Last week, we talked about the oncoming wave of super high cost treatments for fairly rare to very rare diseases. These treatments are priced in the millions. They may be cost-effective and cost-savings from a societal point of view with a long time horizon but they are not cost-effective from an insurer’s point of view that has a one or two year time horizon.
I want to illustrate this a bit more from the point of view of an ACA insurer. I’ll be using the 2021 Risk Adjustment reports from CMS to outline my numbers and NBPP 2021 for my risk adjustment co-efficiencts. We’ll take hemophilia as the case example as the Wall Street Journal article had some good info on this very rare and super high cost disease.
The most recent one approved in the U.S. set a price record: $3.5 million for CSL Ltd.’s Hemgenix, a treatment for the blood disorder hemophilia B….
The condition is rare, affecting only about 6,000 people in the U.S., of whom about 1,900 have severe enough cases to require frequent Factor IX replacement infusions aimed at preventing serious bleeds, according to CSL. These repeat treatments, which CSL also makes, can cost millions of dollars over a lifetime, according to CSL….
A study found that a one-time Hemgenix treatment decreased subjects’ need for routine Factor IX replacement and reduced their bleeding episodes. Some 94% of the patients discontinued Factor IX prophylaxis.
Let’s assume ACA insurers are profit seeking (even if not all of them are actually good at finding profits after losing 90% of their IPO value). Let’s assume that insurers profit seek by trying to cover people whose net expenses are less than their net revenue. Let’s assume that insurers have some ability above random chance to actually identify marginal members who may or may not be profitable and can act on that belief in a rational way by chasing away likely money losers and attracting likely money makers on the margin.
Now let’s look at what a $3.5 million dollar singly year payment for a disease looks like from the point of view of an insurer.
The expense is easy $3.5 million dollars goes out the door. Net expenses are a tiny smidge less as the treatment will lead to the meeting of the out of pocket max of $8,000+. That is just over 1 part in 400.
The revenue is a bit harder. It will vary by state. Let’s take North Carolina just to make things simpler. North Carolina had an average premium of $546 per month in 2021. This is heavily weighted by a bunch of older people buying silver and gold plans. The optimal plan for a hemophiliac is the cheapest plan with a desired network, so they’re probably buying a bronze plan. But with those caveats, the insurer is getting $6,500 in premium. Again, this is almost nothing but there is another program that kicks in some money. Risk adjustment uses diagnosis codes to move money from insurers that have a population that is coded as cheaper than average to insurers that populations that code as more expensive than state wide average.
Hemophilia has a multiplier (HCC 066) between 69.794 and 70.505 depending on what metal level the enrollee purchased. The multiplier is applied to the state average premium and adjusted by geographic cost factors to produce an individual level specific expected cost of a disease. Hemophilia in North Carolina in 2021 would produce a non-geographically adjusted transfer value of $462,465 for the highest co-efficient value. This is 13% of the treatment costs.
Premium + Cost Sharing + Risk Adjustment ~ $477,000
Right now, anyone that needs this treatment guarantees a $3 million dollar loss for the insurer.
Insurers are very motivated to avoid guaranteed losses that they can predict with a reasonable amount of confidence.
But wait, there is more.
The Centers for Medicare and Medicaid Services has operated an insurer funded high cost risk pool since 2018. This money is used to pay a chunk of the claims for individuals that are over $1,000,000.
For the 2021 benefit year, the highcost risk pool reimburses issuers for 60 percent of an enrollee’s aggregated paid claims costs exceeding $1 million.14 To fund these payments, the high-cost risk pool collects a charge from issuers of risk adjustment covered plans that is a small percent of an issuer’s total premiums.
For someone who has $999,999 in claims, the risk pool pays their insurer nothing. For someone with 1,000,001 in claims, the insurer gets $0.60 from the risk pool.
The risk pool eligible component of the treatment is everything from $1,000,000 to $3,500,000. The risk pool will pay 60% of $2.5 million dollars. The risk pool pays $1.5 million and the insurer pays $1 million.
So now, the insurer is guaranteed to lose $1 million from the non-risk pool increment over a million dollars and $523,000 from the sub-million dollar increment that is not covered by cost-sharing, premium or risk adjustment.
The insurer that covers patients who receive this treatment in the contract year are looking at a $1.5 million dollar loss.
Sometimes insurers might be happy to take that loss as it could be way smaller than the cost of treating a super-outlier. We’ve discussed an individual who had consistent million dollar months before. If an insurer is covering this individual, they’ll be throwing elbows and making large donations to the hospital executive’s spouse’s favorite charity (which coincidentally employs three of their kids and five cousins) to get members of this miniscule class of people into the front of the line to get treated on January 2nd of the new contract year. In that rare case, this super high cost drug is a massive and immediate cost saver.
But most of the time, there is not prospectively strong predictors of who precisely will be a super-outlier. Most years, most individuals who have hemophilia-B are “relatively” cheap relative to the risk adjustment payment level where their costs might only be a “few” hundred thousand dollars.
In that case where there is far less information on who precisely will be financially beneficial to the insurer to pay for a single super high cost treatment, insurers will treat the class of patients with hemophilia as a near guaranteed money loser and then they will run like hell through very creative means to minimize the possibility that they are the ones who pay for the treatment.
We need to fix out risk adjustment systems to remove this run like hell incentive.
Baud
Happy New Year!
Starfish
@Baud: Happy insurance deductible reset day. May you live in the type of good health that does not exhaust insurance deductibles in January.
Wvng
Happy New Year. Fascinating case study. Thank you for your years (decades?) of explaining how stuff works!
Baud
@Starfish:
I actually intentionally injure myself on Jan 1 so I don’t have to worry about the deductible for the rest of the year.
Starfish
David, how many of the patients that need these very expensive treatments are not in the private insurance market and are on medicaid and disability? Would the government have better incentive to go for it on this stuff?
J R in WV
First, a TYPO report, in the discussion of the high risk pool… When you say
Do you really mean sixty cents as in $0.60… or do you mean 60% of something???
Also, as to people switching insurers frequently… We have had exactly two auto insurers in the past 40 years, and one home insurance since we received a mortgage loan to build the newer house. My former employer has a retirement Medicare supplemental (Humana) which I have had since I aged into the Medicare population, and before that I had Humana via my former employer.
I guess you have the data to prove that people change their health insurance often, but it seems contrary to human nature to me. Which is why you are the health care researcher, and I’m a retired environmental software builder.
Happy New Year to all the Jackals!!
Starfish
@J R in WV: People change jobs, and those job changes lead to health insurance changes.
Employers may change insurance policies if the costs change. They may change policies, or they may have the employees pick up more of the difference.
“Keep your insurance if you like it” from the Republicans was completely a scam.
WaterGirl
This was scheduled to go up at 8 am and I discovered it sometime after 9 am.
Starfish
@WaterGirl: WordPress partied too hard on New Year’s Eve and was not up to the task.
WaterGirl
@Starfish: Or, WordPress has a totally fucked up system for publishing scheduled posts at the right time, which everyone knows about but which WordPress will not fix!
(not yelling at you)
Another Scott
Thanks for elaborating on this topic.
I guess I am still not feeling any sympathy for the insurance company. They know that they are in the business of taking premiums from a large group of people and paying bills from a small group of people and having plenty left over to pay for salaries and hookers and blow. Expensive diseases have been around forever.
Companies and industries can and will argue for changes to reimbursement systems so that they maintain their profits. Bobby Hemophiliac doesn’t have the ear of too many lobbyists and lawmakers and regulators.
The trouble with treating the $3.5M treatment as something extraordinary is that once you “solve” that, what do you do about the $2.5M treatment, or the $0.9M treatment, or the $500/pill treatment? Insurance companies cannot argue that they must make money on every single policy holder – that’s not how insurance works. How, when people can change insurance every year? Dunno. But it has to involve looking at the company as a whole, and not the single person making the claim, IMHO.
(E.g. if Bobby Hemophiliac eats all the profits this year, then the company has a big tax deduction next year seems like a reasonable quick and dirty solution, at first glance.)
Thanks.
Cheers,
Scott.
J R in WV
Some months ago, last fall, the woman in front of me at the pharmacy counter was shocked by a $750 charge for a prescription, and asked where’s the insurance payment on this drug? Experienced pharma tech brought her the detailed bill, and showed her where the med actually cost $2,900, and her $750 charge was the co-pay. She was dumbfounded, thunderstruck, and took the bill with her to show the doctor. There were other ‘scripts she bought that cost $700 odd dollars, but she expected that one.
I told her her only chance to do anything about that situation was to vote straight Democratic next month, she looked at me over her shoulder and said “You got that right!” I was lucky — she could have been a Trumper, but not.
Another Scott
@J R in WV: Not David (nor Richard), but I don’t think that’s a typo.
Company gets 60% of amount over $1M. So, if they are one dollar over $1M, then they get $0.60.
HTH.
Cheers,
Scott.
Fake Irishman
Ouch. I’m sure that hurt the feelings of some executive at Oscar. You should be ashamed of yourself Mr. Anderson.
Jaybird
@Starfish: Deductible? Slacker – I usually meet my OOP by 2/1
StringOnAStick
We used to get our insurance through my husband’s job, and the insurance companies and options offered changed every year, so that’s some of the churn in the market.
I’ve known a couple of people who had super rare, expensive to treat conditions, both were blood disorders that required expensive transfusions. At the time I knew them (1980’s), it was a constant struggle to get treatment, and without it the would die. I suspect that given all the turmoil in the insurance market before the ACA passed, they both died from being uninsurable in a state with classic RW frontier mentality and a tiny pool of state money for people like them (WY).
Schtreaky
@Another Scott: I agree with you and take issue with Mr. Anderson labeling a required payment for services from an insurance company as a “loss.” That may be the insurance industry’s term for any money that is paid (and isn’t used for hookers and blow), but it creates a false sense of hardship for the insurers.
Chris T.
That low? Really? I’m coughing up about $2400/mo now in WA (to cover two people not quite old enough for Medicare)…
David Anderson
@Schtreaky: I understand what you mean, but yes, I am using the jargon of the industry at the moment.