to fund the ISF for future Medicaid mental health and substance abuse costs, CMHPSM will have
to decide how much risk it wants to assume. To help CMHPSM make this decision, we analyzed the
distribution of costs for Medicaid mental health and substance abuse services.
Table 1 includes the average per enrollee per month (PEPM) mental health and substance abuse
treatment costs between October 2009 and September 2010 ($106.23). Using the distribution of claims in
the two year period between October 2008 and September 2010, we also included in Table 1 estimated
PEPM amounts for which there was a 70.0%, 80.0%, 90.0%, 95.0% or 97.5% probability that actual
mental health and substance abuse treatment costs would not have exceeded these levels in the October
2009 and September 2010 time period. These PEPM amounts were translated into percentages of
expected treatment costs, which can be used in future years as the expected PEPM claim costs change
(e.g., due to utilization trends and changes in cost per procedure).
Table 1
Community Mental Health Partnership of Southeast Michigan
Medicaid Mental Health and Substance Abuse Services
Thresholds for Various Levels of Risk in Funding Internal Services Fund
October 2009 through September 2010
Percentage of Average
Probability Threshold
PEPM Treatment Costs
Treatment Costs
Average Cost (i.e., 50% threshold)
$106.23
100.0%
70.0% Threshold
80.0% Threshold
90.0% Threshold*
95.0% Threshold
97.5% Threshold
107.87
108.95
110.45
111.71
112.83
101.5%
102.6%
104.0%
105.2%
106.2%
* For example, based on the experience period from October 2009 through September 2010, there was
approximately a 90.0% probability that CMHPSM’s actual Medicaid mental health and substance abuse costs
would have been below 104.0% of the average cost for the year.
The following graph illustrates the distribution of expected mental health and substance abuse costs
presented in Table 1. We used the shape of the normal probability distribution for illustrative purposes.
The horizontal axis contains the range of possible PEPM costs from smallest (left side) to largest (right
side). The vertical axis contains the probabilities that each of the possible PEPMs actually occurs. The
taller the line, the greater the chance that the corresponding PEPM will occur. The area underneath the
curve represents all the possible PEPM results. In other words, the total area underneath the curve is
equivalent to a probability of 100%.
Ms. Linda Brown
February 16, 2012
Page 3
Expected Cost
70.0% 80.0% 90.0% 95.0% 97.5%
< ------------------------------- Range of Possible PEPM Costs ----------------------------- >
The vertical line in the middle of the graph indicates the expected PEPM cost for the distribution. The
Table 1 cost associated with this point on the horizontal axis is $106.23 PEPM. For future years, the
costs associated with this point will be 100% of the expected PEPM costs for the year. By definition, it is
almost as likely for actual costs to be above expected costs as it is for them to be below expected costs.
This is illustrated by the size of the area underneath the curve to the left of the expected cost line (actual
costs are lower than expected costs) being about 50% of the total area underneath the curve. Therefore,
the size of the area underneath the curve to the right of the expected cost line (actual costs are higher
than expected costs) is also approximately 50% of the total area underneath the curve.
The lines labeled 70.0%, 80.0%, 90.0%, 95.0% or 97.5% represent the points at which 70.0%, 80.0%,
90.0%, 95.0%, or 97.5% of the area underneath the curve is to the left of the line. The values associated
with these points are the PEPMs at which there is a 70.0%, 80.0%, 90.0%, 95.0%, or 97.5% chance that
actual costs on a PEPM basis will be below these values. For example, based on the Table 1 data, we
estimate there is a 90% probability that the actual Medicaid mental health and substance abuse costs will
be below 104.0% of the expected PEPM treatment costs for the year.
The PEPM values in Table 1 are only appropriate for the 12-month experience period ending
September 30, 2010. Amounts for future periods should be increased by an assumed trend level. The
scenarios contained in Appendix 1 are based on the trend and other assumptions contained in Exhibit 1.
The shape of the cost distribution is unlikely to change significantly from year to year, but should be
monitored periodically.
Depending on the desired level of risk CMHPSM wants to take, the PEPM costs at the 70.0%, 80.0%,
90.0%, 95.0%, or 97.5% levels for the projection year may be used to determine the required ISF
contribution for the current year.
COMPONENTS OF FINANCIAL ANALYSIS
Our financial analysis consists of three different scenarios of varying annual eligible counts, revenue
increases, treatment cost increases, and administration cost increases from the present through
FY 14/15. Exhibit 1 contains a summary of the critical assumptions for each scenario.
Ms. Linda Brown
February 16, 2012
Page 4
In general, each scenario in Appendix 1 contains the following:
Eligible Months Exposed
The FY 09/10 and FY 10/11 eligible months of 862,798 and 913,619, respectively, were provided by
CMHPSM. The FY 10/11 eligible months are projected to future years based on varying assumptions.
Gross Revenue per Eligible per Month
Gross Medicaid revenue (including revenue for both Medicaid and SSI services) for FY 09/10 and
FY 10/11 equaled $106,238,988 ($130.90 PEPM) and $109,052,132 ($126.97 PEPM), respectively, per
the CMHPSM FY 09/10 Financial Status Report (FSR) and interim CMHPSM FY 10/11 FSR provided by
CMHPSM. The FY 10/11 revenue is projected to future years based on varying assumptions.
Medicaid Use Tax per Eligible per Month
Medicaid Use tax for FY 09/10 equaled $6,704,199 ($7.77 PEPM) per the CMHPSM FY 09/10 FSR
provided by CMHPSM. Medicaid Use tax for FY 10/11 equaled $6,954,209 ($7.61 PEPM) per the interim
CMHPSM FY 10/11 FSR provided by CMHPSM. For future years, the Medicaid Use tax was set equal
6% of gross Medicaid revenue under the assumption that changes to the Medicaid Use tax would result in
a similar level of funds being withheld from gross revenue.
Revenue Available for Total Costs PEPM
The revenue available for total costs equals the gross revenue PEPM minus the Medicaid Use tax PEPM.
Revenue Available for Total Costs
The revenue available for total costs equal the eligible months exposed times the revenue available for
total costs PEPM.
CMHPSM Administration Cost
The CMHPSM total cost for administrative services for FY 09/10 and FY 10/11 equaled $5,233,799 and
$5,375,746, respectively, per the CMHPSM FY 09/10 FSR and interim CMHPSM FY 10/11 FSR provided
by CMHPSM. The FY 10/11 total cost for administrative services is projected to future years based on
varying assumptions.
Revenue Available for Mental Health and Substance Abuse Costs
Revenue available for mental health and substance abuse costs equals revenue available for total costs
less the CMHPSM administrative costs.
Mental Health and Substance Abuse Cost per Eligible per Month
Total Medicaid mental health and substance abuse treatment cost (including costs for Medicaid and SSI
services and the Psychiatric Hospital Rate Adjuster) for FY 09/10 equaled $91,651,189 ($106.23 PEPM)
and $95,024,592 ($104.01 PEPM), respectively, per the CMHPSM FY 09/10 MUNC Report and interim
CMHPSM FY 10/11 MUNC report provided by CMHPSM.
Ms. Linda Brown
February 16, 2012
Page 5
These amounts are reported in the “expected” treatment cost row for FY 09/10 and FY 10/11,
respectively, in Appendix 1. The FY 10/11 amount is used to project expected treatment costs for future
years. Given the expected costs for each year, Appendix 1 also contains the PEPM costs levels for
which there is a 70.0%, 80.0%, 90.0%, 95.0% or 97.5% probability that actual mental health and
substance costs will not exceed these levels in a given year.
Total Mental Health and Substance Abuse Costs
Total mental health and substance abuse costs equal the eligible months exposed times the mental
health and substance abuse cost PEPM.
Surplus / Deficit
The surplus / deficit amounts equal the net revenue less the respective treatment cost, adjusted, as
necessary, based on CMHPSM’s risk arrangement with the State. CMHPSM’s risk arrangement with the
State leaves it fully responsible for the first 5% of treatment costs and expenses over revenue (up to
105%) and 50% responsible for the next 5% over revenue (from 105% to 110%).
Projected Savings / ISF Balance
The starting FY 09/10 projected savings / ISF balance of $9,354,000 equals the FY 09/10 ISF contribution
of $6,661,994 and the FY 09/10 savings of $2,692,006. The projected savings / ISF balance for future
years assumes (1) all surpluses for the given year are added to the prior year's savings / ISF balance,
(2) all deficits for the given year are subsidized by the prior year's savings / ISF balance, and (3) all the
surpluses and deficits for prior years are assumed to be at expected levels.
Suggested ISF Balance
The suggested ISF balance for any given year equals the minimum of (1) the projected savings / ISF
balance for the year at the given probability threshold and (2) the maximum allowable ISF balance for the
year. BOLD means additional sources of capital would be needed to adequately fund the ISF for the next
year assuming expected surpluses or deficits for the next year.
Maximum Liability
The maximum liability amount (and maximum ISF balance) equals 7.5% of the projected revenue for the
next year.
SCENARIO ANALYSES
We examined three scenarios to help quantify the economic impact of changing assumptions. The base
scenario (Scenario 1) is based on CMHPSM’s input of what may happen in the near future in terms of
changes in eligible count, revenue, treatment costs, and administration costs. The other scenarios reflect
different patterns of changes; one with more optimistic trend assumptions (Scenario 2) and one with more
pessimistic trend assumptions (Scenario 3).
In each scenario, we assumed that an increase in eligible count would result in a corresponding increase
in treatment costs. The results may change significantly if we assumed there is capacity available for
CMHPSM’s salaried professionals to absorb a portion of the increase in treatment costs.
Ms. Linda Brown
February 16, 2012
Page 6
Scenario 1 – Base Scenario
CMHPSM’s Medicaid eligible month counts indicate an approximately 5.9% increase in eligible months from
FY 09/10 to FY 10/11, based on data provided by CMHPSM. For the base scenario, we assumed a 3.0%
increase in Medicaid eligible months for FY 11/12 and annual 1.0% increases for future years.
Total Medicaid revenue amounts for FY 09/10 and FY 10/11 were provided to us by CMHPSM.
Beginning in FY 12/13, we estimated 1.0% annual decreases in revenue PEPM for the base scenario.
The interim FY 10/11 FSR (provided by CMHPSM) indicates treatment costs PEPM decreased
approximately 2.1% from FY 09/10 to FY 10/11. For the base scenario, we assumed 5.0% annual
increases in treatment costs PEPM beginning in FY 11/12.
The interim FY 10/11 FSR indicates CMHPSM administrative costs increased approximately 2.7% from
FY 09/10 to FY 10/11. For the base scenario, we assumed 3.0% annual increases in CMHPSM
administrative costs beginning in FY 11/12.
The treatment cost and CMHPSM administrative cost trend assumptions are independent of the revenue
available in any given year to fund these costs. In other words, we assumed projected costs for a given
year could be greater that the revenue received from the State in that year.
If actual eligible counts, revenue, treatment costs, and administration costs are at the assumed base
scenario levels, annual surpluses are projected through FY 11/12 with annual deficits beginning in
FY 12/13. Under this scenario, the year-end FY 13/14 projected savings/ISF balance will not be
adequate to fund expected deficits in FY 14/15. Keep in mind, these results assume CMHPSM will
deposit projected surpluses from FY 10/11 and FY 11/12 into the ISF, up to the maximum allowable
ISF levels.
Scenario 2 – Optimistic Trend Scenario
Under the optimistic scenario, Medicaid eligible month counts were increased 4.0% for FY 11/12 and
3.0% annually for FY 12/13 and beyond. This level of membership increase could strengthen the
financial position of CMHPSM from the perspective of having revenue from more eligibles over which they
can spread fixed costs.
For FY 11/12 and beyond, based on a more optimistic view of State revenue changes, we assumed
revenue PEPM would increase 1% annually in this scenario.
We assumed treatment costs PEPM would increase 3% annually in the optimistic scenario. However, to
realize a 3% annual increase in treatment costs, CMHPSM must be able to limit annual increases in both
utilization and provider fee levels.
For the optimistic scenario, we assumed CMHPSM administrative costs would increase 3.0% annually
beginning in FY 11/12.
Similar to the base scenario, the treatment cost and CMHPSM administrative cost trend assumptions for
the optimistic scenario are independent of the revenue available in any given year to fund these costs.
If actual eligible counts, revenue, treatment costs, and administration costs are at the assumed optimistic
scenario levels, annual surpluses are projected through FY 14/15. In this scenario, no increases to the
current ISF level are projected to be required; however, the results in Appendix 1 assume CMHPSM will
deposit the surpluses from each year into the ISF to protect against the possibility of unfavorable future
experience, as illustrated by future deficits associated with the various probability thresholds in row J.
Ms. Linda Brown
February 16, 2012
Page 7
Scenario 3 – Pessimistic Trend Scenario
Under the pessimistic scenario, Medicaid eligible month counts were increased 2.0% for FY 11/12 and
decreased 1.0% annually for FY 12/13 and beyond. This level of membership increase could weaken the
financial position of CMHPSM from the perspective of having revenue from less eligibles over which they
can spread fixed costs.
For FY 11/12 and beyond, based on a more pessimistic view of State revenue changes, we assumed
revenue PEPM would decrease 3% annually in this scenario.
We assumed annual increases in treatment costs PEPM and CMHPSM administrative costs would be 7%
and 4%, respectively in the pessimistic scenario. As in the other scenarios, the treatment cost and
CMHPSM administrative cost trend assumptions for the pessimistic scenario are independent of the
revenue available in any given year to fund these costs.
If actual eligible counts, revenue, treatment costs, and administration costs are at the assumed
pessimistic scenario levels, annual deficits are projected to begin in FY 11/12. Under this scenario, the
year-end FY 12/13 projected savings/ISF balance will not be adequate to fund expected deficits in
FY 13/14, even if the ISF balance is maximized for FY 10/11 and FY 11/12.
ISF FUNDING POLICY
The scenarios we tested imply that the current Medicaid ISF level is currently adequate to protect against
potential increases in mental health and substances treatment costs in the near future. However, given
the longer term range of results of the various scenarios tested, we recommend all available Medicaid
surpluses be used to fund the ISF, keeping in mind the maximum allowable levels. However, you should
review and evaluate the assumptions in each scenario. Other assumption scenarios may be appropriate.
We can evaluate additional scenarios at your request.
QUALIFICATIONS
I, Eric P. Goetsch, FSA, am an Actuary for Milliman, a member of the American Academy of Actuaries
and meet the Qualification Standards of the Academy to perform the actuarial calculations and render the
actuarial opinions contained herein. To the best of my knowledge and belief, this letter is complete and
accurate and has been prepared in accordance with generally recognized and accepted actuarial
principles and practices.
CAVEATS AND LIMITATIONS
The information in this letter is intended to support our ISF analysis for CMHPSM. It may not be
appropriate for other purposes and is intended for CMHPSM’s internal use only. Therefore, please do not
distribute this letter outside of CMHPSM or its auditors without Milliman’s written permission. In any
event, this information is not intended to benefit any third parties.
We accepted the data provided by CMHPSM without audit, though we reviewed the information provided
for reasonableness. The claim and eligibility files provided by CMHPSM were used to estimate the
probability distribution of expected aggregate treatment costs. Our estimates may change with additional
data or if the data provided changes or is inaccurate or incomplete.
The values contained in this letter are estimates based on the information provided by CMHPSM. Actual
results will vary from these estimates. The estimates should be updated periodically as additional
experience becomes available.
Ms. Linda Brown
February 16, 2012
Page 8
Please keep in mind that the probabilities estimated in this letter represent only the statistical chance of
actual results being different than expected results. These statistical probabilities assume all the income
and expense assumptions are accurate and appropriate. For example, actual utilization and cost trends
could differ from our assumptions.
This letter and its use are subject to the terms of our Consulting Services Agreement with Washtenaw
Community Health Organization effective November 19, 2010.





Linda, please call me at (262) 796-3433 at you convenience if you would like to discuss these results.
Sincerely,
Eric Goetsch, FSA, MAAA
Principal and Consulting Actuary
EPG/kal
Attachments
Exhibit 1
Exhibit 1
Community Mental Health Partnership of Southeast Michigan
Medicaid Mental Health and Substance Abuse
Financial Analysis
Summary of Scenario Assumptions
Scenario 1
Base Trends
Medicaid
Eligible
Months
Revenue per
Eligible
CMHPSM
Total
Administratio
n Cost
Treatment
Cost per
Eligible
Scenario 2
Optimistic Trends
Scenario 3
Pessimistic Trends
5.9% increase in
FY ‘10/’11,
5.9% increase in
FY ‘10/’11,
5.9% increase in
FY ‘10/’11,
3.0% increase in
FY ‘11’/’12,
4.0% increase in
FY ‘11’/’12,
2.0% increase in
FY ‘11’/’12,
1.0% annual increase
in future years
3.0% annual increase
in future years
1% annual decrease
in future years
3.0% decrease in
FY ‘10/’11,
3.0% decrease in
FY ‘10/’11,
3.0% decrease in
FY ‘10/’11,
1.0% annual decrease
in future years
1.0% annual increase
in future years
3.0% annual decrease
in future years
2.7% increase in
FY ‘10/’11,
2.7% increase in
FY ‘10/’11,
2.7% increase in
FY ‘10/’11,
3.0% annual increase
in future years
2.0% annual increase
in future years
4.0% annual increase
in future years
2.1% decrease in
FY ‘10/’11,
2.1% decrease in
FY ‘10/’11,
2.1% decrease in
FY ‘10/’11,
5.0% annual increase
in future years
3.0% annual increase
in future years
7.0% annual increase
in future years
Appendix 1
Appendix 1
Scenario 1
Community Mental Health Partnership of Southeastern Michigan
Base Trend Scenario
Historical
FY 09/10
FY 10/11
FY 11/12
Projected
FY 12/13
FY 13/14
FY 14/15
A. Eligible Months Exposed
862,798
913,619
941,028
950,438
959,942
969,541
1
B. Gross Revenue PEPM
$130.90
$126.97
$125.70
$124.44
$123.20
$121.97
C.
D.
E.
F.
G.
H.
Medicaid Use Tax PEPM 2
Revenue Available for Total Costs PEPM (B + C)
Revenue Available for Total Costs (A x D)
Administration Cost
Revenue Available for MH / SA Treatment Costs (F - G)
MH / SA Treatment Cost PEPM
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
Total MH / SA Treatment Costs (A x H) 1
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
J. Surplus / Deficit (G - I, subject to contract limits)
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
(7.77)
$123.13
$106,238,988
5,233,799
$101,005,189
(7.61)
$119.36
$109,052,132
5,375,746
$103,676,386
(7.54)
$118.16
$111,191,868
5,537,018
$105,654,850
(7.47)
$116.97
$111,172,733
5,703,129
$105,469,604
(7.39)
$115.81
$111,170,883
5,874,223
$105,296,660
(7.32)
$114.65
$111,157,876
6,050,450
$105,107,426
$106.23
$104.01
105.61
106.67
108.14
109.38
110.47
$109.21
110.89
112.01
113.55
114.85
115.99
$114.67
116.44
117.61
119.23
120.59
121.79
$120.40
122.26
123.48
125.18
126.61
127.88
$126.42
128.37
129.66
131.44
132.94
134.27
$91,651,189
$95,024,592
96,487,303
97,455,739
98,798,759
99,931,646
100,927,491
$102,769,668
104,350,595
105,404,546
106,853,729
108,077,066
109,149,838
$108,986,725
110,669,001
111,781,013
113,320,723
114,613,318
115,753,844
$115,577,017
117,362,509
118,533,638
120,165,540
121,538,257
122,757,383
$122,569,373
124,459,978
125,710,686
127,436,469
128,890,781
130,180,270
$9,354,000
$7,226,056
6,494,700
6,010,482
4,877,627
3,744,740
2,748,895
$9,354,000
$16,580,056
15,848,700
15,364,482
14,231,627
13,098,740
12,102,895
$6,661,994
I.
3,4
K. Projected Savings / ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
5
L. Suggested ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
M. One Year Maximum Liability
$2,885,182
1,304,255
250,304
(1,198,879)
(2,422,216)
(3,494,988)
($3,517,121)
(5,199,397)
(6,112,517)
(6,882,372)
(7,528,670)
(8,098,933)
($8,096,800)
(8,869,864)
(8,869,864)
(8,869,864)
(8,869,864)
(8,869,864)
($8,869,119)
(8,869,119)
(8,869,119)
(8,869,119)
(8,869,119)
(8,869,119)
$19,465,238
17,884,311
16,830,360
15,381,177
14,157,840
13,085,068
$15,948,117
14,265,841
13,352,721
12,582,866
11,936,568
11,366,305
$7,851,317
7,078,253
7,078,253
7,078,253
7,078,253
7,078,253
($1,017,802)
(1,017,802)
(1,017,802)
(1,017,802)
(1,017,802)
(1,017,802)
$8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
$8,871,541
8,871,541
8,871,541
8,871,541
8,871,541
8,871,541
$8,870,438
8,870,438
8,870,438
8,870,438
8,870,438
8,870,438
$7,851,317
7,078,253
7,078,253
7,078,253
7,078,253
7,078,253
$8,700,476
$8,871,541
$8,870,438
$8,869,864
1
Reflects all Medicaid related components including mental health, substance abuse, SSI, and psychiatric hospital rate adjuster.
2
The Medicaid Use tax equals 6% of revenue.
3
The starting FY 09/10 projected savings / ISF balance of $9,354,000 equals the FY 09/10 ISF contribution of $6,661,994 and the FY 09/10 savings of $2,692,006.
4
5
The projected savings / ISF balance for any given year assumes (1) all surpluses for the year are added to the prior year's savings / ISF balance, (2) all deficits for the year are
subsidized by the prior year's savings / ISF balance, and (3) all the surpluses and deficits for prior year's are assumed to be at expected levels.
The suggested ISF balance for any given year equals the minimum of (1) the projected savings / ISF balance for the year at the given probability threshold and (2) the maximum
allowable ISF balance for the year. BOLD means additional sources of capital would be needed to adequately fund the ISF for the next year assuming expected surpluses or
deficits for the next year.
Assumptions:
-- 5.9% increase in Medicaid eligible months for FY 10/11, a 3.0% increase in Medicaid eligible months in FY 11/12, and 1.0% annual increases in Medicaid eligible months beginning in
FY 12/13.
-- 3.0% decrease in total Medicaid revenue PEPM in FY 10/11 and 1.0% annual decreases in total Medicaid revenue PEPM beginning in FY 11/12.
-- 2.7% increase in administration costs for FY 10/11 and 3.0% annual increases in administration costs beginning in FY 11/12.
-- 2.1% decrease in mental health / substance abuse treatments costs PEPM for FY 10/11 and 5.0% annual increases in mental health / substance abuse treatments costs PEPM
beginning in FY 11/12.
2/16/2012
Milliman
Appendix 1
Scenario 2
Community Mental Health Partnership of Southeastern Michigan
Optimistic Trend Scenario
Historical
FY 09/10
FY 10/11
FY 11/12
Projected
FY 12/13
FY 13/14
FY 14/15
A. Eligible Months Exposed
862,798
913,619
950,164
978,669
1,008,029
1,038,270
1
B. Gross Revenue PEPM
$130.90
$126.97
$128.24
$129.52
$130.82
$132.13
C.
D.
E.
F.
G.
H.
Medicaid Use Tax PEPM 2
Revenue Available for Total Costs PEPM (B + C)
Revenue Available for Total Costs (A x D)
Administration Cost
Revenue Available for MH / SA Treatment Costs (F - G)
MH / SA Treatment Cost PEPM
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
Total MH / SA Treatment Costs (A x H) 1
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
J. Surplus / Deficit (G - I, subject to contract limits)
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
(7.77)
$123.13
106,238,988
5,233,799
$101,005,189
(7.61)
$119.36
109,052,132
5,375,746
$103,676,386
(7.69)
$120.55
114,542,270
5,483,261
$109,059,009
(7.77)
$121.75
119,152,951
5,592,926
$113,560,025
(7.85)
$122.97
123,957,326
5,704,785
$118,252,541
(7.93)
$124.20
128,953,134
5,818,881
$123,134,253
$106.23
$104.01
105.61
106.67
108.14
109.38
110.47
$107.13
108.78
109.87
111.39
112.66
113.78
$110.34
112.04
113.17
114.72
116.03
117.19
$113.65
115.40
116.56
118.16
119.51
120.71
$117.06
118.86
120.06
121.71
123.10
124.33
$91,651,189
$95,024,592
96,487,303
97,455,739
98,798,759
99,931,646
100,927,491
$101,791,069
103,358,840
104,394,519
105,838,768
107,045,476
108,109,660
$107,986,337
109,650,075
110,755,971
112,272,908
113,554,964
114,690,220
$114,562,496
116,326,547
117,495,860
119,108,707
120,469,546
121,679,181
$121,539,886
123,408,772
124,654,696
126,367,842
127,811,037
129,088,109
$9,354,000
$7,226,056
6,494,700
6,010,482
4,877,627
3,744,740
2,748,895
$6,680,196
5,700,169
4,664,490
3,220,241
2,013,533
949,349
$9,354,000
$16,580,056
15,848,700
15,364,482
14,231,627
13,098,740
12,102,895
$23,260,251
22,280,225
21,244,546
19,800,297
18,593,589
17,529,405
$28,833,939
27,170,201
26,064,305
24,547,368
23,265,312
22,130,056
$32,523,984
30,759,933
29,590,620
27,977,773
26,616,934
25,407,299
$6,661,994
$8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
$9,138,677
9,138,677
9,138,677
9,138,677
9,138,677
9,138,677
$9,506,791
9,506,791
9,506,791
9,506,791
9,506,791
9,506,791
$9,890,277
9,890,277
9,890,277
9,890,277
9,890,277
9,890,277
$8,700,476
$9,138,677
$9,506,791
$9,890,277
I.
3,4
K. Projected Savings / ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
5
L. Suggested ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
M. One Year Maximum Liability
$5,573,688
3,909,950
2,804,054
1,287,117
5,061
(1,130,195)
$3,690,045
1,925,994
756,681
(856,166)
(2,217,005)
(3,426,640)
1
Reflects all Medicaid related components including mental health, substance abuse, SSI, and psychiatric hospital rate adjuster.
2
The Medicaid Use tax equals 6% of revenue.
3
The starting FY 09/10 projected savings / ISF balance of $9,354,000 equals the FY 09/10 ISF contribution of $6,661,994 and the FY 09/10 savings of $2,692,006.
4
5
$1,594,367
(274,519)
(1,520,443)
(3,233,589)
(4,676,784)
(5,953,856)
$34,118,351
32,249,465
31,003,541
29,290,395
27,847,200
26,570,128
The projected savings / ISF balance for any given year assumes (1) all surpluses for the year are added to the prior year's savings / ISF balance, (2) all deficits for the year are
subsidized by the prior year's savings / ISF balance, and (3) all the surpluses and deficits for prior year's are assumed to be at expected levels.
The suggested ISF balance for any given year equals the minimum of (1) the projected savings / ISF balance for the year at the given probability threshold and (2) the maximum
allowable ISF balance for the year. BOLD means additional sources of capital would be needed to adequately fund the ISF for the next year assuming expected surpluses or
deficits for the next year.
Assumptions:
-- 5.9% increase in Medicaid eligible months for FY 10/11, a 4.0% increase in Medicaid eligible months in FY 11/12, and 3.0% annual increases in Medicaid eligible months beginning in
FY 12/13.
-- 3.0% decrease in total Medicaid revenue PEPM in FY 10/11 and 1.0% annual increases in total Medicaid revenue PEPM beginning in FY 11/12.
-- 2.7% increase in administration costs for FY 10/11 and 2.0% annual increases in administration costs beginning in FY 11/12.
-- 2.1% decrease in mental health / substance abuse treatments costs PEPM for FY 10/11 and 3.0% annual increases in mental health / substance abuse treatments costs PEPM
beginning in FY 11/12.
2/16/2012
Milliman
Appendix 1
Scenario 3
Community Mental Health Partnership of Southeastern Michigan
Pessimistic Trend Scenario
Historical
FY 09/10
FY 10/11
FY 11/12
Projected
FY 12/13
FY 13/14
FY 14/15
A. Eligible Months Exposed
862,798
913,619
931,891
922,572
913,346
904,213
1
B. Gross Revenue PEPM
$130.90
$126.97
$123.17
$119.47
$115.89
$112.41
C.
D.
E.
F.
G.
H.
Medicaid Use Tax PEPM 2
Revenue Available for Total Costs PEPM (B + C)
Revenue Available for Total Costs (A x D)
Administration Cost
Revenue Available for MH / SA Treatment Costs (F - G)
MH / SA Treatment Cost PEPM
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
Total MH / SA Treatment Costs (A x H) 1
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
J. Surplus / Deficit (G - I, subject to contract limits)
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
(7.77)
$123.13
$106,238,988
5,233,799
$101,005,189
(7.61)
$119.36
$109,052,132
5,375,746
$103,676,386
(7.39)
$115.78
$107,894,340
5,590,776
$102,303,564
(7.17)
$112.30
$103,604,836
5,814,407
$97,790,429
(6.95)
$108.94
$99,499,913
6,046,983
$93,452,930
(6.74)
$105.67
$95,548,188
6,288,862
$89,259,326
$106.23
$104.01
105.61
106.67
108.14
109.38
110.47
$111.29
113.00
114.14
115.71
117.03
118.20
$119.08
120.91
122.13
123.81
125.22
126.48
$127.42
129.38
130.68
132.48
134.00
135.33
$136.34
138.44
139.83
141.76
143.38
144.81
$91,651,189
$95,024,592
96,487,303
97,455,739
98,798,759
99,931,646
100,927,491
$103,710,149
105,303,683
106,366,039
107,829,108
109,059,204
110,149,516
$109,859,874
111,548,181
112,673,718
114,223,639
115,524,466
116,686,907
$116,378,547
118,168,705
119,356,055
121,000,078
122,388,364
123,603,114
$123,280,400
125,179,248
126,436,104
128,181,235
129,646,060
130,939,085
$9,354,000
$7,226,056
6,494,700
6,010,482
4,877,627
3,744,740
2,748,895
($1,406,585)
(3,000,119)
(4,062,475)
(5,525,544)
(6,247,345)
(6,792,501)
($8,266,476)
(8,266,476)
(8,266,476)
(8,266,476)
(8,266,476)
(8,266,476)
($7,938,575)
(7,938,575)
(7,938,575)
(7,938,575)
(7,938,575)
(7,938,575)
($7,623,194)
(7,623,194)
(7,623,194)
(7,623,194)
(7,623,194)
(7,623,194)
$9,354,000
$16,580,056
15,848,700
15,364,482
14,231,627
13,098,740
12,102,895
$15,173,471
13,579,937
12,517,581
11,054,512
10,332,710
9,787,554
$6,906,995
6,906,995
6,906,995
6,906,995
6,906,995
6,906,995
($1,031,580)
(1,031,580)
(1,031,580)
(1,031,580)
(1,031,580)
(1,031,580)
($8,654,774)
(8,654,774)
(8,654,774)
(8,654,774)
(8,654,774)
(8,654,774)
$6,661,994
$8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
8,700,476
$8,608,576
8,608,576
8,608,576
8,608,576
8,608,576
8,608,576
$6,906,995
6,906,995
6,906,995
6,906,995
6,906,995
6,906,995
$0
0
0
0
0
0
$8,700,476
$8,608,576
$8,266,476
$7,938,575
I.
3,4
K. Projected Savings / ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
5
L. Suggested ISF Balance
1. Expected (50% Probability Threshold)
2. 70.0% Probability Threshold
3. 80.0% Probability Threshold
4. 90.0% Probability Threshold
5. 95.0% Probability Threshold
6. 97.5% Probability Threshold
M. One Year Maximum Liability
1
Reflects all Medicaid related components including mental health, substance abuse, SSI, and psychiatric hospital rate adjuster.
2
The Medicaid Use tax equals 6% of revenue.
3
The starting FY 09/10 projected savings / ISF balance of $9,354,000 equals the FY 09/10 ISF contribution of $6,661,994 and the FY 09/10 savings of $2,692,006.
4
5
The projected savings / ISF balance for any given year assumes (1) all surpluses for the year are added to the prior year's savings / ISF balance, (2) all deficits for the year are
subsidized by the prior year's savings / ISF balance, and (3) all the surpluses and deficits for prior year's are assumed to be at expected levels.
The suggested ISF balance for any given year equals the minimum of (1) the projected savings / ISF balance for the year at the given probability threshold and (2) the maximum
allowable ISF balance for the year. BOLD means additional sources of capital would be needed to adequately fund the ISF for the next year assuming expected surpluses or
deficits for the next year.
Assumptions:
-- 5.9% increase in Medicaid eligible months for FY 10/11, a 2.0% increase in Medicaid eligible months in FY 11/12, and 1.0% annual decreases in Medicaid eligible months beginning
in FY 12/13.
-- 3.0% decrease in total Medicaid revenue PEPM in FY 10/11 and 3.0% annual decreases in total Medicaid revenue PEPM beginning in FY 11/12.
-- 2.7% increase in administration costs for FY 10/11 and 4.0% annual increases in administration costs beginning in FY 11/12.
-- 2.1% decrease in mental health / substance abuse treatments costs PEPM for FY 10/11 and 7.0% annual increases in mental health / substance abuse treatments costs PEPM
beginning in FY 11/12.
2/16/2012
Milliman