HEALTH INSURANCE HAS ITS LIMITS.
Solomon's Choice
by Jonathan Cohn
Only at TNR Online
Post date: 10.06.06
Imagine that you have a one-year-old baby boy with a history of serious illness--and that
the boy just spiked a 103-degree fever. A physician friend recommends going to the
emergency room. Although it's a borderline case, the friend explains, it's best to play it
safe given the baby's past medical problems. You agree and start driving to the hospital.
But, on the way, you have second thoughts. You know that the emergency room will cost
a lot of money--money you really can't afford to spend. If you go the E.R. now, you
might have a harder time getting necessary care later on. Do you keep going? Or do you
turn back, hoping the baby is fine?
This is not the kind of dilemma most middle-class Americans expect to face. Yet,
because of a little-noticed coverage limitation that exists in many of America's employerprovided
health programs, Terri King says she found herself in precisely this situation a
few months ago. And therein lies yet another story of how even relatively affluent
Americans with good health insurance can run into financial trouble because of medical
illness--and about why, at some point, the government has to step in and do something
about it.
Terri and her husband, Michael, live in Las Vegas, Nevada. Michael is a veteran officer
with the city police department; Terri has worked for the greater part of her adult life,
most recently as a district trainer for a drug store chain. A little over two years ago, when
she became pregnant, she decided to stop working so that she could stay at home and
raise the baby.
It appears the Kings have always been careful financially. When I tracked down Terri
through Harvard Law School Professor Elizabeth Warren, whose TPMCafe blog first
brought the Kings' story to my attention, Terri told me that Michael makes pretty good
money--and that the two of them have never
carried significant debts other than their home mortgage.
It also appears the Kings have been careful medically. Terri was in her early 40s when
she became pregnant. Given the risks of such a pregnancy, she says, the couple was sure
to get extensive pre-natal testing to see if the baby had some congenital abnormality. This
included a close look at the baby's circulatory system.
The tests all came back fine and Terri's pregnancy appeared perfectly normal--until May
2005. That's when she unexpectedly gave birth, two months premature. At first, the boy,
whom the Kings named Matthew, actually seemed to be doing well. In fact, Terri says,
doctors told her they thought he'd go home soon. But then they discovered a serious heart
defect. Matthew had a rare disorder called Pulmonary Artesia--a deformity that prevents
proper flow of blood from the heart to the lungs
It's possible to treat the disorder by transplanting a a blood vessel (or part of one) from a
cadaver. And that's precisely what doctors at Stanford University Medical Center did
after the Kings transferred Matthew there. But, while the surgery was successful,
Matthew's lungs were severely damaged and he had to spend another six weeks at
Stanford's intensive care unit. Then it was back to the Las Vegas community hospital for
yet more inpatient care, until finally, after five months of total hospitalization, he came
home.
The Kings were grateful for the treatment. But, by this time, they were already starting to
worry about how they'd pay for it. Michael had good insurance through the police force.
But it turned out the insurance included some limits on certain catastrophic medical
expenses--among them, a $250,000 annual limit for expenses related to heart transplants.
Terri says that the Kings learned about this when a financial counselor at Stanford
informed the couple that--with Matthew's bills approaching the $250,000 threshold--their
coverage was about to run out. It came as a complete shock, she says: They had no idea
such limits even existed, let alone that they were part of Michael's coverage.
Ultimately, the Kings were able to show that the $250,000 limit was not relevant in
Matthew's case. According to Terri, the policy language referred very specifically to
whole heart transplants, rather than mere artery grafts (which is what Matthew had). But
the family's financial worries were not over. The insurance policy also included a limit on
overall expenses: $2 million for each covered person, over the course of his or her
lifetime. That may sound like a lot of money, but a baby with a serious heart defect has a
lot of medical bills. Indeed, Matthew has already been back to Stanford once for a second
open-heart surgery.
By this summer, the Kings were already within $100,000 of the lifetime limit. That is
why, on that night a few months ago, the Kings actually thought twice about bringing
their sick baby to the emergency room--after talking about it, they decided they probably
couldn't afford it. But their doctor friend had been right: Matthew was suffering from a
serious upper-respiratory infection that required hospital treatment. After consulting with
Matthew's regular physician the next day, they ended up going to the E.R. anyway.
Matthew has recovered from that infection and is, according to his mother, doing well
now. But, while his long-term prognosis is good--so far, she says, there are no signs of
serious developmental problems--he still requires extensive medication, at-home care,
and constant therapy. The total cost is a few thousand dollars a month, not including the
high expenses associated with his periodic hospitals stays.
Yet the Kings don't know where they'll get the money. So, while they hunt around for
some other source of coverage, they're holding off on any medical procedure not deemed
absolutely necessary--including an MRI that their pediatrician has recommended to check
whether Matthew suffered any mini-strokes while he was on a heart-lung machine during
his surgeries. Also on hold is surgery for Matthew's kidney reflux, a common problem in
severely premature babies.
While the Kings' medical situation is unusual, their insurance coverage is not. According
to the annual survey of employer health benefits published by the Kaiser Family
Foundation and the Health Research and Education Trust, about half of all job-based
health insurance policies have a lifetime limit. Few Americans realize this, most likely
because it's only that small fraction of people with the most serious health issues--like
Matthew King--who run up such large bills.
And yet, for those families that do hit that ceiling, there's often no recourse. Terri says
she and her husband would be happy to buy another insurance policy on their own. But,
because of Matthew's preexisting condition, private insurers don't want to sell it to them.
Michael could try to get a new job. But, even if he could find one with better insurance,
Terri says, it'd mean squandering his seniority--and, as a result, a good chunk of his
salary.
The other option would be to get insurance from the government, through the federalstate
Medicaid program. But, by design, Medicaid covers only the poor and disabled;
efforts to expand it always run into resistance from those who fear it will displace private
insurance. As a result, couples like the Kings are too wealthy to qualify. In order to get
Medicaid, they'd have to sell their house and liquidate most of their assets--or get a
divorce, with Michael taking the joint assets, so that Terri could become a poor, single
mother. (That's not some hypothetical possibility, by the way: financial counselors
suggested the divorce option. It's actually fairly standard advice in cases of high medical
expenses, as I've learned through my reporting over the years.)
For now, the Kings' best hope is to get that lifetime limit raised. In Las Vegas, police
officers like Michael get their insurance through a special benefits organization called the
Metropolitan Police Department Employee Health and Welfare Trust. The Trust, "self
insures": In other words, even though the Trust pays a private insurance company to do
the administrative work of settling claims, adjusting premiums, and so on, the actual
money to pay doctors, hospitals, and pharamaceutical suppliers comes from the Trust
itself. (The Trust, in turn, contracts with what is known as a re-insurer, which covers
unusually large claims like the Kings's.)
The Kings have been asking the Trust to raise that lifetime limit and, on Thursday, they
had the opportunity to make a personal appeal during a meeting of the Trust's board.
Although no decision is likely for at least another month, Terri said the representatives
she met seemed interested in helping. Undersheriff and Trust Chairman Douglas
Gillespie, who has been helping the Kings, later confirmed that such an increase in the
lifetime benefit is indeed under consideration.
Why wouldn't the Trust raise the limit? Most likely, because it would cost money to
cover the additional bills for Matthew and any other beneficiaries that might someday
incur such large bills. Eventually that money would have to be made up somehow--by
raising premiums or reducing benefits for everybody in the plan.
The Trust would doubtless prefer that somebody else pitch in, whether it's the hospital
(by discounting the charges for Matthew's care) or the re-insurer (by not demanding
higher premiums for greater coverage). But, of course, it's in neither party's interest to do
so. The hospitals depend on fees from insured patients like the Kings to cover other
costly services, such as training doctors and helping the indigent. The re-insurers, for
their part, depend on premiums to cover their claims payments while still making a profit.
.
That's really the fundamental problem here: Nobody wants to handle the financial burden
of Matthew's exceptionally expensive care by themselves. And, to varying degrees, none
of them really should. If insurance has one, universally agreed-upon purpose, it is to
spread the burden of such rare, catastrophic expenses to as wide a base as possible. The
case of the King family shows just how impractical that becomes when you depend upon
the self-interest of private sector institutions to accomplish this--and why, once and for
all, we need to come up with a better system.
JONATHAN COHN is a senior editor at The New Republic.
