HDM released the following story to the business and general press this week. Every one we touch with Health Plan Economics should be aware of the economy-driven reasons why claim cost is rising, and why, with increased health plan expenses, there is a corresponding need to reconsider reserve funding.

Healthcare Data Management, Inc. (HDM), a leading, independent provider of health plan analytics for public corporations, Taft-Hartley plans and government agencies, sees storm clouds ahead for self-insured plans. “If CFOs are not taking today’s economy into account in anticipating medical expenses and reserves, employers can be placed in the desperate position of unexpectedly having to come up with millions of dollars in cash,” explained David McSweeney, COO of the King of Prussia, Pennsylvania-based HDM.

The reserve is the amount accrued by a self-insured employer in anticipation of paying claims.

McSweeney, a veteran of many years of C-level leadership in the health insurance industry, working with HDM’s nationally-known consulting actuary, Barbara Niehus, F.S.A., M.A.A.A., have identified three factors brought on by the nation’s economic crisis that are likely to put upward pressure on claim costs.

“The first factor is the increasing financial pressure being placed on healthcare providers,” Niehus explained. “Payors will see more uncollectable debts. Hospitals and other institutions have seen their endowments shrink. All of this creates pressure to bill more to insurance plans, ultimately resulting in higher claim payments than anticipated,” Niehus continued.

Niehus, an actuary with over 30 years of experience in group benefits and insurance, emphasized that now, more than ever, plan sponsors need to be diligent about getting the full value of administrator discounts and protecting against unnecessary charges and medical coding errors such as up coding and unbundling.

“The second factor is that employees who are stressed financially and in fear of losing their jobs can have more medical issues,” McSweeney explained. “Moreover, employees who think they’re going to lose their jobs tend to focus on medical needs for themselves and their dependents that might otherwise be postponed or ignored. The New York Times reported on this issue on March 14 and Time ran a story in its March 9 issue about people rushing to get dental work done,” he added.

“The third reason why claim costs for thousands of self-insured employers might be unexpectedly high is a COBRA provision in the new Federal Stimulus,” Niehus said. “As part of the Simulus, the Federal Government will provide a temporary 65% subsidy for COBRA continuation premiums for up to nine months for workers (and their families) who fall within certain income thresholds and who have been or will be involuntarily terminated on or after September 1, 2008 and before January 1, 2010. COBRA premiums are permitted to be set at 102% of plan costs and can be changed once a year,” she added.

Niehus went on to explain that it is possible that average costs for COBRA participants can exceed the plan average, particularly if participants who elect COBRA coverage have significant medical concerns. In that event, the self-insured plan may have to subsidize COBRA members, resulting in increased costs.

Niehus urges plan sponsors to get sound actuarial advice in setting COBRA rates, and to consider all factors affecting average costs, including those listed above.

Putting the need to monitor costs in perspective, McSweeney offered the illustration of a company with 2,000 covered people, a 15 percent increase in claim expense in 2009 and an underfunded reserve. “The additional expense could reach into in the millions of dollars,” he explained.

“Today, the only 100 percent effective way to set or adjust claim budgets and reserve requirements is to analyze claims from a financial versus clinical perspective on a rolling, quarter-to-quarter basis, so you can catch a problem in its early stages,” McSweeney concluded.