Insurers, Employers Fight Proposed Medicare Policy Change

Featured Story November 15, 2007

Insurers, Employers Fight Proposed Medicare Policy Change That Could Cause Already-Significant Costs for End-Stage Renal Disease to Explode

Reprinted from HEALTH PLAN WEEK (formerly Managed Care Week), the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

Some health insurers long focused on managing the care of members with end-stage renal disease (ESRD) worry that a proposed Medicare policy change still under discussion on Capitol Hill could push these members' already-significant care costs through the roof. They and many in the business community assert that extending the time in which employer-sponsored private insurance - and not Medicare - foots the bill would drive up costs and create uncertainty in Medicare coverage for ESRD patients.

The provision, as found in Section 703 of H.R. 3162, the House-passed Children's Health and Medicare Protection Act of 2007 (CHAMP), would lengthen the time during which an ESRD patient's private employer-group plan must cover costs before Medicare steps in as primary payer. It would extend the Medicare Secondary Payer (MSP) period (i.e., when the private payer is primarily responsible for coverage) for ESRD beneficiaries in 100-employee-plus group health plans from the current 30 months to 42 months.

UnitedHealth Group singled out the ESRD coverage extension as a primary driver of the insurer's projected acceleration in the 2008 medical cost trend. Changing Medicare eligibility for ESRD patients "will contribute to that uptick," said United officials during an Oct. 18 discussion of the insurer's third-quarter 2007 financial results.

"It's been a moving target for many years. Every time the government looks at where can it save money, it always looks at [ESRD] because a lot of people with Medicare have private insurance," Jane Galvin, director of regulatory affairs for the Washington, D.C.-based Blue Cross and Blue Shield Association, tells HPW. "It's a cost shifter: It looks like a small, innocuous provision, but it really has a lot of implications for employers" - who face higher costs, which in turn often leads to higher health insurance premiums for workers, she explains.

The House attached the Medicare bill containing the ESRD eligibility provision to a children's health insurance bill, and the Senate took up only the latter. The Senate reached a compromise on the legislation to reauthorize and pay for expansion of the State Children's Health Insurance Program (SCHIP). The president vetoed the legislation, and a veto override vote failed in the House Oct. 18. If the Senate decides on a separate Medicare bill, there is no indication of whether it would include the ESRD provision, Galvin says.

"I think it will all come down to how much money Congress thinks it needs to pay for other things. That's what these 'cost shifters' are all about," Galvin says.

Galvin notes that the Congressional Budget Office recently scored Medicare cost savings from such a 12-month extension at $1.2 billion over 10 years. She adds that CBO's calculation assumes that private health plans are billed the same as Medicare for ESRD patients.

Yet Marisa Milton, executive director of the Corporate Health Care Coalition, says Medicare pays far less for ESRD costs than employers do. Medicare's cost for dialysis is approaching $67,000 per person per year, she says, while the cost for employer group health plans is closer to $180,000, based on 2004 data from the U.S. Renal Data System. "We are just strongly opposed [to the Medicare change] because Medicare is paying one-third to one-half of what employer and union plans are paying for ESRD care," she says. "The issue is ESRD patients, there are not a lot of them, so employers don't have the same leverage in negotiating rates."

The business coalition, in a Sept. 17 letter to the Senate Finance Committee, asserted that a 12-month extension in Medicare's ESRD eligibility actually would shift as much as $2.4 billion in costs over a decade to employer group health plans. The coalition, which includes AT&T, Inc., Ford Motor Co. and 15 other large, multistate, self-funded employers, argues that such "short-sighted" cost shifting would occur at a time when employers already are facing health costs that have risen by 98% between 2000 and 2007.

UnitedHealthcare spokesperson Daryl Richard tells HPW that UnitedHealthcare has concerns with asking employers to extend their coverage for ESRD patients from 30 months to 42 months. Such a change "would cause health care costs to increase, shift costs rather than provide savings and cause uncertainty in Medicare coverage for ESRD patients," he states.

Employer Plans Have Higher ESRD Costs

"Since employer-sponsored health plans pay more for ESRD than Medicare, this shift would actually add costs to the health care system for millions of American workers," Richard contends. He adds that United has been working closely with employer customers "and other industry leaders to ensure congressional leaders best understand the implications of this proposal."

Patient advocacy and dialysis center groups, which support the Medicare change, counter that an eligibility extension would affect only about 10,000 of the nation's 400,000-plus ESRD patients and would have a negligible impact on employer premiums.

Great-West Healthcare, a large insurer specializing in self-funded plans, estimates that the annual treatment cost for a commercial ESRD patient runs in the neighborhood of $160,000 to $300,000, depending on severity of illness and frequency of dialysis — with costs rising dramatically if hospitalization is required for dialysis treatments.

"Naturally, the extension would extend the financial liability for self-funded clients," says Great-West spokeswoman Lisa Gigax. "It also does point out the need for quality disease management to help manage medical care and help control costs."

"The reality is, most of these folks after this amount of time [i.e., 30 months] are more and more severe," says Mike Norris, Great-West's vice president of medical outreach programs. "The longer somebody is on dialysis, the more extensive their treatment becomes and with that, the costs increase. So for an employer, if it cost $150,000 this year [to cover treatment costs for a commercial ESRD patient], there's a good chance it could cost $200,000 to $250,000 next year."

Great-West has found that at least 25% to 35% of costs incurred for commercial ESRD patients are "unnecessary," Norris says. He explains that if an individual has proper training, a proper access site for dialysis treatments and appropriate follow-up on such matters as nutrition, "a lot of costs — primarily hospitalizations because of infections — aren't necessary."

Officials at Sierra Health Services, Inc., tell HPW that a relatively small number of the company's 300,000 commercial enrollees are ESRD patients. But Sierra says it is always a concern when costs are shifted from Medicare to the private sector.

"We do incur significant costs during the period that we are responsible" for ESRD patients, says Darren Sivertsen, Sierra's senior vice president of operations. "Even after 30 months is reached, we have secondary coverage, so we cover copays and whatever Medicare doesn't cover."

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