BUDGET VARIANCE REPORT As of: December 31, 2010 SABHRS Reports

Transcription

1 BUDGET VARIANCE REPORT As of: December 31, 2010 SABHRS Reports The Variance Report for the quarter ending December 31, 2010, will explain significant variances between the MSF approved budget and projected annual expenditures based on actual expenditures recorded. NET EARNED PREMIUM (NEP) VARIANCE: Original Projected NEP -2Q Projected NEP (Unaudited) Variance of Original NEP over 2Q NEP 2Q NEP as Percent of Original NEP $153,940,603 $163,622,193 $9,681, % The net earned premium (unaudited) projection is $163.6 million. Net earned premium is projected to be 6.3% more than the $153.9 million Strategic Business Plan estimate. The annual net earned premium projection based on 2 nd quarter results is a $2.6 million or 1.6% decrease from the FY10 NEP of $166.3 million. EXPENDITURE VARIANCE: Projected Net Under Percent of $184,928,431 $166,915,055 $18,013, % Overall, MSF is projected to be $18 million under budget. The following are the variances projected on the major expenditure categories for : New Fund Benefit payments to Injured Employees $16,424,804 under budget. Old Fund Benefit Payments to Injured Employees - $1,278,486 under budget. Operating (personal services, operating expenses, equipment and intangible assets, and allocated loss adjustment expenses) $310,086 under budget. Benefit Payments Projected benefit payments to injured employees, including the New Fund, Old Fund, and Other States Coverage, are $119 million, as compared to a budget of $136.7 million. The $17.7 million under budget variance equates to 12.9% under budget. The budget variances for these items are: Projected Variance (Over) / Under Percent of MSF Benefits $126,461,855 $109,800,628 $16,661, % Other States Coverage 575, ,623 (236,423) 141.1% Old Fund Benefits 9,678,409 8,399,923 1,278, % Total $136,715,464 $119,012,174 $17,703, % - 1 -

2 The primary reasons for the variance to benefit payments are: Montana State Fund (New Fund all accident years) MSF New Fund benefit payments, excluding the Other States Coverage program, are projected to be $16.7 million under budget. This is based on - 2 nd quarter actual benefits paid and projected for the entire fiscal year. The under budget variance is primarily the result of lower indemnity payments. The projected annual variance will likely fluctuate as the year progresses due to the circumstances of individual claims which drive the aggregate projection. Indemnity claim benefit payments are projected to be $41,259,478 on budget of $53,154,543. This is $11,895,065 or 22.4% under budget for the year. MSF indemnity benefit payments through the 2 nd quarter of reflect a $6.1 million or 23.1% decrease when compared to 2 nd quarter FY10 actual expenditures. For the budget, an annual increase in indemnity benefit payments from FY10 actuals of 4.3% was planned. Through the 2 nd quarter of there are significant decreases in the following indemnity expenditure categories and settlement activity in comparison to the 2 nd quarter of FY10. Variance $ Incr/(Decr) from FY10 Variance % Incr/(Decr) from FY10 Indemnity Category -2Q FY10-2Q Permanent Total $2,925,768 $5,391,973 ($2,466,205) (45.7%) Temporary Total $6,304,623 $7,291,146 ($986,523) (13.5%) Impairment Awards $3,210,440 $4,135,171 ($924,731) (22.4%) Permanent Partial $2,308,801 $3,505,621 ($1,196,820) (34.1%) Compromised and Released Settlements $2,496,145 $2,889,376 ($393,231) (13.6%) The second quarter, cumulative indemnity benefit payments are tracking just below the low side of the indemnity payment range developed by the Internal Actuary. Medical claim benefit payments are projected to be $68,541,150 on budget of $73,307,312. This is $4,766,162 or 6.5% under budget for the year. MSF medical benefit payments through the 2 nd quarter of reflect a 0.9% decrease when compared to 2 nd quarter FY10 actual expenditures. For the budget, an annual increase in medical benefit payments from FY10 actuals of 2.6% was planned. The year to date actuals include a litigation settlement of $995,000 to a previous pharmacy benefit manager. The second quarter, cumulative medical benefit payments are tracking within the medical payment range developed by the Internal Actuary. Other States Coverage Indemnity and medical benefit payments of the Other States Coverage program are projected to exceed budget by $236,423. Total projected expenditures are $811,623 on budget of $575,200. The budget was based on a lower loss ratio for - 2 -

3 OSC than the program is experiencing. Year to date actual expenditures have exceeded the budget by almost $90,000 for the first five months. This level of payments is expected to continue for the remainder of the fiscal year. Old Fund Old Fund benefit payments are under budget by $1,278,486 or 13.2%. The budget is $9,678,409 and projected expenditures are $8,399,923. As of December 31, 2010 there were 898 open Old Fund claims. The variance to budget varies by indemnity and medical categories. Indemnity claim benefit payments are projected to be $2,277,084 on budget of $2,260,815. This is $16,269 or 0.7% over budget for the year. Old Fund indemnity benefit payments through the 2 nd quarter of reflect a 12.6% increase when compared to 2 nd quarter FY10 actual expenditures. For the budget, a 6.6% increase from the FY10 actual indemnity benefit payments was planned. Based on the historical trend, Old Fund indemnity payments are expected to decrease marginally in the second half of the fiscal year. Medical claim benefit payments are projected to be $6,122,839 on budget of $7,417,594. This is $1,294,755 or 17.5% under budget for the year. Old Fund medical benefit payments through the 2 nd quarter of reflect a 2.6% decrease when compared to 2 nd quarter FY10 actual expenditures. For the annual budget, a 10.2% increase from the FYE actual medical benefit payments was planned. Operational Expenses Operational Expenses (personal services, operating expenses, equipment and intangible assets, and allocated loss adjustment expenses) are projected to be $47,902,881 on a budget of $48,212,967. The net $310,086 under budget equates to a 0.6% under budget variance. Projected Variance (Over) / Under Percent of Personal Services $22,314,019 $22,553,047 ($239,027) 101.1% Operating Expenses 21,151,395 20,775, , % Equip. & Intangible Assets 141, ,136 18, % Allocated Loss Adjust. Exp. 4,606,553 4,452, , % Total $48,212,967 $47,902,881 $310, % The net under budget variance on Operational Expenses is primarily a result of: Personal Services $239,027 over budget. $22,314,019 was budgeted and the projected expense is $22,553,047. The budget is projected to be 1.1% over expended. The over budget variance is primarily due to the change in the budgeted vacancy savings rate and having fewer vacant positions in comparison to last year. For MSF reduced - 3 -

4 15.00 FTE from the FY10 authorized FTE and increased the budgeted net vacancy savings rate to 2.6% from 2%. Non-budgeted termination expenses have also been incurred. Operating Expenses $375,888 under budget. $21,151,395 was budgeted and the projected expense is $20,775,507. The budget is projected to be 1.8% under expended. This is the net impact of a number of budget variances with the largest two budget variances being Commissions and the State Wide Cost Allocation Plan. Commissions $169,596 over budget. Projected Variance Under / (Over) Commission Type Base $8,776,906 $9,124,582 ($347,676) Incentive 1,754,646 1,576, ,080 Other States Coverage 107, ,640 0 Total $10,639,192 $10,808,788 ($169,596) The total commissions budget is $10,639,192 and $10,808,788 is projected to be expended. The budget is projected to be $169,596 or 1.7% over expended. Base commission expenses correlate with estimates on the amount of premium, the amount of premium represented by agents, and the average commission. However, variations from these estimates exist as actual commission expenses are recorded when MSF receives a premium payment on an agent represented policy regardless of policy period. The NEP projection has increased 6.3% from the budget estimate and commissions are projected to be over budget as well. Base Commissions are projected to be over budget by 4.0% or $347,676. As of 1/3/11, MSF s business represented by agents was 67.7%. Actual base commissions paid were $4.9 million. The agents incentive commission expense is projected to be under budget by $178,080 due to the clearing of the balance of the FY10 agents incentive commission accrual. The Other States Coverage commissions remain unchanged from the budgeted amount. Statewide Cost Allocation Plan (SWCAP) $233,416 under budget. The total budget is $326,736 and $93,320 or 28.6% of the budget is projected to be expended. The budget was based on the Office of and Program Planning s (OBPP) biennial Fixed Cost Report which provided the estimated SWCAP expense calculated by the Department of Administration. The SWCAP undergoes a federal review process that encompasses the state s cost allocation plans back to As a result of this review it was determined that MFS had a credit from prior years and the SWCAP expense was significantly reduced. MSF s FY10 SWCAP expense was $353,

5 Other Variances $97,803 under budget - All recruiting expenditure categories $50,000 over budget - Non-budgeted funds provide to WorkSafe Montana Allocated Loss Adjustment Expense (ALAE) $154,361 under budget. The total budget is $4,606,552 and $4,452,191 or 96.6% of the budget is projected to be expended. The following are the significant variances from budget. Investigation and Prosecution - $83,051 under budget. The total budget is $999,335 and $916,284 or 91.76% of the budget is projected to be expended. This includes services of private investigators and the services of the Montana Department of Justice. The under budget variance is due to the use of Dept. of Justice investigative services on two employer fraud investigations instead of the budgeted claims investigations and reduced cost for private investigation services. At the end of the 2 nd quarter of, there had been 211 claims assigned to investigators as compared to 224 claims at the end of the 2 nd quarter of FY10. This is a 5.8% decrease. Medical Invoice Processing - $287,768 under budget. The total budget is $2,259,891 and $1,972,123 or 87.3% of the budget is projected to be expended. Medical Consultants - $194,449 over budget. The total budget is $62,571 and $257,020 is projected to be expended. MSF altered the contract with Montana Health Systems associated with medical advisor's time to complete treatment reviews and precertifications