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by Leila Morris
• How Will Health Reform Affect Brokers in California?
• How Will the Medical Loss Ratio Requirement Affect Commissions?
• Will Employers Stop Offering Health Benefits?
• When Will The Healthcare Exchanges Start Signing People Up?
• How Will the Election Affect Health Reform?
• How Will Health Reform Affect Premiums
• How Will Health Reform Affect Employers?
• What Are The Biggest Challenges For Carriers?
In a landmark decision, the Supreme Court has upheld the health care reform law’s individual coverage mandate and left virtually all other provisions of the law intact. The court’s validation of the individual mandate removes one of the major uncertainties plaguing the legislation, which still faces a contentious political outlook. In this special report, we compile expert opinions on how health reform will affect brokers and their clients as well as the carriers. Experts gave their opinions, in podcasts, press statements, white papers, and blog posts. The consensus seems to be that we won’t know how health reform will shake out until the November election. Experts also agree that brokers and private health insurance carriers are still vitally important to healthcare delivery. The entire healthcare industry needs to get on the fast track to comply with looming deadlines under the law. That means that brokers will have their work cut out for them in the coming months.
How Will Health Reform Affect Brokers In California?
Phil Lebherz, Chairman of LISI (Webcast): Don’t panic. Brokers are here to stay. With the complexity of the market, brokers are needed more than ever. At LISI, we expect to lose 25% of our micro-groups under five because some will qualify for the tax credit to go to the exchange. However, we expect premiums to rise under health reform. Your monthly commission level will be consistent because you will get a lower commission, but on a larger premium. Peter Lee, the executive director California Health Benefit Exchange Board, has said that he needs brokers for the exchange to work. Commissions under the exchange will be set up the same way as in the private sector. However, we want to make sure that we are vested in our commissions. They plan on negotiating commissions. As brokers, we can say, “No, we are not going to sell it.” When the state sets up the exchange, we don’t know how good their service will be. As brokers, we advocate for clients. In contrast, state employees have no incentive to take care of people who call. For example, the uninsured have to contend with excessive wait times to reach anyone by phone to sign up for Medi-Cal. This is despite the fact that California has 27,300 employees (at a cost of $3 billion a year) whose job it is to enroll people in the Medi-Cal and foods stamp programs.
How Will the Medical Loss Ratio (MLR) Requirement Affect Commissions?
Lebherz: The MLR has already dug into our commissions. But, I am waiting. I know that an insurance company will come to us and ask, “Why aren’t you selling our product and we will say, “Your commissions are too low. Another company is paying us more.” The market will settle where it needs to. Also, there is a fight now in Congress to take commissions out of the MLR.
Will Employers Stop Offering Health Benefits?
Truven Health Analytics (An analysis of insurance claims and wage data from 33 large employers with 933,000 employees): There is no short- or long-term advantage for employers to eliminate group health benefits in favor of Patient Protection and Affordable Care Act (PPACA) penalties. Eliminating group health coverage is not cost efficient. Also, it would have an enormous negative impact on an employer’s competitive market position and eventually on the well being of employees. Federal insurance exchanges are twice as expensive as group health plans. Employers will bear a burden of as much as $17,269 per employee (roughly $9,000 more than they spend now) to shift their benefits to federally subsidized coverage through a federal exchange in 2014. If employers eliminate group health without giving employees a subsidy to buy coverage through an exchange, employer costs would fall to $2,000 per employee (the cost of fines imposed by the PPACA for not providing coverage to employees). However, each employee would be responsible for paying an average of $16,551 per year for health coverage in 2014. This cost differential should encourage most companies to continue offering group health benefits since employers must provide market value to retain skilled workers. Lebherz:When you mess with your employee benefits, you are a dead duck. Safeway employees went on strike over being asked to make a $5 copay for prescriptions. Employers have competition for good employees. However, micro groups buy coverage because group insurance is tax deductible. That incentive will be gone if Congress makes individual plans tax deductible also. Since micro groups don’t get fined if they don’t buy insurance for employees, they may decide to pay the employees to buy insurance on their own. That way, they don’t have to do the HR administration. Expect some of those small employers to make that decision.
When Will The Healthcare Exchanges Start Signing People Up?
Lebherz: The health exchanges are planning on signing people up on October 1 2013 for January 1014 effective dates. But what they are trying to do is really hard. They will probably announce that they are ready when they are not.
How Will the Election Affect Health Reform?
Jeff Goldsmith, president of Health Futures Inc. and associate professor of Public Health Sciences at the University of Virginia (podcast): The law is very misunderstood as well as being unpopular. It is far from clear that this law gets implemented despite the Supreme Court ruling. The biggest uncertainty is the election. The law is gone if the Senate flips to Republican and Mitt Romney is elected. If President Obama is reelected, but loses the Senate, then the Senate has the votes to not fund the Affordable Care Act. Also, since we are still running trillion dollar deficits, a future congress might look at the subsidies contained in this law and say that we just can’t afford to do this. Alan Katz, EVP of Sales & Marketing for SeeChange Health Insurance (healthcare reform blog (http://alankatz.wordpress.com): The upcoming election will determine how much the law will change. The PPACA remains unpopular. Many Americans (including four Supreme Court Justices) believe that it’s an unwarranted expansion of federal power at the expense of personal liberty. This decision will only flame the passions of those who take this view, meaning they’ll go to the polls in November with one goal in mind: elect a President and Congress who will repeal the PPACA. Will supporters of the bill be as motivated and engaged? Not likely. Just because the PPACA is constitutional does not mean we’ve seen the final version of the law. Lawmakers owe it to their constituents to revisit the law and make some substantial changes. The PPACA accomplishes a lot of good things: increases access to coverage; provides some useful and meaningful consumer protections; takes the first steps needed to begin constraining health care costs; and more. It also botches a lot of important things. It will not make coverage more affordable; it doesn’t go far enough to constrain escalating health care costs; and more. This doesn’t mean that Democrats have to follow the GOP’s demand to repeal the law or that Republicans have to cave to the administration. Both sides need to recognize that the PPACA is the law of the land. Barring a GOP super-majority in the Senate come 2013, the PPACA is not going away. So responsible leaders will try to make it the best law possible. Lebherz:Nothing will happen between now and the election in November. For 2012, most plans will not be changed.
How Will Health Reform Affect Premiums?
Lebherz: We expect premiums to go up substantially in California with adverse selection and more people going on Medi-Cal. In addition, hospitals will charge more to the private sector. States that have implemented health reform have much higher premiums for young people. In New York it is $550 a month. The reason is that they have community rating in which everyone pays same thing. America’s Health Insurance Plans (A technical analysis by Oliver Wyman done on behalf of AHIP): As a result of health reform, premiums, nationwide, in the insured market will increase 1.9% to 2.3% in 2014 and 2.8% to 3.7% by 2023 . Premiums for single coverage will increase $1,900 to $2,400 over a 10-year period. For family coverage, the increase would be $4,500 to $5,700. For small employers, premiums would increase $2,400 to $3,100 for single coverage over a 10-year period. Family coverage would increase by $6,000 to $7,700. For large employers, premiums for single coverage would increase $2,300 to $2,900 over a 10-year period. Premiums for family coverage would increase $6,200 to $8,000. Medicare Advantage beneficiaries would see increased costs of $16 to $20 per member, per month in 2014. Costs will increase $32 to $42 by 2023, with an average expected increase in the cost of Medicare Advantage coverage of $3,590 over 10 years. Premiums for Part D beneficiaries will increase $9 in 2014 and $20 in 2023 for a total increase of $161 over 10 years. For Medicaid managed care beneficiaries, there would be an increase in the average costs of Medicaid coverage by about $1,530 per enrollee between 2014 and 2023.
How Will Health Reform Affect Employers?
David Levine, CEO of the American Sustainable Business Council: Measures taking effect in 2014 will create more competition among insurance companies, which will drive down prices. When the ACA is fully implemented, small businesses will no longer pay more than large corporations for their insurance. However, one element in the Court’s opinion could hurt small businesses. The Court said that states need not expand Medicaid to 133% of the federal poverty level, as required under the ACA. Small businesses would benefit from the expansion since it would reduce the number of employees needing to be covered by a company’s healthcare plan. AHIP: Employers will have more incentive to self-insure their health coverage — increasingly shifting the burden of the fees to smaller employers and individuals who must shoulder the cost of a statutorily fixed level of fees no matter the relative size of fully insured coverage markets. Edward Fensholt, JD, and Mark Holloway, JD — leaders of Lockton’s Compliance Services group: Employers will need to begin making significant decisions in the next several months. Regulations will be very complex, particularly on the employer mandate. We can expect a crush of complex guidance compressed into a very short time. The next stops on the health reform train include distribution of four-page plan summaries, W-2 reporting of health plan values, limits on health flexible spending accounts, new income, and capital gains taxes on executives. The Supreme Court opinion also adds a wrinkle to the expansion of Medicaid eligibility. The Court said the feds cannot hold a state’s Medicaid funding hostage if the state doesn’t play. That could mean that more people will seek subsidized coverage in an insurance exchange or-worse-that some won’t qualify for Medicaid or exchange-based subsidies. Julio Portalatin, president and CEO of Mercer: Any employer that has not conducted a health care reform check-up should make it their first order of business. Employers need to redouble their compliance efforts, especially for immediate requirements, such as providing summaries of benefits and coverage to employees. This court’s decision reinforces popular features, such as providing coverage of dependents up to 26 and eliminating exclusions for preexisting conditions. David Rahill, President of Mercer’s Health and Benefits business:Employers can expect a spike in plan enrollment for 2014 as a result of the individual mandate. But they may see enrollment level off once the state exchanges become operational. By 2014, health insurance exchanges will be operating in every state, offering community-rated insurance to certain small employers and individuals, with federal premium tax credits available to help some people buy that coverage. In the near term, employers must report the value of employer coverage on IRS Form W-2, cap dollar limits on health care flexible spending arrangements, and increase Medicare withholding for high earners (those earning more than $200,000 per year). They must also comply with the reforms already in effect, such as coverage of dependents up to age 26.
What Are the Biggest Opportunities For Carriers As a Result Of Health Reform?
Jeff Goldsmith: The biggest opportunities are in Medicare and Medicaid. The growth in Medicare Advantage is a huge opportunity. In contrast to the Congressional Budget Office, which sees these programs shrinking. I see them doubling. They have almost 13 million subscribers now. I see the opportunity to add 12 million to 15 million more Medicare Advantage subscribers. Also, Medicaid has 53 million people, but only about18 million of them are in managed care plans. Under almost any scenario I can think of, that 18 million number goes up.
What Are The Biggest Challenges For Carriers?
Jeff Goldsmith: When carriers sell through the exchanges, they will have to adjust from a business-to-business model – as with group plans – to a business-to-consumer model. The health plans will have to tell the consumer why they should chose them among all of the other companies participating in the exchange. Health plans need to provide meaningful choices for subscribers. How do you reward members for making intelligent choices? A lot of disease management initiatives have involved working around the physician rather than complementing and strengthening them, so I think that is going to be a challenge. Most importantly, a consumer driven company saves member money with network discounts with hospitals and doctors. But they also save them money by helping members make better choices and better manage health risk factors. If we can help member avoid health problems that cost them money, we will get their business and create value for them. There is a tremendous lack of information to general public about what is available to them under this law. Every health plan needs to have a strategy to deal with communication to public. Clark Slipher, Milliman Health Practice director: Major concerns for healthcare stakeholders include adverse selection, strength of the individual mandate, new complexity surrounding Medicaid expansion, and changes to employer-sponsored insurance. Even with the individual mandate in place, the success of many insurers under PPACA will depend on their ability to minimize adverse selection. Medicaid expansion just became a far more complex and variable proposition. The court’s decision to allow states to opt out of Medicaid expansion creates dynamic changes across the healthcare system. Something’s got to give. Keeping rate increases under 10% may become more challenging with many of the traditional cost-control mechanisms no longer available to insurers. Complying with minimum loss ratios will pose an ongoing challenge for insurers. Increased volatility in medical costs that may come from adverse selection could compound the difficulties for insurers. Risk adjustment is essential. A new reform calculus is required with traditional risk selection since techniques, such as medical underwriting, are no longer allowed. A.M. Best Company: We are maintaining a negative view on smaller companies that specialize in the small group and individual health sectors over concerns about profitability due to the minimum loss ratio requirement. Many carriers have diversified over the past few years – offering products to multiple segments, including individual, employer groups, and government-sponsored (both Medicare and Medicaid managed care), which provides for more diversified membership, revenue and earnings. Several of the largest carriers have expanded with supplemental business that is more service oriented and non-regulated. These complementary products provide health insurers with varied sources of earnings and cash flow, which can enhance sustainability of operating results. However, A.M. Best has concerns about profitability for smaller companies that specialize in the individual and small group markets. Typically, these segments have a lower medical loss ratio and a higher administrative expense ratio. PPACA has a requirement for a minimum medical loss ratio. While these carriers have reduced broker commissions, their lack of economies of scale may affect their ability to lower administrative expenses enough to comply and remain profitable. Also, these companies tend to have less diversified product portfolios than those of larger carriers and could be more negatively affected by the implementation of exchanges in 2014. AHIP:Adverse selection could be a problem in the individual and small group markets as younger, healthier individuals go without coverage leading to a less stable risk pool and higher premiums.
What Are the Global Effects Of Health Reform?
Kelly Barnes, leader of PwC’s U.S. Health Industries practice: Implementation deadlines that once seemed far off are rapidly approaching. There is renewed pressure on health organizations to comply with rules and compliance deadlines and find innovative ways of delivering high-quality, affordable care that proves their worth. The health business is becoming a retail operation with the new state and private insurance exchanges, greater pricing transparency, mobile technology, and nontraditional competitors. Incentives for collaboration are quickening the convergence of hospitals, insurers, drug makers, physicians, and technology companies. Economic uncertainty and federal budget reductions add muscle to efforts to improve efficiency, eliminate waste, and constrain overall cost growth. Among the provisions that are scheduled to take effect soon are new reporting and disclosure obligations for employers, benefit design changes for certain health plans, penalties for hospitals that have unnecessarily high re-admissions, and a requirement that insurers devote 80% to 85% of their premiums to medical care or refund the difference. Participants will need to accelerate efforts to compete for federal funding that will be available for innovation, health insurance exchanges, new quality measures, and other provisions of the law. To date, more than $1 billion in grants has been allocated to support state exchange readiness. Medicaid spending is expected to total $4.2 trillion from 2012 to 2021. With 23 million individuals expected to buy insurance from the exchanges and 17 million people enrolling in Medicaid by 2021, the two provisions are heightening activity in states.