Managing Health Plan Costs After the Removal of Annual and Lifetime Limits

If you watch television at all, you probably have a pretty keen awareness that there are all kinds of new and amazing drugs on the market these days. Some cure previously incurable diseases and even save lives.

But these drugs and other emerging therapies carry price tags that can reach into the hundreds of thousands, if not millions, of dollars in health care costs and create a potentially catastrophic risk for plan sponsors. Ryan A. Siemers, CEBS, discusses the challenge in his article, “It Could Happen to Your Health Plan: Managing the Rising Costs and Risks of Rare Disease,” in the December issue of Benefits Magazine.

“These high-cost treatments elude traditional health plan controls. Being aware of and managing this risk is crucial for all health plan sponsors, particularly those with self-funded plans, where one claimant alone can severely impair the plan sponsor’s finances,” writes Siemers, who is a principal at Aegis Risk LLC.

Managing Health Plan Costs After the Removal of Annual and Lifetime Limits

A New Financial Runway

Prior to the passage of the Affordable Care Act (ACA), most health plans had individual lifetime, and possibly annual, dollar limits on benefits. The typical lifetime limit was around $1 million to $2 million. Providers, especially hospital systems, knew this common limitation as well and rarely billed beyond those amounts, Siemers explains.

ACA began removing lifetime limits for plan years after September 20, 2010 and annual limits were prohibited as of January 1, 2014. Health care providers and specialty drug providers “took note of this new unlimited funding ‘runway’ for rare or less common medical conditions,” the article states. Providers could move forward with expensive treatments without having to transfer patients to Medicaid. Pharmaceutical companies now had an additional incentive to develop therapies for diseases that affected small populations because health plans would have to reimburse the cost.

HBCE

The pipeline of these therapies will not slow down any time soon, Siemers notes. In January 2019, the FDA announced that it expects to approve ten to 20 gene and cell therapies a year by 2025. In the recent 2020 Large Employers’ Health Care Strategy and Plan Design Survey by the National Business Group on Health (NBGH), the No. 1 pharmacy benefits concern for plan respondents is how to finance these FDA-approved treatments with million-dollar price tags.

What Can Self-Funded Plan Sponsors Do?

While many may have stop-loss insurance, which insures or reinsures self-funded health plans, Siemers warns that no plan sponsor should be carefree, thinking that “stop loss will just cover” high claims.

Financing Solutions

Plan sponsors and their health plan administrators are actively seeking solutions to finance the high price of these therapies. Those developed so far include:

  • Installment payments to spread the cost of expensive therapies over multiple years
  • Risk pooling with multiple plans. Some large health insurers have announced they are developing programs that would cover gene therapies that cost above a certain threshold for a per member per month fee.
  • Outcomes-based pricing, which would tie ultimate reimbursement to the clinical effectiveness of therapies.

Stop-Loss Insurance

Stop-loss continues to protect self-funded health plans from catastrophic claims. But Siemers cautions that plan sponsors should be careful when choosing a stop-loss insurance underwriter and designing a stop-loss policy.

Siemers recommends the following considerations to minimize the impact of catastrophic claims related to high-cost drugs or therapies.

  • Obtain or verify “mirroring” of terms in the health plan document and those in the stop-loss policy. Stop-loss policies should exclude any parallel language in the policy and defer to terms in the approved summary plan description (SPD).
  • Pursue a stop-loss policy with no lasering at renewal and a renewal rate cap increase. Lasering means to exclude or limit a specified claimant from coverage.
  • Ensure the health plan administrator and/or pharmacy benefit manager has a focused program to authorize and approve administration of gene therapies and other costly specialty drug regimens.
  • Clearly address the use of gene therapy in the plan document, including defined limitations and criteria for use.
  • Seek financially strong stop-loss underwriters able to withstand and pay claims.
  • Mind the disclosure of high claimants at stop-loss placement and (if required) renewal.
  • Seek an informed, experienced advisor on placement of stop-loss coverage.
Understanding Stop-Loss Insurance
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Siemers concludes: “ACA had impacts both fleeting and lasting on employer health care costs. The removal of all annual and lifetime limits by 2014 opened the pathway to new therapies which, while life-preserving, have also thrust upon plan sponsors a new financial risk. Few can deny the attributes of these medical advancements, but plan sponsors should remain vigilant to ensure that they are properly used and reimbursed.”

[Related Reading: 3 Things to Consider When Deciding on Stop-Loss Insurance]


Kathy Bergstrom, CEBS
Senior Editor, Publications, at the International Foundation

Trustees and Administrators Institute

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