Transplant Carve-Out Plans

According to the United Network of Organ Sharing (UNOS), there are currently 108,299 people waiting for a transplant in the U.S. A new person will be added to the list every 18 minutes of every day. The average cost of a transplant and related expenses today exceeds $400,000. Some go as high as $1 million*. If you are an employer that self-funds your company’s health plan, these numbers should peak your interest.

Data suggests that a company of 250 employees that has not incurred a transplant claim within the last 5 years has a 50% chance that one will occur within the year. Larger groups should expect those odds to increase dramatically. And if you believe Stop Loss insurance will pick up the cost, think again. Why? The majority of solid organ transplants (kidney, heart, liver, pancreas, lung) require the transplant candidate to be on a “waiting list” for a year or more. Under most circumstances, such risks will be identified as “known risk” during the disclosure process at renewal and will immediately deploy red flags that will trigger a heightened degree of scrutiny regarding the costs associated with the health plan. Stop Loss carriers can and do employ the use of “lasers” to single out known risks such as these. A laser is an increased specific deductible that carriers implement for high risk participants (usually in concert with the expected claim cost of that person). As a result, the employer assumes the risk for what could be the entire expense of a high cost claim, without the safety net of insurance. In fact, nearly 40% of participants with diseases that can lead to a transplant are assigned a laser that transfers risk from the carrier to the health plan. Can your company stand a hit of $400,000 or more to its self-funded plan?

Transplant frequency and cost has risen dramatically over the past ten years. Since lasering has become a predominant solution to reducing Stop Loss carriers’ risk exposure in health care, many self-funded plans have turned to inexpensive “carve-outs programs” as a means to effectively plug potential gaps in their Stop Loss health coverage. A carve-out insurance program is a way for an employer to transfer financial obligation for a specific healthcare condition to a third party. In most cases, carve-out insurance programs address either high cost or unpredictable conditions, such as transplants, cancer, etc. With a carve-out insurance program, risk is typically transferred on a “first dollar” or fully-insured basis as soon as a covered participant is diagnosed or identified as needing a specific service covered by the carve-out program. For acute care services, a carve-out program also offers the benefit of the full “episode of care”.  (For example:  from evaluation of needing a transplant through 365 days post transplant.) Carve-out programs typically provide cost predictability for a particular condition and can allow the health plan to trade unknown, highly variable and expensive claim expenses for known costs.

Fully-insured transplant programs typically cover the majority of solid organ and bone marrow transplants and their related expenses during a specified period of time. This includes hospital and physician charges, organ procurement, donor expenses and prescription drugs. Evaluation costs may or may not be covered depending on the transplant carrier. Most programs cover 100% of the expenses when the patient receives care in-network. There are only two or three carriers that specialize in this type of coverage, so comparing their policy benefits is relatively easy. Whereas group health plan documents generally contain only one or two paragraphs devoted to transplant benefits, transplant carve-out programs include comprehensive benefits that frequently contain upgrades not contained in the health plan.

* Milliman 2008 US Organ and Tissue Cost Estimates Report

Additionally, most carriers do not experience rate their carve-out programs.  Underwriting on a group is done at the policy inception, and if coverage is issued, it becomes part of the carrier’s block of carve-out business. If a transplant exposure occurs after the coverage begins, it is usually not considered in the underwriting procedure at renewal. In this regard, the insurance principle “Law of Large Numbers” applies in that the higher number of cases with low claims experience pays for the significantly lower number of cases with high claims experience. An added benefit to the carve-out program is that Stop Loss insurance renewal increases may be curbed since the health plan’s exposure to transplants has been assumed under a separate insurance policy.

To illustrate the cost benefits of purchasing a transplant carve-out program, consider the following example.  The average cost of a first dollar, fully insured, transplant carve-out program for a self-funded group of 250 employees is around $25,000 in annual premium, or about $8 per employee per month (on a composite basis). If the group’s specific deductible is, say, $50,000, then the value of the program is simple. It costs less to fund a transplant through a carve-out transplant policy than it does to fund the same exposure internally through the specific deductible, which more than likely would include a laser amount imposed by the Stop Loss carrier. (A common transplant laser could be $250,000 or more.) It is also interesting to note that Stop Loss carriers typically give a discount to groups that have a separate transplant program in place.  Such discounts are given for two reasons: 1) by not having to “laser” a known transplant exposure, brokers are less likely to shop the Stop Loss renewal; and 2) it is less likely that the Stop Loss carrier will have to pay an excess-of-loss claim due to a transplant. Discounts can range from 2%-10% of the Stop Loss premium. When the discount is applied to the additional price tag of the transplant carve-out premium, it is easy to see why a transplant carve-out program is such a good deal for the health plan.

Besides transferring risk from the health plan and Stop Loss carrier, most transplant carve-out programs also provide specialized case management and access to renown Centers of Excellence hospitals. These clinical aspects are very important features that should not be overlooked. Transplant patients facing life-altering procedures are understandably anxious. Experienced nurse coordinators can shepherd the patient though the myriad of tests, procedures and benefit issues to help calm fears, maximize benefits, and ensure proper treatment during the entire transplant episode of care. Centers of Excellence are transplant hospitals that have the highest accreditation due to number of transplants performed and survivability statistics.

It is important to note that “access to a transplant network” does not provide the same benefit as a fully-insured transplant carve-out program. It is common for Stop Loss carriers to offer their covered groups free access to transplant networks as a means to mitigate their own expense.  However, this usually benefits the Stop Loss carrier more than it benefits the health plan, as the discounted case rate has the greatest impact once it becomes a Stop Loss claim.

So, the question is…which self-funded health plans should consider purchasing this kind of coverage? In the new world of health care reform where groups may no longer be able to provide caps on lifetime maximums, health plans could benefit from considering any carve-out product that helps ease or alleviate catastrophic expenses (whose costs can slide into the millions of dollars). More specifically, self-funded groups of 50-500 employee lives who would be (or have been) financially affected by the cost of a transplant claim should seriously consider the efficient economics of this kind of coverage. Larger groups with over 1000 employees may be better equipped from a spread-of-risk standpoint to handle a transplant, but due to their size are still exposed to frequency and severity issues. A carve-out program can cap both these aspects, thus making a highly variable expense much more predictable and budget friendly. In addition to single-employer groups, Taft-Hartley and association groups are also good prospects for the product, as each may limit their transplant benefits in order to save on their Stop Loss insurance costs. Self-funded hospitals, municipalities and school districts are also frequent buyers of this type of insurance.

The fact of the matter is that self-funded health plans buy Stop Loss in order to avoid catastrophic expenses. Yet the costs associated with one of the most prominent expenses, transplants, are generally transferred from the Stop Loss carrier back to the health plan. Premiums for a transplant carve-out program are a fraction of that for Stop Loss, and are subsidized (at least in part) by discounts offered by Stop Loss carriers. Therefore, it is easy to see how the purchase of a transplant carve-out program can improve a health plan’s bottom line.

About the author:

Russ Jehs is Vice President of Transplant Organ Program Management for Medical Excess, a division of Chartis. Mr. Jehs has designed, marketed and managed transplant insurance programs for over 10 years, and currently oversees the leading transplant carve out program for self-funded groups in the nation. Besides the day-to-day business of managing the program, he also spends considerable time conducting seminars for employers, brokers and administrators to educate them on the benefits of organ transplant insurance. Mr. Jehs can be contacted at