Pay Me Now, Or Pay Me Later...

Over at Health Business Blog, proprietor David Williams has an interesting post about an insurer that “tells patients how much insurance will cover and how much is the patient's responsibility --right at the point of care.” Apparently, BX of South Carolina has started doing just that. Is this the wave of the future? Check it out.

Tales From The Trenches 1...

There are days…Case in point: Bill and Loni are a nice older couple who’ve recently lost their jobs. Their old employer, XYZ Boxes, was sold to Acme Bags, which laid off most of XYZ’s workforce (gee, THAT hardly ever happens, hunh), including Bill and Loni. Their termination date was June 14, but the coverage was good through the end of the month. Since there were more than 20 employees working at XYZ, they were subject to COBRA.

In any case, they were told that they needed to send XYZ a check for $870 to cover their July insurance premiums. They were given nothing in writing to indicate how that number was arrived at, nor how much of that was for Bill and how much for Loni. In fact, they had literally nothing in writing to indicate that the check would even be used to pay their insurance premium. Nevertheless, they knew that they needed the coverage, so they sent the check.

I first came into the picture last week, when Loni called me for help and advice. Her sister is one of my clients, who referred Loni and Bill to me [ed: call Ripley’s!]. We spoke on the phone a while, and agreed to meet in person to see about options and recommendations. The appointment was yesterday afternoon.

When they arrived, I met a very handsome, mature couple. Bill is 75 and Loni, 63. Bill has a rather problematic health history, while Loni is in pretty good shape. In fact, we quickly decided that she would qualify for a “regular” major medical plan, and moved on to Bill, who posed a more difficult set of problems. For starters, he had not taken advantage of the “window” at age 65 (which would have made a Medicare supplement guaranteed issue), and at age 75 he probably won’t qualify for a plan that will cover what he wants.

In order to have a complete picture, I asked how much of that $870 monthly premium was attributable to each of them. As I indicated above, they had no clue, nor did they have anything in writing regarding their COBRA rights, costs, etc. That’s really not unusual: companies have a 44 day window from the “qualifying event date” to get this info to their former employees, and the clock had really only started ticking a few weeks ago. What did seem unusual to me was the requirement that they (essentially) pre-pay the COBRA premium, with nothing to indicate the validity of the amount.

So I called the Department of Labor, which oversees and enforces COBRA.

At the DOL, I spoke with a very nice, very knowledgeable young lady named Shari, who shared my concern about the oddity of the premium request. We agreed that the best course of action would be for me to call the folks at XYZ, to try to determine what was going on, and to let Shari know if I needed any help after that.

And so, after finishing the call to DOL, I rang up XYZ Boxes. I explained who I was and why I was calling, and was forwarded to the man ostensibly in charge. Once again, I identified myself and the purpose of my call, which was simply to determine how Bill and Loni’s COBRA options were being handled.

It went downhill from there.

Part 2: “I don’t know, and I don’t care.” Or “Yes, please report my company to the Feds!”

Entrepreneurs Beware...

If you’re filed as an S-Corp, then you’ll want to check out Roth & Co’s new posts on IRS audits. Seems that the Infernal Revenooers have launched a new “Research Program” that could increase your chance of being audited. Read all about it here and here.

Grand Rounds...

is up at Pharyngula. This is a great way to "sample" a lot of interesting medblogs. Recommended.

Risky Business, Part 2...

In the first part of this series we learned about what High Risk Health Pools (HRP) are, what they do, and a little about how they work. The Ohio Department of Insurance commissioned a study [ed: your tax $ at work] to determine how such a plan might work here in the Buckeye State.

Conducted by Leif Associates, the study concluded (ALERT: Shocking Conclusions Follow]:

1. An HRP is a “viable option” for Ohio residents who are uninsurable
2. HRP’s charge high rates, “therefore a high-risk pool does not entirely solve the problem of affordability.”

I suspect most people saw that one coming. According to the report, “many states have adopted discount programs to assist low-income participants.” Isn’t that just a fancy way of saying “raised taxes on everyone to help uninsurable folks buy insurance?”

Will it work? That is to say, will it dramatically reduce the number of uninsureds? Well, according to the report, there are about 1.3 million Ohians currently without health insurance. Some of these folks will be eligible for coverage under an HRP plan, and some of those will be able to afford said coverage. Okay, then, how many people are we talking about here? Well, Leif estimates than less than 3,000 folks will purchase coverage through the HRP in the first year (that’s 2 tenths of 1%, for those of you keeping score at home), growing to almost 13,000 in the fifth year (ooooh, 1% of the estimated total number of uninsured).

The report goes on to claim that as many as 15,000 people could potentially be covered (no real definition of “potentially;” could be in 6 years, or 60). And there’s this:

“All high-risk pools lose money,” says the report, which adds “(a)dditional funding from some source is therefore required.” Didn’t we cover that in the 3rd paragraph? Boiled down, the report posits that these “additional sources” are increased taxes, and assessments on insurers. Although the report doesn’t explicitly say so. these assessments would then be passed along in the form of rate increases.

So, how much does all this cost? Leif estimates that individual premiums will come in around $476 per month. Claims and admin costs are projected to be about $976 per, which leaves the state holding the bag on about $500 a month, or $6,000 a year – per participant. Ouch. But there’s good news: by the 5th year, the premium’s expected to rise to about $800 a month, and the shortfall to almost $11,000 a year.-In all, the HRP plan is expected to cost $20 million it’s first year. To cover maybe 3,000 people. That’s over $6,000 per participant. Seems like a pretty hefty price tag for such a small group of people. On the other hand, the report notes that no HRP has yet become unsolvent, and claims that adequate oversight is the key. I’m not so sure I agree with that conclusion, but the report goes on to acknowledge that “the impact of future increasing costs could be minimized by limiting enrollment…reducing benefits…or increasing cost-sharing [premiums].”

For those who want to read the whole thing for themselves, the report is available (in pdf form) here. Be forewarned, though: it runs 67 pages.

My real dilemna here is that I really do like the idea of an HRP, and I really don’t have a better alternative to suggest for covering the uninsurable. I see the potential high costs of the HRP idea, but I also see the here-and-now costs of the current system.

What do y’all think?

UPDATE: Out of Network Emergency Care...

As you may recall, a few weeks ago I wrote about a carrier’s decision to penalize its insureds who received emergency care from non-participating providers.

My understanding was that this was a no-no, and I began a correspondence with the Ohio Department of Insurance about it.

The carrier in question is Anthem Blue Cross/Blue Shield, and I’ve received this answer from the DOI, which says that Anthem’s position is “kosher:”

“(A)n indemnity insurer licensed to do business under Title 39 of the Ohio Revised Code would not be prohibited under applicable Ohio law from implementing the practice described in Anthem's notification.”

In short, plans such as this are not subject to the limitation on Out of Network (OON) penalties.

Now comes word that Anthem won’t implement this change until the first of next year. They can’t resist the cheap shot, though: “(C)urrently there are only two hospitals that offer emergency services in Ohio, Kentucky and Indiana that are not contracted with Anthem in any network. Those are (the) Premier Health Partners hospitals.” Again, punishing your policyholders for something that is absolutely out of their control.

It may be legal, but it just ain’t right.

Sheesh.

Despicable Insurance Sales Idea...

And no, that’s not redundant. Most agents, and most companies are not inherently evil, although a lot may be shortsighted. According to dictionary.com, despicable means: “worthy only of being despised and rejected.” And to which nasty practice do I refer? This one:

"Dear terrorists, new firman issued. Kill 10, take a branded T-shirt and be best terrorist in the group. Jehad begins from July 18-20 – Osama bin Laden.’’

It is creative minds at work at ICICI-Prudential Insurance Company, exhorting local agents to go for a ‘sales kill’. The new strategy was aptly named ‘MissionJehad’.

In a meeting of the company’s agents on Tuesday night, employees were asked to adopt the “binLaden strategy”, ie, one terrorist killing 10 people.

Here, though, jehad meant sale of insurance policies.

As I said, this is absolutely the most disgusting insurance idea I have EVER seen. And in over 20 years in the biz, I've seen a few.

Now, according to A M Best, the “Prudential” in this case is Prudential plc, a British company, and not “the” Pru. Of course, our own Pru has been accused of its share of questionable sales practices over the years, but nothing that approaches this level of depravity.

Does it matter that this took place in (faraway) India ? No. Some home office “leader” saw and approved this, and it reflects poorly on the industry. In fairness, it’s not a story that’s gotten a lot of play in the press (yet?), but I have no doubt that at least some carriers here know about it. I would certainly hope that it is condemned in the industry press.

What causes a presumably successful company to engage in such a practice? Obviously, we don’t know. But I would hazard a guess that it’s a result of a corporate culture of greed. That is, when sales become more important than integrity, abominable ideas such as this begin to surface. Now, that may mark me as naïve, but it doesn’t change the veracity of the statement.

Interestingly, the carrier is called ICICI-Prudential, and it’s a joint venture between a bank and an insurer. Perhaps that’s the root of the problem.

We're STILL with you...

UNION, JACK!

Risky Business, Part 1...

Some 30 states currently have High Risk Pools for those who are considered uninsurable for medical coverage.

And so, you ask?

Well, the Ohio Department of Insurance recently received a rather hefty grant to study whether or not such a plan should be implemented here. In this post, we’ll review how High Risk Pools work in other states, and in Part 2, we’ll look at the results of Ohio’s study.

According to the National Association of Health Underwriters, High Risk Health Pools (HRP’s) “provide an important safety net for people with catastrophic medical conditions who do not have access to employer-based group health insurance, such as early retirees, self-employed individuals, and employees of businesses that do not offer health insurance coverage. In addition, in most states, high-risk pools serve as the guaranteed-issue purchasing option for individuals who wish to exercise their federal group-to-individual health insurance portability rights as provided by the federal Health Insurance Portability and Accountability Act of 1996.”

Currently, if an Ohio resident is uninsurable, there are few choices. If one is a Federally Eligible Individual, or one has been declined for individual medical coverage, there is a state-mandated “Open Enrollment” (guaranteed issue) plan. This plan comes in two flavors: mediocre but expensive, and expensive but mediocre. Your choice. There are also some guaranteed issue/limited benefit plans, and some non-insurance alternatives. None of these are adequate substitutes for real, comprehensive major medical insurance.

An HRP seems like a good solution to this conundrum. For one thing, the plans available in HRP states offer coverages that are comparable to what’s available on the open market, and many offer PPO plans to help bring down the cost of care. Apparently, some also offer prescription drug and maternity benefits, which seem to me to be self-defeating, in that these would help drive that cost back up. Of course, those purchasing insurance through such a mechanism will pay more, but the amount of any surcharge is usually capped at something that approaches a reasonable amount.

One item which seems to be under the radar, but is vitally important to the success or failure of such a plan, is how pre-existing conditions are treated. If there’s no waiting period before such conditions are covered, we’re back to buying insurance in the back of the ambulance on the way to the hospital. But if there is some reasonable (there’s that word again!) period of time that one must be covered before such conditions are eligible, then the system at least has half a chance.

But at what ultimate cost?

According to Communicating for Agriculture, in the 32 states which have HRP’s in place: 181,411 people were enrolled in these plans. Total premiums of $793 million were paid in, while over $1.2 billion in claims were paid out.

Ouch!

It's estimated that the administrative costs of the plans totaled about $75 million, leaving a $540 million deficit. In short, each participant actually costs about $3,000 to insure; their premiums cover about 60%, which means the average monthly premium is about $150. Hmmmm. The remaining 40% shortfall is covered by the states "using various methods" (I.e. taxes or carrier assessments. Or both).

Does this mean that the idea lacks merit? No, I don’t think so. But the figures cited indicate that each state’s pool is (on average) only covering about 5,000 or so people. That doesn’t seem like a rousing success. While the concept of HRP seems valid, I’d be interested in seeing how this really makes a significant dent in the number of uninsureds, which is estimated at about 40 million nationally, or about 800,000 per state.

One other interesting factoid is that a number of HRP states have now expanded their plan options to include HSA’s. As we learned from the HSA/HRA series, this type of plan seems very attractive to those folks currently without coverage. Perhaps this is what’s necessary to make significant inroads.

In Part 2, we look at the results of the study.

Tuesday Update...

Grand Rounds is up over at AggravatedDocSurge. The Doc did a particularly good job with this weeks 'Rounds -- recommended.

Okay, Just One More on HSA and HRA...

Recently, I received this email from a colleague, whose nom-de-plume is smansfield. He’s graciously allowed me to share it with you:

I love the concept of the HSA, but it appears that the QHDHP's [ed: Qualified High Deductible Health Plan] for both individual and group don't seem to offer any real savings. I can't help but think that these carriers have the pricing structure all wrong
for these plans.

I just met with a 13 person group.

They have a plan with UHC that was/is a $1,500 deductible. The renewal came in June and they decided they were going to go with a higher deductible to save on premiums. The new plan they decided on with UHC was an HSA plan with a $2,850/$5,600 deductible (although they had no idea it was an HSA plan they switched to). The new premium, $7,200 per month. They actually thought they were getting a plan that paid 100% for doctor visits. I kindly explained to them that they had no benefits until the deductible was met. So they hurriedly switched back to the $1,500 deductible prior to the end of June (renewal month). Now the premium is just over $9k per month.

So I simply show them a similar plan with another carrier for under $7k per month. My point is, they get a $1,500 deductible with dr. copays, prescription copays, etc for less than the QHDHP with a $2,850 deductible. If only the original writing agent had serviced this account, he wouldn't be losing it.

Until carriers can price these plans so that the individual or employer can see a tangible benefit, they will only have limited success. I'm not saying that the plan has to be so inexpensive that the difference in premium fully funds the HSA, but they have to get it lower.

Just my 2 cents.

Well said, and Thank You!

Wow! Now *That’s* Getting Results…

Over at Health Business Blog, proprietor David Williams recently excoriated the Bush administration for it’s underwhelming commitment to VA funding.

That was two weeks ago.

Today, the Wall Street Journal had this to say:

"Less than two weeks ago, the administration asked for an extra $975 million for this summer. Now the VA estimates it needs another $300 million prior to Sept. 30 and as much as $1.7 billion -- on top of the president's budget request -- for fiscal 2006."

The VA system is one which doesn't get a lot of play in the blog world (well, at least in my little corner of it). David's post is important, in that it heightens our awareness of that system. Thanks, Dave!

Lagniappe: I Stand Corrected (Sorta)

In the first post of my recent HRA-HSA series, I stated that there were no hard numbers identifying just how many HSA plans had been sold to date. That statement was made based on an exhaustive search of relevant government sites, but I failed to take into account the resourcefulness of my own industry.

To wit: America’s Health Insurance Plans (the carriers’ association and lobbying group) has completed a survey of their membership, and found some surprising information. According to AHIP’s report, more than a million Americans are covered by HSA-eligible medical plans. This represents a more than two-fold increase over the number of such folks only 8 months previously.

Even more remarkably, the study indicates that some 37% of those purchasing these plans were previously uninsured; that’s one good way to lower the overall number of uninsureds. And over a quarter of the group HSA plans were sold to employers who had not previously offered medical coverage.

Another common misconception with High Deductible Health Plans (HDHP) is that they’re only attractive to young, healthy individuals. But the study showed that almost half of the purchasers were over 40 years old (not exactly Medicare-fodder, but not quite spring chickens, either).

These are, of course, numbers reported by carriers, and not the gummint, so they may or may not reflect the true picture. But they’re instructive, nonetheless. My only real beef is with two numbers that are not reported:

First, there’s no breakdown by income level. This is important, because one of the objections to MSA/HSA has been that they appeal primarily to the affluent, and are typically rejected by “Joe Sixpack.” It would be nice to test the accuracy of that claim.

Second, while there are plenty of premium figures tossed around, there’s no way to tell the difference between what a group paid last year for their generic co-pay plan and how much they save (and are putting into accounts) by switching.

If and/or when those numbers become available, I’ll let you know.

HSA and HRA: Some Conclusions...

Well, that was certainly an interesting exercise: I’ve never done a 3-parter before. Any feedback is, of course, quite welcome.

Given the lengths of the previous posts, I’ll try to be brief in summation. First, it seems to me that the most important lesson to take away from this whole “debate” is that one needs to ask questions. Lots and lots of questions. Ultimately, whether you’re an employer or an employee (or self-employed, in the case of HSA), you’re going to have to live with the decisions, and its consequences, for a while.

Second, it’s critical that one avoid confusing the benefits and drawbacks of each program. The HSA certainly has an appeal to the employee, in that – by staying healthy, and exercising good judgment in health-care purchases – said employee stands to collect a nice windfall. On the other hand, an employee covered under an HRA can look forward to generally lower gross out-of-pocket expenses.

From the employer standpoint, both programs seem pretty equally matched. The HDHP that is the hallmark of the HSA can result in substantial premium savings. But the HRA obviates the need to set up funded, vested accounts for employees. And, in many ways, it’s a simpler plan to understand.

At its core, the biggest drawback to the HRA is that it seems to reward those employees who experience larger (or more frequent) claims. That is, the only way to access the extra funds that now reside in the employer’s pocket (i.e. the savings enjoyed from upping the deductible, etc) is to have a large claim, or more smaller ones. I’m not convinced that this is a positive.

My biggest beef with the HSA is the carriers really don’t price it effectively: there should be a much more dramatic difference between the High Deductible plans and the generic co-pay plans they’re designed to supplant.

Thanks for patiently slogging through all these posts, and a Special Thank You to Joe Kristan at Roth & Co for the nice links.

In case you missed 'em: Part 1 here, Part 2 here, Part 3 here

Monday Update...

Grand Rounds is up at Shrinkette's site. Check it out.

“Real Life” with HSA and HRA…

[UPDATE: I've corrected some of the numerical assumptions in the HSA section]

Okay, enough with the theory, let’s talk turkey. One of my small group clients asked me about changing their plan to an HSA. Let’s review some basic information of how this group’s plan currently works:

A small professional practice, 8 people work at the XYZ Company. Their current plan is relatively rich, with $10 office visit co-payments and a modest $500 annual deductible per person for “the big stuff.” Once the deductible’s met in a given year, the plan pays 80% of the next $5,000 of covered expenses, leaving any one person with a maximum exposure of $1,500 in a year. There’s a family maximum of two on the deductible and co-insurance. This means that, even if all 4 members of a particular family have major claims in a year, the family’s only responsible for $3,000, not $6,000.

There’s also a prescription drug card, with $10 co-pays for generics and $20 for brand names. All in all, a decent enough plan, maybe a little benefit rich, and therefore pricey, but you get what you pay for. The current monthly premium for this group is a little over $3,100.

Now, to keep things manageable, we’re going to be looking at only two alternatives. The first is the HRA; simply by increasing the deductible to $1,000, and the co-insurance participation to $1,250, the employer would save over $300 a month, or about $4,000 a year, in premiums; each covered person would have an additional $750 of potential claims participation (subject, of course, to the two per family maximum).

In its simplest form, an HRA would obligate the employer to pay (or help pay) the additional $500 added to the deductible. There are eight employees, and an additional 4 or 5 dependents (spouses, children) in this group, so we’re talking a total of a dozen or so warm bodies to be covered. On average, maybe 4 of them will have claims exceeding $500 (the original deductible) in a given year, so the employer could conceivably pocket about $2,000 in savings in this scenario. And the employees still have their office and drug card co-pays.

With the HSA, we’ll need to make more substantive changes. We’ll be bumping the individual deductible up to $1,250, and the family deductible to $2,500. We’ll also be doing away with the office visit co-pays and prescription drug cards. In other words, pretty much everything medical will be going toward the deductible until it’s satisfied. On the other hand, we’re also getting rid of the 80/20 coinsurance: once that deductible is met, the plan pays 100% -- nice. This part alone is worth the price of admission, because no one understands co-insurance.

One interesting “twist” on that deductible: a “family” is defined as two or more covered people (could be husband and wife, or single parent, or whatever), and they kind of “pool” the deductible. That is, whatever expenses any one of them has goes towards it, until the $2,500 is hit. Could be one person with a heart attack, or 3 with broken arms. Once the $2,500 threshold is met, everyone’s at 100%. The group’s premium for this plan is about $2,500, representing a $7,000+ annual savings for the employer.

Well, sorta.

Each employee is actually decreasing his potential claims exposure by $250 a year, and each family by $500. However, this comes at the expense of the 1st dollar benefits (office and rx co-pays). In order to mitigate this, the employer could contribute $50 per month for each "single," and $100 for each "family". This group has six with individual coverage, and two with family. So the employer would be contributing up to $3,600 for the singles (6 x $600), and $2,400 (2 x $1,200) for the families. This reduces the net savings to $1,000 per year.

That’s money he’ll have to spend, and which the employees would then “own.” Not necessarily a bad thing, but it changes the equation. All of a sudden, that $7,000 savings starts to go away. Granted, he doesn’t have to be that generous; he could, for example, choose to contribute less to to the accounts. But still…

Next time, some conclusions, and suggestions.

We're with you...

UNION, JACK!

OT, but important...

In Ohio, the law says that, in an emergency, one should go to the nearest facility, regardless of whether or not it’s in-network. In fact, the law says that one’s insurance carrier must cover the treatment in such a case as if it was in-network, even if it’s not.

“Emergency” is defined under the “prudent layperson” rule: “a prudent layperson is someone with average knowledge of health and medicine.” In other words, even a rocket scientist could be a prudent layperson, as could I.

The definition continues:

“An emergency is a condition of such strong pain and severe symptoms that a prudent layperson could reasonably expect that a lack of immediate attention would

- Place the person’s health in serious risk;

- In the case of pregnancy, place the baby’s health in serious risk;

- Cause serious damage to bodily functions; or

- Cause serious damage to an organ or other body part."

In such a case, one’s “managed care plan [HMO, PPO, etc] must pay your medical bills for that emergency, no matter where you receive the services…In an emergency, you should go to the nearest hospital, even if " it’s out of network.

Pretty straightforward: If there’s an emergency, you go to the nearest facility, get treated, and pay as if you’re in-network. On the one hand, it doesn’t mean the care is “free:” you might still have deductibles, co-pays, etc. But you’re not subject to out-of-network penalties, either.

Or so I’ve understood for lo these many years. But I received an email today from a carrier, which shall remain anonymous (for now), which seems to fly in the face of long-established health care procedure and knowledge. Because this carrier has been unsuccessful in coming to terms with several local hospitals, it has decided to punish its own customers. To wit:

“When a member receives emergency care at an non-contracted hospital, [Carrier X] will pay for the services at the in-network level subject to a maximum allowable amount…If a non-contracted hospital charges the member more than this amount, the member will be responsible for the difference.”

[note: I am deliberately withholding the url until the matter is resolved]

See the problem here? Me, too.

One thing that I have never been called is a shrinking violet (or shrinking anything, really). So I just had a nice conversation with the helpful folks at the Department of Insurance, who were also quite concerned. I've forwarded this email to them so that they can look into the matter with a bit more “ammo.”

I’ll let you know how things turn out.

HSA’s and HRA’s, Part Deux…

So what, exactly, is an HRA? Well, it’s a tax-advantaged Health Reimbursement Arrangement that allows an employer to reimburse employees (and/or their dependents) for some of their medical expenses. In this regard, it’s similar to the Health Savings Account (HSA), because it means that the employer can help the employee by cushioning the blow on a major claim. And, the same kinds of expenses that are approved for reimbursement on an HSA plan are okay for HRA, as well.

So what’s the difference? It really comes down to who contributes the money for reimbursement, and who ultimately owns that money.

In an HSA, either the employer or the employee (or both) can contribute to the “rainy day” account, but – no matter what – the employee “owns” whatever money is in that account, and is free to spend it however he chooses (subject, of course, to potential wrist-slapping if the funds are misused). Whoever makes the contribution gets the tax deduction (again, could be both). The type of insurance plan that can be used with an HSA is dictated by the government, so there’s not much flexibility in plan design. And, of course, HSA’s are available to both groups and individuals.

With an HRA, though, only the employer can contribute the funds. The employee doesn’t ever own them, because it’s not an “account,” it’s an “arrangement.” That’s not splitting hairs, because the point is that the employer decides (“arranges”) what claims will be reimbursed, as opposed to just dumping money into some bank account. HRA’s are available only to groups, not individual plans, and offer a lot more flexibility. For one thing, there’s no governmental regulation over what kind of plan is used, so an employer has more choices. For another, HSA plans require that, if the employer is making a contribution, he has to contribute like amounts to everyone in the pan. There are no such rules for HRA’s.

In Part Three, we’ll look “under the hood,” to see how each plan works in real life.

July 4th Update...

Lest anyone fret, I'm taking some family time over the long weekend.

InsureBlog will be back on Tuesday the 5th with a new installment on HSA's vs HRA's.

Have a great 4th!