It could have been worse
Insurers brace for change, object to loss provision
It could have been worse. That seems to be the consensus among insurers and analysts on the effect that sweeping health reform will have on managed care. Insurers will gain about 32 million more customers over the next decade, and there’s no government-run “public option” competing for that business. A proposed federal insurance-rate oversight board also never made it into the legislation.
Still, insurers and analysts are concerned about some aspects of reform, including cuts to the Medicare Advantage program, new taxes on health plans and a possibly insufficient penalty for people who choose not to buy insurance.
“We continue to believe the legislation will have long-term negative implications on the sector’s profitability and growth,” said Stephen lifetime caps for individual and group health plans, will also be prohibited. Uninsured individuals with pre-existing conditions will be able to get coverage through high-risk pools starting this year until new health insurance exchanges become operational in 2014.
Dependents up to age 26 can get coverage through their parents’ health plan starting this year. And small businesses can qualify for tax credits up to 35% of the employer’s contribution to purchase health insurance for workers.
Also this year, health plans must report the proportion of premium dollars spent on clinical services and quality efforts. In 2011, large group plans must provide rebates to consumers if they spend less than 85% of premium dollars on medical services. Small group or individual plans must spend at least 80% of premium dol- be paid a percentage of traditional Medicare costs, between 95% in high-cost areas to 115% in low-cost regions of the country. These changes will be phased in over as many as seven years, depending on how steep the reimbursement reductions will be.
And starting in 2014, Medicare Advantage plans will be subject to a minimum medicalloss ratio of 85% (the ratio of premium dollars spent on medical costs). A ratio below 85% would require a refund to the CMS. Plans with medical-loss ratios below 85% for five straight years would be kicked out of the program.
If this rule had been in place last year, four health plans—Humana, HealthSpring, Universal American and UnitedHealth Group—would have seen their earnings reduced by 20% or more, according to Carl McDonald, senior analyst at Oppenheimer & Co.
A health insurance industry fee was delayed from 2011 to 2014 in the reconciliation bill, but the amount is now higher. Insurers must pay $8 billion in 2014, with the fee gradually rising to $14.3 billion in 2018. A tax on highvalue or so-called “Cadillac” plans was also pushed back from 2013 to 2018.
Many insurers contacted last week declined requests for comment. WellPoint said in a written statement that “affordability is more important than ever before, and we remain concerned the bill passed does not address long-term cost containment measures that will make the system sustainable.”
Of particular concern to insurers and investors is the penalty individuals will pay if they don’t purchase health insurance; they say it is simply too low. In 2014, people who don’t buy at least minimal health coverage will pay a penalty of $95. The penalty will rise to $325 per person in 2015, and to $695 in 2016, or up to 2.5% of income. In 2016, the family cap for the penalty will be $2,250.
Zaharuk of Moody’s wrote that the low penalties (compared with the annual cost of insurance, even with federal subsidies) could create a “death spiral” for the individual insurance market “by attracting a large pool of less healthy members as a result of eliminating medical underwriting, but not imposing a significant enough penalty to persuade healthy individuals to purchase insurance.”
Considering this, it is not a surprise that AHIP said last week that it would join a campaign headed by Families USA called Enroll America to encourage people to sign up for health coverage.
“It’s in everybody’s best interest that people have health insurance,” said Zirkelbach of the partnership.
Patients wait for eye exams during a remote-area medical clinic in Maynardville, Tenn.