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No Lifetime Limit on Health Coverage Is A Good Deal for Americans

Among the health insurance changes that become effective today under the Affordable Care Act is the beginning of the end for lifetime limits on coverage. The government says this will have a negligible impact on insurance costs. But not everybody agrees.

Paul Zane Pilzer, president of Zane Benefits, a benefits consulting and software company, says in a commentary on the reform legislation:

I am troubled by the potential cost of the mandate requiring no lifetime limit on coverage. Prior to health care reform, most states already mandated a per-person minimum lifetime maximum on health insurance benefits ranging from $3 million in Texas to $6 million in California. States typically required insurers operating in their state to re-insure their catastrophic risks, and Wall Street practically required large employers to purchase re-insurance on their catastrophic risks. Re-insurers, such as Lloyds of London, were only able to re-insure carriers and large employers because there was a defined maximum amount of lifetime benefits.

Few people ever hit those lifetime limits, notes Pilzer. So in his view, it makes no sense to sock the public with what he expects to be substantial extra insurance costs to remove the caps. If the government wants to do that, he says, it should provide reinsurance.

Pilzer's is a minority view, however. According to a study by PriceWaterHouseCoopers (PWC), for example, the cost of raising the lifetime limit from $1 million to $5 million is only 0.6-0.8 percent, or $3 a month for an individual policy and $8 a month for a family plan. The corresponding changes for going from a $5 million to a $10 million limit would be less than 0.1 percent, or less than $1 per month for a single or a family policy.

PWC also points out that currently, 45 percent of the insured already have policies with unlimited coverage, 22 percent have caps of $1 million-$2 million, and 32 percent have limits of $2 million or greater. So clearly, reinsurers have been willing to back up insurance policies that have high or no limits.

The reason why these policies don't cost much extra is that very few people have such high healthcare costs. So reinsurers need not worry that they'll lose a bundle if a particular employer or insurance company encounters a catastrophic case. Their loss will be relatively small, relative to the amount of premiums they collect from their customers.

Meanwhile, the benefit of no lifetime caps to the few who do have huge costs is inestimable. Julie Rovner of NPR cites Edward Burke of Palm Harbor, Fla., who must spend $900,000 a year for a clotting factor drug that he needs to survive his hemophilia. He would have "capped out" several times on his employer-provided insurance policies, he says, except that he changed employers because of mergers in his industry.

J.P. Massar of Daily Kos cites another case where lifetime limits threatened a family with bankruptcy: Julie Walters' daughter was born two years ago with a rare form of epilepsy. The little girl's hospital stays have already cost hundreds of thousands of dollars, and her family would have run out of insurance by the time she was four, were it not for the ACA's abolition of lifetime limits.

Those limits, by the way, are $750,000 for plans that become effective Sept. 23, 2010 or later; $1.25 million for policies that take effect Sept. 23, 2011 or later; and $2 million for plans that start Sept. 23, 2012 or later. Starting Jan. 1, 2014, there will no longer be lifetime limits.

That's a good thing, especially if it's not going to cost us much to make sure that the sickest among us are taken care of.

Image supplied courtesy of Wikimedia Commons.

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