Posted on 22 Mar 2010
After more than a year battling Democratic health-overhaul proposals, insurers face changes that will reshape their market. But they also realize it could have been worse.
With the legislation and the expected package of changes, insurers stand to get more than 20 million new customers. New health-insurance "exchanges," where consumers can shop for policies, will provide an easy way to reach these new customers. And the penalty for people who don't buy in is somewhat tougher than laid out earlier.
Meanwhile, taxes on the industry of roughly $70 billion over the next 10 years, once slated to go into effect next year, are now pushed off until 2014—and some tax-exempt plans are able to duck half of that fee.
A public option is nowhere in sight, nor is a new federal agency that President Barack Obama had envisioned to rule on insurance-premium increases, which would likely have been harmful to insurers' business.
Significant new opportunities exist for health insurers that run Medicaid plans and sell individual insurance products.
Still, the industry says it is not happy with the final product because it doesn't solve the problem of rising health-care costs. Insurers had wanted more substantive changes in the way hospitals and doctors are paid, tying reimbursement to quality rather than volume. In the bill, such payment changes are primarily pilot programs.
Over a year ago, the industry said it would overhaul the way it does business, putting an end to practices such as denying applicants with pre-existing health conditions, if a strong mandate that individuals buy insurance encouraged healthy people to buy coverage, balancing out the costs from treating sicker people. "If the bill passes, the access expansion would be a very important step forward, but we still have a cost crisis that needs to be addressed," said Karen Ignagni, president of America's Health Insurance Plans, the industry's trade group.
In 2014, the more far-reaching changes kick in: requirements that plans sell insurance to all applicants, that all Americans purchase coverage, and that health insurance exchanges get up and running to sell it to them.
Insurers are also protesting stepped-up cuts to the lucrative government subsidies the industry receives for administering Medicare Advantage plans, privately run programs for seniors."This will reduce benefits and raise prices for seniors," says James Roosevelt Jr., chief executive of Tufts Health Plan, a large Medicare Advantage provider in Massachusetts. In the days leading up to the vote, insurers continued to press their case that health-care premiums are likely to go up under the bill, chiefly for younger Americans. That is because a three-to-one limit on how much plans can charge older versus younger buyers could push prices for a 20-year-old up by 50%, says trade group Blue Cross Blue Shield Association. Insurers also say a requirement for individuals to buy is not strong enough, likely pushing up prices if young people opt out.
Within six months, insurers will need to end the controversial practice of revoking a policyholder's coverage. They will need to start covering young adults less than 26-years-old on their parents' policies, as well as children with pre-existing conditions. And they will need to eliminate co-pays for some preventative services and lifetime limits that plans will spend on a policyholder's benefits.
The Department of Health and Human Services will be given some oversight of large premiums increases—but insurers say they don't know how that will be defined. Starting next year, health plans will have to pay out 85% of premiums they collect from group customers in medical care, and 80% of premiums on medical care for individuals. Those measures could have significant ramifications on insurers' profitability, and an effort is under way to shape just how regulators define what counts as a medical expense. "We will have to gear up pretty quickly…to make sure we don't violate the law of the land," said G. William Hoagland, Cigna Corp.'s vice president of public policy.
At Cigna's Hartford, Conn., location, the company has had 30 to 40 people working over the past year and a half on "what if" scenarios. AHIP estimates that implementing a change such as ending lifetime benefit limits will require nearly a dozen distinct steps, including writing new contract language, setting and seeking regulatory approval for new rates, and writing new marketing material. Robert Laszewski, a former insurance executive who is now a consultant, says insurance premiums are likely to go up over the next couple of years since plans will want to bank as much capital as possible before more substantive reforms kick in during 2014.
That is the year that "could make or break" the health overhaul, said Ms. Ignagni. By then, the new exchanges—and new health plans to sell on them—will have to be ready. And while individuals will be required to buy insurance, industry executives' chief complaint with the legislation is that the requirement might not be strong enough to give healthy people an incentive to buy. "It's going to be a very difficult market for insurers" in 2014, Mr. Laszewski says. "It could have been a lot worse, but I don't think there is anyone in the insurance industry who is celebrating right now."