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WHAT ARE THE BENEFIT DESIGN FEATURES OF FEE-FOR-SERVICE HEALTH PLANS?

As you requested, this paper provides background chain information on health plan benefits and a discussion of h of their a standard, or "basic,” health benefit plan. Also in

cluded is a discussion of how health plan benefits are ose into injures et designed to meet certain requirements, such as the

need to cover certain population groups (e.g., the low agains the income) or to conform to certain cost constraints. In end our et addition, the paper presents and discusses several adicate the health benefit plan options.

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The design of a health plan's benefits includes several features that define the benefits and help to determine what the benefits will cost. These benefit features include (1) covered services, (2) limits on allowable charges, (3) limits on services covered or total payments, (4) enrollee cost sharing and catastrophic protection, and (5) cost containment features. Only the first feature, covered services, pertains to the types of health care services covered by a plan; the other features define how the costs of health care services are divided between the plan and the plan enrollees.

The focus of this paper is on fee-for-service plan in comes benefits, which is the most prevalent type of coverage bere left in this country, as opposed to the benefit structure of de oftea or health maintenance organizations. In addition, the dis

cussion focuses only on health benefits for the e polisi nonelderly (under age 65) population.

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Covered and Excluded Health Care Services

The specification of the five health benefit plan optematis a tions was determined in discussions with you. We merge Alte agreed that we would use three plans already develAMAIE oped by the Congressional Research Service (CRS) as me suis illustrative plans for our project on health insurance eventies for the uninsured: a “typical” private employer-based en it was plan, a "tailored" plan designed for the low-income, moral it and a "catastrophic” plan for medical expenses that at at the

care large compared to family income. In addition, you carefu bili requested that we develop (1) a typical plan that inLilable si cludes preventive services and (2) a reduced typical

plan which includes greater enrollee cost sharing and

excludes mental health and dental services, but inilahind cludes preventive services. The relatively lengthy disunty cussion of preventive services responds to your

request for information on these frequently uncovered services,

The major types of health care services that health plans cover include hospital services (inpatient and outpatient), surgical services (inpatient and outpatient), physician services, X-ray and laboratory tests, emergency care, prescription drugs, and mental health care, including substance abuse (inpatient and outpatient). Most employer health plans cover these benefits. What varies more from plan to plan than the types of services covered are the reimbursement levels for each service and the plan's cost containment features.

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Other services sometimes covered in health plans include dental care, vision care, well-baby and child care, preventive care including routine physical examinations, home health services, and care in an extended care facility.

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Report prepared by Janet Lundy, Specialist in Social Legislation, Education and Public Welfare Division, Congressional Research Service, October 24, 1989.

Any costs enrollees incur for services not covered by a health plan ("excluded” services) are neither paid for by the plan nor applied toward the plan's deductible requirements or catastrophic limits (described below). Examples of services and expenses that are

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not covered under many health insurance plans are cosmetic surgery; infertility services; services not deemed "medically necessary" such as those done for educational, research, or vocational training purposes; experimental treatments; tests treatments not needed for a particular condition; and services that do not meet generally accepted standards of medical practice. Plans may also specify the type of providers to whom payment can be made for covered services and may exclude treatment by others. For example, a plan may pay for mental health services only if provided by a psychiatrist or psychologist.

Enrollee Cost Sharing and Catastrophic Protection

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In recent years, health plans have extended their use of enrollee cost sharing, including deductibles and coinsurance, in an attempt to reduce plan costs. A deductible is a specific dollar amount, commonly $100 to $200, that must be paid by the insured before the health plan will begin paying benefits. Typically, employer plans require the insured to pay a yearly overall plan deductible (also called a "major medical" deductible) prior to plan payment for covered serv. ices. Coinsurance is a specified percentage of each bill for a covered medical services that the insured must pay, commonly 20 percent. The coinsurance is applied to the remaining covered expenses after any de ductible has been met by the insured.

Limits on Allowable Charges

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Most health plans use some method for determining the extent to which a medical expense is eligible for payment. These methods are designed to exert some control over plan costs by setting limits on the amount of a health care provider's charges or costs that will be reimbursed. For example, in general, inpatient hospital bills are paid by Medicare under a prospective payment system, by commercial insurers as a percentage of the hospital's average charge for a semiprivate hospital room, or by Blue Cross and Blue Shield according to contract limits negotiated by the hospital and the Blue plan.

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Many plans include as a benefit a yearly limit (also known as a catastrophic, out-of-pocket, or stop-loss limit) on the amount of cost sharing (coinsurance and sometimes deductibles) that the insured must pay from their own pockets. After that limit (commonly $1,000 to $3,000) is reached, the plan pays 100 percent of any additional expenses for services covered by the plan

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A plan may pay physicians according to a method known as “reasonable and customary” (R&C). Under R&C, payment is made according to the physician's actual charge for a particular service, limited by a maximum determined as a percentage of the average charge for that service by physicians in the same geographic area. Plans may also pay according to a fee schedule, where the plan establishes maximum payment amounts in each geographic area for each service. Blue Cross and Blue Shield plans generally limit payment to physicians by negotiating contracts under which the physician agrees to accept the Blue plan's payment as full payment for covered services.

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Limits on Services Covered or Total Payments

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Health plans frequently set limits on the units of service (e.g., visits or days of care) covered by the plan, or on the maximum dollar amount paid by the plan per service, per year, or over the insured person's lifetime. For example, a plan's mental health coverage may limit payment for inpatient mental health care to 30 days per year and limit outpatient mental health care to a maximum number of visits per

Studies such as the Rand Health Insurance Expenment (HIE) have found that enrollee cost sharing can lead to lower utilization and lower health plan costs The HIE found that per capita expenses for enrollees in a plan with a 95 percent coinsurance rate (i.., the

percentage paid by the insured) for outpatient services

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Enrollee cost sharing is sometimes defined to also include the enrollee's share of the premium payment. For typical large and medium private sector employer plans, the employer generally pays the full premium for employee-only coverage, but requires the enrollee to pay about 25 percent of the premium for family coverage.

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Employment

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More than half (52 percent) of the uninsured are employed; most of the working uninsured (59 percent) are in small firms of less than 100. Workers whose jobs did not provide health insurance tended to be part-time rather than full-time workers, young rather than older workers, lower-paid rather than higherpaid workers, in small firms rather than in large firms. These workers also tended to be employed in the service-producing and retail sectors of the economy. Between two-thirds and four-fifths of the uninsured live in families where someone is employed.

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In addition to enrollee cost-sharing requirements, other features are included in health plans to attempt

to control plan costs. These include alternative financmercentazi

ing arrangements such as self insurance; premium cost that this

sharing between plan sponsor and enrollee; financial

incentives to use services less costly than hospital egresse

care, such as home health care, hospice service, urgent care centers, etc.; managed care techniques,

such as hospital utilization review and second surgical efit a yerinde opinion requirements, and health promotion programs of-pocit : such as smoking cessation, substance abuse, weight rearing med duction, and stress management. Another technique

for controlling plan costs is to use preexisting condi

tion clauses, which temporarily or permanently ex23.10 c clude from coverage an enrollee's medical condition scovering that existed prior to coverage by the health plan.

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Over half (61 percent) of the uninsured are low income (family income under $20,000). About 30 percent of uninsured persons live in families with incomes below the Federal poverty threshold for their family size.

WHO DOES NOT HAVE HEALTH CARE COVERAGE?

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ISSUES IN DESIGNING A HEALTH BENEFITS PLAN

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An estimated 36.8 million nonaged Americans (17.5 percent of persons under age 65) lack health insurance coverage. Persons who do not privately obtain health insurance, either through their jobs or by purchasing insurance, sometimes receive coverage from Government programs such as Medicaid. However, coverage from Government programs is contingent on meeting certain program eligibility requirements. Those who do not have private coverage and either do not meet the eligibility requirements of Government programs

or choose not to participate in them are the 36.8 miluse of this lion (17.5 percent) who are uninsured. The charac

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A health plan's benefits are designed to pay either all or a portion of the health care expenses of the population covered by the health plan. This is presumably the purpose of insurance—to ensure that the health care services used by the covered population are paid for, that unexpected health care expenses can be paid for, and that financial means do not become a barrier to seeking or receiving health care services.

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Several questions need to be asked when designing a health benefits plan. These include:

-What benefits will be included? What is a "basic"

health benefits plan? How should the population

to be covered help determine a plan's benefits? -What are some health benefit plan options? - What is the cost of the plan?

teristics of the uninsured are described below.

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Willard G. Manning, et al., “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment,” American Economic Review (June 1987): 251-277.

* The statistics on the uninsured are based on a Congressional Research Service analysis of the March 1987 Current Population Survey (CPS), a household survey conducted by the Census Bureau. The March 1987 CPS collected information on health insurance coverage for 1986. A more detailed description of these statistics can be found in: U.S. Congress, House Committees on Education and Labor, Energy and Commerce, and Senate Special Committee on Aging, Cost and Effects of Extending Health Insurance Coverage, 100th Cong., 20 Sess., October 1988.

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appear to be influenced by the facts of the individual case, rather than the specific structure of the state immunity laws.89 Concerns about the confidentiality of peer review will likely continue to be an area of active litigation in the 1990s, especially as more states pass laws encouraging organizational peer review and quality assurance activities, and require that some of this data be turned over to the state for regulatory

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First, physicians who have suffered suspension of credentials may claim that their due process rights were not respected, especially in cases involving public hospitals. 84 Alternatively, physicians may seek rights of cross examination and other trappings of adjudicative process.85 More importantly, physicians who lose their practice privileges may allege antitrust violations: the aggrieved physician will claim that the decision to suspend privileges was not motivated by concerns about quality of care, but rather was an attempt to curb competition in the specialty area. 86 Indeed peer review activities are now drawing considerable antitrust scrutiny, a trend that will likely accelerate in light of a recent Supreme Court decision.87 Yet another concern of physicians who serve on peer review committees is the threat of involvement in malpractice litigation. Since these committees often pass judgment on specific incidents involving physicians on the medical staff, their activities are of special interest to plaintiffs' attorneys who would like access to peer review committee documents. While most states provide explicit immunity for peer review activities, some state courts have managed to find exceptions to these statutes in order to allow discovery of the peer review data. 88 Such judicial decisions

These various types of litigation create serious concerns on the part of physicians involved in peer review. Even those physicians who recognize that the best long-term response to malpractice litigation is better quality medical practice, and that a physician's peers are better judges of medical care than lawyers or juries, are hesitant to become involved in peer review activities that may lead to litigation. While this is and will continue to be a significant problem even in the present system of tort litigation, it would become even more prominent if one moved to general organizational liability of hospitals. Thus, any comprehensive effort to address medical malpractice litigation must also address the legal problems raised by peer review activities.

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No-Fault Patient Compensation—The drawbacks of both traditional tort litigation and of those alternatives that still rely on determinations of fault have led a number of people to advocate "no fault” approaches to medical injury compensation. As far back as the early 1970s, a number of scholars were proposing partial or complete no-fault systems. 91 The partial no fault approaches center on accelerated compensation for designated injuries that are quite likely to be avoidable.92 These particular injuries would be extracted from the tort regime and be compensated administratively. Medical adversity insurance differs from pure no-fault or social insurance in that the providers of care remain responsible for paying for the listed outcomes a form of “strict liability" through provider-purchased, experience-rated casualty insurance. More recently, proponents have been able to draw on the experience of New Zealand RS and

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84 See Richardson v. St. Johns Mercy Hospital, 674 S.W.2d 200 (Mo.App.1984).

86 See Rao v. St. Elizabeth's Hospital, 488 N.B.2d 685 (III. App. 5 Dist. 1986).

88 It seems likely that there will be more antitrust litigation in the future. Since 1975, with the decision of Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), the Supreme Court has indicated that the practice of the learned professions will be considered commerce, and thus subject to the scrutiny of the antitrust laws. The initial Supreme Court cases regarding health care antitrust concerned efforts to remove anticompetitive rules which had been put in place by insurers and providers. See Union Labor Life Insurance Company v. Pireno, 458 U.S. 119 (1981); Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1981). Soon however, aggrieved individuals began to request antitrust scrutiny regarding the behavior of individual hospitals or physicians. See Jefferson Parish Hospital District #2 v. Hyde, 466 U.S. 2 (1984); Weiss v. York Hospital, 745 F.2d 786 (3rd Cir. 1984).

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87 See Patrick v. Burger, 108 S.Ct. 1658 (1988). With the decision of Patrick v. Burget, the Supreme Court indicated that the state action doctrine would not immunize state-required peer review activities by private hospital staffs from antitrust litigation unless states provided official review of such private decisions. Although the Health Care Quality Improvement Act of 1986 was intended to limit antitrust litigation regarding peer review, many observers doubt that it will have this effect. See e.g. Colantonio, “The Health Care Quality Improvement Act of 1986 and its Impact on Hospital Law," West Virginia Law Review 91 (1988): 91; Blumstein and Sloan, “Antitrust in Hospital Peer Review," Law and Contemporary Problems 51 (1988): 7. Thus we can expect continued antitrust scrutiny of peer review activities. See Bolt v. Halifax Hospital Medical Center, 851 F.2d 1273 (11th Circuit), vacated and petition for rehearing en banc granted, 861 F.2d 1233 (11th Cir. 1988), reinstated in part and vacated in part en banc, 874 F.2d 755 (11th Cir. 1989). Lawyers have had some doubts about bringing antitrust suits in this area, and since the major Supreme Court decision is so recent, it is difficult to predict the amount of litigation that will occur in the future. Nonetheless, the Patrick decision can only serve as a litigation incentive.

88 See Kalish v. Mt. Sinai Hospital, 270 N.W. 2d 783 (Minn. 1978).

89 Compare Coburn v. Seda, 677 P.2d 173 (1984), with Chandra v. Sprin kle, 678 S.W.2d 804 (Mo. 1984).

oo See e.g. Beth Israel Hospital Association v. The Board of Registration in Medicine, 515 N.E.2d 574 (Mass. 1987).

° See Havighurst and Tancredi, "Medical Adversity Insurance, a No Fault to Medical Malpractice and Quality Assurance," Insurance Law Journal 613 (1974): 69; O'Connell, “No-Fault Insurance for Injuries Arising from Medical Treatment: A Proposal for Elective Coverage,” Emory Law Journal 24 (1975): 21.

»See Tancredi, “Designing a No-Fault Alternative," Law and Contempo rary Problems 49 (1986): 277; American Bar Association, Designated Compet: sable Event System: A Feasibility Study (1979). The latest iteration of the concept is the ACE (accelerated compensable event).

03 See Gellhorn, “Medical Malpractice Litigation (U.S.)- Medical Mishap

Compensation (N.Z.)," Cornell Law Review 73 (1988): 170.

Sweden 94 to answer the critics of no-fault and to develop realistic approaches to an administrative compensation system.95 In both Britain and Canada, there is sentiment for use of a no-fault model.96 In this country, the states of Virginia and Florida have put into effect no-fault compensation plans for neonatal neurological injury.97

would do away with the deterrent effect of medical malpractice litigation. This contention, however, overlooks the fact that no-fault is still a mode of legal liability with one party required to compensate the victims of its activities, and the requisite insurance would likely be provided at the level of hospital or other health care organization where premiums could be strongly experience rated. 102

98

How does a no-fault system work for compensation of medical injury? In Sweden, a combine of insurance companies provides a no-fault insurance program. Complementing, yet separate from, the insurance compensation plan is the Medical Responsibility Board (MRB) that hears complaints about quality of care rendered to individuals. 99 The advantage of uncoupling the compensation and deterrent approaches to medical injuries as the Swedes have done is that it frees both functions from the adversarial notions of tort litigation, providing greater and more equitable compensation and stronger deterrence signals. 100

Recently, we have completed a study of medical injury, and the costs arising out of such injury, in the state of New York. The data from this study indicate that in New York, at least, one can provide full compensation for the net financial losses of all seriously injured patients for roughly the same amount expended on litigation for only a selected number of those negligently injured. 103

Nonetheless, there are significant problems with the no-fault approach. Many have argued that our major present-day use of no-fault within workers' compensation has failed to provide appropriate compensation for individuals suffering from occupational diseases. 101 Still others fear that a no-fault approach

Social Insurance-The relationship between providing health insurance for all Americans and tort reform must be underlined, because comprehensive health benefits would deal directly with many of the patient losses for which malpractice litigation now seeks redress. One major advantage of the Swedish and New Zealand systems for no-fault insurance for medical injury is that these compensation systems are nestled within a much more encompassing safety net of social welfare programs. For instance, in Sweden, there is a national health system that provides medical care for all individuals and comprehensive disability insurance for lost earnings. Thus their no-fault system does not absorb much of the costs arising out of an iatrogenic injury, and the smaller stake in the outcome reduces the intensity of conflict in individual cases.

Broader disability insurance and sick leave benefits would also decrease the overall costs associated with compensation programs for iatrogenic injury. When a collateral source offset is in place, any increase in the coverage of first party loss insurance correspondingly reduces the losses left to be handled by the much more expensive system of third party malpractice insurance.

Beyond Health Care Providers—Malpractice litigation is not the only aspect of tort law that plays a major role in the health care area. Just as prominent and often just as troubling are product liability suits against manufacturers of vaccines, prescription drugs and other medical appliances. Indeed, many of these cases are the result of the combined action of a manu

94 See Rosenthal, Dealing With Medical Malpractice: The British and Swedish Experience, (1988) 131-206.

os See Halley, Fowks, Bigler, Ryan, Medical Malpractice Solutions: Systems and Proposals for Injury Compensation (Springfield, III., Charles Thomas 1989).

96 See British Medical Association, No-Fault Compensation Working Party Report (1987); R. Prichard, Medical Malpractice (1989).

97 See White, “Innovative No-Fault Tort Reform for an Endangered Specialty,” Virginia Law Review 74 (1988): 1487. Some have criticized the Virginia system for only controlling cases of people who would probably recover in the tort system, thereby resulting in less compensation for them and no more compensation for others. See Gallup, “Can No-Fault Compensation of Impaired Infants Alleviate the Malpractice Crisis in Obstetrics?" Journal of Health Politics, Policy and Law, 14 (1989): 69.

9 A patient seeking compensation for medical injury must merely show that her injuries are of a designated type and compensation is available. There need be no allegation of negligence, and thus physicians often assist their patients in the effort to secure compensation. See Oldertz, “The Swedish Patient Insurance Scheme-Eight Years of Experience," Medical Legal Journal 52 (1984): 43.

» Most such complaints are brought by patients but physicians are encouraged to self-report to their department heads who in return report to the MRB. The MRB can discipline physicians who provide poor quality care or can decide that no action is necessary. The MRB has both expert input and political and citizen representatives, similar to the boards envisioned by the AMA's fault-based system.

100 Patient compensation is more straightforward in the absence of the corrective justice aspects of tort litigation. Physicians can actually assist patients in their efforts to receive compensation. On the other hand, since compensation is not directly sought from the physician or his insurer, data regarding sub-standard care is more freely available. Quality assurance efforts proceed smoothly, free from concerns about investigations by plaintiffs attorneys regarding the quality assurance data. Thus, at least in theory, a no-fault system would provide greater compensation and clearer deterrent signals.

101 See Barth and Hunt, Workers Compensation and Work-Related Illnesses and Diseases (1980): see also Kutchins, "The Most Exclusive Remedy is No Remedy At All: Workers Compensation Coverage for Occupational Diseases," Labor Law Journal 32 (1981): 219-20. Indeed, one might conjecture that determining causation in medical injury cases may be much more difficult than determining causation in workers' compensation cases in that most patients will have a significant background of disease from which the medical care-induced injury must be disentangled. Thus no-fault approaches to medical injuries will likely have inherently higher administrative costs than workers' compensation.

102 The best work on workers' compensation and deterrence suggests that workers' compensation has a considerable preventive effect on workplace fatalities. See Viscusi and Moore, Compensation Mechanisms for Job Risks: Wages, Workers' Compensation and Product Liability (forthcoming, Princeton University Press).

103 See Harvard Medical Practice Study, Patients, Doctors, and Lawyers (1990), chạp. 8.

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