Los Angeles, CA—New health insurance benefit designs are being created with various cost levers to help cover expected expenditures. A primer on these designs was offered by Matthew C. Palmgren, PharmD, President, Int’Ovation Healthcare Solutions, at the Fourth Annual Conference of the Association for Value-Based Cancer Care.
The fundamental law of insurance is that the revenue generated (ie, premiums) must be greater than the sum of all indemnities (ie, expenses). Actuarial fairness states that a fair premium is the same as the expected expenditure. An insurer needs to insure a population and not just an individual for an actuarially fair premium to cover the expected health expenditures.
“The reality is that it comes down to revenue versus expenses,” Dr Palmgren said. “Premiums minus costs is equal to profits to healthcare companies.”
The New Benefit Design Landscape
Under the Affordable Care Act (ACA), health plans must spend a minimum of 84% of their previous year’s health insurance premiums on healthcare services—the medical loss ratio (MLR). MLR rebates are mandated under the ACA when insurers do not spend at least this minimum percentage on healthcare services. The services offered fall under 10 essential health benefit categories.
Although there may be limits on services, there can no longer be monetary caps within the deductibles on services, said Dr Palmgren. Copayments and deductibles at varying levels are becoming common for some healthcare services, such as inpatient services (ie, skilled nursing facilities, home healthcare) and outpatient services and sites (ie, office visit, mental healthcare, urgent care, ambulatory surgery, rehabilitative services).
“Specialty office visits might have a different copay than primary care,” he said. “You can see how complex this gets very quickly. About 10 years ago, we’d probably just assign one copay for all of these [services]. Now, we’re constantly trying to tweak the system to make it affordable with the premiums.”
Using copays to steer patients to desired settings is another trend, said Dr Palmgren. Because emergency care is the most costly care, patients who would normally consider emergency care are being shifted to urgent care when possible.
Services for which limits (and deductibles) are often considered include outpatient diagnostics and outpatient ancillary services (ie, hearing services).
In addition to copays and deductibles, other benefit design cost levers include exempted procedures and medications and coinsurance (a percentage of the negotiated price).
The pharmacy benefit is ripe for cost levers. The actual pharmacy cost to a health plan is calculated as the prescription cost minus the coinsurance multiplied by utilization. Drivers of the pharmacy cost are protected classes, mandatory coverage (ie, contraception), and mandatory tier placement.
Pharmacy cost levers include network contracts, manufacturer rebates, deductibles, formularies, and preferred pharmacy copays. Under the ACA, the costs for medications when a nonnetwork pharmacy provider is used are not covered (Table).
With respect to pharmacy services, more insurers are covering over-the-counter medications, Dr Palmgren indicated, and others are considering coverage of investigatory medications.
Previously, plans were not sophisticated enough to break out the medical and pharmacy deductibles. “They’re very sophisticated now,” he said. “Now, you can have a medical deductible, a pharmacy deductible, or an integrated deductible.”
Qualified Health Plans
Under the ACA, qualified health plans in the Exchange have targets for the coverage of the actuarial value of benefits. For bronze plans, the target is 60%; for silver, 70%; for gold, 80%; and for platinum, 90%. Catastrophic plans are available only to individuals aged ≤30 years who are exempted from the mandate to purchase coverage.
Access to Exchange plans and monthly premiums are established by county. Bronze plans incorporate a 20% coinsurance for a physician visit or generic prescription after the deductible is met, up to the maximum out-of-pocket expense. With most bronze plans, the deductible mimics the maximum out-of-pocket expense, said Dr Palmgren. A silver plan reduces the coinsurance to 10% after the deductible, at the cost of a higher monthly premium but with a lower deductible.