Good lord that is a lot of money

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.

35 replies
  1. 1
    Richard Bottoms says:

    What could possibly cost $1,000,000 to do? Seriously, they need to justify every nickle they claim it costs to treat this patient. For that kind of money you could build a clinic, hire a doctor and a three nurses & some orderlies whose only job is to treat this person.

  2. 2
    Ruviana says:

    I am very much not an insurance quant but when I saw the OP I wondered about inflated charges for treatment. I’ve been following the woman who writes this blog and if I understand her correctly her state (UT) disallows certain treatments that would be better for her because of cost. I wonder if some of what the patient in the OP is getting could be cheaper. And then also chronic conditions, which this obviously is, are expensive in some sense since they never go away.

  3. 3
    Betty Cracker says:

    @Richard Bottoms: That’s what I’m wondering too. Or maybe the only drug that treats this condition contains Unobtainium. Jesus, this seems absurd.

  4. 4

    @Richard Bottoms: My bet without seeing the chart as I don’t work for Wellmark and talking about the chart would be a massive HIPAA violation if I had actually seen it was the individual has some type of coagulation disorder with a very rare set of complications and s/he is on a very long bleed.

    That is the most common source of claims where the annual pay-out is sufficient to pay market rates for a second baseman who can actually hit a curveball.

  5. 5
    OzarkHillbilly says:

    @Betty Cracker:

    Or maybe the only drug that treats this condition contains Unobtainium.

    Ding ding ding

  6. 6
    dr. bloor says:

    @Richard Bottoms:

    Seriously, they need to justify every nickle they claim it costs to treat this patient.

    I’m going to take a wild stab in the dark here and guess that Wellmark has made them do exactly that, several times over.

  7. 7

    @dr. bloor: Yep… we start being anal retentive assholes when claims hit $25,000 for a single incident… I can’t imagine how much of an anal retentive asshole their high cost claims team is when you talk about a million dollars a month where even a 3% savings pays for itself.

  8. 8
    rikyrah says:

    this is a very interesting story, Mayhew

  9. 9
    TriassicSands says:

    @Richard Bottoms:

    Valeant probably bought the medication this person needs and raised it’s price to $990,000 a month.

  10. 10
    negative 1 says:

    @Richard Bottoms: There are certain immunodeficiency conditions that are supposedly unworldly to treat. I agree it sounds ludicrous but there is sort of a ‘point of ridiculousness’ of cost at the long tail of insurance claims. At the end of the day taking some of the world’s most highly trained specialists to devise a protocol from scratch is going to make it whoa expensive, and that will always happen. It’s better to design a way to account for that than pretend it doesn’t happen, because any kind of compromise a.) probably causes death for those folks and b.) can be used as ‘the ACA stole my healthcare!1!!’ fodder.

    National reinsurance is a good idea and a great first step towards single payer.

  11. 11
    Mary Jo says:

    Doesn’t “national reinsurance” already happen for most adults, in terms of getting on SSD + Medicare (eventually)? I suppose that doesn’t happen universally though.

  12. 12
    Jack the Second says:

    I personally find these stories very comforting, since if I had a condition that a million dollars a month would keep from killing me I’d like my insurance to cover it.

  13. 13
    Brachiator says:

    @Richard Mayhew:

    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.

    Even if we accept that this part of the increase was unavoidable, how does Wellmark justify the other 28 to 33 percent increase?

    Also, how do countries with universal coverage deal with people who require extremely costly medical treatments? There may be an assumption here that the cost is primarily due to excessively expensive drugs and that this is dealt with through tough negociated price controls. But does it come down to the promise of these countries to simply absorb potentially infinite costs and to raise taxes as necessary? Does any country have a class of illness that they may limit total payments even if they do not refuse treatment?

  14. 14
    amygdala says:

    Curious as to whether the patient is at home or hospitalized. There has been attention lately to folks who can only stay alive in the ICU. That kind of care, plus the need for a few very pricey drugs, could generate bills that high.

  15. 15
    liberal says:

    @Brachiator: I thought Britain’s NHS did this, or used to do this. They make a utilitarian cost/benefit analysis. The benefit is in terms of added months of life, adjusted for quality, or something like that.

    IMHO paying $1M/mo to keep someone alive is nuts. Maybe it’s just me.

  16. 16
    amygdala says:

    @Brachiator:

    Also, how do countries with universal coverage deal with people who require extremely costly medical treatments?

    Depends on the country, but there are treatments that the the UK’s NHS does not cover because the benefit has been deemed too low for the cost. That’s a contentious discussion, obviously, but policy folks have devised measures that can be calculated in order to make comparisons.

  17. 17
    liberal says:

    @Jack the Second: LOL. And people wonder why we spend almost 20% of GDP on health care.

  18. 18
    negative 1 says:

    @liberal: No, it’s not just you, but it’s easy to see how your viewpoint of ‘worth it’ may change if it were you (or your spouse, or your kids…)

  19. 19
    Eric U. says:

    300 million people could afford to keep this person alive. 30000 people can’t.

  20. 20
    WarMunchkin says:

    Aren’t these guys screwed though? Unless they have some sort of regional monopoly, I’d imagine that most patients could switch to other insurance providers during the next open enrollment period and make this company’s pool even smaller.

  21. 21
    burnspbesq says:

    Reinsurance was the first thing that came to my mind, but the folks who write that stuff didn’t fall off the turnip truck last week. Wonder whether it’s available at reasonable cost (or available at all).

  22. 22
    Eric U. says:

    @burnspbesq: it’s obviously not available to them now.

  23. 23
    Xantar says:

    In slightly related news, Oklahoma might end up expanding Medicaid because otherwise they’re left with a $1.3 billion hole in the budget.

  24. 24
    Wayne says:

    Using the $12m for one patient to justify big cost increases is a smoke screen.
    $12m / 30,000 = $400/year or $33/mo. Not in my opinion a significant amount.
    Somethings not right.

  25. 25
    liberal says:

    @negative 1: So? That doesn’t make it good public policy.

  26. 26
    MomSense says:

    @Richard Mayhew:

    My bet without seeing the chart as I don’t work for Wellmark and talking about the chart would be a massive HIPAA violation if I had actually seen it was the individual has some type of coagulation disorder with a very rare set of complications and s/he is on a very long bleed.

    Yup, a coagulation disorder would do it.

  27. 27
    pat says:

    Just got off the thread from Prescott Cactus about end-of-life issues and hospice care (a wonderful thread, btw) and I’m wondering what sort of quality of life this expensive patient is living.

  28. 28
    Jack the Second says:

    @liberal: I mean, I’m willing to see some parameters on medical spending like not spending money on bunk like chiropractic, homeopathy, acupuncture, or other treatments that don’t work and I don’t think we should necessarily, forcibly keep people alive just to die miserably, more slowly.

    But if there’s a million-dollar-a-month treatment that works and gives someone a good quality of life? That’s exactly why insurance exists, to amortize insane costs across large risk pools.

  29. 29

    @Wayne: $33 PMPM is massive especially if the average monthly premium is ~$400 or so. 1 person is eating up a significant portion of the total available funds. And yes, that is what insurance is truly for, taking on extreme tail risk and distributing it over a massive population, but this is truly extreme tail risk that most pools aren’t able to absorb.

  30. 30
    Ruviana says:

    Since so many of the comments here seem to touch on the issues in the blog I linked to in my earlier comment, I’m going to relink it. Wendy has a number interrelated autoimmune diseases and is on an incredibly small disability check. She is entirely disabled and the major portion of her disability goes to her (subsidized) rent. A treatment that would give her very good quality of life has been legally disallowed by her state, Utah, as too costly for taxpayers. It’s a different view when you are seeing or reading about someone living it.

  31. 31
    Wayne says:

    @Richard Mayhew: OK. I was relating it to my monthly here in south florida. That makes the full increase of 40% = $160 on top of the $400 monumental.

  32. 32
    liberal says:

    @Jack the Second:

    That’s exactly why insurance exists, to amortize insane costs across large risk pools.

    Frankly, that’s idiotic. No one has a right to live at outrageous expense. If a cost is insane, it shouldn’t be funded. IMHO if someone is costing society $1M/mo, it’s time to pull the plug.

    You could make the same argument that any expense, spread over a large enough pool of payers, is OK because the per-payer cost is small enough. It’s not a sufficient argument for justifying costs.

    Now, of course, if a pool of people voluntarily purchase an insurance agreement that affords them this kind of protection, then more power to them. But I doubt that applies here.

  33. 33
    Pamoya says:

    Rather than expect a small pool to bear the cost here I think it makes sense for the extremely expensive outlier patients to be covered by Medicaid. But this seems a little weird to me. I’m not sure exactly how Wellmark sees this working out so I must be missing something. If one plan is $33 a month more than the other plans in the area, solely to support one extremely expensive patient, won’t people just switch plans? And can’t they game the system to try to get rid of the extremely expensive patient? Or perhaps they are doing this but also trying to recoup costs from last year?

  34. 34

    @Pamoya: yes to everything. My expectation is there are serious conversations to drop the critical hospital/specialists for this one patient from the network. Also Wellmark is going on Exchange to get subsidies to minimize price shock

  35. 35
    different-church-lady says:

    @Betty Cracker:

    Or maybe the only drug that treats this condition contains Unobtainium.

    Why can’t they just use the generic equivalent?

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