Although some members of Congress want to force insurers to boost the lifetime benefit maximums for insurance policies, carriers are divided on whether coverage caps should be increased. Some contend that raising lifetime caps will only boost premiums without a corresponding improvement in outcomes. But others argue that lifetime caps have failed to keep up with underlying medical cost inflation, leaving enrollees underinsured.
The Health Insurance Coverage Protection Act (H.R. 1085), introduced Feb. 13 by Rep. Anna Eshoo (D-Calif.), would amend the Employee Retirement Income Security Act (ERISA) to require group health plans to have aggregate lifetime benefit limits of at least $5 million for the first two plan years, $10 million for the third and fourth plan years and adjusted amounts based on the Consumer Price Index for subsequent plan years. The bill would exempt “small” employers. H.R. 1085 on March 30 was referred to the House Subcommittee on Health, Employment, Labor, and Pensions. No one interviewed by HPW would speculate on the bill’s chances of passage.
Raising the lifetime benefit maximum “is going to help a very, very small percentage of people maintain care,” contends George Stadtlander, vice president of the individual and small-group market and chief underwriter at Medical Mutual of Ohio (MMOH).
“Why have many, many carriers been slow to increase the limits, and why have employers been slow to ask for those increases? Because, simply, they don’t believe everyone should live in a million-dollar house — and who’s going to pay for it?” he says. Ultimately, the group plan sponsor and the individual enrollee bear that cost, he contends.
But because lifetime maximums have not kept up with medical cost inflation, the value of enrollees’ benefits is eroding, warns Alden Skar, vice president and managing actuary at ING Reinsurance. “The frequency of claim activity in excess of $1 million has increased dramatically,” he says.
Premature births and congenital abnormalities together are the biggest driver of high-dollar claims, representing “somewhere between 30% and 40% of all claims that reach $1 million,” according to Skar. “Next are cancers and cardiac-related claims.”
Double-digit growth in medical costs has led to a sharp increase in the number of people who are incurring more than $1 million in medical costs, he adds. “Say that in 2000, a health plan expected that one member would have medical costs reach the $1 million level. In 2008, that same health plan should expect between 10 and 20 members to reach $1 million in medical expense, even with no change in membership.”
The expected cost to increase a lifetime maximum from $2 million to $5 million “is relatively small,” Skar says. “It might be, say, 1% of premiums.” But the volatility of such medical claims could push premiums higher. “You could go several years with zero claims, and then suddenly have an $8 million claim. That’s going to represent a significant blow for any health plan,” Skar says. As a result, “actuaries are going to take into account not just the expected claims but also the volatility around it, and build in extra margin,” perhaps increasing premiums by 1.5% or 2%, he contends.
Health plans “are aware that there’s more exposure there, but they’re not increasing their lifetime maximums to keep up,” Skar says. “The self-funded employers are leery of taking that risk [for high-value claims], and the insurers are leery of taking that risk. Unless there’s something [like a federal law] that pushes that along, I think there’s going to be this continuation” of reluctance to increase the lifetime maximum.
Skar predicts that enacting a minimum benefit cap requirement could lead to erosion of coverage. “There would likely be some employers and health insurance companies that would say, ‘That’s too risky for us and we just don’t want to participate.'”
MMOH Boosts Lifetime Maximum
MMOH has increased the lifetime maximum on its individual products from $2.5 million to $7.5 million, Stadtlander says — but the move, which is effective as of June 1, was driven by the competition. “Other carriers started to raise the lifetime max, so we responded,” he explains.
The lifetime maximum “is a benefit that consumers really understand,” he says. “It’s very hard to understand a drug benefit that has a four-tier benefit with a fixed copay and coinsurance with annual maxes. But it’s easy to understand [that] my plan has a $5 million annual max — it’s a better policy.”
“It did not cost us a lot to do it,” he says. “The cost of adding a million on a million [dollar lifetime maximum] is relatively small. And the cost of adding a million on $5 million is even more remote.” But, he adds, “it’s a very small amount — until you start having claims.…It seems like a real good idea until you have a $7 million claim.”
Stadtlander is opposed to the bill that would require insurers to boost lifetime maximums. “On one hand, the government is saying, ‘We’ve got to reduce costs.’ And on the other hand, they’re saying ‘Health insurers, raise your policy max to $10 million.’ Those two are mutually exclusive goals. You can’t have both. That will ultimately drive up the cost of health insurance — albeit, it may only be by pennies.” He contends that there may be better ways to spend $1 million per person in health costs. “Would I be better off having a $100,000 lifetime max that everyone could enjoy, and then purchase riders on top of that? That’s the kind of debate we need to have.”
Would Boosting Caps Improve Outcomes?
He also questions whether an increase in lifetime coverage limits would produce improved outcomes. “Does someone get to stay on a ventilator for another four years? What is the cost to society?” he asks. “Listen, no one is getting out of this one alive.…No matter how good your health system is, we all face mortality.”
“Sometimes having built-in budget restraints are the only way to force difficult decisions to be made,” Stadtlander contends.
Lifetime caps are more commonly used in fully insured rather than self-funded products, says Dean Hatfield, a senior vice president and national health practice leader at Sibson Consulting, the strategic human resources consulting division of The Segal Co.
“Most of the employers that I work with have not changed their lifetime limits,” he says. “It is not really a focus. Most of them, especially on the self-insured side, have unlimited limits — so it really doesn’t even necessarily apply to them.”
Hatfield explains that “historically, where limits have come into play is really on the fully insured side. $1 million used to be the maximum, but now it’s crept up to $2 million.…It depends on the client size,” with larger customers opting for larger maximums.
Aetna Inc. says that all its individual policies have a lifetime maximum, typically $5 million. “We do have some preventative and hospital plans that have a $1 million lifetime maximum,” says spokesperson Ethan Slavin. “One of the primary reasons that we have lifetime caps is the actual cost of care. With or without lifetime maximums, the fact that some medical services and prescription medications can cost hundreds of thousands of dollars per year is an issue that needs to be addressed.”
Like Stadtlander, Aetna says that “removing lifetime caps for those who currently have them would increase premiums for all of our members with individual plans.” The insurer, however, says it would be difficult to estimate exactly how much premiums would increase if such a change were made due to other aspects of the plan design, such as services covered, deductible levels and coinsurance.
Slavin adds that “it is very rare for one of our members to reach these maximums — less than 1% of our members reach their lifetime cap. If a member does reach a lifetime cap, we refer them to other resources that might be available to them in their particular situation, such as high-risk plans, HIPAA plans or state plans.”
He says the highest-cost claims are for conditions such as cancers, transplants, hemophilia and premature births. “However, in most cases, a single high-cost claim (or even multiple) will not force a member to reach his or her maximum.”
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