Wellmark in Iowa has a great example of the benefit changes of the ACA and their costs:
Wellmark Blue Cross & Blue Shield is sending letters this week telling about 30,000 customers it plans to raise their premiums by 38 percent to 43 percent next year….
She said about 10 percentage points of the increase stem from the costs of a single, extremely complicated patient who is receiving $1 million per month worth of care for a severe genetic disorder.
Pre-PPACA or with current grandfathered/grandmothered plans that are not ACA compliant, Wellspan would have had a pair of outs. The first one would be that they could have underwritten individuals with severe genetic risks out. They might not be able to say that they are writing out based on genetics but they could write them out on the basis of past service history. The second out would be the lifetime limit. Most individual policies would have stopped paying after $1 million or $5 million in claims.
So what would that have meant in a pre-PPACA world for the patient? Most likely the patient would quickly run through their private insurance. At that point, s/he would most likely either qualify for Medicaid, put on charity care or left to die.
From a policy perspective, it is completely unreasonable to expect a 30,000 person risk pool to absorb one of the top ten claims in the nation. I am slightly surprised that Wellmark does not have reinsurance or stop loss policies on their plans unless they figure that they can self-insure because they are big enough as a corporation to eat the loss of one unlucky division. Risk adjustment does not help as risk adjustment does a decent job of calculating average costs of conditions. A $12 million dollar a year claim episode is an extreme outlier so a risk adjustment transfer might only move a small fraction of the total claim cost to Wellmark.
National re-insurance could be a viable solution. We had talked about a life panel approach where Medicare would act as a claims repricer for a certain set of conditions before.
we identified a set of big chronic conditions that are impossible to game or upcode, this could be an interesting proposal that reduces private medical premiums, and total net medical spend.
Let us take cystic fibrosis and hemophilia as examples. These are conditions that can’t be faked on a chart and can be easily verified. They are also very expensive conditions. Insurers with small risk pools in a particular region/product can be destroyed by having an unnatural cluster of CF or hemophilia members that they cover. Each condition can cost $300,000 or more per personper year to treat. Fifty or more very low utilizers in an exchange or commercial plan are needed to generate sufficient surplus to cover one CF person.
Moving these very high cost individuals to Medicare immediately lowers the medical expenses of the privately insured groups as some of their highest cost members have been removed. This means lower premiums (and for those who think insurers are inherently evil, lower potential profits as the MLR requirements kick in). Medicare tends to pay a lower rate for services than commercial and Exchange plans. The rate for Exchange plans is usually Medicare plus a bit, while large employer groups tend to pay at Medicare plus a lot.
A plan like this could be financed by a covered life set-aside. Every month, every person covered by a fully insured product would see $5 of their premiums go to the national super catastrophic risk re-pricer pool to cover the people who have $8 million/year claims. This would create a defacto national super high cost risk pool that is adequately funded while removing some of the expensive cases from insurers’ books by paying those claims at Medicare rates instead of higher Exchange or commercial rates.
And yes, this type of plumbing work-arounds would not be needed in single payer system but we’re not in that world today nor likely to be in it next year.
And here is the appropriate response to seeing a $12 million dollar claim.