Health Care Financing for the Child With Catastrophic Costs

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Health

Care

Financing

for the Child

With

Catastrophic

Costs

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PURPOSE

Historically, health insurance has not treated children fairly. Insured services have been oriented to the medical needs of adults, with children’s unique needs given poor coverage or, in the instance or preventive care, rare coverage. These biases in-herent in private and public health insurance also manifest themselves in the coverage of catastrophic care for children. The objectives of the following

recommendations are to rectify some of the

struc-tural problems of health insurance that are faced by children, to ensure access to all needed health care services for all children, and to protect families from overwhelming out-of-pocket medical care costs.

PRINCIPLES

To address the needs ofchildren through 21 years of age with illnesses that lead to catastrophic costs, all insurance plans must (1) be available to all

children (and pregnant women) without regard to race, religion, national origin, economic status, health or functional status, or existing health in-surance coverage; (2) include participation of both private and public sectors; (3) support the devel-opment of comprehensive, community-based sys-tems of personal health care for the chronically ill child; (4) cover a broad array ofchild-specific health services; (5) contain costs through managed care and other means; and (6) require some financing from the child’s family in proportion to their ability to pay.

DEFINITION OF CATASTROPHIC NEED

The American Academy of Pediatrics (AAP) de-fines catastrophic need by relative economic dis-tress. Generally, a child whose family’s out-of-pocket medical care costs reach a maximum of 10%

The recommendations in this statement do not indicate an exclusive course of treatment or procedure to be followed. Van-ations, taking into account individual circuxn8tances, may be appropriate.

of their annual adjusted gross income as reported to the Internal Revenue Service is one who, regard-less of health status, income level, or existing in-surance coverage, is in need of financial support for further medical expenses. For the more than one in five children who live in families with incomes less than the federal poverty line, the out-of-pocket threshold should be less than 10%, as a smaller proportion of family income for medical care would create catastrophic circumstances for those fami-lies. There should be consideration given to devel-opment of a functional definition of catastrophic need in the future, eg, children whose condition will likely require services throughout an extended pe-nod oftime from several health and human services providers.

TARGET POPULATION

The Uninsurable

Children are denied health insurance coverage because of preexisting condition clauses in private health insurance. A typical situation of this type occurs when a child with cystic fibrosis loses insur-ance coverage when a parent changes employment. Many children in the greatest need, whether mea-sured by the cost of care or by the limitations that their handicapping conditions impose upon them, lack basic medical/surgical, hospital, and

ambula-tory coverage.

The Underinsured

There are three general categories for underin-sured children. First, there are those children who have exhausted their covered benefits because of illnesses that have led to costs in excess of their annual and/or lifetime policy limits. Examples of these acute situations are ventilator-assisted chil-dren, very low birth weight babies, and some chil-dren in need of trauma care or burn unit care.

The second category consists of children whose

insurance plans do not adequately cover needed

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a child with spina bifida or one injured in an auto-mobile accident in need of durable medical equip-ment, or a child in need of services that relate to habilitation and restoration of functioning.

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tations on scope of benefits and cost-sharing

obli-gations (ie, copayments, coinsurance, and deducti-bles) can create out-of-pocket medical expenses that can exceed the income-adjusted cost levels described above, particularly for children with chronic illnesses. Other children with chronic ill-ness can face extreme cumulative costs such as the juvenile diabetic whose special diets, syringes, and sickroom supplies are uninsured. Catastrophic in-surance proposals need to remedy the plight of those families faced with the long-term drain of underinsurance as well as those families facing acute care costs that occur within a relatively brief time frame.

A third

general category of the underinsured are those children with certain specific acute medical and/or surgical problems occurring within a speci-fled “waiting period” as determined by their insur-ance company.

The Uninsured

These are children whose health care costs may not be driven by high cost illnesses but who have no insurance because they are ineligible for

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icaid, are not covered by employer-based plans, and

their families cannot afford offered premiums if available.

SIZE AND COST OF THE TARGET

POPULATION

All available empirical evidence indicates that the incidence of children in need of financing for catastrophic health care to supplement existing private and public insurance is relatively small in absolute terms and proportionately much lower than that of the adult population. According to the National Medical Care Utilization and Expenditure survey, of the 70 million children in this country, only 0.6% (421,000) had out-of-pocket medical ex-penses greater than 10% of their family’s income in 1980.’

Experience from those states which have imple-mented catastrophic health insurance plans con-firms the manageability of the risk to payors of last resort for children’s catastrophic care expenses. First, total program expenditures were extremely low, ie, $1.38 per state resident in Minnesota (in

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1977) and $2.15 per state resident in Rhode Island

(in 1975).2 Caution must be used with these data

because they reflect costs from more than 10 years ago in states with relatively generous Medicaid

programs and a tradition of comprehensive em-ployer-purchased health insurance plans. However, these state catastrophic programs did include the costly Medicare population.

Second, the children’s population was the age group with the fewest beneficiaries. Under the Mm-nesota Catastrophic Health Expense Protection program for fiscal year 1981 (the only year for which this type of analysis was performed), only 6.5% of the program’s beneficiaries were in the 0- to 18-year-old age group,3 but they were 28% ofthe state’s population.4 Similarly, during the first 3 years of the Rhode Island Catastrophic Health Insurance Program (1975 to 1978), children 0 to 14 years of age constituted 24% of the state’s population but only 10% of its catastrophic insurance beneficiar-ies.5 Thus, program expenditures were relatively modest and children accounted for a disproportion-ately small fraction of total costs.

SCOPE OF SERVICES

Insurable Health Care Benefits

Many children incurring catastrophic health ex-penses, especially the chronically ill population, have interrelated medical and psychosocial needs that produce significant stress on families and re-sult in high and continuing costs. Thus, traditional insurance coverage is a necessary first step, but it does not sufficiently cover unique child-specific health care needs. Benefits under catastrophic plans appropriate for children should include but not be limited to medically necessary services from the following domains: medical/surgical, mental health, preventive health, social services, nursing care, home care, and therapies (eg, physical then-apy, occupational therapy). These services should be included as countable toward incurred medical costs when determining eligibility for the publicly funded catastrophic plans.

Case Management Services

The coordination of medical care through case management (or care management as it is some-times referred to) results in quality care and effi-cient, cost-effective use of health care resources. Any child eligible for catastrophic insurance coy-erage, whether through a privately funded or pub-licly funded program, should have access to case management services.

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management components (medical cane coordina-tion and community-based service coordination) must both be included in a unified, family-focused, outcome-based plan. The plan must identify all health and related needs, the recommended course of treatment, resources available to pay for care, and methods for filling the gaps in needed services and coverage. In addition to the health services described in “Insurable Health Care Benefits,” other services (eg, financial planning, adaptive ed-ucation, transportation) should be included in the plan.

For the medical care coordination component of case management, the child’s primary care pedia-tnician is often the best suited by training and experience to be the case manager. He or she can thus ensure the quality and continuity of medical

care. Coordination of the wide array of services at the community level, the second component of case management, may be done by the child’s primary care pediatrician, social worker, public health nurse, or another professional. In cases in which the pediatrician does not direct community service coordination, it is essential that the case manager actively involve the child’s primary care pediatni-cian. Appropriate reimbursement for the provision of case management services is the responsibility of the public or private insurer paying for the care being managed.

FINANCING OPTIONS FOR CATASTROPHIC

HEALTH CARE COSTS

Responsibility of the Private Sector

An expanded society-wide commitment to ade-quately provide and insure the services needed by children with catastrophically expensive illnesses requires that the private sector insurance plans shoulder a burden commensurate with the in-creased responsibility of the public sector plans. In particular, a combination of federal and state man-dates and incentives must be developed to assure that private insurance programs expand their coy-erages to provide for ambulatory, preventive, and catastrophic care and that they do not reduce their commitment to children through administrative policies (such as preexisting condition exclusion clauses) that in effect “dump” high-cost children into public programs expanded to insure cata-strophic care. Specifically, to minimize the burden on public programs:

1. States and federal government are urged to

mandate coverage of ambulatory care and child health supervision services along with catastrophic coverage to assure preventive service coverage to children with catastrophic health care needs. This

can be accomplished through disallowing the tax deductibility of employer-paid health insurance premiums and self-insured corporations’ health benefit expenses unless they include adequate cat-astrophic, preventive, and ambulatory care

bene-fits. Another method to achieve these goals is to

require minimum health benefits for employed in-dividuals and their dependents by all employers which include these components.

2. Federal Employee Retirement Income

Secu-nity Act of 1974 legislation should be amended to permit states to regulate the health benefit package of self-insured plans. This action would assure that employers remain in the regulated group insurance market and be required to participate in insuring children with catastrophic health care needs.

3. States should provide corporate tax credits for

small employers to purchase dependent and cata-strophic coverage for minimum-wage and part-time employees. Full deductibility of this coverage will encourage small employers to remain in the private insurance system.

4. States should develop innovative mechanisms to finance catastrophic health insurance costs (eg, multiple employer trusts) that would enable small employers to purchase coverage at reasonable rates and/or to participate in developing efficient and economical health care delivery systems for chil-dren. Alternative mechanisms to create additional “groups” for the purchase of comprehensive and catastrophic health insurance (such as basing a group on school enrollment) are also encouraged.

5. States should provide corporate tax credits for employers to limit employee premium cost-sharing for dependent coverage to enable families to fully insure their children’s health care.

6. States should also consider establishing high-risk pools that respond to the medical needs of children. These pools would enable the self-em-ployed, employers, and publicly funded plans (eg, Title V), to insure children with preexisting condi-tions at an affordable rate. Access to the high-risk pool would be monitored and would be financed through income-adjusted premiums paid by fami-lies, employer contributions, assessments on health insurance companies, general state revenues, or combinations of the aforementioned. Access to the pool would be dependent on multiple factors, in-cluding the size of the employer group.

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Above 200% of Poverty Line N C 0 M E C A T E G 0 E S

100% to 200% of Poverty Line - -100% of Poverty Line or Less Optional Optional (Limited to Medically Needy Eligibles)

Aid to Families With Dependent Children Payment Level or Less Mandated Optional 0 Children 0 to 5 Years and Pregnant

Women

Children 5to 21 Years

BENEFICIARY CATEGORIES

Fig 1. Current federally reimbursable medicaid eligibility categories.

Responsibility of the Public Sector

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Eligibility for Publicly Funded Services. Eligibility to have medical care reimbursed through publicly financed programs (ie, Medicaid and Medicare) must be based on family income and health-related out-of-pocket expenditures. Out-of-pocket expend-itures include cash payments for the services de-scnibed in “Scope of Services” and a portion of employee contributions or other personal payments for health insurance premiums. When a family expends 10% (or perhaps a lower proportion) of its annual income on health care needs as defined above in a prior 12-month period, it should become eligible for publicly financed catastrophic health insurance benefits.

Multiyear eligibility periods should also be de-veloped. Expenses for some handicapping condi-tions are regular and predictable, unlike the more random occurrence of high-cost injuries. If eligibil-ity for the program only occurs when an annual target sum is reached, incentives to contain costs are weakened. When protracted eligibility is secure, stable planning consistent with the medical needs of the child and the cost containment intent of these proposals is more likely.

In addition to direct financial support for needed medical care, case management services should be

I made available to children meeting the eligibility

criteria. One option for providing these services is through supplementary funding to state Title V agencies which can directly provide, arrange, or subcontract with primary care physicians to deliver these services. The agency(s) responsible for deter-mining eligibility for catastrophic insurance and

case management services should be coordinated with both public and private sectors to assure an integrated and comprehensive catastrophic care program for all children.

Medicaid. Although a universal entitlement pro-gram is a clear-cut solution for children, political realities dictate progressive incrementalism. With the support of case management services, adding sound components to both Medicaid and Medicare is the recommended approach. The first set of Medicaid proposals deal with eligibility expansions designed to cover uninsured, underinsured and un-insurable children. The current Medicaid eligibility

structure is shown in Fig 1, and the Medicaid eli-gibility structure that the AAP proposes is shown in Fig 2. To build upon the currently mandated and optional eligibility structure (Fig 1), the AAP nec-ommends that the Congress (1) mandate coverage for all children through 21 years of age and preg-nant women living below the federal poverty level; (2) permit states to extend Medicaid coverage to

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Above 200% of Poverty

Line

Optional Optional

(With Premiums and Coinsurance)

N C 0 M

E

C A T E G 0

E S

100% to 200%

of Poverty Line

Optional

(With

Optional

Premiums)

100% of Poverty Line

or Less Mandated Mandated

Aid to Families

with Dependent Children Payment

Level or Les

Mandated Mandated

Children 0 to 5 Years and Pregnant

Women

Children 5through 21

Years

BENEFICIARY CATEGORIES

Fig 2. Proposed federally reimbursable medicaid eligibility categories.

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of annual family income. A coinsurance obligation can be imposed on a sliding scale basis as will be described.

To modify the Medicaid benefits structure to have it serve the health care needs of catastrophi-cally ill children, the AAP recommends that the Congress (1) adopt the national minimum benefit

standards specified in the AAP’s “Medicaid Policy Statement”; (2) encourage states to cover home-and community-based care by removing all existing waiver requirements and include this care as a state optional service. Consistent with this, deeming reg-ulations should be changed to allow all Medicaid jurisdictions to allow disabled children who would

be eligible if they were institutionalized to remain at home, ie, remove the Tax Equity and Financial Responsibility Act of 1982, section 134, restrictions for 209(b) states; (3) broaden spend-down provi-sions to include medically necessary child health-specific services described in “Insurable Health Care Benefits” rather than merely traditional med-ical services such as hospital care and physician fees; and (4) encourage interagency agreements be-tween state Title XIX (Medicaid) and Title V (Ma-ternal and Child Health Block grant) where Title V is providing or subcontracting case management services for Medicaid-eligible catastrophically ill children.

Medicare. Even if all of the AAP’s previously stated recommended policies were adopted, there still would remain some medical care costs which would not be insured for a small number of children. Children who have exhausted private insurance

benefits may not have all gaps in coverage relieved by Medicaid given the lack of coverage of optional services (which are often crucial for chronically ill children) and restrictions on mandatory benefits’ amount, duration, and scope. For example, this could occur for a child with spina bifida in a state where inpatient care is limited to a fixed maximum and physical therapy, rehabilitation services, and appliances are not part of the Medicaid benefit package.

One possibility that Congress might explore is having Medicare become children’s payor of last resort for those children who have exhausted Med-icaid benefits. The care funded by Medicare must be for all medically necessary services delineated in the individualized case management plan rather than just those services currently reimbursed for the population older than 65 years of age. To pre-vent “dumping” by states, maintenance-of-effort regulations need to be developed with the effective

date of Jan 1, 1987. Care financed through the Medicare system would be subject to the coinsur-ance obligation described in “Responsibility of the Family.”

Responsibility of the Family

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reduce the need for quickly incurring costs each REFERENCES

year), a coinsurance mechanism is recommended. The level of obligation should be determined on an income-adjusted sliding scale. The coinsurance

0 charge must be high enough to reinforce the per-ception to the child’s family that needed care is not “free.” However, the level must also be low enough to ensure that needed care will not be forgone because of an excessive cost-sharing arrangement. Children in families with incomes below 200% of

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the federal poverty line should have no coinsurance requirements.

ACKNOWLEDGMENT

The Executive Committee of the AAP wishes to thank

all of the many contributors to this statement.

1. McManus M, Newacheck P, Matlin N: Catastrophic

child-hood illness. Child Health Finan Rep 1986;3:1-2

2. Friedman B, Ross C, Mizek G: On the surprisingly low cost of state catastrophic health insurance programs. J Risk

Insurance 1984;51(1):31-48

3. “Analysis of Minnesota’s Catastrophic Health Expense Pro-tection Program (CHEPP) FY 1981.” Prepared by the CHEPP office, March 1983

4. Statistical Abstract of the United States 1982-3, ed 103, U S Department of Commerce, Bureau of the Census. Govern-ment Printing Office, 1982

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1987;80;752

Pediatrics