HEALTH REFORM: COMPLEX SERIES OF ISSUES, SUB-ISSUES, COULD PLAY OUT FOR YEARS

BestWire Services –

Apr. 20: Since the birth of Medicare, there hasn’t been a federal rewrite of health care rules as far-reaching and market-changing as the new reforms settling in as the law of the land. Health insurance companies are now digging into the details, trying to work out how they’ll approach their epic lists of new requirements and responsibilities.

There are several provisions of the new system that for reasons of either looming deadline or depth of impact are especially urgent for health insurers. The state-based insurance exchanges may not arrive until 2014, but they promise change that could leave the individual and small-group markets unrecognizable. Profit limitations could leave insurers especially smaller firms reeling. Cuts to Medicare Advantage could jeopardize that popular program. And coverage requirements such as covering dependents up to age 26 and eliminating annual and lifetime coverage caps begin soon, leaving insurers with more questions than answers.

“I don’t think the administration understands the level of questions there are,” said Janet Trautwein, president and chief executive officer of the National Association of Health Underwriters. “This is just crazy,” she said, adding there is “a lot of misinformation out there.”

Peter Lee, executive director of national health policy for Pacific Business Group on Health, said, “Every one of these issues has a series of sub-issues beneath it. And those sub-issues will be played out in state and federal regulatory process and potentially in cleanup legislation for years to come.”

Meanwhile, the reforms, set to cost $940 billion over 10 years, will charge the insurance industry $47 billion in the decade starting 2011. And one underlying protest from the insurance industry is dramatic though these changes will be, they don’t do enough to attack the core problem: the escalation in how much medical care costs.

“I would suggest that price control on insurers is a very, very bad way to control the rising cost of health care,” said Peter Straley, CEO of insurer Health New England. Four years ago, Massachusetts adopted a similar system, he said, and now insurers are struggling against politicians inclined to oppose actuary-backed rate changes. These new federal reforms are very familiar, Straley said. “It looks just like Massachusetts.”

STATE EXCHANGES

WHAT: Central shopping sites for standardized plans under four designations based on coverage levels bronze, silver, gold and platinum
WHEN: Established by 2014
WHO: Individuals and small groups will have access initially, with large groups potentially added in 2017

In fewer than four years, all states will have shopping hubs for health plans, where insurers will sell the same pre-set levels of individual and small-group coverage and compete with each other on price. Because the states will be designing these exchanges for themselves or potentially for multistate cooperative regions many of the details won’t be clear for some time. But the basics have already been laid out in the new law, and the initial rules have some insurance professionals such as brokers worried.

The idea of the exchanges is that individuals and businesses with 100 or fewer employees will have a place where they can band together and obtain the benefit of involvement with a larger pool. Federal money is available to the states to set up the new systems, but for those who don’t want to build exchanges, the federal government will step in and do it for them. And in 2017, larger groups can be allowed into the system.

Companies can still do business in the states without being involved in the exchanges, but if they do opt in, they’ll have to offer at least two levels of the standardized, government-set plans. And those plans will also have to be available for sale outside the exchanges for the same price.

If the individual mandate penalties and lower-income subsidies are effective in driving a lot of people into the exchanges, “maybe this could work well for insurers,” said Joel Michaels, a partner in charge of the health industry advisory practice at McDermott Will & Emery law firm.

At this point, a number of analysts aren’t expecting the exchanges to lure many companies out of the traditional employer insurance system. “We don’t think we’re going to see a huge migration from the employment system to these exchanges,” said Mark Holloway, director of compliance services for the Lockton Benefit Group. “We’re not talking about a mass exodus.”

That assertion would seem to be backed up by the experience in Massachusetts. “It has had very little impact on employer-based insurance,” said Straley.

It may be brokers who could face the greatest immediate hit, depending on how the exchanges work. “Insurers are going to have to take a look at their current structures and say, ‘Is that broker-agent model still going to work for us?'” said Maureen Fahey, a health care practice partner at professional service firm KPMG. “I think many brokers right now are pretty nervous,” she said, though she thinks there will be “a place for them,” even in the midst of greater consumer-friendly automation.

“Do we have a threat from exchanges? Well, sure, if they’re not set up correctly,” said Trautwein. The brokers will just go on helping clients figure out what’s best for them, she said, though they’ll certainly keep lobbying in the coming months and years as states build the exchanges. “We’re going to be very involved, hopefully, in the state implementation process.”

“A lot of states are in panic mode; they’re already in crisis,” said Jason Beans, CEO of Rising Medical Solutions Inc. “Every single state is going to have to build this up pretty much from scratch.” And Beans wonders if the exchanges will draw enough carriers to make them worthwhile. “Having an exchange won’t do much good if it’s just the same three players I already have access to.”

But the process may end up bestowing significant power to the states, depending on how much of a free hand they are given by the federal government. Straley said Massachusetts’ exchange, the Health Connector, has set the standards for the small group market there. “In a sense, the Connector defined what was insurance,” he said. “It is complex and challenging, and it does create an administrative complexity for the insurers.”

Though the exchanges don’t start for years, changes are coming sooner that will start preparing the way, including high-risk pools to get uninsured people into plans while they wait for the exchanges and new administrative rules aimed at easing consumer access to the markets. Insurers are already preparing for language consistency requirements — new rules pending this year that will regulate the words plans use to describe their coverage.

MEDICAL LOSS RATIO RULES

WHAT: Small-group and individual plans must spend at least 80% of premiums on medical costs, and large-group insurers 85%
WHEN: Starting this September
WHO: Doesn’t affect self-insured companies

Starting this year, the health insurance industry will be limited in how much money it can make. Because the new law demands the companies spend a certain percentage of their premium income on medical care, it is also handing them a percentage limit in what can be devoted to administrative expenses and profits.

The reforms will require, starting in September, that health insurance companies spend 80% of their incoming premiums for small-group and individual plans and 85% for large-group plans. Starting in 2011, they will be required to report the results each year to the government, and if they exceed the maximum spending on administrative costs, they must pay rebates to customers to meet the requirement.

“The big question with the MLR will be the standard,” said Michaels, with McDermott Will & Emery. “How do you define what’s included under claims costs and non-claims costs?”

The general wording from the U.S. Department of Health and Human Services to describe what constitutes medical expense is summed up as “clinical services and activities that improve health care quality.” The agency must still write the detailed specifics on exactly what that means, and it’s currently petitioning the National Association of Insurance Commissioners and the insurers themselves to get input on what it should include.

Defining MLR may not be an easy task for the agency. “It’s often been such an easily gamed number that its meaning as a significance is unclear,” said Lee of the Pacific Business Group on Health.

Some insurers, said KPMG’s Fahey, “are already at those MLR floors or close to it. The smaller ones are the ones that are going to be most challenged. I think we’ll definitely see consolidation among some of the smaller plans.”

On the bright side, Fahey said, the companies finally know what they have to deal with. “It’s now no longer a mystery.” However, Robert Zirkelbach, spokesman for America’s Health Insurance Plans, called the numbers “arbitrary caps.” And he pointed out this is already an industry with relatively tight profits. “The average profit in the health insurance industry is 3 to 4%,” he said.

Rising’s Beans painted this effort as another political attack on insurers. “Everything’s about targeting insurers, as if insurers are the cause,” he said.

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