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Hospice Benefits and Utilization in the Large Employer Market

Publication Date

U.S. Department of Health and Human Services

Hospice Benefits and Utilization in the Large Employer Market

Executive Summary

Beth Jackson, Teresa Gibson and Joline Staeheli


March 2000

This report was prepared under contract #100-97-0010 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and the Urban Institute. For additional information about the study, you may visit the DALTCP home page at or contact the ASPE Project Officer, Jennie Harvell, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. Her e-mail address is:

This study, sponsored by the Office of the Assistant Secretary for Planning and Evaluation (ASPE), U.S. Department of Health and Human Services, is part of a larger project exploring the use of hospice benefits and services provided by the Medicare program and to those who are privately insured. The MEDSTAT Group's contribution to the larger study is an examination of hospice benefits in commercial plans and the use of hospice benefits by persons commercially insured. In particular, this report focuses on hospice benefits in plans offered by large employers in the U.S. and the utilization of hospice benefits by the employees of these large companies, their dependents, and in some cases early retirees. We draw upon MEDSTAT's proprietary MarketScan® database for all of the analyses in this study. MarketScan includes about 70 employers and 200 insurance carriers/claims administrators. It is a database that represents the health care experience of about four million privately insured individuals annually.

Three complementary approaches to the study of commercially-insured hospice were taken in this study:

  • An analysis of hospice benefits offered by large employers through examination of their Summary Plan Description (SPDs) booklets;
  • Discussions with selected large employers about their hospice benefits; and
  • A quantitative analysis of hospice use and expenditures of persons commercially insured.

First, we examined the nature of the hospice benefits offered by some of the large employers represented in MarketScan through a content analysis of their Summary Plan Description booklets (SPDs). The plans were classified according to whether they offered a hospice benefit, the conditions under which hospice benefits are provided (precertification, waiver of curative treatments), and applicable deductibles, coinsurance and limits. In addition, we examined the services that are covered under the plan's hospice benefit. Since the amount of information available in the SPDs regarding the hospice benefit tended to be scant, we augmented the SPD content analysis with telephone discussions of a subset of employers in the MarketScan database who offered a hospice benefit. The purpose of the interview was to collect detailed information on the rationale behind the current structure of the plan's hospice benefit, information on changes in the hospice benefit over time, and how employers/plans managed the benefit once accessed. The third component of this study is a quantitative analysis of hospice use and expenditures among the commercially insured using the MarketScan data.

Our analysis of the commercial plans included in the MarketScan database show that hospice is a commonly offered benefit that appears in a wide variety of configurations across employers and plans. The vast majority (88 percent) of the health plans examined in this study offered a hospice benefit. And condition eligibility on precertification of terminal illness by a physician. However, only half the plans requiring precertification of terminal illness specified a definition of terminal illness in the SPD, all defining terminal illness as 6 months or less to live.

There was a great deal of variation in the cost sharing (coinsurance and deductibles) provisions of the hospice benefit, lifetime limits (maximum hospice days and dollars) and coverage of hospice-related services. Most plans did not impose cost sharing requirements on the hospice benefit. For the plans that required cost sharing from the employee and dependents, coinsurance and deductible levels covered a wide range of dollar amounts, some tying cost sharing amounts to salary levels. A few PPO and POS plans increased the cost-sharing amount if the individual received services from an out of network provider. Lifetime maximum day and dollar limits were infrequently and inconsistently imposed.

The percentage of plans explicitly mentioning coverage of hospice services across settings of care (inpatient hospital, hospice facility and at home) also varied considerably. PPOs (in contrast to POS and Indemnity plans) identified the fewest number of covered services and settings in which hospice services are covered. Thirty-seven percent of plans imposed dollar caps and 11 percent set day limits.

Telephone discussions with eight of the plans shed more light on the amount of flexibility and discretion exercised by employers and plans in the administration and implementation of the hospice benefit. While the plan designs appear to be rigid, many of the employers and plans revealed during the discussions that hospice provisions were often perceived as guidelines and typically were not stringently applied. If a specific benefit ran out, the employer or plan often extended or renewed the needed benefit. Employers and plans consistently reported that flexibility in these instances was "the right thing to do", and at the same time acknowledged that it was possible to exercise such flexibility because the demand for hospice is so low in the commercially insured population.

Three general approaches to the design and administration of the hospice benefit were revealed as a result of our discussions with employers:

  • Medicare-like Model;
  • Comprehensive Model; and
  • Unbundled Model.

Plans adopting the Medicare-like Model (2 out of the 9 plans interviewed) structured their hospice benefit based upon the Medicare program's hospice benefit. These plans impose similar benefit periods and eligibility requirements as the Medicare program and require a waiver of curative treatments when hospice care commences. Half of the plans interviewed adopted a different approach, the Comprehensive Model, significantly deviating from the Medicare-like Model. Notably, suspension of curative treatments is not required while a patient undergoes hospice treatment under this model. Curative and palliative treatments can occur simultaneously. Coverage of both types of care is seen as humanitarian and caring by the employers, especially under circumstances often perceived as untimely and tragic for the population served. Finally, the Unbundled Model provides hospice service coverage for care unique to hospice, although the hospice benefit is subject to lower lifetime limits than the other models. All non-hospice care is provided under other plan provisions (e.g., prescription drugs are paid through the outpatient prescription drug plan, home health through the medical plan, etc.). Case managers are responsible for coordination of the entire spectrum of care for the terminally ill individual under the unbundled mode.

The various model types adopted by commercial plans can be instructive to those in government-sponsored programs, commercial plans and research organizations seeking new approaches to end of life care and benefit configurations for delivery of end of life services. Innovative approaches to end of life care (vis-à-vis the Medicare-like Model) have been uncovered in this exploratory study including the case management of hospice services, combinations of palliative care and curative treatment, and integration of hospice into a variety of managed care programs. Further study of how commercial plans are evolving their hospice benefit, especially their successes and lessons learned, may provide useful information to developers of programs to serve terminally ill individuals enrolled in all types of health care plans including Medicare and Medicaid.

Two other issues frequently associated with hospice services, fraud and abuse and cost effectiveness were briefly explored during the discussions. Even in light of the fact that hospice service fraud and abuse have been a major concern for government-sponsored hospice programs, employers expressed relatively little concern about the potential for fraud and abuse of the hospice benefit. Employers cited the extremely low levels of utilization of the hospice benefit, due to the relatively healthy population that they insure, as the main reason for their lack of concern. Where concerns were expressed, the use of dollar and day caps or requiring case management were cited as measures to mitigate the risk of abuse of the hospice benefit and/or a means for providing care more tailored to the needs of the dying person and his/her family.

Analysis of the expenditures and utilization patterns of hospice service users in the 1995 MarketScan database revealed, not surprisingly, that hospice services are used infrequently in this younger, employed population. Less than one person in 1,000 (0.43 persons) used hospice services in 1995. Also not surprising, hospice use rates were associated with age. While use rates were relatively low for enrollees 0 to 35 years of age (under .20 per 1,000 covered lives), hospice use rates rose considerably in the older age categories.

Hospice episodes of care were found to be brief, with a mean episode length of 21 days and a median length of 1 day per episode. Over half (59 percent) of the episodes consisted of 1 day of hospice care. Whether one-day episodes reflect the reluctance of physicians and their patients to access hospice or some other phenomenon, e.g., an artifact of how claims are filed, was beyond the scope of this investigation, but would be fertile ground for further study. Medicare hospice episodes are also short in duration relative to the length of the chronic illnesses associated with them -- but not as short as those of the commercially insured. The fact that the commercially insured population using hospice is younger, on average, than the Medicare hospice population, and thus perhaps even less inclined to accept their imminent mortality may be part of the explanation.

Although commercially-insured hospice service users in this study are small in number, they are a relatively diverse group of individuals ranging in age from 0 to 88 years with a wide variety of terminal conditions including rare congenital diseases and common cancers. From a diagnostic standpoint, these individuals generally resemble hospice service users in the US. However, commercially-insured hospice users had a higher percentage of AIDS diagnoses and a lower percentage of circulatory disorders and heart disease conditions than the entire population.

The diversity of commercial hospice service users is further noted by differences in cost and service utilization across terminal diagnosis categories. Episode use and cost patterns for individuals with all cancers (breast, lung and other) appeared to be relatively similar, but individuals with "Other" conditions (non-AIDS, non-cancer) tended to have shorter episodes, lower payments, younger ages and a lower use of home health services than those with cancer. Individuals with AIDS tended to be younger, have longer episodes, higher payments and used home health services more often than those with cancer.

Mean payments per hospice episode were relatively low, $2,951 for hospice services and a similar amount for non-hospice medical services ($3,114). Spreading the cost across the entire insured population, hospice service payments per covered life were nominal, around $1.18 per covered life per year. On average, total (hospice and non-hospice) payments for the entire time period covering the 60 day pre-episode period, the hospice episode and the 60 day post-episode period were about $20,000, around $14.50 per covered life per year for all care.

Perhaps the most striking finding of this study is the degree to which commercial plans deviate from the Medicare hospice model, both in terms of the nature of the population served (age) and in benefits administration. A minority of plans adhere to the government model -- described as rule-bound, proscriptive. Most commercial plans seem to administer their hospice benefits with a fair modicum of flexibility, accommodating the needs and desires of patients and families. It is also clear, however, that commercial plans can afford this flexibility given the low demand for the service in their covered populations. While we did not examine hospice in the non-fee-for-service environment, we did detect a small but potentially significant groundswell of plans, PPOs in particular, opting to carve out and/or unbundle their hospice benefit and link it to case management. These unbundled, carved-out and case-managed models are ripe for further investigation as the federal government explores options for its Medicare hospice benefit and as commercial plans seek to restructure their hospice benefits so they are appropriate and cost-effective for their covered populations.

The Full Report is also available from the DALTCP website ( or directly at