Benefit Design

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Benefit Design

• August 4, 2008
• Chuck Milligan

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Overview

• Policy dimensions of benefit design
• Approaches to minimum benefits in insurance codes
• 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.
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Policy Dimensions of Benefit Design
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Defining a set of benefits involves resolving
several policy trade-offs . . .

• Minimum benefits is a states determination of
  what constitutes being insured
• Minimum benefits involves the balance between a
  given states 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
• Establishing minimum benefits affects
  selection bias
• Minimum benefits strikes a balance between
  coverage by private insurance and government
  programs that wrap around those benefits

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. . . including the fiscal impact, and the
standard of care . . .

• 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)
• Some mandated benefits become clinically
  inappropriate as clinical standards change
• Mandating a provider type mandating a benefit
  (e.g. chiropractor)

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. . . and including whether other non-benefit
design features should be made to affect
affordability.

• Minimum benefits also involves an underlying
  trade-off between covering more people with
  leaner benefits, or fewer people with more
  comprehensive benefits
• Without eliminating benefits, alternatives exist
  to create affordable insurance
• Cost sharing rules
• Open vs. closed provider networks
• Utilization/authorization rules (and related
  grievance and appeals processes second opinions
  and other patient rights)

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Approaches toMinimum Benefits inInsurance Codes
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State-mandated health benefit requirements vary
across the states.

• All 50 states and D.C. have mandates requiring
  carriers to include certain benefits.
• The amount and type of benefit mandates vary
  tremendously from state to state.
• In January 2008, states had over 1,900 coverage
  mandates, cumulatively.
• Mandates range from less than 20 in some states
  (AL, DC, ID) to more than 60 in others (MD and
  MN).
• 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.
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Some states combine mandatory minimum benefit
laws with discrete exemptions.

• Some states have enacted mandate-lite and
  mandate-free laws, often for young adults.
• These laws allow carriers to offer some/none of
  the state-mandated benefits.
• States with mandate-light exemptions include AK,
  CO, FL, GA, KY, MN, TX, and WA.
• 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/limitedben
efitplans.htm
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The most frequently mandated benefits include

• Mammograms
• Diabetes Supplies
• Breast Reconstruction (Post-Mastectomy)
• Mental Health
• Alcoholism

Source Bunce, V.C., Wieske, J.P. (2008).
Health insurance mandates in the states 2008.
Council for Affordable Health Insurance.
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Individually, most mandated benefits dont add a
lot to the cost of premiums . . .
Source Bunce, V.C., Wieske, J.P. (2008).
Health insurance mandates in the states 2008.
Council for Affordable Health Insurance.
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because sometimes the service is not expensive,
and sometimes the percentage of users in the
group is small . . .
Source Bunce, V.C., Wieske, J.P. (2008).
Health insurance mandates in the states 2008.
Council for Affordable Health Insurance.
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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) . . .
Source Bunce, V.C., Wieske, J.P. (2008).
Health insurance mandates in the states 2008.
Council for Affordable Health Insurance.
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. . . and a few benefits appear in only one state.
Source Bunce, V.C., Wieske, J.P. (2008).
Health insurance mandates in the states 2008.
Council for Affordable Health Insurance.
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Two Case Studies on theMarginal Cost ofVarious
Marginal Benefits
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Many states are attempting to define benefit
packages at the intersection of the market and
publicly-subsidized programs.

• Massachusetts, and other states, are seeking to
  define a basic benefit package
• 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

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A case study from The Hilltop Institutes work in
Rhode Island

• In February 2007, Rhode Island considered moving
  higher-income Medicaid adults from a full
  Medicaid benefit to a basic benefit
• Rhode Island had two goals
• 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
• 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.
• The specific comparison benchmarks were selected
  by Rhode Island
• The only benefit change that significantly
  reduced the premium would have been to eliminate
  inpatient benefits, like the Utah Primary Care
  Network model.

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Rhode Island RIte Care
Estimated Savings by Changing from Medicaid to
Alternative Benefit Designs
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Source Center for Health Program Development and
Management. (2007, February). Reforming RIte Care
for parents Fiscal impact assessment for Rhode
Island Medicaid.
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With 6,383 affected enrollees, the potential
annual savings to RI of alternative benefit
designs ranged from 7,467 to 4.74 million
(2007).
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.
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Achieving political support for the reforms in
Massachusetts partly depended on the states
minimum benefit laws.

• An individual mandate was palatable to some only
  if
• There was a subsidy for people below 300 FPL AND
• Individuals would be protected in the market
  because carriers couldnt offer skinny benefit
  packages the coverage would be good
• As a result, the Massachusetts model was
  dependent on the mandatory minimum benefit law
  that was already in existence in MA, plus
• 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

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Yet Massachusetts also created exemptions to the
Minimum Creditable Coverage rules.

• Young adults (19-26) are exempt from some of the
  Minimum Creditable Coverage standards
• 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

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Massachusetts recently studied the costs
associated with its minimum mandatory benefit
laws.

• 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.
• Most 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/Eeohhs2/docs/dhcfp/r/pubs
/mandates/comp_rev_mand_benefits.pdf
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Overlapping coverage between mandates has been
removed from the total. Source Comprehensive
Review of Mandated Benefits in Massachusetts
Report to the Legislature, July 7,
2008, accessed at www.mass.gov/Eeohhs2/docs/dhcfp
/r/pubs/mandates/comp_rev_mand_benefits.pdf
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Questions

• Charles Milligan, Executive Director
• The Hilltop Institute at UMBC
• 410.455.6274
• cmilligan_at_hilltop.umbc.edu
• www.hilltopinstitute.org