Realizing the Value of FDA-Approved Therapies

Avoiding Catastrophic Costs in a Comprehensive Benefit
Plan	Benefit Design	Actuarial Equivalence	Annual Cost Sharing for Innovative Therapy Costing $1,500 per Month
E	$200 / IP day $100 / Outpatient $50 Emergency Room $20 other		$240
F	$300 / IP day $100 / Outpatient $50 Emergency Room 20% other No limit on coinsurance		$3,600
G	$300 / IP day $100 / Outpatient $50 Emergency Room 30% other $2,000 limit on coinsurance		$2,000 or less
H	$350 / IP day $100 / Outpatient $50 Emergency Room $20 other		$240
I	$200 / IP day $100 / Outpatient $50 Emergency Room 25% other No limit on coinsurance		$4,500
J	$200 / IP day $100 / Outpatient $50 Emergency Room 35% other $3,000 limit on coinsurance		$3,000 or less

The costs of E, F and G are the same for a large population, as are the costs of H, I and J.
IP = copay per inpatient day
Outpatient = copay per hospital outpatient visit
Emergency Room = copay per ER visit
Other = copay or coinsurance for other services such as office visits or drugs

Footnotes

1/ Express Scripts 2005 Drug Trend Report. Online at https://www.express-scripts.com/ourcompany/news/industryreports/drugtrendreport/2005/
2/ Milliman 2006 Health Cost Guidelines standard labor population
3/ Centers for Medicare and Medicaid Services, Office of the Actuary. National Health Expenditure Data, Retrieved December 6, 2006 from http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2005.pdf (PDF)
4/ This borrows terminology from tax policy, where a regressive tax is one where the taxes paid by lower income people represent a higher portion of their income than for richer people. Internal Revenue Service United States Department of the Treasury, retrieved December 6, 2006 from http://www.irs.gov/app/understandingTaxes/jsp/tools_glossary.jsp#link_to_R
5/ Adverse selection can affect that cost equality, if people who know they need expensive treatments leave Plan B or D and choose Plan A or C, respectively.
6/ Bluhm, William F., ed. 2003. Group Insurance: Fourth Edition, p. 677-686
7/ Stoploss programs can spread the costs of catastrophic events across a broad population. For example, a stoploss insurer may sell coverage for annual claims by any individual greater than $100,000. The premiums collected by the stoploss insurer from many such policies would go to pay for the few, random high-cost cases. Bluhm, William F., ed. 2003. Group Insurance: Fourth Edition, p. 708-710
8/ For example, a number of states have established mechanisms to promote risk sharing among insurers of small group and individual insurance. Bluhm, William F., ed. 2003. Group Insurance: Fourth Edition, p. 492-493
9/ Kongstvedt, Peter R. 2001. The Managed Health Care Handbook: Fourth Edition, p. 1358
10/ Bluhm, William F., ed. 2003. Group Insurance: Fourth Edition