Sunday, June 26, 2011

HB 4572 analysis

An Analysis of the Hard Cap

The hard cap proposed in House Bill 4572 shifts nearly all of the costs of serious and catastrophically-expensive illnesses such as heart attacks, strokes, premature babies, and leukemia and other cancers to public employees and their families.

Even when a health plan is successful at keeping a group’s medical claims cost trend down to 5%, the cost of one or two catastrophic illnesses such as cancer, heart attack, stroke or a premature baby will quickly make the coverage unaffordable for the employees. With experience-rated and self-insured plans, a cap shifts almost all of the cost and risk of a catastrophic sickness to the employee group.

Hard Cap Base Year

Typical group: 150 employees

Annual cost: $2,400,000

Cost per employee: $16,000

Hard Cap: $15,000 per employee

Employee share: $1,000 per employee

Hard Cap Year Two

Same group: 150 employees

Cost trend: 5% x $2,400,000 = $120,000 ($2,520,000 total base)

Catastrophic claim: Preemie baby requiring neonatal care: $300,000

Annual cost: $2,820,000

Cost per employee: $18,800

Hard Cap: $15,300 (2% inflation)

Employee share: $3,500 per employee

Hard Cap Year Three

Same group: 150 employees

Cost trend: 5% x $2,520,000 = $126,000 ($2,646,000 total base)

Catastrophic claims: 2nd year care for preemie: $50,000

Leukemia diagnosis: $350,000

Annual cost: $3,046,000

Cost per employee: $20,307

Hard cap: $15,606 (2% inflation)

Employee share: $4,701 per employee

Hard Cap Year Four? Five? Six? In only two years an employee’s share more thanquadrupled, increasing by 470%. What will happen in years four, five, six and beyond?