Beware the Fine (and not so fine) Print

Sometimes, seemingly insignificant policy provisions can bite you. Case in point:

Recently, two of my individual HSA clients, each insured with a different carrier, came up for renewal. I suggested that we find new policies, and lower premiums. We looked around, and determined that the (relatively new) Aetna HDHP would fit the bill nicely, and so we submitted applications.

Pretty routine so far.

And then, my co-blogger Bob (in an unrelated email and subsequent post) pointed out that these plans have an internal limit of $5,000 a year for out-patient prescription drugs.

“So what?” you may ask, “I’m not on any meds that even come close to that!”

I would reply that we buy insurance for what might happen, not (just) what did happen.

Which is pretty much what I told both of these clients when I called them yesterday for permission to withdraw their applications. Both have family plans, and relatively healthy families to go on those plans. But new cases of MS (for example) are diagnosed every day. Cancer, too. Other chronic (and expensively medicated) illnesses, as well. A person with MS would blow through that $5,000 is a couple of months, and then what?

To my surprise (and delight), neither client was upset with me for suggesting that we go back to square one; in fact, they were both pleased that I’d alerted them to this potential problem.

So what’s my point?

Well, for one thing, would the anonymous voice at the other end of an 800 number (or web-site) be concerned about this? Or call (or email) back to suggest a different solution?

For another, it’s a reminder to me that what we do for our clients is important, and that I do (and should) learn knew things every day.

Remember the Maine...

You may recall that, back in mid-February, we blew the whistle on Maine’s DirigiChoice plan (the Pine Tree State’s subsidized health-care program). Seems that, notwithstanding all its good intentions, the plan has been a colossal failure, and a further demonstration of the folly of government meddling.

Well, the hits just keep on coming:

“Proponents of a proposal to change Maine's DirigoChoice program to a self-insured health insurance program "had a hard time convincing skeptics" at a legislative hearing on Tuesday that the proposal would make the program more affordable.”

Apparently, the state has an agreement with Anthem (Blue Cross/Shield), under which Anthem administers the plan. Recently, Governor Baldacci expressed an interest in vacating that agreement, in favor of a self-insured plan. The idea would be that the state could save money by taking a more direct role in the plan’s implementation.

Uh-hunh.

Opponents argue that a self-insured program couldn’t guarantee these savings, and that such an arrangement would violate the promise of a public-private partnership.

The word that comes to mind here is: disingenuous.

There’s no program that will guarantee savings, at least in the long run. At best, any new plan could come in and generate some. And how, exactly, would such a scheme violate any partnership? It doesn’t seem likely that Maine would self-administer the plan; presumably DirigiChoice would contract with a professional administrator to handle the actual operations. That’s still public-private.

The only (marginally) valid objection seems to be the possibility of DC participants losing coverage if the plan goes belly up. I suspect, however, that (given the stakes) the state itself – or rather, the taxpayers – would them bail out.

Of course, there’s the possibility that the plan could choose another carrier when the agreement with Anthem runs out. I’m not familiar with the Pine Tree State’s health insurance market, but I bet I know who’s next at bat (hint: do the initials UHC ring a bell?).

Ch-Ching!

UPDATE: More on this subject, specifically Massachusetts' efforts, at Health Business Blog.

More Good News for Cancer Survivors...

Back in November, we told you about positive changes in the life insurance industry.

Well, there's even more good news:

Just twenty (short) years ago, one out of every two men diagnosed with prostate cancer could expect to die within 10 years. According to the National Cancer Institute, 93 percent of men with prostate cancer can now expect to live at least 10 years. Good news indeed.

Now, at least one carrier is expanding on that development. The Hartford is now offering life insurance at standard rates to men (age 60 and older) who have been surgically treated for moderate levels of prostate cancer.

What does that mean to your wallet?

Generally, insurers offer several rating classifications, depending on one’s overall health, cholesterol levels, medical history, and other factors. Most offer a “super select” class for folks who walk on water (or maybe that’s jog on water); about 3% of applicants will qualify. The next step down will be “select,” with rates about 10-15% higher. Then there’s “standard,” which is usually another 10-15% (or more) higher than select.

So this isn’t such great news after all, right?

Not so fast:

Below “standard” is “rated,” which can be 50-100% higher. And, of course, many carriers will simply decline to cover someone with a recent history of cancer.

Slow progress, to be sure, but progress nonetheless.

The Hartford anticipates that up to 250,000 of those diagnosed with prostate cancer in the past five years could be eligible for coverage under this new criteria. And it’s available for both permanent and term plans.

Hopefully, other carriers will follow suit.

Good on ya, Hartford!

Veddy Interestingk...

InsureBlog co-blogger Bob Vineyard also has his own little corner of the web. Over at Health Insurance 411, he vents about insurance (and other) issues. It's a little more "in your face," but a great read. Do check it out.

And Thanx to Bob for tipping us to a new blog called DoctorTricks. It's kind of a bulletin board for folks to share their frustrations with, and workarounds for, dealing with health care issues. Different.

Late March Grand Rounds...

After Elisa did such a great job with last week's 'Rounds, I was certain that it would be a while before another host came even close.

Fortunately, I was wrong (for once).

Doc Crippen has a tremendous postpourri, with interesting pictures, highlights and commentary. And, like Elisa, he's apparently reviewed and posted every submission he received.

My only quibble is that it leads off with cricket. Oh well, can't please everyone.

Another Money Monday...

This week, the Carnival of Personal Finance may be found at Financial Baby Steps (cute, but relevant). There were plenty of interesting posts, too, although I was particularly intrigued by this one explaining why one should play the lottery. Hmmm.

We Get Letters...

Christopher Parks, the proprietor of the Med Bill Advisor blog, tipped us to an interesting article in BusinessWeek. Entitled “Fighting Off Health-Care Headaches,” it’s essentially a survey (as in primer, not questionnaire) of various health insurance problems and potential solutions.

Chris blogged briefly about this article on his site, and asked for our take on it, as well.

The underlying thesis of the article is that group health insurance premiums continue to rise, and this disproportianately affects small groups. According to Stacy Perman (the author), there are a number of interesting solutions:

First up, congress is contemplating legislation that would create Small Business Health Plans (SBHP’s). Also known as AHP’s (association health plans), the idea behind these plans is that, by banding together, small businesses can leverage larger numbers for better plans. Call it “IGA insurance:” my store has 5 employees, yours has 10, his has 20, etc, but together we have 100, and can catch a break.

Nice in theory, but, as Bob points out:

The “new” SBHP is just a re-packaged MEWA (multiple employer welfare assocation).

The economies of scale argument is valid. You can administer benefits for 100,000 employees for less (per capita) than trying to administer the same plan for 10 employees.

By offering a national, self funded plan, you can also bypass state mandated benefits which creates further savings. But who is left out as a result?

Most (if not all) states now require coverage for diabetics including their medication and medical equipment (syringes, A1C meters, etc.) but there are no federal laws requiring these items to be covered. So in theory (if not practical application) a SBHP could cover diabetics but not their medication and be in compliance with federal guidelines.

Same can be said in covering treatment by paraprofessionals such as PA (physician’s assistants), nurse practitioners, and social workers. Several states have passed laws that require carriers to pay for treatment by these paraprofessionals but there are no federal laws requiring the same.
Beyond these issues, managing a national SBHP/MEWA is a challenging task that has always failed in the past. Eventually these plans collapse or else become so expensive (mostly because of adverse selection) they are no longer attractive.

Another solution is “outsourcing” of benefits, aka employee leasing. The idea is that a business owner would no longer, well, employ his employees, but would contract out all employee “issues” (health care, worker’s comp, etc) to a staffing agency.

The attraction here is that it would relieve the smaller employer of many of the day to day headaches involved in managing his employees.

Intriguing though this might be, it’s not really new, nor has it proved to be a popular alternative. One reason for this may be that the other costs of setting up such an arrangement negate any group health savings.

The article also discussed “dual option” arrangements. For years, larger employers have offered so-called “cafeteria” plans which allowed their employees to choose from a variety of different insurance plans and companies. These can be expensive to administer, so smaller employers couldn’t afford to offer them, nor were carriers willing to make them available. Now, more carriers are offering small groups the option of offering more than one plan design. For example, an employer could offer a less expensive, less “frilly” medical plan, and offer employees the option of “buying up” to a more comprehensive one.

Or, an employer could offer to fund an HSA for those employees who chose HDHP’s, while cutting back on funding for the PPO.

All in all, an interesting article. My only real quibble is with the opening paragraph, which parrots the now-debunked myth of 45 million uninsured.

But that’s another post.

The Dark Side of Universal Health Care

Multiple Sclerosis is “an autoimmune disease that affects the central nervous system (CNS)...In MS, myelin is lost in multiple areas, leaving scar tissue called sclerosis. These damaged areas are also known as plaques or lesions.” It is a debilitating disease, one that robs its victims of their health and, sometime, life.

It is also, generally, treatable and manageable. Medications and protocols exist that help those with MS function, contribute, and enjoy life.

That medication, however, doesn’t come cheap. Annual costs range from $5,000 to over $20,000. Most health plans cover at least part of this expense, and “big pharma” has programs to help ease that burden, as well.

At least, that’s the case in the good ole U S of A.

Across the pond, however, the outlook for those with MS just got bleaker:

“Patients with multiple sclerosis are being told that they cannot have drugs to prevent their disease from getting worse because the NHS cannot afford them.”

In fact, according to the Times, some patients have been told that they may have to wait a year before they can be treated, and others have even been bumped off the waiting list.

But the Times isn’t the only broadsheet with bad news:

“Standards of patient care will drop and the financial crisis facing the NHS worsen if a planned 10 per cent cut in the funding of medical training goes ahead, doctors' leaders said yesterday.”

That’s from the Telegraph, another British paper. It seems that the much-vaunted National Health service (NHS) is facing a major funding crisis:

“(S)enior figures in strategic health authorities (SHAs) and the deaneries have been warned at meetings with DoH officials that their budgets for 2006-07 are likely to be cut. A letter seen by The Daily Telegraph from an SHA to the directors of finance of 10 primary care trusts and seven NHS trusts warns them to plan on the basis that their budgets will be cut by 10 per cent.” (ibid)

Apparently, “universal” means “everyone suffers.”

UPDATE: For a related post, with a Canadian twist, see this item at Free Canada.

DIY = N/G

A poster on a forum that I frequent, and to which I often contribute, asked about a particular on-line insurance quoting service. He was “reading about insurance and stuff on yahoo,” and got a “quick quote that seemed reasonable.” At that point, he stopped because he “was concerned about giving out too much information to a potential scam.” The poster wondered if anyone else at that forum had used this service.

I replied that if he was concerned about his privacy, he should try term4sale, an online quoting service only (they don’t sell insurance).

I further suggested that he “meet with a professional, independent agent, preferably one with 5-7 years experience. He can help you determine how much and what kind of coverage(s) you need, and is accountable to you if/when there's a problem.” And I concluded that “contrary to popular belief, DIY life insurance does not save you money.”

My friend and co-blogger Bob chimed in, suggesting that I “expand on that statement.”

And so I did:

The "promise" behind the on-line/DIY insurance websites (be they for life or health) is that one can purchase insurance at a lower rate than working with a professional agent.

This is, of course, nonsense.

Insurance carriers charge the same rates whether you use an agent or not. In fact, one might argue that the carrier-based sites are even more expensive, because they keep the commission, but do not provide the services of an agent.

Those sites which are agent-based (eg Matrix Direct, et al) charge the same rates, but offer the services of a "remote" agent, i.e. an anonymous and unaccountable "someone" at the other end of the 800 line.

So there is no premium differential (savings).

Further, using a local, professional agent buys you several key features:

First (and foremost) is accountability. That is, an agent will work with you, helping you determine the proper amounts and types of cover, and must answer to you if he screws up. In addition, he has a vested interest in making and keeping you happy: he counts on your goodwill for referrals and to maintain his reputation.

Second, an independent pro has access to not only the "regular" markets (just like the web-based services), but to impaired risk markets, as well. Don't believe me? Try getting a life quote for a diabetic from either a carrier- or agent-based website.

Third, an agent is there at the most important time in the whole process: delivering the death-claim check. Didn't think of that, right? Most of us don't want to, but of course it's the underlying raison d'etre (literally, "raisin to eat") of the whole process. Do you think that your widow(er) wants a "check in the mail?" If so, then maybe you have some other issues to consider.

The same is true with health insurance [ed: I’ll skip commenting on the Gecko, and leave that to the P&C pro’s]: there is no price difference difference between the on-line services (or buying directly from the carrier) and using an agent. And again, the agent is there for you.

I would argue that, in the case of health insurance, the agent provides an even greater benefit: as an advocate. After all, there’s really only one claim on a life insurance policy (and it’s pretty easily adjudicated). But there may be many claims on a given health plan, some of which may not be adjusted correctly. The independent agent works for you; that is, if/when there’s an issue, he’s on your side, and knows a bit more about how to get those issues resolved (after all, it’s his livelihood).

And, of course, health conditions make an even greater difference in health insurance than in the life field. A pro will know which carriers to use, and which ones to avoid.

LAGNIAPPE: The original poster had one more question: “Is it best just to open the yellow pages and just pick an independent agent?”

I replied that, while the Yellow Pages are one source, I don't consider them the "best." Referrals are usually the most helpful: ask friends and family who they use (and if they're happy with that choice), one’s auto/home agent will generally know who the good life guys are, and the local chapter of NAIFA (that's the professional association for life folks) may be of help, as well. Look for someone with at least 5 to 7 years’ experience in the field, and who has access to more than one carrier. Don't hesitate to interview more than one such: sometimes there's a "fit," and not.

That help?

Joe's on a Roll!

As we've noted before, Joe Kristan at Roth & Co always manages to find interesting, off-beat tax stories.

Well, he's done it again: believe it or not, the IRS gets a piece of the pie when your credit card company forgives a part of your debt. Who knew?!

It's WonkaVision!

Okay, it's not really about Willy Wonka, but Policy Wonks. FoIB Kate Steadman hosts this week's edition of a new blog "carnival:" the Health Wonk Review. The purpose of the HWR is "to highlight the best-of-the-best, to showcase studies, perspectives, and insights not available anywhere else, and to provide the broader community with a fast and simple way to stay on top of all things health policy related."

Kate's the 3rd host of the Review, which is published every other week. Recommended.

Hip, Hip, HIPAA ooray!

Sorry for the awful pun, but David Williams of the Health Business Blog beat me to the good one: "HIPAA to the rescue."

Apparently, physicians' computers are as vulnerable to hackers as the rest of us. But HIPAA specifically requires that providers take extra precautions to guarantee the privacy of medical records.

What's next, CSI: General Hospital?

A very good read.

Slammin’ on the Brakes...

For the fourth year in a row, rate increases on group plans have slowed. These costs are expected to rise by 8% this year, as compared to 10% last year (YMMV).

According to a new study, more than 8 out of 10 companies surveyed said that their group health costs were at (or even below) last year’s.

Some of this is due, no doubt, by an increase in employers’ proactive methods: almost half conduct eligibility audits or will begin doing so (these are for the purpose of identifying which employees and/or dependents who should be on a spouse’s coverage).

One out of four plan to implement programs to improve their employees’ health. Another third plan to start encouraging more judicious use of health care services. And a third plans to increase employees’ accountability in managing their health.

Ah, personal responsibility: is there anything it can’t do?

North of the border, though, things don’t look so peachy: according to a survey of our neighbors to the north, 2006 premium increases are projected to be 13% (that’s about 60% higher than here). Here’s the takeaway quote: “the survey results show that in spite of employers efforts to contain costs through cost-sharing, managed formularies, and flexible benefits, health and dental costs are still rising more quickly than other group benefit plan components.” Oy, Canada!

What was that about a nationalized health care system here?

Economic Indicators

Transparency isn’t always about providers. For example, Washington (the state, not the city) is about to implement a new financial information law. Set to take effect this June, the new law requires the insurance commissioner to put together a database of health insurers' financial information. The twist: the database will be web-accessible.

So what info will be included? Everything from medical loss ratios to administrative costs, including average premiums per member per month, financial surplus levels and profit margins. Pretty comprehensive.

Is this an idea whose time has come, or a debacle in the making? I would say somewhere in the middle: for one thing, it will make it harder for carriers to "poor mouth" in their bids to raise rates or cut reimbursements. On the other hand, there are certainly intangible factors at work in the marketplace, which this new tool won't be able to quantify.

It will be interesting, too, to see if (when?) other states follow Washington's lead.

Into the Pool!

My friend and co-blogger Bob Vineyard tipped me to this story in a local Columbus (Ohio) paper:

“S.B. (Ohio Senate Bill) 272 would create a formal state corporation named the Ohio Health Insurance Risk Pool...The pool would offer a health insurance plan, providing up to $1-million in lifetime benefits. Health insurance premiums charged by the pool would be at least 125 percent but not more than 150 percent of the premium charged for "standard individual rates in the state," according to legislative documents.”

Now, we’ve discussed High Risk Pools before (here and here), and concluded that they did show promise. Our primary concern was whether one could be designed in such a way as to be meaningfully comprehensive, yet reasonably affordable. In other words, offer decent coverage, especially for pre-existing conditions, at a price that wouldn’t totally wipe out the family budget.

As written, SB 272 seems to address both of these concerns. Eligible folks (essentially those who have severe and/or chronic conditions which make them “unattractive” on the individual market) would be able to access a plan through the OHIRP. In reading through the bill and the analysis, the Pool would offer a product that looks a lot like the current HIPAA guaranteed issue plan, but with a somewhat lower premium cap.

The other thing that the bill does is to simplify the process. That is, it does away with the required “open enrollment” seasons, and essentially makes the whole year open enrollment. This is a good thing.

Why, you ask?

The current system is front-loaded. That is, carriers are required to offer a specific number of “slots” each year to “the uninsurable.” As Bob has pointed out, this represents a much smaller population than the punditry would have us believe. Still, some carriers seem to “fill up” earlier than others, leaving fewer and fewer choices. In theory, the Department of Insurance is supposed to track availability, but they’re not always up-to-date.

One good sign is that at least one of the plans will eschew all those state-mandated benefits that help to drive up cost while limiting choice. The result could be a more affordable alternative. It will be interesting to see if such plans make it through the vetting process.

I’m concerned, though, about the make-up of the board of directors of this new corporation, which include:

“two from insurers, one from the Ohio Association of Health Underwriters, one member of the general public, one representative of healthcare providers, one each from large and small business, and one state representative and one state senator.” [ibid]

I’d like to see at least one professional, independent agent on that board. We are on the front lines of this very public debate, and can offer a unique perspective: because we represent carriers, and work for our clients, we have a “birds-eye” view of the process.

“But Henry," you may interject, "the board includes a representative of the Health Underwriters. Surely that puts to rest your objection.”

No, it does not (and please don't call me Shirley). Although I co-founded our local chapter, and have had experience with the state, I am no fan of the AHU (nor its life insurance cousin). These organizations are run by -- and primarily for the benefit of -- the carriers, not the agent or the public. The interests of the Association and of agents do not often coincide. Including an agent who is not beholden to the special interests of an Association would solve this dilemna.

And stay tuned for Part 2, as well!

A Very Grand Rounds

Our friend Elisa at Healthy Concerns hosts this week's round-up of the best of the "medblogosphere." Giving a 110%, she adds her own take on most of the submissions. IB co-blogger Bob Vineyard's post on the uninsured gets prominent display near the top...Thanx, Elisa!

Of special interest was this post from Marcus at Fixing Healthcare, who notes that it's not just about insurance and cost-shifting, but the culture, as well.

Another Money Monday...

All Things Financial starts things off with The Carnival of Personal Finance. With tax season upon us, Joe at Roth & Co has a list of puzzling "strategies," especially ones to avoid.

The Carnival of the Capitalists is up, and host Keith of Casey Software blog has done an outstanding job with dozens of great posts. Notable among them is the first of a three-part series by Dr Hayek, who explores the difference between Socialized Medicine and Socialized Insurance. This is definitely NOT hairsplitting.

Ignorance is Bliss...

When I first started in this business, my then sales manager gave me a terrific piece of advice: “Henry,” he said, “you can’t compensate for other peoples’ ignorance.”

Case in point:

I have a client, a small business with 3 principals, for whom I wrote the life insurance that funds their buy-sell agreement. These are term policies which have recently hit their renewal date, and thus a scheduled premium increase.

I met with them to go over the plans and their buy-sell calculations, and we determined that an increase in face amount (death benefit) was in order. We discussed options, and decided that new 15 year term policies (with Return of Premium option) would do the trick. Since they were pressed for time, I left applications with them, so that they could get a head start on some of the boilerplate.

Yesterday, I returned to complete the applications with them, and make arrangements for the required exams. I arrived to find that two of the three gentlemen had indeed completed their paperwork, but the third refused to do so.

Hunh?

Turns out, the third partner (we’ll call him “Howard”) has apparently tried to buy life insurance recently, and has been turned down – by his account – “three times this year.” Now, it’s not clear whether he meant the last 12 months, or the past 3 and a half. In any case, he went on to say that his wife had advised him not to pursue this new policy, because it would be a “waste of time.” I asked him if he was comfortable with the fact that his partners’ families would receive twice as much as his if there was a claim, but that apparently didn’t phase him.

So I asked him which companies had turned him down. He didn’t know.

Further “hunh?”

Turns out, he had actually completed the application for only one plan, but his wife has assured him that he’s been turned down three times, because she tried to get him a new plan, as well.

I asked him (tongue firmly in cheek) just how long his wife had been in the insurance business. He looked a bit confused, and replied that she wasn’t. At that point, I stopped: there’s really no honor in causing marital rifts in the pursuit of a sale. I did ask him if he would mind finding out, and telling me, the names of the other carriers his wife had (allegedly) applied to on his behalf. Then, I packed up my briefcase with the two completed applications, and made my exit.

There are a number of problems here, beginning with the fact that, if “Howard” is to be believed, his wife actually completed (and signed) applications for him. Second, an experienced agent would never let a case get to a point where there were multiple (let alone three!) declinations. Such an agent would have completed a pre-screen, spoken with underwriters at carriers which specialize in the impaired risk market, and would have already had the case placed.

What this situation tells me is that either the client (and/or his wife) was working with an inexperienced agent or that they chose to go the on-line route. How do I know this? Because I know his health history, and had already taken it into account before making my recommendations. Granted, I had no way of knowing about the three declines, but that’s not really the point.

There are no doubt situations where a term life policy may be a DIY project. But not when one knows for a fact that one has on-going (and potentially serious) medical conditions.

But I can’t compensate for “Howard’s” (or Mrs Howard’s) ignorance.

Term Trends...

As a member of LIMRA’s Producer Panel, I am “privileged” to regularly participate in industry surveys. The most recent such was about long term trends in the term life insurance market.

LIMRA (the Life Insurance Marketing and Research Association) is essentially an insurance industry “think tank.” I’m not really sure what criteria it uses to select those who are asked to serve on the Producer Panel, but I did get a nice pen, and first dibs on the results of its research.

Term insurance is the most widely-sold life product, most likely because it is – at first – the least expensive. It is analogous to “leasing;” rates are locked in for a specified length of time, and there is generally an option to purchase (convert to a permanent plan) at the end.

The results of the survey to which I alluded are quite interesting. Almost 500 of my closest colleagues and I were asked a variety of questions about selling term life insurance. About 95% of us sell individual term products (are the other 5% liars, or just different?). On average, we sell about 30 such policies a year.

More than 8 in 10 of us consider term insurance “easy to sell.” I suppose it depends on one’s definition of “easy:” as opposed to what?

In our meetings with clients, most of us talk about income replacement. That is, how will the family meet its financial obligation absent mommy or daddy’s paycheck. Although we also discuss estate planning and the kids’ college funds, apparently few of us bring up critical illness plans or charitable giving.

I was pleasantly surprised to learn that most of us do an FNA for our clients. Financial Needs Analysis can be as complicated as advanced computer modeling, or as simple as a pencil and legal pad (my preferred mode). Regardless, it means that we’re not just picking numbers out of thin air, but actively engaging our clients in the process.

In the “Not Sure What To Make Of This” Department, it appears that 51% of the individual life policies we sold last year were term.

As an independent agent, I can sell policies from most any carrier. But, like most of my colleagues, I choose to regularly do business with only a handful. According to the survey, agents’ top two criteria for selecting a primary carrier are “competitive price” and “excellent financial ratings.” I find that interesting, because my top two were underwriting and finances. Live and learn.

I’m not really sure what, if any, lessons to take away from this experience. If nothing else, I am heartened that so many of us take our roles seriously, as evidenced by the ubiquity of financial needs analysis, and emphasis on carriers' financial strength.

Good show.

The Price is Right – Not.

I am fortunate in many ways, not the least of which is in the caliber of my colleagues. Several of us, prompted by the following email, have been debating an issue that has so far been, well, “under the radar:”

Just had a client call to complain that [his insurer] is refusing to reprice a network provider claim.

He has a HDHP [High Deductible Health Plan, typically as part of an HSA arrangement], had it for a couple of years, no problems. Now his wife is pregnant. She went to a network OB and asked for the bill to be submitted to the carrier. He got the EOB (supposed to fax to me later today) and no discount. He calls [the carrier] and is told since he does not have maternity benefits there is no discount.

Rubbish!

The doc has a contract with Coventry (PPO) and it obligated to abide by the terms, regardless of whether the item is a covered expense or not. This is the way I have always understood it. This is the way I have explained to clients and have never had a problem.

I suspect the person he talked to at [the carrier] had no clue.

One of the benefits to network-driven plans (be they HMO’s or HSA’s) is that one is entitled to discounts on providers’ services. That is, one needn’t pay “retail” for a given procedure, or office visit, or prescription medication. We generally take these for granted, because most plans now include a network component.

Re-pricing is the process by which the insurance company applies those discounts to claims. I had never really given this much thought, and had also assumed that using a network provider resulted in a discount. Apparently, though, this is not always – or even usually – the case. In speaking with a number of my carriers (including the one in Bob’s email), it became readily apparent that any service which is not a covered benefit will not receive the discount.

This means that not only will that service not apply to the deductible, the client will pay full retail for the “privilege.” Talk about a double whammy!

I am somewhat ambivalent about this issue: on the one hand, it seems to me that the fair and reasonable way for carriers to handle this is to apply the discount, regardless of whether or not the service is “covered.” And there’s this: it’s unlikely that this would cost the insurer anything; they’re processing the claim and paying for the network anyway, so why not apply the discount?

On the other hand, if the contract (the policy) doesn’t allow for this, then the carrier is under no obligation to apply the discounts. And it appears that this is standard industry practice. That doesn’t necessarily make it right, but it also means that the carrier in this case is not out of the mainstream.

Another of my colleagues responded that “(t)he discounts are for the benefit of the carrier, which is passed to the insured client in the form of lower premiums and stop-loss limits. Since the deductibles and stop losses are exceeded by any substantial claims, the insurer is the true beneficiary of the discounts.”

This is a sensible and informed response, and addresses the underlying issues quite well.

While I’m not sure that this issue has been resolved, I am sure of one thing: do not assume that your insurance policy will work exactly as you think it will (or want it to). Ask ahead of time not only if a given service is covered, but whether is eligible for the network discount. After all, a penny saved…

Grand Rounds...

The best of the medblogosphere, hosted this week by the Geek Nurse (his epithet, not mine), with the whimsical theme: Is the glass half empty, or half full?

It's Carnival Time!

This week's installment of the Carnival of the Capitalists may be found at the Pro Hip Hop blog (yes, THAT hip hop). It's actually a pretty interesting (if offbeat) site. While you're there, check out Hayek, MD's post on the new implications of a seven year old study.

FoIB Personal Financial Advice hosts, appropriately enough, the current Carnival of Personal Finance. Five Cent Nickel has a heads up on some new money scams.

And, while not Carnival-related, our friend Joe Kristan has some timely -- and helpful -- advice for taking last-minute tax deductions. Thanks, Joe!

One Beellion Dollars!

Well, whaddaya know: according to a recent study, over the past three years, folks with HSA's have deposited almost $1 billion in their accounts.

Over 800,000 such accounts have been opened, with about 60 new accounts being added each month. Even more interesting: the average account balance is almost $1,200.

Now, naysayers will no doubt adopt the "glass is half empty" interpretation. But that would be misleading:

The typical "generic" copay plan has a $500 deductible, and another $1,000 of co-insurance (i.e. $1,500 out-of-pocket maximum), plus a higher premium. If we assume that most HDHP's use the $1,200 single (or $2,500 family), zero dollar coinsurance configuration, that means that the HDHP has already saved these consumers money.

How's that, you ask?

Pretty simple, really:

■ Singles would have a $1,200 out-of-pocket max, which the HSA now covers in full.

■ Families would have a $2,400 max, which is effectively reduced to $1,200, or $300 less than the co-pay plan.

Nice.

But it gets better: we're starting to see heavier competition for HSA deposits among banks, credit unions and other financial organizations as these balances continue to grow. The study projects that the number of HSA administrators or custodians could grow from 300 to 400 by year's end.

Not too shabby.

Alphabet Soup Decoded...

The blogosphere can be a wonderful thing. Case in point: this post over at Benefits Blog, which directs us to a handy chart outlining the differences between HSA's, HRA's and FSA's.

Hat tip: Joe Kristan at Roth & Co

Ch-Ch-Ch-Changes (in Long Term Care)

According to a new study, "69 percent of today’s 65-year-olds will eventually need long-term care. But for many seniors, this may simply mean help bathing, dressing or using the toilet."

Pennsylvania State University professor Peter Kemper, one of the authors, explains that “(n)eeding help with just one activity is not such a serious need for care, “(it) might be relatively easily provided by family.”[Ibid]

The study concluded that it's those folks already in nursing homes who are hardest hit. The study also projects that 37 percent of all 65-year-olds will need long-term care in a nursing home or assisted-living facility.

The timing of this study is interesting, as well: The Deficit Reduction Omnibus Reconciliation Act of 2005 is the new law that tightens Medicaid long term care eligibility rules and allows for the nationwide expansion of the Long Term Care (LTC) Partnership program. Some DRORA ’05 changes include:

■Extends the "look-back" period for the transfer of assets from three years to five years prior to applying for Medicaid coverage. Note on grandfathering : The five-year-look-back period will be phased in, since it will only affect transfers made after the law's effective date.

■Applicants will need to meet the required spend-down limits prior to the beginning of the penalty period.

■Legislation will deny Medicaid coverage for nursing home care to any applicant with home equity valued above $500,000 (up to $750,000 in some states).

The new law also expands the availability of LTCi partnership plans nationally. Each individual state has the opportunity to implement a Partnership program, with possible availability in some states as soon as this summer. Partnership policies help to protect state Medicaid budgets by requiring that the benefits of those qualifying insurance policies be paid before Medicaid benefits can be accessed. (The four existing partnership programs in CA, CT, IN, and NY will be grandfathered.)

These new partnership plans allow consumers to protect a portion of their assets that would otherwise be spent down prior to qualifying for Medicaid coverage - ensuring that more of the funds they've accumulated for retirement will be protected.

Under the expansion of these state partnerships, each state must have the same requirements for partnership and non-partnership policies. The objective is to have uniform requirements.

Basically, this means that any tax-qualified LTCi policy approved by a state insurance department (which meets the requirements of the federal partnership program) would qualify for asset protection, on a dollar-for-dollar basis, up to the policy maximum.

So what's the bottom line? The gummint is telling us - loud and clear - to begin taking this issue seriously and personally. That is, long term care will be less of a government-sponsored activity, and more our own responsibility.

On to Grand Rounds...

This week's roundup of the best of the medblogosphere is available for your edification. Hosted at Emergiblog, the eponymous theme centers on the Emergency Room.

Our friend Elisa at Healthy Concerns relates her own (surprisingly) good experience with the health care system. Recommended.

Carnival Monday!

This week, the Carnival of the Capitalists can be found over at Free Money Finance. Of particular interest to me was this story about going kosher at Micky D’s.

The Canadian Capitalist hosts this week’s Carnival of Personal Finance. “Penny wise and pound foolish” could be the title of this post from Roth and Co, which shows how a simple $4 could have saved $$ thousands. Ouch.

Back to Basics...

With all of our posts on Buy-Sell Agreements, Section 105 Plans, and Consumer Driven Healthcare, it’s easy to forget that there are still basic principles that undergird the insurance industry.

One such principle is that of “Moral Hazard,” another is “Insurable Interest.” I am moved to post about these two seemingly-simple concepts because of a conversation with a would-be client.

Seems that Mr Jones “owns” a home with his wife and their three grown, single sons. I use quotation marks to indicate that it really isn’t that simple:

Rob, his middle son, actually has the mortgage, and his name is the one on the title. His siblings and parents have agreed to help make the payments. There is no formal documentation … okay, except for the mortgage, there is no documentation. And that mortgage is for $205,000, with monthly payments over $2,000.

But wait, it gets better:

Rob has no actual income; he and his brothers just walked away from a failed landscaping business, en route to a new car business. Currently, they are all three “between jobs.” In fact, the only “steady income” is Dad’s $3,500 monthly check from Uncle Sam (don’t ask).

Which raises a few questions: how did Rob qualify for such a loan in the first place? What happens to Rob if any (or all) of his apparently none-too-responsible brothers decide to bail? What if Dad dies? Most of all, though, what has any of this to do with life insurance?

Well, turns out that they have all agreed that they need some, and apparently Dad drew the short straw. After an increasingly frustrating conversation (more than I really wanted to know, and yet not as much as I needed to know), it turned out that they all wanted $250,000 of coverage on each person.

Yes, I wondered that, as well.

The good news is that none of the five are tobacco users, or on any medications. Three, however, are substantially overweight, and Dad has a specific mental health condition.

Those are the facts, but what about the two principles to which I earlier alluded? Well, they come into play in a big way here:

Moral Hazard is defined as “the risk that coverage against a loss might increase the risk-taking behavior of the insured.” In other words, sometimes people are dishonest, or appear so. I work for my clients, but I represent the insurance carrier. I have an obligation to be careful about the risks I seek to place, even if that means that I sometimes have to walk away from a sale.

The second principle at work here is Insurable Interest. This means that in order to insure someone, one has to have some stake in that other person’s well-being. A husband obviously has a financial stake in his wife’s well-being, so he is said to have an “insurable interest.” My neighbor doesn’t have such a stake, so he has no such interest.

In this case, there was a lot of the first (moral hazard) and a lack of the second (insurable interest):

Rob owes the bank a lot of money (insurable interest), but lacks the means to pay for the insurance (moral hazard). His siblings (and parents) really have no demonstrable stake in Rob’s well-being: if he dies, it’s not like they’re on the note. Thus, they lack insurable interest.

Dad was upset to learn that I couldn’t help him. Of course, I wasn’t too thrilled, either: after all, no one pays me a commission to say “no.” I did run this by an underwriter first, of course, to confirm my suspicions. And I suggested to Dad that, if and/or when his progeny find gainful employment, and they confirm this informal agreement by means of a written contract, we could then revisit the situation.

But I’m not holding my breath.