Health insurance 101: Benefits for medical cannabis?

The insurance industry may want to cover medical marijuana, but major changes will require state or federal legislation

I’m getting asked a lot about health insurance coverage of medical cannabis and if employers can buy plans that cover it. Even the California Department of Insurance is trying to track this and has reached out to me to see if there is coverage available in traditional health insurance markets.

The answer is no, coverage of medical cannabis is not found in traditional, fully-insured plans. (Self-funded plans and other methods are not addressed in this article.) Notably, a New Jersey judge recently set a precedent for coverage under workers’ compensation. The judgment, however, is limited in scope as it is a workers’ compensation judgement and doesn’t have a direct precedent for medical insurance coverage. Medical cannabis is also not covered through the Affordable Care Act (also known as Obamacare), Medicaid or Medicare at this time.

Why not? The reasons should sound very familiar for those involved in cannabis: illegal at the federal level; not approved by the Food and Drug Administration (FDA); Schedule I controlled substances are considered to have no medicinal purpose; research is limited (only 500 clinical trials in motion, with much more needed beyond that); growing, manufacturing, testing and medical treatment protocols aren’t yet uniform, approved or rolled out; and training of traditional medical providers in cannabis protocols hasn’t happened.

Remarkably, once these impediments — among others — have been overcome, I predict health insurance still won’t cover medical cannabis. And not because the industry doesn’t want to.

This begs the question: Why not fund a less expensive and less toxic option for treatment of epilepsy? Or chronic pain? Or nausea? Or improving the impact of radiation?

It makes no sense unless we factor in “adverse selection,” an insurance underwriting term.

 

What is Adverse Selection?

Adverse selection describes purchasing patterns affected by known medical information. For example, if one has been diagnosed with cancer, he or she will purchase coverage that best suits their medical condition. No insurance company wants to be known as “the one” that has the best coverage for cancer because that company will find itself attracting employers or individuals with those conditions; the insurance company will end up with an unhealthy pool of subscribers, which negatively impacts — or crushes — its business.

All insurance companies must spread out the risk. If one insurance company covers medical marijuana, it will want to be positive that its competitors will cover it too, so that individuals with illnesses that are helped through medical marijuana aren’t all flocking to the same insurance carrier.

The bottom line is that because of adverse selection, insurance companies will not cover it individually. They will cover medicinal cannabis, potentially even gladly, especially if it helps solve some of the opioid crisis and costly medical prescription spend, but only if all the insurance companies they compete with also cover it.

This leads the discussion to anti-collusion, anti-trust and anti-monopoly laws. Under these laws, competing companies cannot talk amongst themselves, cannot reach accords and do things to manipulate markets. The message here is that change cannot come from within the insurance industry itself — insurance companies are simply not able to talk to one another to reach an industry-wide agreement. It makes no difference that it may be in the public interest — there’s no exemption.

Insurance companies won’t go it alone due to concerns over adverse selection, and they can’t do it as a unified industry due to anti-trust regulations — even if they want to.

 

What’s Next?

I anticipate state-by-state legislation will be needed to mandate coverage. This would provide a uniform requirement and simultaneous effective date across a given market, but would produce patchwork coverage nationally. This could spread into late-adopting states once cost and benefit data is sufficient to tip the scales. In the short term I just don’t see federal legislation being the way forward based on what we’re seeing politically, with the federalist and states’ rights movement in the cannabis and health care debates at this time.

It is possible that the U.S. could also see it pushed through via external initiatives or entities. Abating the opioid crisis is a strong potential initiative, and entities such as the medical and scientific communities, U.S. Health & Human Services, Center for Medicare & Medicaid Services or Center for Disease Control, or by federal or state regulation in place of legislation — they could end up pushing it into being. This pathway is tricky, less direct than state legislative mandates and, as a result, less likely.

But first things first: the federal government will need to act. And should it follow U.S. Senate Minority Leader Chuck Schumer’s lead and pass a bill to decriminalize cannabis and allow states to handle cannabis policy individually — state mandates will be the clear path forward.

Policy advocates, it’s time for additional strategic planning!

Dede Kennedy-Simington is the president of BenAssist Health Insurance Services, LLC, in Pasadena, California. She is a certified health care reform specialist and self-proclaimed legislative junkie who is determined to help employers bend the cost curve on employee benefits. BenAssist serves California and national cannabis clients.  

 

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