Health Watch May 2008: The Impact of Benefit Rush

Question 1

Introduction

Answer 1

1. Benefit rush may occur anytime there is a noticeable change in benefit package
2. Small groups have shorter announcement periods and less rich plans, so impact less pronounced
3. Benefit rush impacts year before change is implemented, but also for two years following implementation
   - In year following implementation, claims are lower than “steady state”
   ▪ Services that would have been incurred were incurred during the rush
   ▪ In addition, wait and see attitude as consumers adapt to new plan
   - In second, trend higher because it is coming off a lower base
4. When adding major benefit or increasing benefit limit on a costly service
   - The first rush in January when consumers rush out to take advantage
   - Second rush three to six months later, after word of mouth

Question 2

The Impact: Large, Self-Insured Customers

Answer 2

1. Savings shown by a comparison to “do-nothing” scenario
2. Customer may object because the do-nothing trend is hypothetical
3. Demonstrate savings by breaking savings into component parts
   - Advantage that bottom line is not hypothetical
4. Carriers are offering trend guarantees to self-insured customers
   - The fact that carrier may not know about anticipated changes adds risk

Question 3

Insured Business

Answer 3

1. Financial impact can be large, especially if the proportion of large deductible plans is growing rapidly
2. For small business pricing limited to an increase of 15 percent + change in manual rates under small group
   regulation
   o Hesitant to use full 15 percent for fear of being accused of “bait and switch”
3. For experience-rated cases, reflect benefit rush pattern into premium calculations
4. IBNR estimate can be inadequate unless benefit rush taken into account
5. Mini-rush at end of policy year as consumers satisfy their deductible and out-of-pocket maximums

Question 4

Example of RUSH-HUSH-CRUSH

Answer 4

1 - After the change is announced, there will be a rush to use the rich benefits of the PPO compared to what they may get with the HDHP and claims utilization will be higher than usual.

2 - During the first year the HDHP is offered, there will be a hush or reduction in utilization as members learn how best to use the new plan and after receiving all their elective services the prior year while using the PPO.

3 - During the second year, utilization and cost will go back to normal, but this will cause a crush in trend as there was such low usage in the prior year.