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Benefit Design August 4, 2008 Chuck Milligan The Hilltop Institute was formerly the Center Benefit Design August 4, 2008 Chuck Milligan The Hilltop Institute was formerly the Center for Health Program Development and Management.

Overview n Policy dimensions of benefit design n Approaches to minimum benefits in insurance Overview n Policy dimensions of benefit design n Approaches to minimum benefits in insurance codes n Two case studies on the marginal cost of various marginal benefits These laws only touch insurance that states may regulate. ERISA pre-emption is an issue. -22

Policy Dimensions of Benefit Design 3 Policy Dimensions of Benefit Design 3

Defining a set of benefits involves resolving several policy trade-offs. . . n “Minimum Defining a set of benefits involves resolving several policy trade-offs. . . n “Minimum benefits” is a state’s determination of what constitutes “being insured” n “Minimum benefits” involves the balance between a given state’s determination of where to strike a balance between its role to protect its citizens, and its role to respect individual liberty/autonomy to purchase services in the market n “Establishing “minimum benefits” affects selection bias n “Minimum benefits” strikes a balance between coverage by private insurance and government programs that wrap around those benefits -44

. . . including the fiscal impact, and the standard of care. . . . . . including the fiscal impact, and the standard of care. . . n Approx. 30 states mandate a study of the cost of adding a new statutory minimum benefit before the benefit may be added (a form of fiscal impact report) n Some mandated benefits become clinically inappropriate as clinical standards change n Mandating a provider type = mandating a benefit (e. g. chiropractor) 5

. . . and including whether other nonbenefit design features should be made to . . . and including whether other nonbenefit design features should be made to affect affordability. n “Minimum benefits” also involves an underlying trade-off between covering more people with leaner benefits, or fewer people with more comprehensive benefits n Without eliminating benefits, alternatives exist to create “affordable” insurance: n n n Cost sharing rules Open vs. closed provider networks Utilization/authorization rules (and related grievance and appeals processes; second opinions; and other patient rights) -66

Approaches to Minimum Benefits in Insurance Codes 7 Approaches to Minimum Benefits in Insurance Codes 7

State-mandated health benefit requirements vary across the states. n All 50 states and D. State-mandated health benefit requirements vary across the states. n All 50 states and D. C. have mandates requiring carriers to include certain benefits. * n The amount and type of benefit mandates vary tremendously from state to state. * n In January 2008, states had over 1, 900 coverage mandates, cumulatively. ** n Mandates range from less than 20 in some states (AL, DC, ID) to more than 60 in others (MD and MN). ** n Approx 50 -60 new mandates are enacted each year, nationally. *GAO. (2003, September). Private health insurance: Federal and state requirements affecting coverage offered by small businesses. GAO-03 -1133. ** Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance. -88

Some states combine mandatory minimum benefit laws with discrete exemptions. n Some states have Some states combine mandatory minimum benefit laws with discrete exemptions. n Some states have enacted mandate-lite and mandate-free laws, often for young adults. n These laws allow carriers to offer some/none of the state-mandated benefits. n States with mandate-light exemptions include: AK, CO, FL, GA, KY, MN, TX, and WA. n As more states raise the age for children to be covered under parents’ policies (to age 30 in some states), adult children then covered under their parents’ policies may be under “full mandate” policies Source: State Coverage Initiatives. Coverage Matrix. http: //statecoverage. net/matrix/limitedbenefitplans. htm -99

The most frequently mandated benefits include: n Mammograms n Diabetes Supplies n Breast Reconstruction The most frequently mandated benefits include: n Mammograms n Diabetes Supplies n Breast Reconstruction (Post-Mastectomy) n Mental Health n Alcoholism Source: Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance. -1010

Individually, most mandated benefits don’t add a lot to the cost of premiums. . Individually, most mandated benefits don’t add a lot to the cost of premiums. . . Benefit # States Est. Costs Alcoholism 45 1% to 3% Alzheimer’s 2 <1% Ambulatory Surgery 12 1% to 3% Ambulatory Services 8 <1% Anti-Psychotic Drugs 3 <1% Autism 11 <1% Birthing Centers/Midwives 8 <1% Blood Lead Poisoning 7 <1% Blood Products 2 <1% Bone Marrow Transplants 11 <1% Bone Mass Measurement 15 <1% Breast Reconstruction 49 <1% Cancer Medications 3 <1% Cervical Cancer/HPV Screening 29 <1% Cleft Palate 14 <1% -1111 Source: Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance.

…because sometimes the service is not expensive, and sometimes the percentage of users in …because sometimes the service is not expensive, and sometimes the percentage of users in the group is small. . . Benefit # States Est. Costs Clinical Trials 23 <1% Colorectal Cancer Screening 28 <1% Diabetes Self-Management 27 <1% Diabetes Supplies 47 <1% Drug Abuse Treatment 34 <1% Early Intervention Services 3 <1% Hair Prostheses 10 <1% Home Health Care 18 <1% Hospice Care 11 <1% In Vitro Fertilization 13 3% to 5% Long-Term Care 4 1% to 3% Mammogram 50 <1% Mastectomy 24 <1% Maternity 21 1% to 3% -1212 Source: Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance.

…but for services with high costs, and a high percentage of users, a new …but for services with high costs, and a high percentage of users, a new mandate can add significantly to the premium (e. g. mental health parity, and Rx). . . Benefit # States Est. Costs Mental Health General 39 1% to 3% Mental Health Parity 47 5% to 10% Morbid Obesity Treatment 4 1% to 3% Newborn Hearing Screening 17 <1% Off-Label Drug Use 36 <1% Orthotics/Prosthetics 12 <1% Other Infertility Services 8 <1% Ovarian Cancer Screening 3 <1% Psychotic Drugs 2 <1% PKU/Formula 32 <1% Prescription Drugs 2 5% to 10% Prostate Cancer Screening 33 <1% Rehabilitation Services 8 1% to 3% Smoking Cessation 2 1% to 3% Well-Child Care 31 1% to 3% -1313 Source: Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance.

. . . and a few benefits appear in only one state. Benefit State . . . and a few benefits appear in only one state. Benefit State Est. Costs Athletic Trainer AR <1% Asthma Education CA <1% Ambulatory Cancer Treatment FL <1% Telemedicine GA <1% Breast Reduction ME <1% Wilm’s Tumor NJ <1% Drug Abuse Counselor NV 1 -3% Hormone Replacement Therapy NY <1% Cochlear Implant OR <1% AIDS Vaccines WI <1% Source: Bunce, V. C. , & Wieske, J. P. (2008). Health insurance mandates in the states 2008. Council for Affordable Health Insurance. 14

Two Case Studies on the Marginal Cost of Various Marginal Benefits 15 Two Case Studies on the Marginal Cost of Various Marginal Benefits 15

Many states are attempting to define benefit packages at the intersection of the market Many states are attempting to define benefit packages at the intersection of the market and publicly-subsidized programs. n Massachusetts, and other states, are seeking to define a “basic” benefit package n n Provide a public subsidy for low-income individuals to buy into the program No subsidy (full premium) for higher income people to buy the same package States are trying to use various Medicaid funds to subsidized programs that offer these “basic” benefits In general, these large pools increase the choice of products, but have a relatively small effect on the cost 16

A case study from The Hilltop Institute’s work in Rhode Island n In February A case study from The Hilltop Institute’s work in Rhode Island n In February 2007, Rhode Island considered moving higher-income Medicaid adults from a “full Medicaid” benefit to a basic benefit n Rhode Island had two goals: n n Short-term savings in a reduced benefit package for current Medicaid adults Creating a newly-defined “basic benefit” for a publicly-subsidized program that could also be offered privately to full-pay individuals n Rhode Island retained The Hilltop Institute to evaluate much money might be saved in the short term by moving adults from full Medicaid (in RIte Care) into various other potential benefit designs. n The specific comparison benchmarks were selected by Rhode Island n The only benefit change that significantly reduced the premium would have been to eliminate inpatient benefits, like the Utah Primary Care Network model. -1717

Rhode Island RIte Care Estimated Savings by Changing from Medicaid to Alternative Benefit Designs Rhode Island RIte Care Estimated Savings by Changing from Medicaid to Alternative Benefit Designs Rite Care (Medicaid) UT PCN Reduced Coverage – Inpatient Co-pays – Inpatient PMPM $ 37. 88 ARHealth. Net $ (37. 88) – – $(5. 31) $32. 56 Reduced Coverage – $ (3. 69) Outpatient Co-pays – $ (0. 41) $ (9. 61) $ 59. 94 $ 54. 43 Outpatient PMPM $ 64. 04 – Reduced Coverage – $ (8. 21) Professional Co-pays – $ (3. 06) $ (10. 84) $ 61. 28 $ 61. 71 Professional PMPM $ 72. 55 Reduced Coverage – Pharmacy Co-pays – Pharmacy PMPM $ 62. 47 Reduced Coverage – Home/Hosp Co-pays – Home/Hosp PMPM $ 0. 71 – ID KY – $ 37. 88 – $ 64. 04 – $ 72. 55 – $(6. 62) $ (9. 94) $ 55. 84 $ 52. 53 $ 62. 47 $ (0. 70) $ (0. 10) – $ 0. 00 – $ 0. 61 Reduced Coverage – $ (0. 45) Out-of-Plan Co-pays – $ (0. 87) $ (1. 40) $ 8. 01 $ 7. 92 $ 9. 32 $ (50. 92) $ (0. 70) $ (0. 10) $ (10. 97) $ (37. 09) $ 185. 07 $ 209. 16 $ 61. 89 $ 37. 79 Out-of-Plan PMPM Total Reduced Coverage Total Co-pays Grand Total PMPM Savings vs. Current Benefit $ 9. 32 – – $ 246. 95 – – RI BCBS – $ (0. 27) $ (0. 02) $ 37. 60 $ 37. 86 – $ (0. 72) $ (1. 82) $ 63. 31 $ 62. 22 – $ (1. 94) $ (7. 79) $ 70. 61 $ 64. 76 – $ (1. 99) $ (21. 19) $ 60. 48 $ 41. 27 – $ 0. 71 – $ 0. 71 $ (8. 71) $ (0. 18) $ (0. 03) $ 9. 14 $ 0. 57 – $ (8. 71) $ (5. 11) $ (30. 85) $ 246. 86 $ 241. 85 $ 207. 39 $ 0. 10 $ 5. 11 $ 39. 57 Source: Center for Health Program Development and Management. (2007, February). Reforming RIte Care for parents: Fiscal impact assessment for Rhode Island Medicaid. -1818

With 6, 383 affected enrollees, the potential annual savings to RI of alternative benefit With 6, 383 affected enrollees, the potential annual savings to RI of alternative benefit designs ranged from $7, 467 to $4. 74 million (2007). State PMPM Annual Cost Annual Savings RI* UT PCN ARHealth. Net $185. 07 $246. 95 $18, 915, 728 $14, 175, 547 - $4, 740, 181 ID $209. 1 6 $246. 86 $16, 020, 98 2 $18, 908, 261 $2, 894, 74 5 RI BCBS $241. 8 5 $207. 39 $18, 524, 377 $15, 885, 060 $391, 35 7, 467 1 3, 030, 668 Reflects total dollars – state and federal. * N = 6, 383 Source: Center for Health Program Development and Management. (2007, February). Reforming RIte Care for parents: Fiscal impact assessment for Rhode Island Medicaid. -1919 KY

Achieving political support for the reforms in Massachusetts partly depended on the state’s minimum Achieving political support for the reforms in Massachusetts partly depended on the state’s minimum benefit laws. n An individual mandate was palatable to some only if: n n n As a result, the Massachusetts model was dependent on the mandatory minimum benefit law that was already in existence in MA, plus n n n There was a subsidy for people below 300% FPL AND Individuals would be protected in the market because carriers couldn’t offer “skinny” benefit packages: the coverage would be good Rx was added as a new required benefit The combination of Rx plus the state-mandated benefits is defined as “Minimum Creditable Coverage” to fully meet the standards of the individual mandate Penalties will be assessed against individuals who fail to purchase coverage that meets this standard -2020

Yet Massachusetts also created exemptions to the Minimum Creditable Coverage rules. n Young adults Yet Massachusetts also created exemptions to the Minimum Creditable Coverage rules. n Young adults (19 -26) are exempt from some of the Minimum Creditable Coverage standards: n n RX coverage is optional Federal Health Savings Accounts are also exempt from Minimum Creditable Coverage standards Source: 956 CMR § 5. 00 -. 03 and 211 CMR § 63. 01 -. 08 -2121

Massachusetts recently studied the costs associated with its minimum mandatory benefit laws. n n Massachusetts recently studied the costs associated with its minimum mandatory benefit laws. n n n Related to its comprehensive reform, the legislature required a study of the cost of mandatory minimum benefits; it was completed July 2008 In FY 05, spending on mandated benefits was $1. 32 billion, or 12% of premiums Five mandates accounted for 80% of this ($1. 07 billion) – maternity, mental health, home health, infertility, and preventive care for kids The “true net cost” was much less, on 3 -4% of premiums, “because of federal laws and the likely behavior of insurers and employers in the absence of state mandates. ” “[M]ost of the mandates appear to be cost-effective. However. . . consider removing mandates for benefits that are no longer the standard of care, such as bone marrow transplants for breast cancer. ” Source: Comprehensive Review of Mandated Benefits in Massachusetts Report to the Legislature, July 7, 2008, accessed at: www. mass. gov/Eeohhs 2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits. pdf -2222

Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005 Mandate Claims costs PMPM Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005 Mandate Claims costs PMPM (Required Direct Cost Claims) Claims + Administration PMPM (Required Direct Cost PMPM w/Admin) Percent of Premium Maternity care (including minimum maternity stay) $9. 61 $11. 18 3. 73% $402, 071 Mental health $5. 70 $6. 63 2. 21% $238, 576 Home health $4. 98 $5. 80 1. 93% $208, 536 Preventive care for children up to age 6 (including specific newborn testing) $2. 89 $3. 36 1. 12% $120, 745 Infertility $2. 31 $2. 68 0. 89% $96, 469 Diabetes supplies/svs. $1. 28 $1. 49 0. 50% $53, 507 Contraception $1. 14 $1. 33 0. 44% $47, 756 Cytologic screening (Pap smear) $1. 07 $1. 25 0. 42% $44, 923 Mammography $0. 99 $1. 15 0. 38% $41, 262 Early intervention $0. 98 $1. 14 0. 38% $41, 033 Chiropractic svs. $0. 31 $0. 36 0. 12% $12, 806 Hospice care $0. 16 $0. 18 0. 06% $6, 648 Lead poisoning screening $0. 14 $0. 16 0. 05% $5, 894 -2323 Total Annual Spending (000 s) (Required Direct Annual Cost Total)

Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005 (continued) Mandate Claims costs Estimated Annual Spending in Mandated Benefits in Massachusetts, FY 2005 (continued) Mandate Claims costs PMPM (Required Direct Cost Claims) Claims + Administration PMPM (Required Direct Cost PMPM w/Admin) Percent of Premium HRT $0. 14 $0. 16 0. 05% $5, 824 Cardiac rehab. $0. 10 $0. 11 0. 04% $4, 099 Clinical trials for treatment of cancer $0. 07 $0. 08 0. 03% $2, 907 HLA $0. 09 $0. 10 0. 03% $3, 633 Hearing screening for newborns $0. 05 $0. 06 0. 02% $2, 152 Speech/Hearing $0. 03 0. 01% $1, 160 Non-Rx $0. 02 0. 01% $814 Low protein $0. 01 0. 00% $336 Scalp hair prostheses $0. 01 0. 00% $263 Alcoholism rehab. - - 0. 00% - Bone marrow transplants for treatment of breast cancer - - 0. 00% - Off-label uses of Rx to treat HIV/AIDS - - 0. 00% - $31. 50 $36. 62 12. 2% $1, 320, 000 GRAND TOTAL* Total Annual Spending (000 s) (Required Direct Annual Cost Total) *Overlapping coverage between mandates has been removed from the total. Source: Comprehensive Review of Mandated Benefits in Massachusetts 24 Report to the Legislature, July 7, 2008, accessed at: www. mass. gov/Eeohhs 2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits. pdf

Questions Charles Milligan, Executive Director The Hilltop Institute at UMBC 410. 455. 6274 cmilligan@hilltop. Questions Charles Milligan, Executive Director The Hilltop Institute at UMBC 410. 455. 6274 [email protected] umbc. edu www. hilltopinstitute. org The Hilltop Institute was formerly the Center for Health Program Development and Management.