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AIS's Health Business Daily
Featured Story September 5, 2008 Patients Hit Benefit Maximums, but Care Charges, Cost-Shifting Is Heart of the Problem Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. Patient advocacy groups are prodding insurers to boost the lifetime benefit maximums for insurance policies, and are helping to publicize cases of patients who have exceeded their caps. Such patients typically are forced to pay for health services out of their own pocket. The Health Insurance Coverage Protection Act (S.2706) would prohibit a group health plan from imposing an aggregate lifetime benefit limit of less than $5 million for the first two plan years and $10 million for the third and fourth plan years. The bill was introduced in March by Sen. Byron Dorgan (D-N.D). But health plans, actuaries and reinsurers tell HPW that raising caps or eliminating them altogether would lead to higher premiums. The cost of health care services as well as hospital cost shifting, they contend, is at the heart of the problem. At a recent briefing sponsored by the Washington, D.C.-based Council for Affordable Health Care, several reinsurers told attendees that their high-dollar claims had increased by a factor of 10, according to CAHI Director Merrill Matthews, Ph.D. While a $1 million lifetime limit has been common for years, he says, some health plans are considering higher lifetime limits for their products. "In the past, our actuaries have said that [lifetime benefit caps] affected such a small number of people that it is not a health policy issue. But that could be changing," he tells HPW. A 2007 study conducted by The Henry J. Kaiser Family Foundation found that 55% of covered employees are enrolled in plans that set a lifetime limit on the amount of benefits a plan will pay. Only about 1% of covered workers, however, have a limit of less than $1 million (single coverage), while 22% have a limit of between $1 million and $2 million. A similar employer survey conducted by Watson Wyatt found that 50% of employers capped lifetime health benefits at $1 million or less. About 30% of employers capped their lifetime benefits at between $1 million and $2 million, and 20% had a limit of at least $2 million or had no cap at all. Aetna Inc. says that about half of its large, self-funded clients select a benefit plan that does not have a lifetime maximum. Of the customers that do have lifetime maximums, the caps can range from $1 million to $5 million. All of Aetna's individual policies have a lifetime maximum, mostly $5 million. Some "Preventative & Hospital" plans carry a $1 million lifetime maximum, but the amount can vary by state. "Having these caps enables us to keep premiums lower for our customers, increasing access to care at competitive rates. Removing lifetime caps for those who currently have them would drive up premiums, says Aetna spokesperson Matt Wiggin. "With or without lifetime maximums, the fact that some medical services and prescription medications can cost hundreds of thousands of dollars per year needs to be addressed." Caps Haven't Matched Trend Over the past six years, ING Reinsurance says, it has seen an increase in the number of million-dollar claims. The three most frequent diagnoses for these high-dollar claims, according to the company, are (1) premature infants, (2) congenital defects and (3) cancer. The company acknowledges that an increased number of enrollees is reaching their lifetime benefit caps but was unable to offer specifics. According to Alden Skar, managing actuary at ING, lifetime benefit maximums have failed to keep pace with health care inflation. "If trend has averaged 7% since 1975, you would need a $10 million limit to buy the same coverage as a $1 million limit bought in 1975," he says. "Employers may be making the conscious choice to not increase the limit as quickly as medical inflation. As a response to the high cost of providing health benefits, many employers are making the difficult choice to either eliminate their health plan entirely, or offer a more affordable plan, such as a limited-medical product." Skar adds that while few claimants surpass the $2-million mark, he says "it is only a matter of time." While limits haven't necessarily kept pace with health inflation, Skar says there has been a trend toward increasing limits "both in what employers are requesting and in what health plans are offering." Most people don't know how vulnerable they are until they face an expensive illness, says Paul Ginsburg, Ph.D., president of the Washington D.C.-based Center for Studying Health System Change (HSC). And employers typically don't question lifetime limits until an employee or family member hits or exceeds that limit, adds Randy Abbott, an employee benefits consultant in the Boston office of Watson Wyatt. "We are seeing a renewed recognition among employers that this is an issue," he says. "But raising the limit on benefits does have an effect on premiums, and that increase typically is passed on to enrollees in their share of premiums costs, he adds. Increasing the lifetime maximum from $1 million to $2 million is likely to increase premium rates by about 2%, he says. Eliminating the cap altogether would likely boost premiums by 5%. But premium cost is only one consideration. The other is managing risk for the benefit plan, he says. Abbott warns that eliminating benefit caps altogether could be a mistake for employers because they then lose control of their ability to limit costs and assume an unlimited risk. Instead, he says, employers should work with their health plan to periodically evaluate lifetime limits and increase them as needed. Abbott says health plans should help educate their employer clients about the effect the rising cost of health care could have on lifetime limits. Reinsurers Report Hospital Cost Shifting "Insurance companies get a bad rap" when enrollees exceed their lifetime benefits and are left to cover expenses on their own, says a registered nurse who works for a reinsurer. The RN, who asked not to be identified, suggests that standards for hospital billing practices be established. The problem, she explains, is that hospitals "aren't held accountable for charging a dollar for a dollar's worth of care since there are no regional or national established fee schedules for hospitals." Hospitals, she adds, often charge hundreds or thousands of dollars for a dollar's worth of care. It's not uncommon for some hospitals to tack on more than a thousand dollars a day for nursing care, something the RN contends should be a part of the base room rate. Another problem is pharmaceuticals, which can be marked up by 400% to more than 600%. Such a markup on specialty drugs can add thousand of dollars a day to a hospital bill, she tells HPW. But such mark-ups are less of a problem for large, insurers that can guarantee volume for a hospital, the RN explains. Commercial insurers typically pay hospitals a percentage of billed charges. While a typical regional insurer might pay a discounted rate of between 12% and 22%, she says, some large insurers are able to get discounts of as much as 50% to 80%. She cites a $700,000 discount that a large health plan recently received on a $914,000 hospital claim. While more enrollees are reaching caps of $1 million, an underwriter for a reinsurer, who also asked not to be identified, tells HPW that exceeding a $2 million lifetime limit remains rare. She adds, however, that a child with hemophilia could use as much as $1 million a year in health services. Prices for implantable devices, such as knee joints, surgical screws and pacemakers, are often marked up by as much as 500%, she says, adding that she has seen hospitals charge as much as $1,000 for a single surgical screw. "Some hospitals
do charge a dollar for a dollar's worth of care, but they are far and
few between," says the RN. "The bottom line is that it won't
matter if you have a $1 million benefit or a $5 million dollar benefit
if we don't start to regulate what hospitals can charge for care."
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