Commenter Redshift asked a good question last week about cost sharing, actuarial values and premiums in relationship to medical expense ratio:
do co-pays and coinsurance and deductibles figure into the medical loss ratio at all, or just premiums? Because if they don’t, it seems like a perverse incentive to just shift around how they make their profits – they charge lower premiums, as required, the approved charge amounts for doctors stay the same, but they’re paying less of it. Or is there something wrong with my math
Let’s make a very simple static model where the cost sharing does not change behavior, but just shifts costs. It is an unrealistic model, but it is a useful first swing at the problem.
Before we do that, let’s define terms. Premiums are money being paid by you or the Feds or your employer to the insurance company. Medical Expense Ratio is the quotient of medical expenses paid by the insurer divided by total premiums (large groups must pay 85% of their premiums in claims/medical management/quality improvement efforts, small groups and individual pools must pay at least 80% of their premiums out. The remaining 15% to 20% is what is used to run the company, pay me, hire hookers and buy blow). Cost sharing is what you pay in addition to your monthly premium. It can be deductible, co-insurance or co-pays.
So back to the simple model. Let’s assume there is a big risk pool of 10,000 people with an average expected medical expense of $10,000 per person for a total annual cost of $100 million dollars.
A plan with 100% actuarial value will have no cost-sharing at all. The company will charge probably $110 to $118 million dollars to cover medical expenses and overhead as well as eating the tail risk of multiple unexpected multiple organ transplants. This is a super-Platinum plan and with this plan design, it can not be sold on the Exchanges as the benefits are too righ. Perfectly healthy people get the same deal as deathly ill people.
Let’s move the plan design to a standard Platinum where the insurance company will take on 90% of the expected claims costs. This means there will be a $500 deductible and $15 co-pays for specialist visits up to a maximum out of pocket of $1,000. The insurance company expects to pay out $9 million dollars in claims, so it can charge no more than a net of $10.6 million in premiums (anything over that, the insurer has to refund at the end of the year). The other million dollars in expected medical expenses will be paid for by the deductible and co-pays. Healthier/luckier people will get a slightly better deal than sicker people.
Moving on down to a basic Silver plan, the insurance company will take on 70% of the expected costs. They’ll offload the first $2,500 in expenses as a member deductible and have co-insurance for the next $5,000. The insurer expects to pay out $70 million and collect $82 million. The rets will be paid for by the individual members of the risk pool. Healthy/lucky people will get a much better deal than really sick people.
Going back to the original question, co-pays, deductibles and co-insurance indirectly play into medical expense ratio limits as these are the ways that actuarial value is reduced from 100% to one of the ACA metal bands. A certain metal band leads to a certain set of premiums which leads to the total premiums allowed to be collected once MLR is factored in. Adding too much individual payments on top of premiums drops the actuarial value down a band, which drops total collectable premiums.
Redshift
Okay, I think I get it. Do the MLR requirements for employer-based plans work out similarly? If there are equivalents to the Exchange band levels, they certainly aren’t made clear to the customer.
Scamp Dog
10,000 people times $10,000 is $100 million, or am I missing a factor of ten from some other source?
Of course, this doesn’t really change the point of this post, which is about the ratio of payments to the insurer vs. their payouts.
Redshift
Also, and unrelated health insurance question for the general peanut gallery — has anyone encountered a pharmacy telling you that when you’re trying to get a refill that a prescription has expired, despite the fact that it has refills and the label says “x refills by 5/28/15”?
I have a prescription that the pharmacy says “expired” after six months and needs a renewal from the doctor. When I asked further, they said that for some medications, the prescription expires after a year, for others, after six months. This isn’t for getting the initial prescription filled, it’s for refills. The doctor wrote it for a number of refills and quantity for each that couldn’t possibly have been used in six months, so obviously he didn’t know about this. They’re saying “sorry, if that happens, you just lose those refills.”
Furthermore, when I asked if there was any way we could have known about this, so we could make an appointment if the doctor required it, they said no, they don’t know about it until you try to fill it. Luckily we don’t wait until the last minute to get refills, but if we were, this would mean getting an emergency appointment or going without an essential medication.
The whole thing just seems insane. My wife has chronic medical conditions, so I’ve gotten a lot of prescriptions over the years, including for this medication, and I’ve never encountered this before. The pharmacist is treating it like it’s a normal thing, not a new requirement; if it was, it would still be stupid, but at least more understandable.
I would think it was our insurance trying to avoid paying for something, but it doesn’t seem like it makes any difference for them whether it’s a refill or a new prescription.
Has anyone else ever encountered this?
Lee
This is one of those posts, that after reading I think: “I didn’t even know I wanted to know this, but I’m glad I learned about it”.
Lee
@Redshift:
Yes but we got a different song & dance. The pharmacists told us that we had to get a another appointment & Rx because the are not allowed to fill it after N months without a new Rx. IIRC, it was for pain meds for my father-in-law.
Gin & Tonic
@Lee: The regulations surrounding controlled substances are usually better-known by pharmacists than by doctors.
Sister Rail Gun of Warm Humanitarianism
@Redshift: I’ve seen that in two circumstances. One is the pain med situation Lee mentioned. The other is when tests for certain side effects are recommended more often than at the yearly physical.
Richard Mayhew
MLR requirements for large groups are in play as well. Large group MLR must be 85% or higher as a collective pool for an insurer. Company X might have an MLR of 82% but it is balanced by Company Y having an MLR of 93% because of a string of bad luck.
Redshift
@Lee: Huh. I’m certain we’ve never had this before for this particular medication, which she’s been on for years. I wonder if they were just not enforcing it before, and got told to tighten up.
ETA: The fact that we got no warning is what really bugs me. If they’d told us after the last refill, it would have been no big deal. Now we have a doctor who’s not being responsive, and are reduced to pill-counting.
richard mayhew
@Redshift:
These things change fairly frequently and most often for drugs of abuse and drugs with nasty side effects. A co-worker of mine has been on a maitenance med for years and was told at his last fill-up that he now needed a blood test and a new script every quarter before he picked up the 90 day supply.
orogeny
A question…if someone gets a policy through the Exchange, and it has a $6,000 deductible, do they have to pay $6,000 for medical services before any of the insurance benefits kick in?
Mary G
@Redshift: I think it’s something new. I have been on a bunch of drugs for years, like since 1985, and they just sent me a batch through mail order, and the form says one refill instead of the three on the prescription, because the prescriptions are only good for six months instead of a year, as it was previously.
And these are not pain pills or any type of controlled substance. One is a steroid and the others are RA meds that are not for pain.
richard mayhew
@orogeny: With a couple of exceptions (preventative services, contraceptions, annual physical/ob-gyn visit etc), yes, the policy holder would pay the first $6,000 in expenses at the rate contracted between the medical service provider and the insurance company before the insurance company pays a penny.
orogeny
Thanks, Richard. Just to clarify, would that apply to things that have copays? For example, would the insured pay full price on a doctor’s visit until their deductible is satisfied?
KithKanan
@orogeny: This varies from plan to plan. Look at the plan description for details. HSA-compatible plans the high deductible must be met before the copays apply (including the drug copay) for anything but the preventive care Richard mentioned. Other plans the drug copay may start immediately or have a separate, lower deductible. Some plans may also have a certain number of office visits in a year at the copay price before the deductible is met. I’ve seen all of the above here in CA.
Richard mayhew
@orogeny: yes… Deductible first, if any left over then copay and coinsurance
KithKanan
@Richard mayhew: This is probably the case on a $6000 deductible policy, but not always the case on all policies.
@orogeny: The best way to tell is to look at the boxes on the table listing the deductible/copay for the preventive services Richard mentioned above ($0 copay, no deductible by law).
Then look at the boxes on the table listing the copay/coinsurance for something like inpatient hospital facility fees that are almost certainly “after deductible”.
How do those boxes differ? Either the preventive will have some way to let you know (‘no deductible’, ‘deductible waived’, or similar.) or the hospital will have something like ‘deductible applies’. Then compare those two boxes to the box for things like the office visit copay that you’re curious about.
orogeny
Thank you both! I’m trying to help out a diabetic friend who hasn’t had insurance for years, and I’ve had employer-provided HMO insurance for the last 25 years or so. I never realized what a pain health insurance was for those who don’t get it through their employer.
One more argument for single-payer.
KithKanan
@orogeny: Is your friend in a healthcare.gov state, or a state that runs its own exchange?
orogeny
@KithKanan:
Healthcare.gov
KithKanan
@orogeny:
Okay, it looks like usually on the “see plans” view, healthcare.gov will say “after deductible” for the things the deductible applies to. I don’t 100% trust it for some of the bronze plans. You may be able to get a different view of the same plan by following the “see plan brochure” link. Find your plan in the plan brochure, see what it says about deductibles there, and pay careful attention to asterisks.
The one thing I really don’t like about healthcare.gov and the standardized Summary of Benefits and Coverage form is that it confuses more than it clarifies for services the deductible only applies to in SOME CASES (it completely skips over the ‘first x Primary Care Provider office visits at $y copay, after that deductible applies’ information that’s part of many Bronze plan designs).
orogeny
@KithKanan:
If my friend decides on a policy, can he speak directly to the insurance company before he commits? I don’t see any phone numbers on the Exchange listing.
KithKanan
@orogeny:
Sorry, I don’t know exactly how that works with healthcare.gov. I live in CA which runs its own exchange.
That said, the “Summary of Benefits” and “Plan Brochure” links on healthcare.gov plan descriptions do seem to usually take you to the insurance company’s website, and from there you might be able to find a contact phone number.
orogeny
Thanks. I’ll get him to try that. I really appreciate the time…y’all have been a lot of help.
Mnemosyne (iPhone)
@orogeny:
If your friend is on any regular medication for his diabetes, I would strongly advise him NOT to get a high-deductible policy if at all possible. Many of the current policies have separate prescription and doctor visit deductibles, so he may end up paying way more out of pocket than he thinks. Even if he feels the pinch monthly, he may ultimately save more money over the course of the year with a Silver policy that has better prescription drug coverage.
Yerbauce
@Redshift: Yes, for controlled substances and if the doctor decides to limit the refills. Between fear of the DEA and reinforcing patient compliance, I don’t think our clinic writes any medications for more than 6 months outside of baby aspirin and glucose test strips. .
@orogeny: I manage billing for a diabetes clinic in CA, and can tell you that (and please take this with a significant grain of salt!) our exchange patients are much happier with HMO plans in terms of getting care and paying for their medications. PPO plans sound great because of the flexibility but the out of pocket is still a discouraging burden for our lower income patients, so most of the patients who signed up for PPO in 2014 are on HMO this year and many are still paying down their deductilbles a year later. I don’t know how the healthcare.gov plans are handled in regard to local HMO groups, though so maybe that’s not available in your area.
J R in WV
@Redshift:
Pain medication is a whole separate world of confusion. Now I can only get one prescription per doctor visit, for one month of pain meds…
It costs $80 to get the prescription written, and $5 copay for the actual drugs. Still worth it if you really hurt, but really, come on!
I’m having shoulder replacement, the first one is done, and later this week I’ll learn when I can get the other shoulder done. It hurts much worse than the post surgical shoulder at this point, which is a problem because I’m still not supposed to use the newly implanted titanium shoulder for anything like heavy lifting.
I really like working – building things, by myself or with a group of neighbors! I suspect that is over for me now.
I have questions for my surgeon, obviously. Hard questions….
Roger Moore
@Yerbauce:
I’m not surprised by your point about HMO vs. PPO. I’m with Kaiser, and the lack of a deductible is very nice. I had a health scare recently, so I’ve been going in for a bunch of tests and consultations, and I have a good chance of making it through the whole process for less than $200 out of pocket. I would probably be most of the way through my deductible already if I were on a PPO.
Roger Moore
@J R in WV:
Hopefully only until you’re done with rehab after the surgery. You should be able to go back to using them for heavy work once the bone has properly knit with the Ti.
J R in WV
@Roger Moore:
I sure hope so. Thanks for the encouragement!
I have hobbies (building big things, cabinetry, rock collecting with a big M F hammer and chisels…) that I really like. He did tell me to stop taking NSAIDs because they inhibit bone growth into the new metal joint, so maybe the sooner I get the left one done the sooner I can get back to work.
I think stopping the naproxen is why my other shoulder hurts so much more than it did!
Maybe next summer I can go mining crystals and gemstones again!
There are bookcases to be built, and filled!
Retirement is supposed to be fun, isn’t it?
orogeny
@Mnemosyne (iPhone):
I’m trying to convince him to go with an HMO plan. There’s a platinum HMO plan available for roughly the same ans the Silver PPO plan he bought this year that only has a $100 deductible. He’s hung up about the whole HMO thing though.
mclaren
@Scamp Dog:
No, you’re correct — this is typical of the arrogance and ignorance and incompetence of highly-paid corporate scammers like Richard Mayhew.
Mayhew can’t even handle a 5th-grade multiplication table, yet he gets paid 6 figures per year to run health care accounting for his giant health insurance corporation.
Reminiscent of the grossly ignorant incompetent draft dodger Cheney becoming vice president and running the invasion planning for Iraq. Standard operating procedure for Shithole America in 2015, in other words. Naturally Mayhew corrected his flub without acknowledging it, just as the Bush crew claimed their invasion was a huge success without acknowledging their grotesque failures.
I’d really like to congratulate Richard Mayhew for showing us a brutally specific example of what’s gone so badly wrong not just with health care, but America in general these days. If you want to know why the United States is so badly fucked up, ladies and gentlemen, the answer stands before you — his name is Richard Mayhew.
Ruckus
@J R in WV:
Retirement is supposed to be fun, isn’t it?
What is this fun retirement thing you speak of?
J R in WV
@mclaren:
You can certainly handle being an arrogant son-of-a-bitch with all the panache of a downtown Republican pimp.
You ability to attempt to crush (but fail) someone for a common slipped decimal is amazing. Mayhew knows more about insurance when he is in a coma-like sleep than you would taking an open-book exam. This becomes obvious when comparing his work on B-J with your “work” on B-J, which is all to punch down at people who are actually so far above you that your attempts to punch are comedy.
You are a defective troll, and I will now enter your identifying odor into my troll exclusion software so I will never again be compelled to repel you with actual words. You are lower than pond scum, down with the disease-causing bacteria, so that it makes everyone wonder how it is that you can type words and send them around the innertubes.
I wish I was a good writer, so that I could make this a 7 word definition of your soul, a definition that would make everyone say “That’s mclaran, to a tee!” and then shudder. But sadly, I’m not that good, so I have to use many words to describe the depth to which you must plunge to subsist. Below pond scum, though, is a pretty good start.
Now, go away, rejoin your brother crepuscles, and be silent, for evermore !