Harvard Pilgrim HMO Premiums, debriefing myself

In a previous post that I don't seem to be able to reference, I noted that the new mandatory Massachusetts health care law had forced Harvard Pilgrim to drop my existing non-group HMO policy (single, 60, male, non-deductible, with drug benefits) and offer a new spectrum of plans that comply with the new law. I also noted that I had had some expectation that the resultant plans would cost less than the $900 per month that a renewal of my plan would likely cost.

Given that healthcare insurance plans are almost unique for every individual, at least in terms of price, I will list the prices of all the HMO plans offered for reference and note some other tidbits that I picked up in multiple calls to the insurer.

For 7/01/07 thru 6/30/08, single, male, 60, with drug benefits, per month

Plans with copays only:

Premier HMO 10 $812.96
Value HMO 15 $700.30
Affordable HMO 20 $654.55 ** compare
Affordable HMO 25 $603.15
Tiered Copay HMO 20 $601.74

Plans with copays and deductibles:

Best Buy HMO 500 $625.70
Best Buy HMO 1000 $591.92
Best Buy HMO 2000 $538.42 ** compare

The details of these plans are here on page 2.

Comparing the two **-marked plans above, the major differences are that the $2000 deductible plan has an ER copay of $100 vs $50 and no inpatient and day surgery copay of $500. Note that copays are not counted against calendar year deductible liabilities.

Ignoring the copays, the non-deductible plan has a total premium of $7854.60 and the $2000 deductible plan has a total premium of $6461.04. This means that a relative annual saving of up to $1393.56 could result for the deductible plan if no such liabilities were incurred and the relative loss would be limited to $606.44 if the full $2000 liability was incurred.

Nuggets stumbled upon (some may well be specific to Harvard Pilgrim):

1. Deductible liabilities incurred are the highly discounted contract prices, not the full invoice prices. This was a pleasant surprise. For a hypothetical example, the deductible paid for a $600 MRI would be the same contracted $240 or so that Harvard Pilgrim itself pays.

2. Fourth quarter deductible carry-over. Any deductible payments made for services supplied in the fourth calendar quarter are applied to start satisfying the next calendar year's deductible amount.

3. Harvard Pilgrim apparently has a substantial advantage over competitors in terms of placing drugs in Tier 2, as opposed to the much more expensive Tier 3. This is said to be the result of a benefits manager organization in Ohio with strong bargaining power.

4. Surprisingly, mail order prescription fulfillment of three months' supply of drugs only costs two months of copays for Tiers 1 and 2.

5. if I remember anything else.

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(2) is primarily a competitive measure; other carriers are doing it, so if we want the business, we have to do it as well.

(3) is probably due to the contract the insurer has with a pharmacy benefit manager, as you have cited. The PBM generally has relationships with the drug companies and has a pharmacy network in place. If you get drugs from a network pharmacy, and the drug is on the formulary, you can get a discounted rate. Otherwise, you don't. The PBM generally makes payments to the insurer in exchange for the right to be the drug manager, and it makes money on the spread between what it pays for drugs from the manufacturer and the price the consumer pays. Generally, there is more spread on generic drugs, and on drugs on the formulary, so the PBM provides more incentive for the insured to use them. One particularly interesting example was Merck Medco, a PBM that at one time was owned (at least in part) by Merck. Drugs produced by Merck were heavily discounted on the formulary.

(4) is kind of weird. The PBM contract is also the reason behind this. Since the PBM handles the mail-order prescriptions itself, it doesn't have to split the spread with the pharmacy, leading to a greater profit margin (or lower prices). Also, the mail-order facility is more efficient at processing prescriptions than a retail location, though I doubt it's 33% more efficient. The utilization rate for mail-order pharmacies is usually pretty low (~10% of all prescriptions), so there may be some cross-subsidization between the retail and mail-order channels.

(2) and (4) are pretty common in health insurance. (3) is also not unusual, though the extent of the savings may be unusual.

Edit: I don't work for Harvard Pilgrim, but I do have past experience working for a health insurer.