Our interview with the folks at ACMG about their new PACE program has generated a lot of interest, and not a little confusion, as well. When dealing with insurance products, it’s easy to get tangled up in all the obligatory insurance nomenclature, and lose sight of the original intent: to help folks learn about new ways of solving problems.
So, let’s put aside all the specs, agg’s and ASO’s, and look at how this new product works. Now that I’ve actually been on a few calls, and had to explain it to “real people,” I have a better understanding of how this might work in “the real world:”
Dr Smith employs 12 people in his practice, of whom 10 are covered under a “traditional” health insurance plan. What the plan looks like really isn’t important here, it’s how he pays for it that really matters. His monthly premium is $3,500, for which he dutifully sends a check each month. He has no idea what his actual claims experience (how much the insurance company has paid out) is, because that kind of information is not made available to small groups such as his. Suffice it to say that his is a relatively healthy group, so the insurance company made a few shekels from it last year. If he were to have a very bad year, one where the insurance company paid out more than $40,000, then the company would have lost money, but the only way they can make it up is at renewal time, with a hefty rate increase. They can’t, for example, come to him mid-year and say “oops, we guessed wrong, please send us more money.”
Dr Jones also has 12 employees, and 10 of them are on his group plan, which has almost identical benefits as Dr Smith’s. “Almost identical” means that, for the most part, the plans look and feel the same (same deductibles and co-pays, same drug card, etc). But his plan doesn’t include, for example, coverage for respite care for those with autistic children, or extra benefits for alcohol or drug abuse [ed: we can debate the merits and morality of excluding these benefits another time; here we’re concentrating purely on economic factors]. His plan, you see, is exempt from offering most state mandated benefits, which can add up to 20% or more to the cost of health plans.
Dr Jones has a PACE plan, which is regulated by the Department of Labor, not the (state’s) Insurance Department. When he decided to go that route, here’s what happened:
All of his employees filled out questionnaires (which, coincidentally, look just like insurance applications) giving a complete picture of the group’s overall health. The insurance carrier which issues the underlying (stop-loss) coverage looked at all the answers and determined that this was a group they would like to have, and they anticipated the group would generate about $35,000 in claims.
In more traditional ERISA arrangements, the carrier would add 25% to that total, and base the group’s cost on that (i.e. $3,600 a month, plus administrative fees). If the group went over, they would have to make up some of the difference, as well.
With the PACE plan, the carrier adds only 5%, for a total of about $3,000 per month, and that is the amount Dr Jones must send in each month. When ACMG gets the check, they apportion it out to the carrier, to a stop-loss fund, and to themselves for administrative fees (and, of course, some to the agent who sold the case). Dr Jones has no administrative responsibilities beyond sending in his check each month. He pays no claims, tracks no expenses, files no forms.
If, perchance, one of his employees has a catastrophic claim, and the total bill is $98,000, he still pays his $3,000 a month. Period. There is no provision or mechanism by which the insurer can come back to him for more money (except, of course, at renewal time).
So, there are some distinct advantages. But there are some drawbacks, as well: First, since these plans aren’t required to be guaranteed issue, it’s possible that a group could be turned down for coverage, or turned away at renewal time. And, there are the usual participation requirements, which may make it impossible for a group to qualify. Of course, not all employers will see substantial savings, and may be better off "staying put." Depending on the health of the group, the final rate they’re offered may be substantially higher than the one quoted (although, to be fair, this is true in “regular” group, as well).
What’s most exciting about this type of arrangement is that it provides another tool for reigning in the cost of health insurance. As with any such tool, it will not be appropriate in all cases. But it will be for some, and that’s pretty good.