High Co-pays for Lab Tests May Create a Collection Nightmare for Clinical Laboratories
As new facts about the prices of premiums and the amount of patient co-pays for California’s health information exchange—called Covered California—are published, the news is not likely to be favorable for clinical laboratories and anatomic pathology groups in the Golden State.

Of particular note is that Covered California has published a requirement that patients will be charged a $35 co-pay for medical laboratory testing. Some lab industry executives have pointed out that it will be a challenge to collect these co-pays. They expect labs will incur higher costs attempting to collect these co-pays while at the same time seeing a substantial increase in levels of bad debt. However, all of this will not happen until 2014, when Covered California begins providing health insurance coverage.

For one category of insured beneficiaries, there is a bit of good news. Insurance exchange premiums for individuals not covered by employer health plans will be lower than previously expected. Covered California will charge, on average, $321 per month on average for the “Silver,” medium-tier plan, noted Peter V. Lee, Executive Director of Covered California, in a report published by the Wall Street Journal.

Established in compliance with the Affordable Care Act (ACA), Covered California is the state agency created to setup an online marketplace where individuals can purchase health insurance.

Lee admitted, however, that premiums for some currently insured, middle-income residents are going up. Blue Shield of California, for instance, has announced that the average exchange premium will be about 13% higher than its current premium for an individual PPO plan. About 8% of the increase is attributed to rising healthcare costs and the remainder to the effects of healthcare reform.

California’s Exchange Offers Four Plans With Uniform Deductibles

California has been more aggressive than other states in forcing insurers in the exchange to compete directly on price. One way it has done this is by establishing uniform deductibles and benefits across four different plans, noted a report published by the Los Angeles Times.

Overall, Covered California said the rates for next year’s individual market range from 2% higher to 29% below the average premium currently charged small-employer plans in metro areas, noted another Times report.

The four plans offered are priced according to the level of consumers’ out-of-pocket expenses. The Platinum plan is the most expensive and only requires policyholders to pay 10% of the cost of care. The patient share for the least expensive plan is 40%.

In the Los Angeles County region for instance, a 40-year-old person purchasing a Silver plan would pay $242 a month at Health Net (NYSE: HNT), $287 at Blue Shield, and $325 per month at Kaiser Permanente, noted the Times.

Labs May Want to Collect CoPays Upfront

On the other hand, co-pays for outpatient services, including medical laboratory tests, are relatively high. According to the Covered California Website, the co-pay for a lab test is $40 for those beneficiaries who earn $22,980 to $28,725 annually and $45 for those earning $28,726 to $45,960.

These high copays may create a collection nightmare for medical laboratories, which already have difficulty collecting small amounts owed by patients after insurers have paid the lab.

About Half of California’s Uninsured May Purchase Insurance

Currently, 28% of California’s 38 million citizens—or nearly 10.5 million—are uninsured. Roughly 5 million Californians are expected to shop for health insurance on the exchange, according to another Times report

Individuals earning more than $16,000 but less than $46,000 yearly and families earning up to $94,000 are eligible for federal subsidies to help pay their premiums. Those earning less than $16,000 will be eligible for Medi-Cal, the state’s Medicare program.

The WJS article noted, however, that Milliman, an actuarial benefits consulting firm, has projected that individual premiums for wage earners who do not qualify for subsidies, could escalate by as much as 30% next year.

California Selects 13 Insurers to Participate in the Health Exchange

Covered California has selected 13 providers to participate in the health exchange based on premiums and benefits proposed. This includes the state’s biggest players in the individual insurance market:

Wellpoint Inc.’s (NYSE: WLP) Anthem Blue Cross

• Blue Shield of California

Kaiser Permanente

Combined, these three insurers already have 87% of market share, according to another Los Angeles Times report.  The other 10 health insurers are local plans that mostly focus on serving Medi-Cal patients.

Three of the Nation’s Largest Insurers Opt Out of California’s Individual Market

Meanwhile, three of the nation’s largest insurers, UnitedHealth Group (NYSE: UHN), Aetna (NYSE: AET), and Cigna (NYSE: CI) have opted out of the exchange, at least for the first year, noted the Times story. UnitedHealth and Aetna, in fact, have exited the California individual insurance market altogether.

Over the last couple of months these two insurers dropped 58,000 of their customers, according to a Times article. Officials for the two plans said they will focus exclusively on the state’s market for employee-sponsored health plans. Both Cigna and UHP have left the door open to participating in the future.

Glenn Melnick, Ph.D., a Health Policy Professor at the University of Southern California, suggested that “California is going to be a trendsetter” in the national healthcare overhaul. He believes these insurers may regret the decision to sit on the sidelines, given California’s size and importance.

Glenn Melnick

Glenn Melnick, a Professor at the USC Leonard D. Schaeffer Center for Health Policy & Economics, pictured here, believes major insurers choosing to sit on the sidelines when California’s individual health exchange goes live, will regret their decisions. (Photo copyright USC)

Melnick noted in the Times story that marketplace dominance by three insurers could have both positive and negative consequences. Their greater market power gives them more bargaining leverage with healthcare providers, which could help drive down costs, Melnick explained. On the other hand, he said it remains to be seen whether “the market is competitive enough that those companies will pass along those savings.”

Sabrina Corlette, a Research Professor at Georgetown University’s Center on Health Insurance Reforms, noted in the Times report that, beginning in January 2014, federal healthcare law mandates that insurers accept all individual applicants regardless of pre-existing conditions. Insurers must also provide a comprehensive set of benefits with limits on patients’ out-of-pocket spending.

What makes Covered California notable is the fact that it is expected to be one of largest health insurance exchanges organized under the Affordable Care Act. Other states are watching closely to see what works and what doesn’t as Covered California begins offering coverage early next year.

—By Patricia Kirk

Related Information:

California picks 13 health plans for state-run insurance market

New California health insurance rates unveiled

UnitedHealth, Aetna and Cigna opt out of California insurance exchange

UnitedHealth to exit individual insurance market in California

Introduction to the California health insurance Exchange

California Outlines Health Premiums

Sliding Scale Benefits – Silver Plan

California Insurance Exchange Rates: Not Too High, Not Too Low

 

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