Insurer Response Remains Key Story To Watch

by Dan Diamond, California Healthline Contributing Editor

The lead story in health reform this week is HHS' race to launch insurance portals and pools by a July 1 deadline.

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.

Here's a look at what else is making news around the nation.

State of the States

  • Utah Gov. Gary Herbert (R) on June 24 announced that his state would administer its own high-risk insurance pool under the new health reform law. Utah was the last state to decide -- more than one month after the deadline -- whether it would run its own exchange or allow the federal government to do it for them (Wilde Mathews, Wall Street Journal, 6/25).
  • Minnesota Gov. Tim Pawlenty (R) last week announced that the state will not expand Medicaid eligibility to certain residents before 2014, when the eligibility expansion will occur automatically under the new health reform law. Pawlenty said expanding Medicaid eligibility would cost the state $430 million over the next three years and would "strain the state budget." However, state Rep. Tom Huntley (D) said waiting until 2014 to implement the expanded enrollment eligibility "prevents Minnesota from capturing a federal match for state dollars we are already spending" (Lambert, Reuters, 6/22).
  • The Democratic governors of four states -- Colorado, Michigan, Pennsylvania and Washington -- last week filed a motion in federal court in Florida requesting permission to file an amicus brief in support of the new federal health reform law. The governors sought to add their support against a multistate lawsuit that argues that the new law's individual mandate to purchase health insurance is unconstitutional (Brunner, Seattle Times, 6/23).

Administration Actions

  • After President Obama met with insurers and insurance commissioners, the White House last week released a "Patient's Bill of Rights," or health regulations under the new health reform law. The regulations in part would prohibit insurance exclusions for children under age 19 because of pre-existing conditions. Obama said the regulations "will put an end to some of the worst practices in the insurance industry and put in place the strongest consumer protections in our history" ("Healthwatch," The Hill, 6/22).

Political Pushback

  • Fifty-six House Republicans on Friday sent a letter to President Obama urging him to withdraw the nomination of Donald Berwick for CMS administrator because of Berwick's stance on Britain's National Health Service. If confirmed, Berwick would be the first permanent administrator since Mark McClellan stepped down from the role in 2006 and would lead the implementation of many of the new health reform law's broad changes, including expanding Medicaid and controlling Medicare costs. Since Berwick's nomination was announced in April, Republicans have alleged that he supports rationing care and the socialization of the U.S. health care system (Smith, CQ Today, 6/25).
  • House Minority Leader John Boehner (R-Ohio) on June 23 -- 90 days after the new health reform law was enacted -- unveiled a 43-page report highlighting what Republicans say are the overhaul's shortfalls and reasons it should be repealed. The report -- titled, "ObamaCare, Three Months of Broken Promises" -- is made up of government reports and news clippings, and outlines Democrats' promises about health reform, including that it would create jobs and allow U.S. residents to keep their current health coverage if they like it (Haberkorn, Politico, 6/23).

Industry Report

  • Florida internist Cecil Wilson last week was named as the new president of the American Medical Association. Wilson's election came as AMA dealt with internal dissension over the group's endorsement of the health care overhaul. While primary care physicians -- like Wilson -- likely stand to gain from added payments and a greater focus on preventive measures, specialist physicians are expected to lose reimbursement under the new law (Roth, Roll Call, 6/23).
  • An unlikely batch of mass-market vendors --Clorox, Kimberly-Clark and Procter & Gamble, which specialize in household cleaning products --are eying hospitals as potential major customers, as the firms seek to take advantage of incentives under the health reform law that will reward facilities for boosting sanitation measures.  Provisions in the health overhaul offer higher Medicare rates to hospitals that meet or exceed HHS sanitation measures and also mandate lower payments to facilities with elevated readmission rates for patients who acquire infections during their hospital stays. The incentives and penalties will take effect in 2012 (Clothier, Bloomberg/San Francisco Chronicle, 6/27).

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