Actuarial Assessment of Senate Bill 896: An Act Relative to Women’s Health and Cancer Recovery Prepared for Commonwealth of Massachusetts Division of Health Care Finance and Policy Prepared by Compass Health Analytics, Inc




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Actuarial Assessment of Senate Bill 896:

An Act Relative to Women’s Health
and Cancer Recovery


Prepared for
Commonwealth of Massachusetts

Division of Health Care Finance and Policy
Prepared by
Compass Health Analytics, Inc.

June 18, 2010



Actuarial Assessment of Senate Bill 896:

An Act Relative to Women’s Health

and Cancer Recovery
Table of Contents


Executive Summary i

1.Introduction 1

2.Provisions of S.B. 896 1

2.1. Insured populations affected by S.B. 896 2

2.2. Services mandated by S.B. 896 3

2.3. Reimbursement for second opinions 4

2.4. Incentives to reduce care 4

2.5. Services already covered under existing mandates 5

3.Factors Affecting the Analysis 6

3.1. Conditions included in S.B. 896 6

3.2. Mandated procedures vs. federal mandate and current coverage 7

3.3. Estimating the cost of second opinion coverage 9

3.4. Estimating the cost of lymphedema treatment 10

3.5. Cost-sharing provisions 12

3.6. Time-dependent factors 13

4.Methodology 13

4.1. Analysis steps 13

4.2. Data sources 14

5.Analysis 14

5.1. Insured population affected by the mandate 14

5.2. Current claim costs for second opinions and lymphedema treatment 15

5.3. Changes in second opinion costs due to S.B. 896 16

5.4. Changes in lymphedema treatment costs due to S.B. 896 18

5.5. Increase in covered costs to be paid by health insurers 20

5.6. Effect of the mandate on health insurance premiums 20

Conclusion 21

Appendices 22

Appendix A: Estimating the Costs of Lymphedema Treatment in Excess of Current Limits 23

This report was prepared by Lars Loren, JD, James Highland, PhD, MHSA, Lisa Manderson, ASA, MAAA, and Joshua Roberts.





Actuarial Assessment of Senate Bill 896:

An Act Relative to Women’s Health

and Cancer Recovery


Executive Summary

Senate Bill 896, before the 2009-2010 session of the Massachusetts Legislature, mandates coverage, by health insurance plans regulated by the Commonwealth, for minimum hospital stays and breast reconstruction for breast cancer patients, second opinions on proposed cancer diagnoses or treatment, and treatment for lymphedema. The Massachusetts Division of Health Care Finance and Policy (the Division) engaged Compass Health Analytics, Inc. to provide an actuarial estimate of the effect that enactment of the bill would have on the cost of health care insurance in Massachusetts.



Background

S.B. 896 requires fully-insured health plans and plans operated for state employees to cover.

A minimum hospital stay, for a period determined by the physician and the patient to be medically appropriate, for a lymph node dissection, lumpectomy, or mastectomy

A second medical opinion by an appropriate cancer specialist, including a specialist affiliated with a specialty cancer treatment center, in the event of a positive or negative diagnosis, a recurrence, or a recommendation of a course of treatment

Breast reconstruction surgery after a mastectomy, including all stages of reconstruction of the removed breast, reconstruction of the other breast to produce a symmetrical appearance, and prostheses and reconstruction to treat physical complications of mastectomy, including lymphedema

Equipment, supplies, complex decongestive therapy, and outpatient self-management training and education for the treatment of lymphedema


In addition, the bill:

Provides, for each set of mandated services, that coverage may be subject to cost sharing “consistent with those established for other benefits within a given policy”

Forbids an insurer from providing an incentive to providers to provide care that does not meet the requirements of the bill
Discussion and correspondence with the Division and legislative staff served to clarify the intent of language in the bill permitting cost-sharing and language limiting the bill to the treatment of breast cancer and related complications.

Analysis

Compass estimated the impact of the mandate using the following steps:

Analyze the provisions of the bill and compare the requirements of each to existing statutes and current generally-available benefit plan features.

Estimate insurers’ current expenditures on services mandated by the bill but not already mandated by existing statutes or covered under generally-available plans, drawing upon the Division’s health care claims database.

Estimate a range for the cost of complying with the provisions of S.B. 896 requiring coverage for procedures currently not covered.

Estimate the impact on premiums for fully-insured commercial plans by accounting for insurers’ retention for administrative expense and risk/profit.



Summary Results

The analysis compares the services mandated in S.B. 896 to current coverage levels and existing mandates. Most procedures related to breast cancer treatment are already covered by insurers. In addition, the existing federal Women's Health and Cancer Rights Act of 1998 (WHCRA) requires health plans that provide benefits for mastectomies to also cover breast reconstruction, external breast prostheses needed before or during reconstruction, and treatment for any physical complications at all stages of mastectomy, including lymphedema. As a result, S.B. 896’s provisions for these services would not have an incremental effect on insurers’ costs, as they are redundant to current coverage and mandates.


Only two of the bill’s provisions would have a net effect on coverage.

The bill requires insurers to pay for second opinions, even those from out-of-network providers. If the providers are out-of-network, it requires insurers to pay them at the usual and customary rate, which may exceed the in-network rate. While most insurers currently cover second opinions, some do not cover them for out-of-network providers.

The bill requires insurers to pay for physical therapy, supplies, and equipment to treat lymphedema. Most insurers already cover basic medical treatment for lymphedema, and most currently cover therapy and supplies/equipment. But most have caps on the number of visits or the amount reimbursed for equipment. This analysis assumes the intent of the bill is to remove these caps.
Isolating second opinion charges from primary consultations in the Division’s claim data is difficult; however, the analysis makes some reasonable assumptions about what portion of claims are attributable to second opinions and what effect the bill would have on pricing. To estimate additional lymphedema treatment costs mandated under the bill, the analysis uses a simple model, shown in Appendix A. Tables ES-1 and ES-2 show the range of the estimated impact on per-member-per-month medical costs.
Table ES-1: Second Opinion Contribution to Mandate Cost
per Member per Month (2008 dollars)



Table ES-2: Net Effect of Changes in Lymphedema Treatment Cost
per Member per Month



The primary focus of our work is estimating the bill’s impact on premiums for fully-insured private plans. The average net premium cost of S.B. 896 over the next five years for those plans ranges from well under a million to approximately $3.4 million per year. Accounting for administrative expenses, the estimated mean PMPM cost over five years is $0.01 to $0.12. We estimate that S.B. 896 would increase fully-insured premiums up to 0.02 percent on average over five years.
Table ES-3 summarizes the effect on premium costs for fully-insured plans, averaged over five years.
Table ES-3: Estimated Incremental Impact of S.B. 896
on Premium Costs for Fully-insured Plans



Actuarial Assessment of Senate Bill 896:

An Act Relative to Women’s Health

and Cancer Recovery


  1. Introduction

Senate Bill 896, before the 2009-2010 session of the Massachusetts Legislature, mandates coverage, by health insurance plans regulated by the Commonwealth, for minimum hospital stays and breast reconstruction for breast cancer patients, second opinions on proposed cancer diagnoses or treatment, and treatment for lymphedema. The Massachusetts Division of Health Care Finance and Policy (the Division) engaged Compass Health Analytics, Inc. to provide an actuarial estimate of the effect that enactment of the bill would have on the cost of health care insurance in Massachusetts.


Assessing the cost impact entails analyzing the incremental effect of the bill on spending for insurance plans subject to the proposed law. This requires determining if the bill sets a standard for coverage higher than either the standard for coverage under existing mandates or coverage already generally provided by insurers. The analysis then turns to estimating the cost of services under the coverage requirements incremental under the bill.
Section 2 of this analysis outlines the provisions of the bill. Section 3 discusses important considerations in translating S.B. 896’s language into estimates of its incremental impact on health care costs. Section 4 describes the basic methodology used for the calculations in Section 5, which steps through the analysis and its results.

  1. Provisions of S.B. 896

Interpreting S.B. 896 entails identifying the insured populations it covers and the benefit requirements it adds, beyond existing mandates and coverage already offered voluntarily by insurers. The Division’s report, to which this actuarial analysis is attached, contains more detailed descriptions of the provisions and an analysis of the efficacy of the proposed procedures. This analysis will focus on the financial implications of the mandate.



2.1. Insured populations affected by S.B. 896

The structure of S.B. 896 differs from the structure typical of most of the health benefit mandate bills that come before the Legislature. Rather than amending directly the statute chapters that govern various types of health plans (health insurance companies, medical service corporations, HMOs, etc., governed by General Laws chapters 175, 176A, 176B, and 176G), the bill identifies the categories of affected plans.1 Included in the affected plans are fully-insured commercial plans. Health insurance plans, operating as self-insured entities (i.e., the employer policy holder retains the risk for medical expenditures and uses the insurer to provide administrative functions), are subject to federal law, and not to state-level mandates, and are excluded from this analysis. However, the mandate does apply to self-insured plans operated by the Group Insurance Commission (GIC) for the benefit of state, and participating county and local, employees (G.L. c. 32A), since the Legislature can require the commissioners of the GIC to follow the mandate.


The bill does not limit its effect to residents of the Commonwealth. Therefore the proposed mandate would apply to a nonresident, insured by a fully-insured plan regulated by Massachusetts (e.g., someone working for a Massachusetts employer but in another state), although such a person will not be in the Division’s claim data.
The bill specifically excludes Medicare supplemental policies governed under federal or state law; Medicare and federally-regulated “medigap” policies are not subject to state law, regardless. The bill does not limit coverage to persons under 65; note, however, that the portion of the membership of plans affected by the mandate that is over 65 is small (less than two percent).
Finally, despite the bill’s title, it contains no provisions limiting the mandated coverage to women. Female and male patients alike are within the scope of the bill.

2.2. Services mandated by S.B. 896

S.B. 896 requires coverage for a specified set of services, including:

A minimum hospital stay, for a period determined by the attending physician and the patient to be medically appropriate, for a lymph node dissection, lumpectomy, or mastectomy;

A second medical opinion by an appropriate specialist, including but not limited to a specialist affiliated with a specialty cancer treatment center, in the event of a positive or negative diagnosis of cancer, a recurrence of cancer, or a recommendation of a course of treatment for cancer;

Breast reconstruction surgery after a mastectomy, provided in the manner determined by the attending physician and the patient to be medically appropriate, and including all stages of reconstruction of the breast removed by mastectomy, reconstruction of the other breast to produce a symmetrical appearance, and prostheses and reconstruction to treat physical complications of mastectomy, including lymphedema; and

Equipment, supplies, complex decongestive therapy, and outpatient self-management training and education for the treatment of lymphedema, if prescribed by a health care professional legally authorized to prescribe or provide such items under law.


For each set of mandated services, S.B. 896 provides that coverage may be subject to “annual deductibles and coinsurance provisions as may be deemed appropriate by the Division of Insurance” and “as are consistent with those established for other benefits within a given policy”.

2.3. Reimbursement for second opinions

S.B. 896 provides that insurers must reimburse members contemplating or undergoing treatment for cancer for a second medical opinion from a specialist at no additional cost to the insured beyond what the insured would have paid “for comparable services covered under the policy”, i.e., for the first opinion or a standard medical consultation.


Special rules apply for a policy that “requires, or provides financial incentives for, the insured to receive covered services from health care providers participating in a provider network”. Such a policy must include coverage for a second medical opinion from a non-participating specialist, including a specialist affiliated with a specialty cancer care center, when the attending physician provides a written referral, at no additional cost to the insured beyond what the insured would have paid for services from a participating specialist. The insurer must compensate the non-participating specialist at the usual, customary, and reasonable rate, or at a rate listed on a fee schedule filed and approved by the Division of Insurance.
Note that for the purposes of this analysis we assume that coverage for a second medical opinion from a specialist affiliated with a specialty cancer care center does not include travel to a distant center and other incidental costs, unless reimbursement for such expenses would be made for a visit to an appropriate specialist participating in the network.

2.4. Incentives to reduce care

S.B. 896 forbids an insurer from providing a negative or positive incentive, monetary or otherwise, to providers (or patients) to provide (or accept) care that does not meet the requirements of the bill.


Some forms and systems of provider reimbursement might be interpreted as giving a provider an incentive to cut costs. For example, when an insurer pays for an inpatient mastectomy procedure using a fixed fee based on a diagnosis-related group (DRG), in theory, the provider could increase its profit by reducing the cost of services. Likewise, a provider paid on a global or capitated (per-member-per-month) basis under a program in which the provider manages the patient’s total care would also, in theory, have an incentive for cutting costs.
Based on an interview with legislative staff,2 we assume the bill’s authors do not intend to alter these arrangements or impede payment reform efforts attempting to move beyond fee-for-service systems.

2.5. Services already covered under existing mandates

The federal Women's Health and Cancer Rights Act of 1998 (WHCRA) requires health plans, including self-insured and fully-insured commercial plans, that provide benefits for mastectomies, to also cover:

Reconstruction of the breast removed by mastectomy and of the other breast to produce a symmetrical appearance

External breast prostheses (e.g., breast forms) needed before or during reconstruction

Treatment for any physical complications at all stages of mastectomy, including lymphedema
WHCRA also addresses cost-sharing, providing that “coverage may be subject to annual deductibles and coinsurance provisions as may be deemed appropriate and as are consistent with those established for other benefits under the plan or coverage.”
The provisions of S.B. 896 parallel to WHCRA’s provisions are redundant, and therefore do not imply increased spending for the services described.

  1. Factors Affecting the Analysis

Several issues arise in translating the provisions of S.B. 896 and existing law discussed in Section 2 into an analysis of incremental cost.



3.1. Conditions included in S.B. 896

The provisions in S.B. 896 that set coverage standards for inpatient stays and breast reconstruction apply to breast cancer patients. However, the provision requiring coverage for second opinions (Section C in the bill) refers only to “cancer”, not “breast cancer” in identifying the conditions for which second opinions are covered. Likewise, the section requiring coverage for lymphedema therapy and devices (Section E) does not limit coverage to patients with any given condition.


For purposes of this analysis, and consistent with the assumptions of the report to which this analysis is an appendix, we assume the provisions focused specifically on breast cancer treatment set the scope for the remainder of the bill, and therefore the bill requires coverage for second opinions regarding diagnoses and treatments for breast cancer only, as opposed to all cancers. Furthermore we assume the bill is requiring coverage for lymphedema therapy and devices for treatment of lymphedema resulting from breast cancer treatment.3
Without these assumptions, the cost of the bill would be greater. The cost of expanding second opinion coverage would be approximately seven times larger for all cancer patients, assuming the rate of second opinions per breast cancer case was roughly the same as that for cancer in general.4 Firm statistics on what portion of lymphedema treatments are necessitated by cancer treatment are less readily available, but informal estimates state that breast cancer related lymphedema makes up anywhere from a quarter to a half of all cases, meaning costs for lymphedema from any cause would be two to four times higher.

3.2. Mandated procedures vs. federal mandate and current coverage

Even without considering the effect of S.B. 896, coverage for most services mandated by the bill are already either mandated by the federal mandate (WHCRA) or covered in the insurance marketplace. Determining the net effect of S.B. 896 requires identifying the bill’s limited incremental effects. Table 1 provides a summary comparison of the provisions of S.B. 896 with WHCRA and current coverage.


Table 1: Comparison of S.B. 896 with WHCRA and Market Coverage

S.B. 896 Mandate

Federal WHCRA Mandate

Typical Market Coverage

A minimum hospital stay, determined by the physician to be appropriate for a lymph node dissection, lumpectomy, or mastectomy

Not mandated

Payer surveys report no grievances regarding length of stay following breast cancer procedures. Provider interviews revealed no complaints.

A second medical opinion by a specialist, including a specialist affiliated with a specialty cancer care center

Not mandated

Almost all policies cover second opinions. At least one large insurer, and some plans under other insurers, does not cover them out of network. Payer surveys report no grievances regarding second opinions. Interviews with breast cancer treatment providers revealed no complaints about coverage.

Breast reconstruction surgery after mastectomy, including reconstruction of the removed breast and of the other breast, and prostheses and reconstruction to treat physical complications, including lymphedema

Reconstruction of the removed breast and of the other breast. Breast prostheses before or during reconstruction. Treatment for physical complications of mastectomy, including lymphedema.

Insurers cover reconstruction. No evidence was observed that commercial policies do not generally meet the terms of the federal mandate, with the possible exception of lymphedema treatments (see below).

Equipment, supplies, complex decongestive therapy, and self-management training for treatment of lymphedema

General treatment for complications of mastectomy, including lymphedema, but no listing of treatment components such as therapy and supplies

Insurers cover treatment of active lymphedema. Coverage for extended physical therapy and equipment/supplies for maintenance may be limited.

Comparing S.B. 896 with WHCRA and current coverage leads us to make the following assumptions for the purposes of this analysis:



Coverage for mastectomies, lumpectomies, and related procedures is available through all plans. While no current state or federal law requires a minimum length of stay, we have no evidence of grievances against fully-insured commercial plans regarding length-of-stay issues. Furthermore an interview with a supervising breast cancer practitioner5 revealed few problems with negotiating inpatient stays with payers. Therefore we assume length of stay conflicts occur infrequently enough to have a negligible effect on the cost of the bill.

Coverage for breast reconstruction is available through all plans. It is mandated by WHCRA, and we have no evidence of the failure or payers to meet WHCRA’s requirement in this area. Therefore we assume conflicts over coverage for reconstruction occur infrequently enough to have a negligible effect on the cost of the bill.

In contrast, the following requirements of S.B. 896 appear to have a marginal impact on cost and require more extensive analysis:



Coverage for second opinions is generally provided by commercial payers. However, at least one large payer reports that it does not cover second opinions from out-of-network providers, nor do some plans under other smaller payers. While insurer surveys showed no grievances regarding coverage for second opinions and our interview with a supervisory breast cancer practitioner revealed no issues regarding second opinion coverage6, we have to consider the possibility that second opinion costs might rise.

Coverage for lymphedema, at least coverage for treatment of lymphedema actively presenting symptoms, is provided by all payers. However, breast cancer recovery advocates have pointed out the limits of most plans in covering extended therapy and devices and supplies particularly useful in maintaining improvements. Payer surveys identified limitations in coverage for therapy visits and devices, and reported a few grievances related thereto.
Because coverage for most treatments mandated by S.B. 896 is largely in place, the incremental effect of the bill on the procedures for which insurers will pay will be limited to costs of covering second opinions and lymphedema treatment. The following two sections address issues related to estimating the potential incremental costs of those provisions.

3.3. Estimating the cost of second opinion coverage

In general, insurers cover second opinions and our discussions with practitioners did not uncover anecdotal evidence of problems. However, at least one large insurer, Blue Cross Blue Shield of Massachusetts, covers second opinions only from providers within its network, and S.B. 896 would require it to change its practice. A few plans under other smaller insurers would also be affected.


Quantifying the effect of this change is difficult.

Data for estimating the number and cost of second opinions is sketchy at best. Claim data, including the Division’s all-payer claim data, do not distinguish consultations and office visits for second opinions from other consultations and visits. At best, we can assume it is safe to eliminate procedure codes for consultations for “established” patients and in settings, such as emergency rooms, unlikely to be connected to second opinions, but even then we need to isolate second opinion visits from run-of-the-mill new patient visits.

BCBS has a large provider network including well-known cancer specialty centers in Massachusetts, and the proportion of requested second opinions that would fall outside of that network is probably small, possibly consisting of opinions obtained at specialty cancer centers in other states.

The analysis requires an estimate of the extent to which out-of-network consultation fees would exceed in-network consultation fees. The networks of Massachusetts insurers include high-profile centers of specialists in a relatively high-priced market, suggesting that in-network rates will not be unusually low, limiting the difference.



3.4. Estimating the cost of lymphedema treatment

As noted, S.B. 896 requires coverage for treatment for physical complications of mastectomy, including lymphedema, provided in the manner determined by the attending physician and the patient to be medically appropriate. Coverage includes benefits for equipment, supplies, complex decongestive therapy (most often delivered by a physical therapist), and self-management training. All plans provide coverage for treatment for active lymphedema, but many, if not most, policies have limitations on the number of therapy visits (20 to 24 per year) and limits on reimbursements for supplies and devices such as compression garments and pneumatic compressors and related appliances. In particular some of the garments are regarded, according to responses to the Division’s survey, as durable medical equipment (DME) and subject to policy DME limits.



Lymphedema coverage in WHCRA

WHCRA requires insurers to cover treatment for lymphedema due to breast cancer treatment. However, responses to the Division’s survey state that coverage for therapy and devices is limited, and confirmed by discussions with advocates and practitioners. If we interpret WHCRA’s provisions as requiring full coverage for all aspects of lymphedema treatment, then arguably they are not fully enforced. However, for purposes of this analysis we will assume that commercial payers are in compliance with WHCRA, and the language allows the payers to limit the coverage as described.



S.B. 896 lymphedema language

S.B. 896 mandates coverage including “benefits for equipment, supplies, complex decongestive therapy, and outpatient self-management training and education for the treatment of lymphedema.” It further provides that such coverage “may be subject to annual deductibles and coinsurance provisions as may be deemed appropriate by the division and as are consistent with those established for other benefits within a given policy.”


While S.B. 896 allows lymphedema benefits to be subject to cost-sharing requirements, consistent with those for other benefits within the policy, the bill says nothing about whether procedure caps or DME limits may constrain lymphedema coverage. A narrow reading of S.B. 896 would find that the bill merely requires payers provide the listed benefits for lymphedema (which all payers do to some extent) but does not override the constraints on therapy or DME – which apply (as does cost-sharing) to benefits for all conditions, not just lymphedema – because it does not address them explicitly. Under this interpretation, these more general policy limits would still be in effect, and the lymphedema provision of S.B. 896 would have little effect on payer costs.
However, for purposes of this analysis, we assume the authors of S.B. 896 intended to remove the procedure count and DME constraints on lymphedema benefits.

The authors emphasized these benefits by identifying specific components of lymphedema therapy.

They stated that coverage for lymphedema treatment must be provided “in the manner determined by the attending physician and the patient to be medically appropriate”, and we assume this language reduces the insurer’s ability to limit service.

The authors did not explicitly allow DME or other general benefit limits to override the language granting treatment decision-making discretion to practitioners and providers.



Indirect savings

Several advocates for cancer recovery care have pointed out that, left untreated, patients with lymphedema are at increased risk for more dangerous conditions, notably cellulitis, that often require expensive inpatient stays. Avoiding expenses associated with treating these complications could, in theory, offset some of the cost of the bill.


Estimates of indirect costs of S.B. 896 are outside the scope of this analysis. In addition, estimating the potential savings, due to coverage mandated by S.B. 896, from preventing cellulitis and other complications would be difficult. Insurers currently provide substantial coverage for lymphedema treatment, and we have no data on how much more effective in preventing these complications the incremental coverage mandated by S.B. 896 would be, compared to the value of existing lymphedema coverage.

3.5. Cost-sharing provisions

For each set of mandated services, S.B. 896 provides that coverage may be subject to “annual deductibles and coinsurance provisions as may be deemed appropriate by the Division of Insurance” and “as are consistent with those established for other benefits within a given policy.” Assuming common definitions for “deductible” (an annual amount of money patients pay for services, before any amount is paid by the insurer) and coinsurance (the percentage of provider reimbursement paid by the patient, e.g., 20 percent, typically up to a plan-year out-of-pocket dollar limit), the bill makes no mention of the third common component of patient cost-sharing: copayments (per-visit or per-procedure payments the patient makes to the provider).


In its response to the Divisions of Health Care Finance and Policy’s survey, one (and only one) insurer interpreted this cost-sharing language as allowing deductibles and coinsurance for the mandated services, but forbidding copayments because they were not included explicitly in this brief list of cost-sharing components. Such an interpretation would raise the impact of this bill on premium costs.
For the purposes of this analysis we assume the bill’s authors did not mean to forbid copayments for the mandated services. Legislative staff members, during an interview about this bill7 and in response to a question about the absence of any mention of copayments, did not indicate copayments were forbidden. This was later confirmed by other staff.8 Furthermore, we assume the authors would not explicitly allow some components of cost-sharing yet forbid the component typically associated with office visits, and perhaps most visible to the patient, without explicitly saying so.
Finally, WHCRA’s language on cost-sharing is very similar to the language in S.B. 896. Therefore, insurers who have been charging copayments for these services have been presumably doing so in compliance with the federal law and could continue to do so under S.B. 896. And however S.B. 896’s cost-sharing language is interpreted, it represents no change from the language under the existing federal mandate, and therefore will have no effect on the cost of the bill as estimated by this analysis.

3.6. Time-dependent factors

This analysis provides an estimate of the cost of this mandate for five years, 2011 to 2015. Our analysis will account for:

Membership trends

Cost inflation: We assume an annual per-service cost increase of three percent, measured from 2008 and raising the value for 2011 and on.9


Because the coverage mandated by S.B. 896 generally consists of enhancements to coverage already in place and is not related to new procedures or provider relationships, if the bill is enacted we expect little lag between enactment and when the benefits begin to affect insurer reimbursement.

  1. Methodology

4.1. Analysis steps

Compass estimated the impact of S.B. 896 with the following steps:

Estimate the populations covered by the mandate; i.e., identify the types of policies affected and estimate the number of covered individuals

Measure past use and insurers’ expenditures for second opinions and lymphedema treatment

Estimate (ranges for) the additional cost for second opinions if the bill passes

Estimate (ranges for) the additional cost for lymphedema treatment if the bill passes

Estimate changes in per member cost over the next 5 years

Estimate the impact on premiums by accounting for insurers’ retention



4.2. Data sources

The primary data sources used in the analysis were:

Interviews with legislative and Division staff

Interviews with providers and treatment advocates

Responses to a survey presented by the Division to insurers regarding existing coverage for mandated services

Government reports and data and academic literature, cited as appropriate

Claims: The Division provided Massachusetts data from its all-payer claim database for claims containing procedures related to second opinions and lymphedema treatment and diagnoses related to breast cancer or lymphedema for most private plans

Membership data: The Division provided membership data for the plans represented in the all-payer claim data. We also used other studies prepared for the Division, supplemented with U.S. Census data


The step-by-step description of the estimation process below addresses limitations in some of these sources.

  1. Analysis

5.1. Insured population affected by the mandate

Table 2 shows the number of people potentially affected by the mandate. Self-insured populations not subject to the mandate are included only for reference. Estimates of the impact of the bill are derived below by applying the fully insured population membership numbers to estimated PMPM values derived in part from the Division’s claim database.10


Table 2: Projected Membership



5.2. Current claim costs for second opinions and lymphedema treatment

Using carrier claim data, provided by the Division, we estimated the amount paid per member for 2008 claims for second opinions and lymphedema treatment. Because treatments for lymphedema can involve physical therapy, which carries the same procedure code whether it is performed for lymphedema or other conditions, we limited the claim records to those carrying a diagnosis of breast cancer or lymphedema. Therefore, the claim data we examined will not include claims for therapy for lymphedema with no, or incorrect, diagnoses; the data might understate payments for genuine lymphedema treatment.


Likewise, consultations and office visits are very common, and again we relied on a diagnosis code showing breast cancer or lymphedema to limit the claims. Furthermore, we omitted procedure codes for evaluations associated with specific routine processing, such as emergency room admittance, and most significantly, for established patients.
Table 3: 2008 Cost of Lymphedema Treatment and Second Opinions
per Member per Month



Table 3 provides a brief summary of 2008 dollars paid, per-member-per-month. Reimbursements for these procedures, as recorded in the Division’s claim data, are relatively low on a PMPM basis. As noted, self-insured plans are, in general, not subject to S.B. 896; however we will use the PMPM costs for self-insured plans to estimate part of the effect of the bill on GIC plans since the Division’s claim data does not allow us to isolate the GIC population directly. The table displays costs to the tenth of a cent to illustrate the overall low cost, and the difference between fully-insured and self-insured plans, which often have richer benefits.

5.3. Changes in second opinion costs due to S.B. 896

S.B. 896 requires insurers to cover second opinions, including those from out-of-network providers. Most insurers cover second opinions, but rates for out-of-network opinions could be higher. Using the same procedure codes, roughly identified as procedures that might include second opinions, which we used to create Table 3, we found the billed amounts to be some 60% higher than allowed amounts. Taking this as the high end of the range we assume charges will be 20 to 60 percent higher. We will assume this is a rough proxy for the additional cost of an out-of network consultation.


As noted in Section 3, estimating actual expenses for second opinions regarding breast cancer treatment is difficult because of the need for accurate diagnoses and the lack of evaluation procedure codes that distinguish first and subsequent opinions.
We will make a set of assumptions, that might overstate costs somewhat, but which meet our need to be conservative:

10 to 40 percent of the reimbursement, measured for codes that might reflect second opinions, is for second opinion consultations.

As noted above, costs for out-of-network consultations would be 20 to 60 percent higher than in-network charges.

65 percent of the insured population (BCBS’s share of 2008 fully-insured membership, plus a portion of other plans) is covered by plans where the fee differential might come into play. Whether the rates at which all the remaining plans pay for second opinions meet the usual and customary standard (as required by the mandate) is not clear from the Division’s survey data, but at least some do. Given the uncertainty, we assume these remaining plans do not contribute to the cost.


The cost of the mandate to cover second opinions from out-of-network providers has two components:

Some out-of-network second opinions are currently paid out-of-pocket or skipped entirely. With improved coverage, we assume the number of second opinions for which affected insurers would pay will increase by 20 percent (and be paid at the higher rates).

Insurers currently pay for some second opinions for which the patient might prefer to go out-of-network and for which the insurer will have to pay a higher rate. We assume a (conservatively large) 50 percent of the current second opinion consultations would use out-of-network resources, at the higher rates.
The calculations yield the rough estimate of the incremental PMPM cost of the second opinion provisions shown in Table 4.
Table 4: Second Opinion Contribution to Mandate Cost
per Member per Month (2008 dollars)




5.4. Changes in lymphedema treatment costs due to S.B. 896

As noted, commercial insurers generally cover treatment for lymphedema, and we found no evidence that they do not cover medical treatment for lymphedema actively exhibiting symptoms. However, anecdotal evidence was presented that some patients covered under fully-insured commercial plans encountered limits in coverage for the physical therapy and supplies/equipment needed for sustained, “maintenance” treatment of lymphedema. Therefore any cost attributable to the proposed bill’s mandate for coverage of lymphedema treatment will arise from patients who are currently encountering caps on coverage and who would use more services/devices if the caps are removed.


The per-member-per-month costs for therapy and devices measured from the Division’s claim data (shown in Table 3) are lower than the amount even modest use of the benefit should generate. The following hypothetical example illustrates modest use.

The Massachusetts incidence rate for breast cancer is 132 per 100 thousand.11

Assume 80 percent of breast cancer patients have surgery that increases the risk of lymphedema. Estimates of the portion of breast cancer surgery patients who develop lymphedema range from 15 to 50 percent. For this example, assume 20 percent.

Assume the average patient uses only 5 therapy sessions per year, well below the typical policy cap, at $120 per session.

Assume the patient purchases two sets of bandages at $100 per set, and not more expensive night garments or other devices.
In this example the per patient cost is $800 per year, the cost per 100 thousand members is $17,000 (132 times 80% times 20% times $800), translating to a PMPM of $0.014 or roughly the sum of the therapy and device PMPMs measured in the Division’s data for fully-insured plans shown in Table 3. (Values in Table 3 for self-insured plans are greater.) Furthermore the above example only covers lymphedema due to new cases of breast cancer. Some treatments continue well over a year.
As noted, we must allow that the Division’s claim data might undercount somewhat services, particularly physical therapy, for lymphedema, because a correct diagnosis is required for us to identify them. Nonetheless, the order of magnitude of the resulting PMPM in the hypothetical, suggests actual usage of the benefit is relatively low – i.e., few users test the limits – and suggests removing the limits will have at most a modest effect.
To estimate the effect of removing limits on therapy and DME, we extended the hypothetical, assuming a distribution of lymphedema severity and treatment costs based on data from providers,12 and varying those assumptions to obtain a range of estimates. The model’s assumptions, particularly about the severity distribution, were conservatively high. The net effect of removing the limits is shown in Table 5. Appendix A shows the model.13
Table 5: Net Effect of Changes in Lymphedema Treatment Cost
per Member per Month



We assume the same PMPM increases for fully- and self-insured plans.

5.5. Increase in covered costs to be paid by health insurers

Applying the estimated increase in per-member per-month costs, combining Tables 4 and 5, to the projected annual insured membership for the next five years yields the range of estimates in Tables 5A for fully-insured plans. The table reflects changes in projected membership and an assumption of three percent per year14 for inflation in service cost (over the 2008 base year).


Table 5A: Estimated Cost of Mandated Services – Fully-insured Plans


Applying the PMPM changes to the fully- and self-insured membership components of the GIC plans, we derive a similar set of values, shown below in Table 5B. Note the small GIC fully-insured membership is also included in the general fully-insured results.
Table 5B: Estimated Cost of Mandated Services – GIC Plans



5.6. Effect of the mandate on health insurance premiums

To convert medical cost estimates to premiums, we added insurer retention (i.e., the portion of premiums that represent administrative costs and profit for bearing risk on covered members). Using historical data, we estimated a retention ratio of approximately 12 percent. Table 6 displays the resulting net effect on premiums for fully-insured plans (including the small fully-insured GIC membership), showing the net increase measured on a per-member per-month (PMPM) basis and as a percentage of estimated premiums.


Table 6: Estimated Incremental Impact of S.B. 896
on Fully-Insured Plan Premiums




Conclusion

For fully-insured plans, the estimated mean PMPM cost of the mandate provision of S.B. 896 over five years is $0.01 in the low scenario to $0.12 in the high scenario. We estimate that S.B. 896 would increase premiums by up to 0.02 percent on average over the five-year period. Analysis of the cost-effectiveness of the mandated treatment is beyond the scope of this analysis, but to the extent that treatment prevents additional medical expense down the road, this cost increase would be balanced by benefits in preventing that expense.


Because S.B. 896 addresses procedures already largely covered by insurers, the effect of the bill is limited, especially compared to the large amount of money spent on breast cancer treatment in general.

Appendices

Appendix A: Estimating the Costs of Lymphedema Treatment in Excess of Current Limits




Appendix A: Estimating the Costs of Lymphedema Treatment in Excess of Current Limits15









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1 It provides “any insurer proposing to issue individual or group accident and sickness insurance policies providing hospital, medical and surgical, or major medical coverage on an expense-incurred basis; any corporation providing individual or group accident and sickness insurance policies providing hospital, medical and surgical, or major medical coverage on an expense-incurred basis; any health maintenance organization contract providing a health care plan for health care services; and any group blanket policy of accident and sickness insurance, including the contributory group insurance for persons in the active or retired service of the Commonwealth, that covers medical and surgical benefits, shall provide coverage consistent with all of the provisions of this section”.

2 Interview with Amaru Sanchez and other legislative staff, April 7, 2010.

3 Assuming otherwise would also introduce the unlikely possibility that the bill mandates coverage for devices and physical therapy for lymphedema resulting from conditions other than breast cancer, but does not mandate coverage for basic medical treatment for those conditions.

4 Based on counts of new cancer cases from the American Cancer Society, Estimated New Cancer Cases for Selected Cancer Sites by State, US, 2010, .

5 Interview with Mehra Golshan, MD, Director of Breast Surgical Services, Dana-Farber/Brigham and Women's Cancer Center, May 20, 2010.

6 Interview with Mehra Golshan, MD, Director of Breast Surgical Services, Dana-Farber/Brigham and Women's Cancer Center, May 20, 2010.

7 Interview with Amaru Sanchez and other legislative staff, April 7, 2010.

8 Email from Colby Dillon, Legislative Aide to sponsor Senator Karen E. Spilka, May 28, 2010.

9 Roughly the 3.5 percent trend reported for HMO’s in www.mass.gov/Ihqcc/.../2009_04_01_Trends_for_Fully-Insured_HMOs.doc and http://www.mass.gov/Eoca/docs/doi/Consumer/MAHMOTrendReport.pdf

10 The Division’s membership data, representing most of the plans contributing to its all-payer claim database, contains approximately 2.9 million, of which 1.7 million are fully-insured and 1.2 million self-insured. Non-residents who work in Massachusetts and are insured by policies issued in Massachusetts are not included in the Division’s count. They may, however, be present in some of the membership numbers gathered from insurance data, and so the member counts in the analysis may include insured non-residents. S.B. 896 effectively applies to insurance regulated by (issued in) Massachusetts, and Massachusetts residents who commute to other states and are insured in those states are generally not included in insurance roles. As a cross-reference, according to the Kaiser Family Foundation, approximately 4.1 million Massachusetts residents were covered under non-government health plans in ’07-‘08. Kaiser Family Foundation, “Massachusetts: Health Insurance Coverage of the Total Population, states (2007-2008)”, accessed 1/26/10, . Note the Kaiser Foundation counts might include residents insured in other states.

11 American Cancer Society, “Cancer Facts and Figures 2010”, .

12 Interview with Nancy Roberge, DPT, Director, Chestnut Hill Physical Therapy Associates, May 28, 2010. Email from Nancy Roberge, June 10, 2010. Interview with Roya Ghazinouri, DPT, MS, Inpatient Clinical Supervisor, Department of Rehabilitation Services, Brigham and Women's Hospital, May 28, 2010.

13 For an additional perspective on an earlier bill mandating coverage for lymphedema, see the July 2004 report of the Massachusetts Division of Health Care Finance and Policy on S.B. 848/H.B. 1309: “An Act Providing Coverage for Lymphedema Treatments”. That study identified costs affecting fully-insured plans arising from the proposed mandate to cover massage therapy, a previously uncovered service. The analysis did not estimate costs due to the removal of limits on physical therapy and supplies/equipment, arguing that the average use of the benefits, without the mandate, was so low that very few patients would use many more units of service once the mandate removed the limits, and that the resulting costs would be very small compared with other costs of the bill. See the Publications section of the Division’s website for how to obtain archived reports. .

14 Roughly the 3.5 percent trend reported for HMO’s in and .

15 Incidence from the American Cancer Society. Benefit elements from insurer surveys. Rough estimates of severity distribution, treatment needs/frequencies, and rates for the mid-level case came from providers. Severity assumptions (percent of cases developing lymphedema) assume a higher, narrower range than the 15% to 50% mentioned in the body. Interview with Nancy Roberge, DPT, Director, Chestnut Hill Physical Therapy Associates, May 28, 2010. Email from Nancy Roberge, June 10, 2010. Interview with Roya Ghazinouri, DPT, MS, Inpatient Clinical Supervisor, Dept. of Rehabilitation Services, Brigham and Women's Hospital, May 28, 2010.



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