Higher Lifetime Maximums On Health Insurance
HR 6528, introduced by CA Representative Anna Eshoo, would increase the lifetime benefit maximums on group health insurance policies to $5 million in the first two years of coverage, $10 million in the third and fourth years, and would then index upward according to the consumer price index for subsequent years.
Undoubtedly this is one of those bills that it’s hard to be against. Higher lifetime maximums on health insurance policies provide a measure of relief to people with serious chronic health conditions. Here in Colorado, the Wilkes family would be able to focus on their little boy’s health rather than how to pay his medical bills. If the purpose of health insurance is to protect against catastrophic loss in the event of a health problem, it’s unconscionable to have situations where people run out of benefits. Not having coverage for the first few thousand dollars of a claim (in the case of a high deductible) is manageable. But not having coverage for the second million dollars of a claim is a bit tougher to get around.
America’s Health Insurance Plans (AHIP) opposes the bill because they say that it doesn’t address the real problem – rising health care costs. I agree that we need to get a handle on health care costs, since that’s what driving the health insurance premiums. Most health insurance companies are in business to make profits regardless of the cost of health care. So when health care costs increase, so do health insurance premiums – they’re not giving anything away for free. We absolutely need to put cost-control measures in place throughout the entire health insurance industry. But that’s not going to happen overnight. And unfortunately, people can hit their lifetime maximums overnight.
Lifetime benefit maximums generally don’t change as a policy ages. So a policy that was marketed in the 90s with a $1million maximum (which would probably have been fine 15 years ago) will still have that $1million benefit maximum, which is far from fine today. We’re seeing a lot of newly introduced Colorado health insurance policies with much higher lifetime maximums these days ($5 – $8 million as opposed to mostly $1 – $2 million several years ago). But older plans mostly still have the lower limits. For most people, they’re fine. But for those cases when a lifetime maximum is reached (and it’s not so rare anymore, as medical costs continue to climb), the consequences are shattering for the patient. Care might be discontinued, or the patient will go bankrupt – there aren’t a lot of other options.
While we try to sort out the hows and whys of runaway health care costs (and hopefully reign them in a bit), we need to make sure that health insurance is truly protecting the insureds. We can do this by eliminating the lifetime maximums on private health insurance policies, or by instituting a government-run reinsurance program to pick up the tab once it exceeds a certain amount. Higher deductibles on policies could help health insurance companies control the costs associated with lifting the lifetime benefit maximums. That way everyone would be paying a little more for health care in the form of a slightly higher deductible, but the trade off would be that people with truly catastrophic health problems would not have to worry about running out of coverage. One way or another, we can all afford to make payments on an extra $500 or $1000 to meet a higher deductible. But very few of us can come up with an extra few million dollars to pay medical bills. That’s why we have health insurance – but it doesn’t do us any good if we hit the lifetime maximum before the end of our lifetimes.
Louise:
Do you think that by simply increasing the lifetime maximums for a slightly higher premium that the insurers will not try to creatively use even more ploys to not pay the higher benefits?
Just because the contract is worded in a certain way, does not mean that insurers will abide by the spirit of the contract.
Couldn’t these higher maximums be merely a way to attract business in which the insurer intends to work out the details at a later date?
Don Levit
I sometimes speak with the actuaries at various insurance companies about plan design. And they will regularly say that a lifetime maximum above $2 million does little to raise the premium. So they don’t see much of a risk of people going beyond that number right now.
Jay:
I agree with you.
And, to supply catastrophic coverage is the function of insurance.
The problem with having one policy of, say, $10million of benefits, is that the lower claimants are having to inequitably subsidize the higher claimants.
Even though the policy may provide for $10million of benefits, you may have participants who feel that, morally, it is improper to lean on the other participants to that great of an extent, even if the chances of that happening are minor.
In a world of finite resources, $10million of potential benefits, or worse, unlimited benefits, can be a morally objectionable use of the community’s limited resources.
It is only because of the community, that an individual claimant can secure catastrophic benefits.
It is up to the community, in my opinion, to place reasonable limits on those benefits, even in a life and death situation.
Don Levit
Don:
Moral or not, the purpose of health insurance is to protect against catastrophic events that would bankrupt the insured.
But the point of my comment was that it doesn’t matter. The actuaries are like the odds makers in Vegas. If they saw the increase in potential benefits as a possible drain on the pool of resources, they would need to reflect that in the price. Nobody knows who will end up being the lower claimants or the higher claimants.
In health insurance, it’s moot to say who is subsidizing whom. One might say the people that have never had a claim are subsidizing those that do file claims. If those people that have never filed a claim could know for sure that they never would, they would probably stop paying their premiums into the pool and quit subsidizing the people filing claims. But the reason they have the health insurance policy is because there is the possibility that they could need those $X million of potential benefits tomorrow, next week, next year, etc.
Jay:
It is a bit ironic that you are proposing $10million, or more, of benefits when we have 47 million people who are uninsured.
I asume you define a catastrophic event that could bankrupt the insured as whatever it takes to make one whole less his net worth.
If so, that is a very bold recommendation, seeing that many people are unable to afford even the premiums on the “lower benefit” policies today.
We do need to be concerned about the lower claimants, for it is the lower claimants that make the insurance arrangement viable.
I believe you are too concerned about the higher claimants, forcing them too prematurely into bankruptcy.
If we don’t find a way to keep the lower claimants in the pool, even a $1million benefit may not be affordable.
How about we discuss keeping the pool financially viable, and finding a way to equitably and reasonably treat the higher claimants?
Don Levit
Don:
You haven’t been reading anything I’ve written if you think I’m too concerned with the higher claimants. What I’ve said is that from an actuaries point of view (based on my discussions with them), a lifetime maximum over $2 million affects the premium by a negligible amount. That means there will (currently) be little or no difference in the premium of a policy with a $2 million, $10 million, or unlimited lifetime maximum – everything else the same. So a lifetime max over $2 million doesn’t affect the lower claimants in the pool. That is why the overall lifetime max is something I rarely discuss. This just happens to be one article out of several hundred on this blog and lifetime maximum is the topic. But my stance has been that an overall lifetime maximum over $2 million is a moot point.
Where the point is not moot is when you discuss policies through companies like Assurant that have embedded annual maximums and annual outpatient maximums. Or any policy from companies like MEGA and Midwest National for example that have “gotcha” limits on things all over the place. Some people know their situation and can accept those risks. But most people buying those policies don’t know what they’re getting and don’t know about those maximums until they have a big claim.
In a free market scams like that will always exist. When you’re getting your car worked on or your house remodeled, not understanding the full terms of an agreement or dealing with a shady company can cost you. But when you run across these companies or policies in the health insurance industry, that agent who either forgot to mention some stuff or purposely didn’t mention some of those things can be disaster.
Most companies rebid their insurance every year and get a new insurer. When down the road you go back to the same insurer, the caps start over. Maxing out a lifetime cap is something that will happen to very few people, why make the rest of us pay for it?
ParatrooperJJ:
When you say “why make the rest of us pay for it?”
…who is the “us” you speak of?