Congress Attempting to Limit Healthcare Subrogation in H.R. 3200
A very significant, hidden amendment contained within President Obama’s health care bill – H.R. 3200 is currently being debated in Congress. This amendment will cause severe harm to the health insurance industry and overall health care cost containment efforts nationwide. The amendment will have a devastating effect on health insurance subrogation in all 50 states, and should be taken seriously by subrogation professionals, insurance companies, and anybody who is concerned about holding down the cost of health insurance in our country. Industry estimates show that over $1 billion is recovered annually through subrogation on health plans. In 2000, one subrogation firm averaged $4.80 in recoveries for every person covered. In 2003, another firm recovered $236 million on 40 million lives – almost $6 per life. Subrogation is a key savings device for plans facing massive cost increases. It returns proceeds to the insurer creating lower premiums as insurers set plan rates on historical costs. Rates and benefits are predicted on actuarial expectations of expenses and subrogation is factored into the claims experience.
If an insurer had 100 policyholders and experienced $20,000 in claims, it will set premiums at $200 per policyholder. If the company experienced $20,000 in claims and recovered $5,000 in subrogation, it will set premiums at $150. Thus, subrogation is implicitly included as a factor in actuarial calculations. Assume a plan with $4 million a year in claims is renewing their contract. Based on a 10% cost increase, a 3% increase for population aging, and no reduction for subrogation, the next year’s claims are $4.52 million, a 13% increase. Subrogation recoveries would reduce this rate increase. The ability of ERISA plans to seek reimbursement of benefits from responsible third parties is vital to their continued financial security. The savings are passed on to employers and employees in the form of lower costs, making coverage more available and affordable.
Limiting or prohibiting subrogation will have a large economic impact as the inability to subrogate will lead to rate increases and benefit decreases. Barring subrogation will be especially harsh for small plans, where a non-reimbursable loss will lead to significantly higher rates based on the size of the loss relative to a plan’s claims experience. If subrogation was unavailable, the cost of insuring the past risk would increase and the projected future costs would be adjusted upward through increased premiums. Subrogation reduces the cost in the risk calculation on which premiums are based. It figures into the insurance experience as revenue, not a windfall, as suggested by anti-subrogation proponents.
Subrogation helps ensure that the number of insureds does not decrease as studies indicate that a 1% increase in costs result in the loss of coverage for over 300,000 people. The bottom line is that subrogation limits health care cost increases and significantly aids in preventing coverage loss for insureds nationwide. Without subrogation, the cost of employee plan benefits will rise, deterring employers from funding plans and shifting additional costs onto plan participants. When health plans save money, so, too, do employers and consumers through lower premiums and lower out-of-pocket expenses.
A U.S. Census Bureau survey showed that the percentage of people receiving health care from employers decreased from 63.6% in 2000 to 59.8% in 2004. Cost containment mechanisms such as subrogation are critical to ensure that the number of privately insured individuals does not further decrease.
In response to the recent developments, the subrogation industry has created an alliance to fight for our cause in Washington. I urge all of you to contact your representatives and share your views on this important issue.
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