Insurers await justices' mandate on health reform
No constituency is listening more closely to today’s arguments before the U.S. Supreme Court than the nation’s health insurance companies.</p><p>The court’s eventual answer to today’s primary question — the constitutionality of the individual mandate — could further shake the foundation of their industry.</p><p>Insurers’ primary fear is that the court could strike down the mandate, which requires individuals who can afford it to purchase health insurance, but leave in place other elements of national health care reform.</p><p>Particularly, insurers say the cost implications are dire if the court sustains the Affordable Care Act’s requirement that health plans must offer coverage to anyone who applies and cannot exclude pre-existing medical conditions.</p><p>There could be a “marketwide adverse-selection death spiral” for some insurance companies and skyrocketing premium costs for all, America’s Health Insurance Plans, the trade association that represents for-profit insurers, said in a friend-of-the-court brief.</p><p>The association emphasized that it wasn’t commenting on the constitutionality issue but rather the economic consequences of blowing up the reform package — which already is profoundly affecting health insurers’ operations. </p><p>Many insurance companies are choosing to let the trade association’s brief speak for them. The group’s brief is clear:</p><p>The “reforms cannot function as Congress intended without the mandate, and that, in fact, the continued operation of those reforms without the mandate would thwart Congress’s central purpose of guaranteeing broad access to <span class="italic">affordable</span> health care.” </p><p>That “severability” — whether other requirements can survive if the individual mandate is separated from the law — “is what keeps me awake at night,” said David Gentile, the chief executive officer of Blue Cross and Blue Shield of Kansas City.</p><p>The Blue Cross and Blue Shield Association, which represents 38 individually owned and operated companies, agrees with the brief by America’s Health Insurance Plans.</p><p>If the court rules the mandate unconstitutional without taking into account the financial consequences for insurers, “it puts the free-market insurance industry at risk,” Gentile said. “You’ll see a lot of commercial carriers figuring out how to abandon certain markets because of the adverse selection and the death spiral that comes from it.”</p><p>Insurers worry that without the mandate, young and healthy people will avoid buying health insurance until they need it. They liken that to trying to buy home insurance after the house catches fire. Mostly, though, insurers say they need predominantly healthy purchasers to make the math work.</p><p>In the language of the brief:</p><p>“Prohibiting reliance on the traditional tools of underwriting would make participation in the insurance market more attractive for older and less healthy individuals with higher expected health care costs, thereby increasing the pressure on premiums, which in turn render the insurance market less attractive for younger and healthier persons who have lower expected costs and are highly price sensitive.</p><p>“The attraction of a disproportionate share of high-risk individuals into the insurance pool will raise average costs, resulting in higher premiums for everyone.”</p><p>If and when the “pool of insurance customers” becomes too unbalanced, the adverse selection and feared death spiral would occur in companies that end up with too many too-expensive customers.</p><p> In the current market, actuarial tables and risk management — in which an insurer declines to insure those it deems to be the biggest risk — keep the death spirals at bay. Those restrictive policies are what the reform law was, in part, trying to counter with its key requirement that premium buyers can’t be turned away.</p><p>The Congressional Budget Office has estimated that if the insurance market changes are implemented without the individual mandate, premium costs would jump 15 to 20 percent because of adverse selection as millions of young, healthy individuals would choose to remain uninsured.</p><p>The court’s opinion isn’t expected until this summer. Even after that is handed down, there’s the November elections, which depending on the outcome for the White House and Congress could decide whether the provisions of the Affordable Care Act stay the course, are greatly altered or are completely dumped.</p><p>“From Aetna’s perspective, we have to proceed down the path as if the ACA is here to stay,” said Kelly McGivern, the insurer’s senior director of governmental affairs.</p><p>Aetna, like other companies, is deep into an information technology transformation as it complies with other changes. A big piece is attaining “interoperability” — creating digitized health records on platforms that allow all health care providers and insurers to communicate with one another in a more cost-effective way.</p><p>“We can’t speculate how the court will rule,” McGivern said. “But we expect to be in compliance with the law.”</p><p>Gentile agreed: </p><p>“We are making strategic moves and approaches to the marketplace that should be successful with or without health reform. We’ll press forward with our wellness strategy and work with providers to squeeze out excess capacity and become more proficient in administration. … There’s opportunity for the component parts of health reform to move on the intent of the law and improve.”</p><p>There also are those who say that what the court decides about the individual mandate would not be the cataclysm that some fear.</p><p>“Really, the individual mandate is fairly weak tea,” said Alwyn Cassil, a spokeswoman for the Center for Studying Health System Change, a Washington-based nonprofit research organization. “The issue more on insurers’ minds is how to differentiate themselves from their competition … how to diversify and have products in the marketplace that people will find appealing.”</p><p>Likewise, Ed Fensholt, the director of compliance services and a leader of the health reform advisory practice at Lockton Cos. in Kansas City, said he thought the law provided such weak penalties for noncompliance that many families and individuals would choose to pay fines rather than buy coverage.</p><p>“I don’t quite comprehend the hysteria over the destruction of the health marketplace if the mandate goes away,” Fensholt said. “If we really wanted uninsured Americans to buy health insurance, we’d have made the penalty as large as the insurance cost. But the penalty is so small it really doesn’t put them in the boat.”</p><p>Perhaps a more pressing issue for insurance companies and brokers alike is the slow promulgation of regulations needed to implement the Affordable Care Act. The U.S. departments of Health and Human Services and Labor, as well as the Internal Revenue Service, are flooded with duties to translate the broad sweep of the law into operational details.</p><p>In many states, including Kansas and Missouri, insurers and brokers have little clue about what shape the mandated insurance exchanges — which are designed to provide access to more affordable insurance options for individuals and small business — will take. Indeed, it’s not yet clear whether some states will decline completely.</p><p>The insurance exchanges are supposed to be ready to enroll customers in 2013 for coverage in 2014. If states don’t create their own exchanges, the federal government would step in and offer a still-unknown alternative.</p><p>But on the point of the moment, the insurance industry is fairly united.</p><p>“We know what happens without an individual mandate,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans. “It doesn’t work. We’ve seen the experience in the states like New Jersey that have tried.”</p><p>Twelve states have tried to mandate coverage without an individual mandate, and nine have repealed their laws because premiums soared. Consumers in some states were left with less choice because some insurers pulled out of those markets.</p><p>Robert Laszewski, a consultant with Health Policy and Strategy Associates in Alexandria, Va., calms the waters with the observation that insurers are “moving in the exchange direction anyway. … They’re doing what they can at the state level already to be flexible in their products, to offer more choice on the retail front.</p><p>“The point is that the products they’ll have to offer under the regs look like the products being offered now anyway. … The industry has the product and administrative systems in place to comply with whatever the rules are.”</p><p>Gentile, like other insurance executives, said his company is positioning itself for survival whatever gale blows through the industry.</p><p>“I don’t see any changes coming fast,” he said. “The subsidies (for low-income individuals) and the exchange process will get challenged, the fees and taxes will get challenged. But insurers will focus on how to make the individual more accountable and press on with more of a consumer approach to health care.</p><p>“We’ve said that since the law got passed, it’s the law, and we’ll embrace it. There are positive aspects relative to it despite the flawed elements. … But with a thoughtful, strategic framework, I think we’re positioned to do well.”
Expert: USPS pullout would jeopardize federal health insurance program
Postmaster General Patrick Donahoe will testify Tuesday that the U.S. Postal Service could save nearly $7 billion in the first year of running its own health care plan, largely through eliminating the need to prefund retiree health benefits.
But a leading federal health care expert will blast the Postal Service's plan as unrealistic and disastrous. Walt Francis, who writes the annual Checkbook guide to health plans, will say the Postal Service would "massively disrupt or destroy" the Federal Employees Health Benefits Plan by withdrawing nearly a quarter of the 8 million enrollees in the federal government's employee health care plan, according to his written testimony to the House Oversight and Government Reform Committee. And it could drive the Postal Service's own costs up by at least $1 billion a year, Francis says. The committee posted the written testimonies of Donahoe and Francis online on Monday.
The desperate and bankrupt Postal Service last August proposed pulling out of FEHBP and setting up its own health care plan as part of an aggressive proposal to cut $22.5 billion in costs by 2016.
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