Insurer Response Remains Key Story To Watch

by Dan Diamond, California Healthline Contributing Editor

However, policymakers and private payers’ ongoing wrangling about reform remains the long-term narrative to watch, with the insurance industry’s business model — and the success of the overhaul — at stake. Beginning last year, the Obama administration has framed the health care overhaul as “insurance reform,” painting insurers as profiteers and arguing that the overhaul would rein in payers’ inappropriate behavior.

More recently, state insurance commissioners have sought to bar insurers from what they say are excessive rate hikes. While payers have grumbled over their portrayal, they’ve generally acquiesced to health reform because the insurance industry has “the most to gain from smooth implementation,” Len Nichols notes. Namely, if this overhaul fails to improve health coverage and contain costs, insurers risk “more regulation and government control in the long run,” according to Nichols.

As a result, government and insurers’ give-and-take will continue to define the reform’s implementation, with three fronts shaping the outcome: The White House’s national messaging, state-level dust-ups and insurers’ own deliberations on how to approach the overhaul.

White House Continues To Target Payers

Although some suggested that the overhaul should target health care providers — pointing to findings that hospitals and physicians are the chief drivers of health costs — lawmakers eventually cast insurers as the lead villains in last year’s reform debate, partly fueled by the industry’s own actions. While hospital, physician and pharmaceutical associations struck agreements with key members of Congress or the Obama administration to support reform, America’s Health Insurance Plans stood out as the one player unwilling to “make a deal” with Democratic leaders.

The White House seized on AHIP’s resistance, with President Obama suggesting that payers would seek to derail the overhaul to protect their interests. The administration ultimately capitalized on outrage over Anthem Blue Cross’ proposed double-digit hike for individual policyholders in California to help congressional Democrats gain momentum to pass reform.

While White House-insurer tensions have moderated, the Obama administration still has found the industry to be a convenient target as it frames the reform law’s implementation. Last week, Obama publicly warned insurers that they should not use the overhaul as an excuse to hike premiums and subsequently unveiled a “patient’s bill of rights” that packaged a handful of insurance reforms.

State-Level Fights Over Rate Hikes Persist

Obama’s warning comes as insurance commissioners and insurers continue to spar over planned premium hikes across the nation. Because the overhaul did not give legislators new national authority to regulate insurers’ premiums, state officials are engaged in a patchwork response with mixed results.

Administrators across the country are closely watching Massachusetts, where an insurance appeals board last week ruled that the state’s Division of Insurance should not have blocked certain premium increases earlier this year. The ruling dealt a setback to Gov. Deval Patrick (D) — who was seeking to curb health costs in the state by blocking “excessive” premium increases — and offered hope to three other insurers whose proposed rate increases were similarly blocked by state authorities. The decision also may be a bellwether for other states, like Connecticut and Pennsylvania, that seek to freeze or roll back payers’ hikes.

California continues its own efforts to control rising costs. AB 2578, which could limit the size and scope of insurance companies’ rate increases, has inched through state committees and is nearing the state Senate floor. Insurance Commissioner Steve Poizner (R) also has ordered independent reviews of all individual health insurance policy rate hikes sought by four of the state’s largest health insurers, after Aetna admitted errors in its rate calculations.

These battles show no sign of abating, and new state-level health insurance exchanges may serve to accelerate the underlying tensions. Insurers will be pushed to keep raising rates, given that reform will force them to administer ever-weaker risk pools and providers’ need to cross-subsidize pending cuts to public reimbursement.  Meanwhile, state insurance commissioners will be forced to weigh the health of consumers and solvency of plans. Writing in the current Health Affairs, Troyen Brennan and David Studdert caution that this “interplay … [will] be a key pressure point as politicians, regulators and markets confront the reality of a health system that costs more than anyone wants to pay.”

Insurers’ Thought Process

To a great extent, insurers have embraced the reality of reform, with stronger plans enticed by the promise of millions of new customers and banking on efforts to repeal the reform law coming up short. Some payers are ramping up customer service offerings in preparation of serving newly covered consumers. Many insurers also are experimenting with reform-fueled initiatives intended to boost care and slice costs, such as piloting the medical home model or bundling payments to providers.

However, it’s unclear what will hold insurers’ feet to the fire and force their participation in certain, less-profitable aspects of health reform. One challenge is where the bill bumps up with the segment of the market regulated by the Employee Retirement Income Security Act. Brennan and Studdert note that “there appears to be nothing in the health reform law” to prevent insurers from dropping out of the small-group and individual markets and concentrating on serving the self-insured, larger plans governed by ERISA. Alternately, insurers may be able to sell to the small-group and individual markets but opt out of the state exchanges. Such moves could significantly reduce consumers’ options and weaken the overhaul’s effectiveness.

Looking Ahead at an Insurer ‘Oligopoly’

What happens next may be determined by a dwindling cadre of payers. Insurers already were moving toward consolidation and the reform law should accelerate that trend.

WellPoint — one of a dozen insurers that collectively cover two-thirds of people in the commercial insurance market — has “the scale to prosper from the overhaul,” according to Bloomberg/Businessweek. Meanwhile, smaller insurers that lack capital to invest in information technology and care management improvements will be squeezed out of the marketplace. According to an analysis from financial firm Sanford C. Bernstein, the overhaul will likely shutter more than 100 smaller insurers, defined as firms with 200,000 covered lives or less. 

As a result, a handful of payers — an emerging oligopoly — are poised to play an increasingly influential role in carrying out reform implementation. But if lawmakers continue to castigate insurers and push new regulations on their practices, will these payers be inclined to participate? Micah Weinberg of the New America Foundation warns that continuing to “beat up on insurers” for hiking premiums runs the risk of ignoring chief drivers of cost and alienating key partners whom officials need to help control spending and boost care quality.

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