Health Insurance Providers To Remove Lifetime Caps on Benefits This Week

19 September 2010 |

Health insurance providers must remove lifetime caps on benefits from all health insurance policies they renew or sell, starting September 23, 2010, according to a provision of the health care insurance reform legislation signed by President Obama in March.

The elimination of lifetime benefits caps means that people afflicted chronic medical conditions will no longer have to fear that they will exhaust the health care insurance benefits they otherwise are qualified to receive.

Currently, most health insurance companies cap the amount they will pay in benefits somewhere between one and two million dollars. The logic is simple: Leaving benefits open-ended increases the risk of enormous losses; as a result, policies covering such risk would be extremely expensive and, thus, uncompetitive in the marketplace. To make insurance affordable for the vast number of people who never incur million-dollar losses, insurance providers limited risks by capping benefits.

It might sound improbable that one person could possibly cost an insurance provider millions of dollars in losses, but it is not. Consider the case of Edward Burke, a hemophiliac who lives in Palm Harbor, Florida. Julie Rovner of National Public Radio profiled Burke this week to put a face on this provision of the Patient Protection and Affordable Care Act.  A doctor diagnosed Burke with hemophilia when he was a toddler in 1960. In the early part of the 1970s, drug researchers developed factor eight, a substitute for the blood factor that makes normal clotting possible, but that hemophiliacs lack.

Burke says factor eight is a medical miracle, allowing him and other hemophiliacs to lead somewhat normal lives. A bruise that normally would require a week of  treatment with ice packs and bed rest would heal in 24 hours with factor eight. The  wonder drug was not cheap, though. “It was easily about $900,000 a year for me to take factor eight prophylactically, as what we were told to do, to prevent bleeds from happening,” Burke told Rovner.

If Burke started taking factor eight in 1975 at the cost of $900,000 a year (adjusted for inflation), then he would have used $31.5 million worth of the drug by now. If he lives to 85, roughly another 35 years, he would add another $31.5 million to his claim, generating a total claim of $63 million all by himself.

At $900,000 a year, Burke could reach his lifetime benefit cap in just over a year. To stay on the drug, Burke would jump from one employer and to another. “After two years, you’d have to leave the company you were with, or go on—if you had a spouse, go on theirs, because you capped out,” Burke explained. This was something Burke did twice in the last seven years. (Note that he did not say he was denied coverage for his preexisting condition; as I have written before, by law group plans must accept enrollees regardless of preexisting conditions.) Burke said he might have switched jobs more often, but as it turned out the companies he worked for were the targets of takeovers and mergers. “The companies kept changing names and being acquired,” Burke explained, “so you started over again, or I would have capped out four or five times.”

Burke is thrilled that the new healthcare law eliminates benefit caps “The fact that they can’t cap me out is a huge blessing, if you ask me,” he said.

I can understand Burke’s relief, but I can’t help but think it’s short-lived. Open-ended benefits are unpredictable, unpriceable, and unsustainable, using the private insurance model.

As I have written before in this space, the foundation of insurance is shared risk. It can be expressed as an equation:

C = P ÷ L


C = The average per capita claim

P = The total payments in a period

L = The number of insured individuals

According to the U.S. Centers for Disease Control, there are an estimated 20,000 hemophiliacs living in the United States. If each of those hemophiliacs uses $900,000 of medication a year, that expenditure will add $18 billion a year to insurance losses, increasing the per capita claim of 100 million policyholders by $180. If the number of insured individuals stays the same or drops, then the total payments must also rise to cover the cost of the new, open-ended benefits being paid to hemophiliacs. This means the cost per person—the insurance premium will rise significantly.

Of course, hemophilia is not the only chronic disease that can generate costs that will surpass the previous lifetime benefit caps. Heart disease, the many forms of cancer, rheumatoid arthritis, HIV AIDS—these are just a few of the chronic medical conditions that, fully treated, can surpass $1 million in treatment over a lifetime.

The private health insurance model cannot sustain such losses, because it would make individual premiums unaffordable for all but the superrich. The only solution is to spread the risk among the entire population, not simply those who voluntarily consent to pay premiums. Compulsory taxpayer funding is the only way to pay for open-ended benefits. That way, the risk is spread among more people, and some—the “rich”—can be forced to pay much more in taxes than they would ever consent to pay in health insurance premiums.

Perhaps this is the direction the country should go. The trouble is, that is not how the health care insurance reform was sold. President Obama repeatedly told consumers that if they were happy with their private insurance, nothing would change. The debate should have been about whether or not we wanted to eliminate private health insurance and replace it with taxpayer funded, government-controlled healthcare.

I suspect that is a debate we will soon have.

I suggest that the mandate to eliminate lifetime caps be repealed and private insurance be preserved. If we as a people feel it is important to provide all care at all costs, the government could set up a taxpayer funded superfund to handle all health insurance losses that exceed lifetime benefit caps. That way, private insurance would continue to function as it does now for the vast majority of people who do not have million-dollar medical conditions, and those who do have such conditions will get help without adding a huge bureaucracy to our already bloated government.

Even the government will not be able to pay for open-ended benefits forever. At some point it will have to limit, or ration, care. At that point, government analysts will look for the places they can save the most money while affecting the fewest people. Edward Burke shouldn’t be surprised if he is among the first to see his benefits limited again. At that point, however, there would be no private insurance for him to turn to.

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Study Says Five Million Uninsured Kids Eligible for Subsidized Health Insurance

4 September 2010 |

A newly published study by Health Affairs finds that one fifth of the 25 million children who are eligible to receive free or low-cost, government-subsidized health insurance are not participating in the available programs.

Nationwide, 82% of eligible children are enrolled in taxpayer-subsidized health care insurance programs, but about 18%–a total of 5 million kids—are not.

Kathleen Sebelius, the Secretary of Health and Human Services called a press conference to challenge the states, which are responsible for implementing the federal programs such as Medicaid or Children’s Health Insurance Program, to do a better job. “The study confirms that a lot of states do a very good job,” said Secretary Sibelius. “But the study also gives us a much sharper focus on where kids are who need coverage.”

The states doing the best job of enrolling eligible children are concentrated in the East, especially the Northeast. The leading states are Maine, with 92% participation; Vermont, with 94% participation; and Massachusetts, with fully 95% participation. Of course, Massachusetts famously has had a statewide health care insurance program in place for about five years.

The states with the lowest participation are in the West, including Nevada, with only 55% participation; Utah, with 66% participation; Colorado, with 68% participation; and Montana, with 69%. Only one other state had less than 70% participation: Florida, with 69%.

The researchers behind the study expressed surprise that low-income children were much more likely to be enrolled in such programs than higher-income children were. The lowest participation in the programs came from families earning more than $88,000 a year, or twice the federal poverty rate $44,100 for a 4-person family.

These findings did not surprise me, however. I have found that families that can afford private health insurance often do not want to split the family between two plans, even if their children are eligible. In addition, many higher income families assume they are not eligible for programs, which they believe are for “the poor.” Even when they learn about their eligibility, some families balk at taking advantage of the government programs, either because of a social stigma attached to receiving government assistance or because they take pride in paying their own way.

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