Uninsurable Group Health Plan

[Guest Eprail]

Group health plan went self-insured 1.1.2005. Stop loss carrier is denying coverage for particular drug taken by otherwise uninsurable participant. Result is net cost to company of $400,000. Did not know this before went self-insured. Cannot return to insured marketplace. Quotes for premiums have increased by - you guessed it - $400,000.

What can employer do? Terminating plan will result in COBRA exposure for next 18 months. Alternatively, ccould purchase group health and pass costs along to employees which will be excessive. Declare bankruptcy as protective measure? I don't see what the company gains in the end.

Thoughts?

[GBurns]

Are you sure of 1.1.2005. How could claims have been submitted first to the Plan then to the stop loss carrier and a denial received already? How could $400,000 of a drug be used in just a few days?

My answer assumes that the date is incorrect. If the date is correct you have a different set of problems.

If I were that employer I would be considering making a claim against the Claims Administrator and the advisor who set up the plan. The establishing of a formulary is part of designing and establishing a plan. The known diseases and the drugs taken were all very visible on the claims experience on which the decision to go self insured would have been based. Someone did bad predictive analysis.

The only mitigating circumstance that I can think of is that the person contracted this disease after the start of the plan and no one in the group had received any treament for that disease in the preceding 2 years that the claims experience analysis should have covered. But even then expensive drugs should be subject to authorization just like major surgery is. And even then the ongoing or periodic utilization monitoring should have raised a red flag so as to restrict the use of that drug and mandate an alternative long before so much was used.

It also should have been known much earlier that the stop loss was not going to cover this. However, it could be that the stop loss carrier should pay the claim and is just stalling to see if they will get away with not paying.

So the terms of the stop loss coverage and the grounds for denial have to be checked and challenged.

If the stop loss carrier is correct, then the employer has to revert to making a claim against both the Claims Administrator and the designer/advisor.

What can be done to continue providing coverage to the employees?

The employer can either get fully insured or remain self insured. But both options require better plan design and control.

The reason why the fully insured premium is so high is because you are just replacing the claims payer rather than repairing the plan design. The quoting insurer is only quoting to cover what you have not what you should have so that they can cover the same things that caused the loss. The quote would have been much different if you limited the formulary excluding items such as the 1 that cost $400,000. It also would help to have more utilization authorization and internal caps on certain diseases and treatments.

Passing a larger share of the cost to the employee can be done and probably will have to be done. It does not matter whether the plan is self insured or fully insured.

Cancelling and ceasing the providing of all health insurance might be possible and might negate the need for COBRA. But the employer might be subject to litigation from the employees etc and still liable for the $400,00 loss.

Bankruptcy might be an option but creditors, goodwill and the ability to acrry on business even under another name might be impaired, more thought should be given to this alternative which could cost more even in the short term.

Both bankruptcy and cancelling the insurance to get away from COBRA need serious legal advise. Please get this employer to seek competent legal advice.

This Forum is not the place for a plan design treatise and so I suggest that this employer seek competent help next time.

[Guest Eprail]

Sorry ... when you try to recite the facts in a shorthanded manner, details tend to get glossed over. You're right in one sense - someone blew it. An employee's child was diagnosed with a rare disease in November of 2004 with the result being that the child will now be on the expensive drug for the foreseeable future. Did the prior insurer manage these claims? And if so, did the stop loss carrier miss them in its analysis? Or did the plan sponsor's adviser or the plan sponsor fail to disclose them to the stop loss carrier?

At the end of the day, I think we can agree that if there is health coverage in place, SOMEONE will be paying for the expensive drug. In a fully-insured plan, ostensibly, it will be the insurer but because premiums will be inredibly high, in fact, the company and/or the participants will be paying for it (and depending on the number of participants and the profitability of the company, I can't imagine this to be a viable option. No one wants to pay more than a few hundred dollars a month, if that much, for their coverage.)

If the plan is self-insured, the answer is the same. The company will have to absorb the cost or jack up premiums to participants.

The wild card here is whether there is another deep pocket around against whom the company can assign some sort of liability for this costly gaffe. The adviser? Perhaps. The stop loss carrier? Maybe. But that's a longer-term "fix," and it might be years before the costs, if any, might be recovered.

In "talking" this through, I come back to elimination of the group health plan and/or bankruptcy protection as two extreme, yet viable, options. As to the former, it's not clear to me what the risk of liability is to the company. Unlike a pension plan, where benefits vest, welfare benefits are not vested, and so long as the company has reserved the right to terminate the plan, the worst that happens is that all employees lose coverage and must fend for themselves. Not a great way to build morale, mind you, but 'tis better to save everyone's jobs then to involuntarily bankrupt the company for the sake of a single employee's child.

Agree?

[GBurns]

You still have not addressed the time issue. Nothing in your reply indicates how come $400,000 has been incurred in just a few days. So I am very much in doubt that there could be a loss as yet.

If the loss has not yet ocurred, the employer could just change to formulary and only allow medication that can be afforded. Whatever drug it is that costs $400,000 in less than 1 month undoubtedly has alternatives that would cost a fraction and work just as well or even better.

Do you know what drug it is?

Do you know why the stop loss insurer will not cover it? Probably because it is experimental or not proven as yet. If so there should be proven and effective alternatives. If so, the PD should also have prohibited it.

Changing or ceasing the Plan is always an option if the PD etc say so. I have seen badly written documents tha had no "change or terminate" clause.

If the costs really have been incurred (which I doubt) then the debt is owed and bankruptcy might be the solution, but be aware that not every debt can be discharged in a corporate bankruptcy especially in this case. So I would quickly find out what all the options are.

I must tell you that I get the impression that you are really not involved in either the problem or the solution, but have some other reason for your interest. I say so because of the lack of details and your delay in responding. If however anyone is depending on you I suggest that you expedite whatever you are doing. The reason being that if $400,000 is spent in a few weeks, How much more is being spent as we speak? How much more could be incurred while options are being explored? It seems that regardless of the eventual decision, action has to be taken immediately.

[jeanine]

Isn't there an annual Rx max or lifetime max on this plan? That's the first change I would make to rein in costs. If the cost of this medication is truly 400k a year or 400k and counting, there has to be an alternative available to this family. Either the drug is experimental or its an orphan drug in which case the family should petition the drug company. Also, certain states have programs to fund these types of costs for children even if the child has insurance coverage.

[GBurns]

Eprail

This is what some have done:

http://www.benefitnews.com/health/detail.cfm?id=6906

Notice the mention of experimental drugs. Notice also what this author finds as expensive on a per year basis. That is why I questioned that $400,000 was already spent in a few weeks.

[mbozek]

Without getting to the merits of whether the plan is obligated to provide the drug, has anyone checked to see if this drug has been approved by the FDA for this type of treatment? And what is a reasonable supply? 30 days 3 months, 6 months?

[Sandra Pearce]

I have yet a different question. Since reinsurance is purchased using the plan document and the coverage provided by the Plan, why is the reinsurer taking the position that they will not reimburse this specific drug? Is your self-insured plan allowing an expense that is not really covered by the Plan, such as an experimental drug, to be paid by the Plan. In that case the real answer may be that you are paying claims for services (drugs) not covered in your Plan.