Medical laboratories will have to rethink billing practices when providing services to consumers receiving lump-sum payouts from their critical illness policy
Employers continue to look for ways to control the cost of health benefits for their employees. One emerging approach that will have financial consequences for clinical laboratories and anatomic pathology groups is a newer type of insurance that provides a lump-sum payout for some critical illnesses.
Policies with this lump-sum payment feature are sometimes referred to as critical illness coverage. Such policies typically pay a lump sum if someone is diagnosed with cancer, suffers a heart attack, stroke, kidney failure, or needs an organ transplant. Some plans also provide benefits for other major medical problems, such as loss of vision, paralysis, and Alzheimer’s disease.
Pathology Groups and Medical Laboratories Must Bill Patients Directly
Pathology groups and medical laboratories that provide testing for consumers with critical illness coverage will typically need to bill the patient directly for 100% of laboratory test charges. That’s because the policy pays a single, lump sum to the patient upon diagnosis of a covered condition.
While critical illness insurance policies have been sold in the United States since the mid-1990s, many employers now are offering the plans to workers who have high-deductible health insurance. Kaiser Health News reported that 45% of employers with 500 or more workers offered critical illness plans in 2015. This is up from 34% in 2009, according to benefits consultant Mercer. In most instances, employers do not contribute toward the premiums for critical illness policies, but offer the plans to help workers reduce their financial risk from a major illness.
“What we have seen is a very clear and steady rise in the number of employers offering high-deductible plans,” Barry Schilmeister, a Principal in the health and benefits practice at Mercer, told Kaiser Health News. “Most are looking at the reality of pulling back on the value of health plans but looking to offer something else that would make people feel a little more comfortable about taking on that additional risk.”
Payouts from Critical Illness Policies Can Be Used for a Patient’s Other Expenses
Consumers with high-deductible health plans face being responsible for thousands of dollars of medical costs before their insurance coverage kicks in. When experiencing a serious illness, they may suffer a loss of income as well as additional expenses for travel, childcare, or other costs. The lump-sum payouts from critical illness policies can be used, not only for medical costs, but also for expenses such as car and mortgage payments and other bills.
“It’s just a protection while you’re still alive, to kind of relieve some of that financial burden,” stated Ashley Ostrowski, an insurance agent who sells critical illness policies, in an interview with Minnesota Public Radio News. “What we like to refer to critical illness insurance is basically life insurance for the living.”
Most Critical Illness Plans Sold through Employers Pay 50% Less
Kaiser Health News points out that a marketing survey by reinsurance company Gen Re found that nine of 10 critical illness plans are offered through the workplace. According to Kaiser Health News, critical illness policies provided through employers have an average $15,000 payout to workers diagnosed by a covered condition. Plans sold on the individual market pay $31,000 on average but require medical underwriting to qualify, a stipulation not usually required with workplace plans.
Insurance industry leaders expect the double-digit annual growth in sales of critical illness plans to continue. Gen Re Vice President Steve Rowley told Minnesota Public Radio that sales of critical illness policies have risen from $8 million in 1999 to $381 million a year, with no slowdown in sight.
“The opportunity for insurers to get in and sell a product that’s needed by the consumer but is not fiercely competitive, with 100 to 150 companies competing for the consumer, means that companies price at a margin they think is fair for the risk,” Rowley said.
Not Everyone a Candidate for Critical Illness Coverage
Critical illness policy premiums are based on a person’s age, health, and other risk factors at the time they enroll. The American Association for Critical Insurance told Paragon Solutions that a 45-year-old female non-smoker could expect to pay $420 to $460 per year for a $30,000 lump-sum benefit, while a 55-year-old male smoker would pay $1,495 to $1.530 per year for the same amount of coverage.
University of Minnesota Health Policy Professor Roger Feldman, however, argues that not everyone is a candidate for critical illness protection. He pointed out the importance of understanding policy limitations and specific requirements. Policies may include:
• pre-existing condition restrictions;
• excluded benefits;
• one-time versus repeat payouts;
• unrestricted versus a specific schedule of benefits;
• waiting period; and
• age-related benefit restrictions.
“Weigh the advantages and disadvantages of this type of insurance compared with the other types of insurance they might buy, such as disability, mortgage insurance, a health savings account, or long-term care insurance,” he told Minnesota Public Radio.
For clinical laboratories and anatomic pathology groups, further growth in the number of patients covered by critical illness policies represents another complication when attempting to get paid. Since the patient has been given a lump sum by the insurer at the point that an illness is diagnosed, labs will be jostling with hospitals, physicians, and other providers to get the patient to their bill. And, as is well known among clinical lab managers, whenever a health insurer sends payment for a lab test claim directly to the patient, it makes it more difficult for the lab to collect that money from the patient.
—Andrea Downing Peck