Friday, May 28, 2010

New Wave Carrier Trick

[Warning: Long post ahead]

Recently, I attended a training session for United HealthCare's new line of small-group (2-50 lives) products. As these things go, it was reasonably well-done: not too long or wonky, plenty of time for questions, and cookies and brownies available to help pass the time. For me, though, the most important part was the concepts and vision that I see embodied in this new line; regular readers know that I'm no shill, but there are some important lessons to be gained, and a number of questions that will be resolved only with the passage of time.

Basically, "Multi-Choice" (as it's called) seems to be an evolutionary (not revolutionary) outcome of UHC's All Savers program. For many, many years now, the basic principle of group health insurance has been "defined benefit;" that is, we look at what's covered, what the co-pay amount and deductibles are, that kind of thing. Then we tweak those to fit the employer's (and, to a lesser extent, the employees') budget. Hence, shopping every year at renewal.

Multi-Choice (M-C) works a bit differently. First, UHC considers this a "strategy" as opposed to a "product." And indeed, that seems apt: in this market, the carrier (like most others) offers a dizzying array of configurations (up to 150!). By contrast, M-C offers but two: Package A and Package B. What they've done is cut the 150 different options down to 30 or so, and then bundled them. Each "package" offers a couple of dozen or so different plan designs, from low deductible co-pay plans to high-deductible HSA's (and pretty much every point in-between). An employer picks a package, and then chooses a few different options that will be offered to his employees. For example, he might choose Package A, and select plans 3, 7 and 15 as choices for his employees. Each person chooses whichever plan design best suits, and that's that. The employer is obligated to pay a percentage of the premium, but his total cost is understood and agreed upon at the outset: he doesn't much care who chooses which product because his contribution has already been defined.

I think we're moving in that direction anyway: there aren't, for example, many "defined benefit" retirement plans out there. Instead, we see IRA's and 401(k)'s which are predicated on the contribution, not the expected benefit. So it goes with health insurance, as well. This is actually a pretty smart survival move: how better to cope with Obamacare©'s taxes on "rich" benefit designs?

Well, actually, the most cost-efficient way will be "none of the above."

The other interesting, and perhaps unnerving, thing is how prescription drugs will be covered. Currently, an employer chooses an underlying health plan and one of several different rx options. That will go away under M-C: there will be just the one option, called "Specialty Pharmacy." I must confess that I don't yet fully understand all the intricacies of this particular new design, but I'll do my best to communicate the general idea: medication is one of the biggest drivers of health care costs (and, as we know, health care costs drive health insurance costs). According to UHC, "specialty medications" (e.g. injectibles) are used by less than 1% of its insureds, but represent an astonishing 20% of its pharma claims (I suspect that this ratio holds pretty much true with other carriers, as well).

That's a lot of expensive med's.

So the new design has whatever out-of-pocket (OOP) accrues to the underlying medical plan, plus an additional OOP for med's. This is true of not only the co-pay plans (to be expected), but the HSA plans, as well. So one could meet one's high deductible health plan's deductible, and still experience additional costs for specialty medications.

Is this fair?

I really don't know.

On the one hand, I'm reluctant to use the term "fair" when talking about insurance, but in this case, I have to give it some weight. I don't have a problem charging more for smokers, or the morbidly obese, or those who engage in other less-than-healthy lifestyle choices. And I kind of like the idea of rewarding those who exercise regularly.


One of my clients has MS. We've been trying to move that group for a while now, but have always run up against at least one of two problems: either the rate for the new carrier was higher than even the existing plan's renewal, or the new carrier's policy on MS med's was much more restrictive. Sometimes both. Obviously, Tom is one of those "1%ers" and, as such, a part of "the problem." No argument. My problem, though, is that MS, unlike, say, lung cancer or HIV, is not a behavior-driven or -caused medical condition. There's no food that he should have avoided, or loaded up on. No special exercise regimen or other lifestyle choice that will ward off MS. It's like blue eyes or brown: it's not something over which one has any control.

But that means that, under one of these new plans (and I'm not picking on UHC here: I truly believe that this is where we're heading, and Medicare already does this) Tom's total out-of-pocket could be an additional $3500 over and above the high deductible built into his employer's HSA plan.

And there it sits: I don't have a resolution. I understand that pharma represents a huge chunk of health care (and hence, insurance) costs. And one way to rein that in is by taking the high-end med's for very small subsets of insureds "off the table" (or at least to a different end of the table). But there's no "magic bullet," no operation or lifestyle change that would alter Tom's medical predicament.

ObamaCare© doesn't solve it, either, by the way: inherent in that scheme is the even more draconian solution of rationing.
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