Using
Transplant Carve Outs to Make Self-Funded Benefit Costs Predictable
By Chuck Newton, Evergreen Re
Employee benefits
are a hot-button issue. While most companies recognize the importance
of benefits in recruiting and retaining the best employees, the
hard-dollar costs are spiraling upward with no relief in sight.
In an effort to exert some control over costs and plan design,
many companies have turned to self-funding their benefits programs.
Self-funding
is most effective for large companies. In a self-funded scenario,
the employer becomes the primary risk-bearer and assumes what
would typically be the insurance company's role. Instead of paying
for a traditional group-health policy, the employer establishes
cash reserves to cover the claims of its employees. While a company
may save money by not paying premiums to the insurance company,
one unpredictable, expensive event can dramatically impact the
bottom line.
| Transplants
are expensive and typically take 18-24 months from initial
diagnosis to completion of the therapy. For this example,
assume that an employee is evaluated for a liver transplant
in June and placed on a waiting list. A match becomes
available in November and the transplant procedure is
performed November 30. Total transplant-related expenses
for evaluation, organ procurement, hospital, physician,
follow-up care and immunosuppressant drugs for one year
after the transplant amount to $250,000.
The
following chart shows the potential impact to the
employer's claim costs with a transplant carve-out,
self-funded plan with reinsurance and self-funded
plan without reinsurance.
| Health
Plan Claim Impact |
With
Transplant Carve-out Policy |
With
Employer Stop Loss - $100,000 Deductible |
With
No Employer Stop Loss |
| Reinsurance
year 1 (1/1-12/31) Claims Jun 1 - Dec. 31 |
$0
|
$125,000
|
$125,000
|
| Less
Specific Deductible |
Not
applicable
|
$100,000
|
$0
|
| Stop
Loss Reimbursement |
Not
applicable
|
$25,000
|
$0
|
Reinsurance
year 2 (1/1 - 12/31)
Claims Jan 1 - Nov. 30 |
Covered
under policy year 1
|
$125,000
|
$125,000 |
| Less
Specific Deductible |
Not
applicable
|
$100,000
|
$0 |
| Employer
Claim Cost |
$0 |
$200,000 |
$250,000 |
In
addition, if the employer purchases specific reinsurance
coverage, the claimant could impact the overall availability,
rate and deductible level for the reinsurance policy
for Reinsurance Year 2. Or, the employer could face
the potential exclusion of (also known as "lasering"),
or higher specific deductible for the employee under
the reinsurance policy.
With
a transplant carve-out policy, the employer pays a
predetermined amount of premium in return for predictable
health plan costs and no claims liability.
|
|
Because self-funding
is often a response to increased premium, stability and predictability
of costs are critical. The unforeseen, catastrophic claim poses
the most risk to a self-funded program. Traditionally, self-funded
employers have purchased specific stop-loss insurance to protect
themselves from the severity risk of catastrophic claims and aggregate
stop loss to protect against higher than expected total claims.
Advances in medical technology have made it difficult for payors
to make educated estimations of next year's expenses based on
last year's activity. This is why many companies are exploring
other techniques to protect them from financial variations. Managed
transplant insurance programs are an emerging solution to this
problem for companies with 500 or more employees.
A managed
transplant insurance program is a way for an employer to transfer
financial obligation for solid organ and bone marrow transplants
to a third party. Typically, risk is transferred on a "first
dollar" basis for services provided 10 days prior to a transplant
procedure through 365 days following the transplant and covers
the full "episode of care." This is in contrast to an
employer stop-loss policy, which restricts reimbursements based
on incurred and paid dates.
Companies
are taking advantage of transplant carve outs because healthcare
is evolving so rapidly. The number of transplant procedures has
doubled in the last ten years and the number of people on waiting
lists has tripled. Technological advances, such as segmental and
tandem transplants, immunosuppressant drugs and mismatch criteria,
will contribute to the increased numbers of procedures.
By carving
out solid organ and bone marrow transplants with managed transplant
insurance, employers can protect themselves from 100 percent of
the costs of procedures conducted at in-network hospitals. In
addition, most plans cover organ and tissue harvesting, travel
benefits for the patient and companions and most immunosuppressant
drugs. Most transplant carve-out programs assign a patient advisor
to help select the most appropriate facility and guide the patient
through the process.
For employers,
a transplant carve out provides flat per-member per-month pricing
that enables them to budget for transplant claims evenly throughout
the year. For a self-funded employer, carve outs also remove the
risk of lasering from stop-loss coverage and may positively impact
availability, deductibles and stop-loss premium rates.
Purchasing
a Carve-Out Program
Most companies engage the services of a professional healthcare
consultant or broker when contemplating carving out portions of
a self-funded program. A broker works for the company, not the
carve-out provider, and can assess levels of risk, recommend program
alternatives and secure competitive proposals.
Working with
a specialized broker can also reduce the time and expense of evaluating
multiple vendors. The broker will ensure that the company contracts
with a vendor that is well capitalized and has the credentials,
database and history of providing specialized care management
cost effectively and with excellent outcomes. A broker will also
provide a realistic view of the risks, costs and estimated savings
associated with a particular program.
An additional
benefit of some carve-out insurance programs is the transfer of
medical liability. In many cases, the employer's financial risk
and medical-management liability is transferred to the carve-out
provider. In these situations, questions such as who qualifies
for procedures and who gets paid are the responsibility of the
carve-out vendor, rather than the employer.
Conclusion
Carve-outs are a valuable tool for large employers that self fund
their employee benefits. The strategic use of carve-outs provides
added predictability and transfer of liability while providing
continuum of care and benefits for employees.
