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US health insurance: A barrier to medical tourism

US health insurance: A barrier to medical tourism April 11, 2016

Marketing, research and business development consultant in healthcare, human services and senior living.

As anyone who has tried knows, US health insurance is a barrier to medical tourism. It’s virtually impossible to “sell” international medical tourism benefits to a US based health insurance provider. Despite many years of trying, no major health insurance company offers a medical travel benefit. Health insurance life preserver

At the same time, there’s so much misinformation in the international medical travel sector (“medical tourism”). For example, the Medical Tourism Association (MTA) in a webinar, “Medical Tourism and Obamacare: Self-Funding Employers in Search of Benefits to the Affordable Care Act” suggested that because of growing health insurance premiums, employers which offer self-funded, health insurance plans to their employees will be adopting international medical travel benefits. Despite this  wishful rhetoric, no major self-funded national employer offers a medical travel benefit, nor is this likely any time soon. An article in The Economist, Médecine avec frontiers: Why health care has failed to globalize, highlighted these difficulties.

Why is it so hard?

As with many complex markets, the “devil is in the details” and these details are devilishly subtle.devil in the details

  • There’s almost no reinsurance market in the US for stop loss coverage for elective foreign medical benefits, so health insurance providers and self-funded employers are unable to cover their risk
  • The Affordable Care Act (ACA, aka Obama Care) has introduced uncertainty to the costs of coverage, and insurance companies – in the business of managing risk – are unlikely to risk “disruptive” change
  • Health insurance providers are often also the third party administrators (TPAs) to self-funded employer plans, and carry their resistance to, or lack of support for foreign medical benefits to their consulting and advisory for self-funded companies
  • The government sponsored health insurance provider, the dominant source of coverage in the US, is the Centers for Medicare and Medicaid Services and CMS expressly prohibits payment of foreign medical providers for elective procedures.

In the global markets for trades in services, there may be no other single market that is more complex than US health insurance. It is a patchwork of complicated, interrelated, state and federal legislation and regulations which has grown over time to be a labyrinth. With over 40 years of experience in the healthcare sector, and experience managing a self-funded, employer based health care benefits plan for a national corporation, I do not consider myself an expert, but as the saying goes, “In the land of the blind, the one eyed man is king.”  My sincere hope is that others who are better informed will correct any errors, and add to this discussion.

Health insurance premiums

Claims have been made that “health insurance companies across the United States are hiking premiums by as much as 40% or more.”[1] This is simply not true. This sensational statement was drawn from a New York Times article, which article was probably a PR ploy by health insurance companies on the verge of renegotiating contracts with the state insurance commissioners. According to the Kaiser Family Foundation and the National Center for State Legislatures, the actual increases are more likely to be much lower, in the range of 4% to 20%.[2],[3] This is still a large increase, but the trend is toward smaller increases, nor would this alone drive demand for foreign solutions.

jama_2015dec_trends-in-insurance-premiums

Paying for health insurance & medical services

In the US, costs for health insurance and medical services are borne by private citizens and employers, as well as state and federal governments. These arrangements vary widely.  Of the total, individuals and families pay approximately 16%, employers 62 % of the total costs, state governments absorbing 14% of the total costs and the federal government absorbing 16 % of the total costs.[4] (Because of coverage overlap, the total does not equal 100%).

Because medical costs have increased, health insurance premiums have also increased, and more of costs are being shifted from employers to individuals and families.

Out of pocket costs for employees have increased more every year than the same increase in costs for employers, demonstrating this shift in cost burden from employers to employees. And the increases in employee costs have been greater than comparable increases in wages over the same period.[5] This trend is placing pressure on employees, as wages are not keeping up with the rising out-of-pocket health care costs.

These market-based increases in total out-of-pocket costs for employees may be relevant for destinations developing easy to access, high quality and lower cost solutions for US citizens in the middle to lower income levels. Quite opposite to the suggestion made in the MTA webinar, these facts have a positive relationship to support for Obamacare, as citizens see that the law makes affordable health insurance available. Moreover, the shift in economic burden from employers to employees is a disincentive for self-funded employers to consider international medical travel benefits.

Types of health insurance plans

The private health insurance marketplace is highly complex with a variety of types of plans on offer. Private health insurance provided to individual employees by an employer are referred to as “group plans” with groups representing 60% of covered lives, and with the balance covered through directly purchased insurance, small groups and various niche products. Group health insurance is sometimes purchased through associations. Directly purchased private health insurance represents only 9% of the US health insurance market.[6]

Health insurance plans offered in the United States include a complex array such as:  traditional indemnity or fee-for-service (~1% market share); health maintenance organizations (HMOs ~14%); managed care preferred provider organizations (PPOs ~ 57%); managed care point of service plans (POS ~ 9%);  high deductible health plans (HDHPs ~ 20%); and health care spending accounts (HSA’s), which are most often associated with HDHPs.

The rapid growth of managed care plans has meant that providers have a difficult time being included in insurance payment models. One of the methods insurance companies use to control costs is to limit the network of providers used, as well as the clinical care being approved. Therefore, HDHP’s and HSA’s offer the greatest level of flexibility in plan benefits and provider selection. However for the majority of private health plans, the momentum is to reduce, or consolidate their provider group (sometimes referred to as panels).

Health Savings Accounts & High Deductible Health Plans

With rising out-of-pocket costs among employed individuals,  a high deductible health plan (HDHP) is one way of reducing premium costs by exposing the covered individuals to higher levels of risk.[7] These plans are designed to work in conjunction with Health Savings Accounts, which are tax advantaged savings accounts, owned and managed by the individual. In an HDHP, it is possible to buy a policy with a very affordable monthly premium, which pays limited benefits and only after very high deductibles are met. In this type of policy, risk is shifted from the insurance carrier to the covered individual or family. These high deductibles and other out of pocket costs are to be paid for in total or in part by money saved for that purpose by the individual in the HSA. The model is simple in theory; avoid high health insurance premiums, save the money, and then use the savings in the event medical care is needed.

According to the annual census conducted by the America’s Health Insurance Plans (AHIP) the number of enrollees with HSA/HDHPs rose to nearly 17.4 million in January 2014, less than 10% of the employer-based private health insurance market, but  up from 15.5 million in January 2013, 13.5 million in January 2012 and 11.4 million in January 2011. This trend reflects an average annual growth rate of approximately 15% since 2011. Most enrollment gains in the HSA/HDHP market in 2014 were in the large group market; that is, big companies. The share of HSA/HDHP covered lives enrolled in large group plans jumped from 59% in January 2012 to 68% in January 2013, to 74% in January 2014. This rate of growth in HSA/HDHP coverage is consistent with the trend by employers to shift costs to employees.

Because the covered individual has control over the money in the HSA, each individual can elect to use the funds to pay for medical care in a foreign destination.  Individuals with HSAs are an attractive target market for international medical providers. The challenge is that any list of owners of these accounts is not public information so reaching them with marketing messages is difficult.

High pressure for high deductible and HSAs

Under ACA, most HSAs are subject to high additional charges, making them less attractive to employers and employees alike.

Another wrinkle to the HDHP / HSA opportunity for international medical travel is that under ACA, the HDHPs would have been legislated out of existence. Political lobbying efforts have gained them a reprieve in many states. The HSAs are under further attack as they are often part of “Cadillac plans” which, under ACA, are subject to very high additional government fees, often called the Cadillac tax. The additional levies are due to be assessed in 2018, one of the last elements of the law to be phased in. This looming battle will muddy the political waters and make predictions about health insurance economies far more difficult.

Existing HSAs will survive, at a minimum, leaving some amount of money at US consumers’ discretion.

Self-Funded Health Insurance Plans

Among employers offering health insurance to their employees, employers may choose to create a plan called “self-insured”. Also referred to as “Self-Insured” or “Administrative Services Only” (ASO) or “ERISA qualified plans”, self-funded plans are arrangements governed by a federal statue, the Employee Retirement Income Security Act of 1974 (ERISA).[8] In self-funded plans, the employer provides insurance to its employees with its own funds, and assumes all or a significant portion of the risk for paying medical claims. This arrangement is distinct from fully insured plans, where the employer makes an arrangement with an insurance company to offer coverage to its employees and their dependents, and where the insurance company assumes all the risk for paying claims.

In self-funded health care, the company assumes the direct risk for paying the medical costs of the covered employees, based on the plan benefits. The terms of eligibility and covered benefits are written in a plan document which includes provisions similar to those found in a typical fully funded health insurance policy. Unless exempted, such plans create rights and obligations for the employers under the governing federal legislation. But these ERISA qualified plans are exempt from many of the requirements of ACA.

Most employers manage the financial risk of self-funding claims by purchasing what is called stop loss insurance, or re-insurance from an insurance carrier.[9] These policies typically provide for risk limitations both on a per-claim and an aggregate claims basis. An important aspect of self-funded group health plans lies in the requirement that the employer remain liable for funding of medical claims regardless of the purchase of stop loss insurance. This requirement means that the company’s own bank account is used to pay claims.

The employer has a contractual relationship with the employees and their family members covered by the self-insured plan. The stop loss policy exists solely between the employer and the stop loss carrier and creates no direct liability to those individuals covered under the plan. This feature provides the critical distinction between fully insured plans (subject to State law insurance regulations) and self-funded health plans which are exempt from state insurance regulations. The stop loss carrier may not have direct control over what the employer funded benefits plan will include, but the nature of the risks associated with the plan benefits are the direct concern of the stop loss, reinsurance carrier. Small employers spread risk over smaller groups of covered lives, so their stop loss premiums are higher, and this is increasing the reinsurance premiums in the health insurance market overall. As more small employers choose to self-fund, the more reinsurance will cost across the board, acting as a brake to this growth.

These liability and stop loss features of self-funded health plans are important to those attempting to offer an international medical travel benefit. If an employer has a contract with a stop-loss carrier, this contract may preclude referring covered individuals to a foreign medical services provider or any provider which does not meet US credentialing or accreditation standards. It is usual and customary for health insurance plans to stipulate that medical claims will be paid only to providers (i.e., hospitals and doctors) which meet state, federal or private (e.g., Joint Commission) credentialing requirements. If employers are self-funded, these accreditation requirements may be waived, but if the stop loss carrier does not accept these waivers, the employer may see the risk as too great, and not add a foreign medical travel benefit.

While no large employer has, as far as I know, included international medical travel in its benefits plans, small employers have.  The MTA have aggressively promoted these early adopters including Hannaford Supermarkets based in Maine (2008),  HSM Solutions, a Hickory, North Carolina furniture manufacturer (2008)[10], Casino and Hotel of the Blue Lake Rancheria tribe in Northern California (2013)[11] and IDMI Systems Inc., a software company in Warner Robbins, Georgia (2014).[12] Six percent of firms offering fully-insured plans report that they intend to self-insure because of the ACA.[13] It is now estimated that the average self-funded plan covers 300-400 employees and that 59% of companies within the U.S. self-fund part of their healthcare plan. [14]

While these are small companies, the theory is that their willingness to adopt a medical travel benefit plan may prompt others, and serve as an example for similar plans. SO far, this hasn’t borne out.

More small companies are looking to self-funding as a way to reduce their share of the health care cost burden. Because small companies are not able to assume the same levels of risk as larger ones (the self-insured market is dominated by large employers), stop loss insurance rates are increasing. This pressure will serve as a limitation on the expansion of self-funded health insurance into the small employer market.

The larger they come, the harder they fall

The likelihood that large self-insured companies would add an international medical travel benefit to their health insurance plans is extremely small at this time. This conclusion is based on the following:

  • The current implementation of ACA in the United States has distracted or absorbed the attention of insurance markets, including self-insured companies. Many self-insured companies are wrestling with far more immediate issues of how many employees will be included/excluded, potential penalties and avoiding fines under ACA;
  • Self-insured plans are exempt from many of the more costly and burdensome requirements of ACA as long as they make no significant changes in their plan benefits. Therefore self-insured companies and their third party administrators are being extremely careful about keeping their plans’ coverage unchanged;
  • Reinsurance, or stop loss coverage may be limited for plans offering an international medical travel benefit, and;
  • There is no history of outcomes, evidence or actuarial models to support the case among employers for a disruptive change such as international medical travel. Reports appearing in the popular press and the news from associations and companies promoting the sector about cost savings and quality outcomes are not yet supported by recognized, reliable evidence.

The challenge of penetrating the self-funded health insurance market in the US is evidenced by the very low acceptance. To date, only a few companies (small companies mentioned above) have been identified as having adopted international medical travel as part of their plan benefits. There is currently no reliable published data available regarding self-funded health insurance plans offering medical travel benefits. Despite what others may say, there’s no evidence supporting their claim that the self-funded employer market is a good marketing & sales channel for medical travel benefits.

Third party administrators (TPAs)

 While a few large employers administer their self-funded group health plan, most find it necessary to contract with a third party for assistance in collecting premiums, managing membership enrollment, claims adjudication and payment. Third party administrators (TPAs) provide these and other services, such as access to preferred provider networks, prescription drug card programs, utilization review and advice regarding the stop loss insurance market. Very often TPAs are health insurance companies offering what are frequently referred to as “Administrative Services Only” or “ASO” contracts. In these arrangements the insurance company provides the typical third party administration services but assumes no risk for claims payment.

These details are especially relevant to medical travel providers which wish to contract for care with self-funded employers. Because employers are exempted from state regulations, they are at liberty to modify their benefits plans to include such services as medical travel, payments to foreign providers and international medical travel. Because of the growth in premiums and medical costs, economic logic suggests that self-funded employers should be interested in high quality, lower cost destinations for those employees willing and able to travel for medical care. However, wherever a self-funded company has a TPA or ASO contract in place, it is necessary to persuade both the benefits manager at the employer and the TPA/ASO of the value proposition being offered as a destination provider, and the low risk associated with accessing international medical travel.

Does it add up?

Hundreds maybe thousands of insurance agents, medical travel facilitators, hospitals, government representatives and others have taken the advice to market and sell medical travel benefits to self-funded insurance companies, third party administrators, and private health insurance companies. All this effort, all that time and money spent, all the personal anguish created by failure after failure, and there are only the handful of small businesses that have adopted foreign medical benefits plans, and even fewer employees who have accessed them.

The health insurance market in the United States has just been through wrenching change, and the difficulties associated with that change are not yet over. The incentives for health insurance providers, self-funded employers are not simply economic (to save money), but are squarely focused on risk management and mitigation. Because of this, international medical travel benefits are not likely to be adopted until there is a manageable risk model which health insurance providers and self-funded employers can understand and accept.

 

 

NOTES:

[1] Medical Tourism and Obamacare: Self-funding Employers in Search of Benefits to the Affordable Care Act. See: http://www.medicaltourismmag.com/medical-tourism-and-obamacare-self-funding-employers-in-search-of-benefits-to-the-affordable-care-act/

[2] Visualizing Health Policy: Recent Trends in Employer-Sponsored Health Insurance Premiums. See: http://kff.org/infographic/visualizing-health-policy-recent-trends-in-employer-sponsored-health-insurance-premiums/

[3] National Conference of State Legislatures. See: http://www.ncsl.org/research/health/health-insurance-premiums.aspx

[4] 2013 Employer Health Benefits Survey. The Kaiser Family Foundation. See: http://kff.org/report-section/2013-summary-of-findings/. Accessed: 11/09/14

[5] Estimates vary based on the metrics; CNN, a news outlet, estimated the rate of increase in healthcare costs is six times greater that wages over the same period. See:  http://money.cnn.com/2013/08/20/news/economy/health-insurance-premiums/. Accessed 10/30/14

[6] US Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States .2012 See: https://www.census.gov/prod/2013pubs/p60-245.pdf. Accessed: 10/30/14

[7] HSAs were authorized by the Medicare Prescription Drug Improvement and

Modernization Act of 2003 and entered the market in January 2004. See: http://www.gpo.gov/fdsys/pkg/PLAW-108publ173/pdf/PLAW-108publ173.pdf. Accessed 10/27/2014

[8] The Employee Retirement Income Security Act (ERISA) of 1974. See: http://www.dol.gov/compliance/laws/comp-erisa.htm. Accessed 11/09/14

[9] Self-funded employers that secure reinsurance contracts have been estimated at over 25%. See: Deloitte – Self-Insured Benefits Plans 2013. http://www.dol.gov/ebsa/pdf/ACASelfFundedHealthPlansReport033113.pdf Accessed 10/23/2-14

[10]  U.S. Employers Follow Path to Successful Overseas Surgeries. See: http://www.tmcnet.com/usubmit/2013/10/08/7465335.htm. Accessed 11/09/14

[11] World Medical Tourism Congress: Piece de Resistance for U.S. Employer Savings. See: http://www.medicaltourismcongress.com/blog/us-self-funding-employer-savings/. Accessed 11/09/14

[12] Georgia Firm Adds Medical Travel to Cut Costs, Provide Options for Employers. See: http://www.companionglobalhealthcare.com/news.aspx?article=51

[13] KFF / HRET ibid.

[14] See: http://www.nytimes.com/2013/02/18/us/allure-of-self-insurance-draws-concern-over-costs.html?_r=1&. Accessed 10/23/2014

Marketing, research and business development consultant in healthcare, human services and senior living.

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