Transcript Title

Benefit Design
August 4, 2008
Chuck Milligan
The Hilltop Institute was formerly the Center for Health Program Development and Management.
Overview

Policy dimensions of benefit design

Approaches to minimum benefits in
insurance codes

Two case studies on the marginal cost of
various marginal benefits
These laws only touch insurance that states
may regulate. ERISA pre-emption is an issue.
-2-
Policy Dimensions
of Benefit Design
-3-
Defining a set of benefits involves
resolving several policy trade-offs . . .

“Minimum benefits” is a state’s determination of what constitutes “being
insured”

“Minimum benefits” involves the balance between a given state’s
determination of where to strike a balance between its role to protect its
citizens, and its role to respect individual liberty/autonomy to purchase
services in the market

“Establishing “minimum benefits” affects selection bias

“Minimum benefits” strikes a balance between coverage by private
insurance and government programs that wrap around those benefits
-4-
. . . including the fiscal impact,
and the standard of care . . .

Approx. 30 states mandate a study of the cost of
adding a new statutory minimum benefit before
the benefit may be added (a form of fiscal impact
report)

Some mandated benefits become clinically
inappropriate as clinical standards change

Mandating a provider type = mandating a benefit
(e.g. chiropractor)
-5-
. . . and including whether other nonbenefit design features should be made to
affect affordability.

“Minimum benefits” also involves an underlying trade-off
between covering more people with leaner benefits, or
fewer people with more comprehensive benefits

Without eliminating benefits, alternatives exist to create
“affordable” insurance:



Cost sharing rules
Open vs. closed provider networks
Utilization/authorization rules (and related grievance and appeals
processes; second opinions; and other patient rights)
-6-
Approaches to
Minimum Benefits in
Insurance Codes
-7-
State-mandated health benefit
requirements vary across the states.

All 50 states and D.C. have mandates requiring carriers to include certain
benefits.*

The amount and type of benefit mandates vary tremendously from state to
state.*

In January 2008, states had over 1,900 coverage mandates, cumulatively.**

Mandates range from less than 20 in some states (AL, DC, ID) to more than
60 in others (MD and MN).**

Approx 50-60 new mandates are enacted each year, nationally.
*GAO. (2003, September). Private health insurance: Federal and state requirements affecting coverage
offered by small businesses. GAO-03-1133.
** Bunce, V.C., & Wieske, J.P. (2008). Health insurance mandates in the states 2008. Council for
Affordable Health Insurance.
-8-
Some states combine mandatory
minimum benefit laws with
discrete exemptions.

Some states have enacted mandate-lite and mandate-free laws, often
for young adults.

These laws allow carriers to offer some/none of the state-mandated
benefits.

States with mandate-light exemptions include: AK, CO, FL, GA, KY,
MN, TX, and WA.

As more states raise the age for children to be covered under parents’
policies (to age 30 in some states), adult children then covered under
their parents’ policies may be under “full mandate” policies
Source: State Coverage Initiatives. Coverage Matrix. http://statecoverage.net/matrix/limitedbenefitplans.htm
-9-
The most frequently mandated
benefits include:

Mammograms

Diabetes Supplies

Breast Reconstruction (Post-Mastectomy)

Mental Health

Alcoholism
Source: Bunce, V.C., & Wieske, J.P. (2008). Health insurance mandates in the states 2008. Council for
Affordable Health Insurance.
-10-
Individually, most mandated
benefits don’t add a lot to the
cost of premiums . . .
Benefit
# States
Est. Costs
Alcoholism
45
1% to 3%
Alzheimer’s
2
<1%
Ambulatory Surgery
12
1% to 3%
Ambulatory Services
8
<1%
Anti-Psychotic Drugs
3
<1%
Autism
11
<1%
Birthing Centers/Midwives
8
<1%
Blood Lead Poisoning
7
<1%
Blood Products
2
<1%
Bone Marrow Transplants
11
<1%
Bone Mass Measurement
15
<1%
Breast Reconstruction
49
<1%
Cancer Medications
3
<1%
Cervical Cancer/HPV Screening
29
<1%
Cleft Palate
14
<1%
-11-
Source: Bunce, V.C., & Wieske,
J.P. (2008). Health insurance
mandates in the states 2008.
Council for Affordable Health
Insurance.
…because sometimes the service is not
expensive, and sometimes the percentage of
users in the group is small . . .
Benefit
# States
Est. Costs
Clinical Trials
23
<1%
Colorectal Cancer Screening
28
<1%
Diabetes Self-Management
27
<1%
Diabetes Supplies
47
<1%
Drug Abuse Treatment
34
<1%
Early Intervention Services
3
<1%
Hair Prostheses
10
<1%
Home Health Care
18
<1%
Hospice Care
11
<1%
In Vitro Fertilization
13
3% to 5%
Long-Term Care
4
1% to 3%
Mammogram
50
<1%
Mastectomy
24
<1%
Maternity
21
1% to 3%
-12-
Source: Bunce, V.C., & Wieske,
J.P. (2008). Health insurance
mandates in the states 2008.
Council for Affordable Health
Insurance.
…but for services with high costs, and a high
percentage of users, a new mandate can add
significantly to the premium (e.g. mental
health parity, and Rx) . . .
Benefit
# States
Est. Costs
Mental Health General
39
1% to 3%
Mental Health Parity
47
5% to 10%
Morbid Obesity Treatment
4
1% to 3%
Newborn Hearing Screening
17
<1%
Off-Label Drug Use
36
<1%
Orthotics/Prosthetics
12
<1%
Other Infertility Services
8
<1%
Ovarian Cancer Screening
3
<1%
Psychotic Drugs
2
<1%
PKU/Formula
32
<1%
Prescription Drugs
2
5% to 10%
Prostate Cancer Screening
33
<1%
Rehabilitation Services
8
1% to 3%
Smoking Cessation
2
1% to 3%
Well-Child Care
31
1% to 3%
-13-
Source: Bunce, V.C., & Wieske,
J.P. (2008). Health insurance
mandates in the states 2008.
Council for Affordable Health
Insurance.
. . . and a few benefits
appear in only one state.
Benefit
State
Est. Costs
Athletic Trainer
AR
<1%
Asthma Education
CA
<1%
Ambulatory Cancer Treatment
FL
<1%
Telemedicine
GA
<1%
Breast Reduction
ME
<1%
Wilm’s Tumor
NJ
<1%
Drug Abuse Counselor
NV
1-3%
Hormone Replacement Therapy
NY
<1%
Cochlear Implant
OR
<1%
AIDS Vaccines
WI
<1%
Source: Bunce, V.C., & Wieske, J.P. (2008). Health insurance mandates
in the states 2008. Council for Affordable Health Insurance.
-14-
Two Case Studies on the
Marginal Cost of
Various Marginal Benefits
-15-
Many states are attempting to define
benefit packages at the intersection of the
market and publicly-subsidized programs.

Massachusetts, and other states, are seeking to define a
“basic” benefit package




Provide a public subsidy for low-income individuals to buy into the
program
No subsidy (full premium) for higher income people to buy the
same package
States are trying to use various Medicaid funds to
subsidized programs that offer these “basic” benefits
In general, these large pools increase the choice of
products, but have a relatively small effect on the cost
-16-
A case study from The Hilltop
Institute’s work in Rhode Island

In February 2007, Rhode Island considered moving higher-income
Medicaid adults from a “full Medicaid” benefit to a basic benefit

Rhode Island had two goals:


Short-term savings in a reduced benefit package for current Medicaid adults
Creating a newly-defined “basic benefit” for a publicly-subsidized program that
could also be offered privately to full-pay individuals

Rhode Island retained The Hilltop Institute to evaluate much money might
be saved in the short term by moving adults from full Medicaid (in RIte
Care) into various other potential benefit designs.

The specific comparison benchmarks were selected by Rhode Island

The only benefit change that significantly reduced the premium would have
been to eliminate inpatient benefits, like the Utah Primary Care Network
model.
-17-
Rhode Island RIte Care
Estimated Savings by Changing from Medicaid to Alternative Benefit Designs
Rite Care
(Medicaid)
UT PCN
ARHealthNet
ID
KY
RI BCBS
Reduced Coverage
–
$ (37.88)
–
–
–
–
Inpatient Co-pays
–
–
$(5.31)
–
$ (0.27)
$ (0.02)
$ 37.88
–
$32.56
$ 37.88
$ 37.60
$ 37.86
Reduced Coverage
–
$ (3.69)
–
–
–
–
Outpatient Co-pays
–
$ (0.41)
$ (9.61)
–
$ (0.72)
$ (1.82)
$ 64.04
$ 59.94
$ 54.43
$ 64.04
$ 63.31
$ 62.22
Reduced Coverage
–
$ (8.21)
–
–
–
–
Professional Co-pays
–
$ (3.06)
$ (10.84)
–
$ (1.94)
$ (7.79)
Professional PMPM
$ 72.55
$ 61.28
$ 61.71
$ 72.55
$ 70.61
$ 64.76
Reduced Coverage
–
–
–
–
–
–
Pharmacy Co-pays
–
$(6.62)
$ (9.94)
–
$ (1.99)
$ (21.19)
$ 62.47
$ 55.84
$ 52.53
$ 62.47
$ 60.48
$ 41.27
Reduced Coverage
–
$ (0.70)
$ (0.70)
$ (0.10)
–
–
Home/Hosp Co-pays
–
–
–
–
–
–
Home/Hosp PMPM
$ 0.71
$ 0.00
$ 0.00
$ 0.61
$ 0.71
$ 0.71
Reduced Coverage
–
$ (0.45)
–
–
–
$ (8.71)
Out-of-Plan Co-pays
–
$ (0.87)
$ (1.40)
–
$ (0.18)
$ (0.03)
$ 9.32
$ 8.01
$ 7.92
$ 9.32
$ 9.14
$ 0.57
Total Reduced Coverage
–
$ (50.92)
$ (0.70)
$ (0.10)
–
$ (8.71)
Total Co-pays
–
$ (10.97)
$ (37.09)
–
$ (5.11)
$ (30.85)
$ 246.95
$ 185.07
$ 209.16
$ 246.86
$ 241.85
$ 207.39
$ 61.89
$ 37.79
$ 0.10
$ 5.11
$ 39.57
Inpatient PMPM
Outpatient PMPM
Pharmacy PMPM
Out-of-Plan PMPM
Grand Total PMPM
PMPM Savings vs. Current Benefit
Source: Center for Health Program Development and Management. (2007, February).
Reforming RIte Care for parents: Fiscal impact assessment
-18- for Rhode Island Medicaid.
With 6,383 affected enrollees, the
potential annual savings to RI of
alternative benefit designs ranged from
$7,467 to $4.74 million (2007).
State
PMPM
Annual Cost
Annual Savings
RI*
UT PCN
ARHealthNet
ID
KY
RI BCBS
$246.95
$185.07
$209.16
$246.86
$241.85
$207.39
$18,915,728
$14,175,547
$16,020,982
$18,908,261
$18,524,377
$15,885,060
-
$4,740,181
$2,894,745
$7,467
$391,351
3,030,668
Reflects total dollars – state and federal.
* N = 6,383
Source: Center for Health Program Development and Management. (2007, February).
Reforming RIte Care for parents: Fiscal impact assessment for Rhode Island Medicaid.
-19-
Achieving political support for the reforms
in Massachusetts partly depended on the
state’s minimum benefit laws.

An individual mandate was palatable to some only if:



As a result, the Massachusetts model was dependent on the mandatory
minimum benefit law that was already in existence in MA, plus



There was a subsidy for people below 300% FPL AND
Individuals would be protected in the market because carriers couldn’t offer
“skinny” benefit packages: the coverage would be good
Rx was added as a new required benefit
The combination of Rx plus the state-mandated benefits is defined as
“Minimum Creditable Coverage” to fully meet the standards of the individual
mandate
Penalties will be assessed against individuals who fail to purchase
coverage that meets this standard
-20-
Yet Massachusetts also created
exemptions to the Minimum
Creditable Coverage rules.

Young adults (19-26) are exempt from some
of the Minimum Creditable Coverage
standards:


RX coverage is optional
Federal Health Savings Accounts are also
exempt from Minimum Creditable Coverage
standards
Source: 956 CMR §5.00-.03 and 211 CMR §63.01 -.08
-21-
Massachusetts recently studied the
costs associated with its minimum
mandatory benefit laws.





Related to its comprehensive reform, the legislature required a study of
the cost of mandatory minimum benefits; it was completed July 2008
In FY 05, spending on mandated benefits was $1.32 billion, or 12% of
premiums
Five mandates accounted for 80% of this ($1.07 billion) – maternity,
mental health, home health, infertility, and preventive care for kids
The “true net cost” was much less, on 3-4% of premiums, “because of
federal laws and the likely behavior of insurers and employers in the
absence of state mandates.”
“[M]ost of the mandates appear to be cost-effective. However . . .
consider removing mandates for benefits that are no longer the standard
of care, such as bone marrow transplants for breast cancer.”
Source: Comprehensive Review of Mandated Benefits in Massachusetts
Report to the Legislature, July 7, 2008, accessed at:
www.mass.gov/Eeohhs2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits.pdf
-22-
Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005
Mandate
Claims costs PMPM
(Required Direct Cost
Claims)
Claims + Administration
PMPM (Required Direct
Cost PMPM w/Admin)
Percent of Premium
Maternity care
(including minimum
maternity stay)
$9.61
$11.18
3.73%
$402,071
Mental health
$5.70
$6.63
2.21%
$238,576
Home health
$4.98
$5.80
1.93%
$208,536
Preventive care for
children up to age 6
(including specific
newborn testing)
$2.89
$3.36
1.12%
$120,745
Infertility
$2.31
$2.68
0.89%
$96,469
Diabetes supplies/svs.
$1.28
$1.49
0.50%
$53,507
Contraception
$1.14
$1.33
0.44%
$47,756
Cytologic screening
(Pap smear)
$1.07
$1.25
0.42%
$44,923
Mammography
$0.99
$1.15
0.38%
$41,262
Early intervention
$0.98
$1.14
0.38%
$41,033
Chiropractic svs.
$0.31
$0.36
0.12%
$12,806
Hospice care
$0.16
$0.18
0.06%
$6,648
Lead poisoning
screening
$0.14
$0.16
0.05%
$5,894
-23-
Total Annual
Spending (000s)
(Required Direct
Annual Cost Total)
Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005 (continued)
Mandate
Claims costs PMPM
(Required Direct Cost
Claims)
Claims + Administration
PMPM (Required Direct
Cost PMPM w/Admin)
Percent of Premium
HRT
$0.14
$0.16
0.05%
$5,824
Cardiac rehab.
$0.10
$0.11
0.04%
$4,099
Clinical trials for
treatment of cancer
$0.07
$0.08
0.03%
$2,907
HLA
$0.09
$0.10
0.03%
$3,633
Hearing screening for
newborns
$0.05
$0.06
0.02%
$2,152
Speech/Hearing
$0.03
$0.03
0.01%
$1,160
Non-Rx
$0.02
$0.02
0.01%
$814
Low protein
$0.01
$0.01
0.00%
$336
Scalp hair prostheses
$0.01
$0.01
0.00%
$263
Alcoholism rehab.
-
-
0.00%
-
Bone marrow
transplants for
treatment of breast
cancer
-
-
0.00%
-
Off-label uses of Rx to
treat cancer
-
-
0.00%
-
Off-label uses of Rx to
treat HIV/AIDS
-
-
0.00%
-
$31.50
$36.62
12.2%
$1,320,000
GRAND TOTAL*
Total Annual
Spending (000s)
(Required Direct
Annual Cost Total)
*Overlapping coverage between mandates has been removed from the total.
Source: Comprehensive Review of Mandated Benefits in Massachusetts
-24Report to the Legislature, July 7, 2008, accessed at: www.mass.gov/Eeohhs2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits.pdf
Questions
Charles Milligan, Executive Director
The Hilltop Institute at UMBC
410.455.6274
[email protected]
www.hilltopinstitute.org
The Hilltop Institute was formerly the Center for Health Program Development and Management.