Expensive Patients, Reinsurance, and the Future of Health Care Reform

• Publication year: 2020

Expensive Patients, Reinsurance, and the Future of Health Care Reform

Govind Persad

EXPENSIVE PATIENTS, REINSURANCE, AND THE FUTURE OF HEALTH CARE REFORM
Govind Persad^*
Abstract

In 2017, Americans spent over $3.4 trillion—nearly 18% of gross domestic product—on health care. This spending is unevenly distributed: Almost a quarter is spent on the costliest 1% of patients, and almost half on the costliest 5%. Most of these patients soon return to a lower percentile, but many continue to incur health care costs in the top percentiles year after year. This Article focuses on the challenges that persistently expensive patients present for health law and policy, and how fairly dividing their medical costs among payers illuminates fundamental normative choices about the design and reform of health insurance. In doing so, this Article draws on bioethical and health policy analyses of the fair distribution of medical costs, and examines how legal doctrine shapes health systems' options for responding to expensive patients.

Part I of this Article discusses two real-world examples of expensive patients and the debate surrounding them, including the case of an Iowa teenager with hemophilia whose treatments cost more than $10 million per year. Part II then examines the normative question of how the costs of treating expensive patients' medical conditions should be shared and identifies three different dimensions of sharing: (1) scope, from narrow (plan members only) to broad (all of society); (2) boundedness, whether there are limits on the costs others can be asked to bear; and (3) progressivity, whether wealthier individuals are asked to bear more costs (similar to progressivity in tax). Part III then considers how health care reform choices could advance or hamper the adoption of broad, bounded, progressive sharing, with a focus on recent state-level reinsurance programs that legal scholarship has not yet analyzed in depth.

This Article contributes to the literature on health care reform in three interlocking ways. First, it develops a novel proposal for fairly sharing the cost of expensive patients' care that could usefully inform state- and federal-level policy discussions. Second, it provides a normative, rather than purely political

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or economic, analysis of existing and proposed options for sharing expensive patients' costs. Third, it bridges the disconnected literature on reinsurance, limit setting, and health care financing, identifying how proposals in these different areas intersect.

Introduction...........................................................................................1155

I. Expensive Patients: Two Vignettes..........................................1157
II. Fair Sharing.................................................................................1161

A. Breadth ................................................................................... 1162
B. Boundedness ........................................................................... 1165
C. Progressivity........................................................................... 1171

III. Implementing Fair Sharing........................................................1174

A. Increasing Breadth Through Reinsurance.............................. 1174

1. Private Reinsurance ......................................................... 1174
2. State Reinsurance Programs ............................................ 1176
3. Federal-Level Reinsurance .............................................. 1188
4. Reimagining Reinsurance ................................................. 1189

B. Progressive Financing Through a Rescue Tax ....................... 1192
C. Setting Boundaries .................................................................. 1196

1. Advance Discouragement of Expensive Treatments......... 1196
2. Opting Out of Treatment .................................................. 1199
3. Undue Hardship and Cost-Sharing .................................. 1201

Conclusion...............................................................................................1202

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Introduction

In 2018, Americans spent more than $3.6 trillion on health care—nearly 18% of gross domestic product (GDP).¹ This statistic conceals an underlying inequality: The top 5% most expensive patients incur more than half of health care costs, and the top 1% incur almost a quarter.² Most of these expensive patients do not remain expensive year after year.³ Many have suffered one-off events—appendicitis, pregnancy, car accidents—and will soon return to a lower level of spending. But some incur high medical costs year after year. These patients—who might be called chronic rather than acute expensive patients— are the focus of this Article.

This Article's goal is not to scapegoat these patients as the cause of health system failures, but to consider how fairly sharing the cost of their care illuminates fundamental normative choices about the design and reform of health insurance. In doing so, this Article draws on work in bioethics and health policy on the fair distribution of medical costs and examines how legal doctrine channels the ways that health systems can respond to expensive patients.

Part I begins by discussing two real-world examples of expensive patients and the debate surrounding them, including the case of an Iowa teenager with hemophilia whose treatments cost more than $10 million per year.⁴ Part II then considers the normative question of how the costs of treating expensive patients' medical conditions should be shared. This Article focuses on three axes along which conceptions of sharing might differ:

1. The scope, narrow to broad, of sharing. In narrow sharing, only certain social subgroups (e.g., employees of a firm, members of a plan, or residents of a U.S. state) share the cost of expensive patients' treatment. The narrower the sharing, the smaller the

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subgroups. In contrast, under maximally broad sharing, everyone in society shares these costs.
2. The boundedness of sharing. Unbounded sharing sets no limits on the health care costs that others are asked to assume. Bounded sharing, in contrast, specifies that certain health care costs are not shared at all, or are not shared by some individuals.
3. The progressivity of sharing, similar to progressivity in tax. Some proposals for sharing expensive patients' costs are regressive in that they charge equal absolute amounts to everyone; others are analogous to a flat tax, asking individuals to pay a fixed percentage of their income. Still, others are progressive, taxing a higher percentage of wealthier contributors' economic holdings.

I argue that broad, bounded, progressive sharing—the opposite of the sharing that most private insurance facilitates—is the most normatively compelling.

Part III then considers how health care reform could further or stymie the adoption of broad, bounded, progressive sharing. It explores breadth by considering programs that socialize the costs of treating specific groups of expensive patients, such as Medicare's inclusion of patients with end-stage renal disease, and it also discusses the role of government-subsidized reinsurance in increasing the breadth of sharing. This Part then turns to boundedness, discussing how public and private insurers' use of health technology assessment could set cost-based limits on sharing and considering how such limits intersect with disability and antidiscrimination law. Lastly, it considers progressivity, contrasting financing through taxation with financing through insurance premiums. This Article concludes that broad, bounded, progressive sharing is the best way of distributing the costs of expensive patients' treatment. This strategy would achieve breadth and progressivity by funding treatments above a given cost through a tax that only falls on individuals whose income exceeds that cost, and would set boundaries by discouraging the development of interventions that would make patients expensive.

This Article contributes to the literature on health care reform in three interlocking ways. First, it develops a novel proposal for fairly sharing the cost of expensive patients that could usefully inform policy discussions at the state and national levels. Second, it provides a normative, rather than purely political or economic, analysis both of its proposal and of existing options for apportioning expensive patients' costs. Few commentators have analyzed the normative challenges that expensive patients present for health insurance design. Third, it bridges the disconnected literature on reinsurance, limit-setting, and

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health care financing, identifying how proposals in these different areas intersect. Its discussion of reinsurance is particularly timely given the flurry of recent reinsurance proposals at the state level.⁵

I. Expensive Patients: Two Vignettes

That most health spending involves a small fraction of patients has prompted innovative health policy responses. Most of these responses focus on patients (often called "super-utilizers") who are expensive because of repeated emergency room visits and poor coordination of care.⁶ While improving care for these patients is an important arena for health system innovation, it involves no fundamental ethical trade-offs. Successful innovation is likely to be both cost-saving for health systems and health-improving for patients. This Article, in contrast, focuses on patients whose persistently high costs cannot be addressed through improved coordination of care or other logistical fixes.

The first example this Article discusses is an Iowa teenager with hemophilia.⁷ In 2016 and 2017, Iowa's largest Affordable Care Act (ACA) insurer, Wellmark, announced substantial premium increases and justified them by the need to offset the costs incurred by a single patient who required treatments costing $1 million per month.⁸ The company's announcement led...