Healthcare Town Hall

For much of 2012, political arguments raged over the preservation or deconstruction of the Patient Protection and Affordable Care Act (PPACA). Despite all the noise, very little change actually occurred.

Then one day into 2013, a significant aspect of the law was quietly defunded.

As part of the Fiscal Cliff deal, all future funding for Consumer Operated and Oriented Plans (CO-OPs) has been eliminated. Entities that have already been awarded federal loans can continue to establish CO-OPs as planned, but all other entities will not have federal funding available to them. Some entities that were already underway on the planning process may be able to identify other sources of funding, but the path forward has become far more difficult, if not impassable.

As we outlined in an article published last week, CO-OPs are subject to the same fundamentals as any insurance entity, and they also face some unique challenges. And the recipe for success today is no different than it was last week. Those CO-OPs that did receive funding, however, are likely to face more scrutiny, as the whole idea of a CO-OP has become prematurely endangered.

The removal of federal funding probably eliminates the possibility that the CO-OP movement will spread. Here’s an (now obsolete but still interesting) excerpt from last week’s article:

Another factor is the question of how widely the CO-OP movement will spread, which will in large part determine the CO-OPs’ market clout. Will sufficiently large numbers of people be attracted to CO-OP membership? So far, there are some glaring gaps, particularly in the most heavily populated states; as of this writing, for example, no new CO-OPs have been approved in California, Texas, or Florida. In that sense, the CO-OPs are not fully meeting the policy goals of the enhanced marketplace.

Many will be watching the 24 CO-OPs that already received funding to see if the CO-OP model can, indeed, improve access while reducing costs, as was hoped for when the law was drafted.

Reform CO-OPs, Fiscal Cliff, Reform, Tom Snook

This post originally appeared on the Society of Actuaries blog.

Two prominent physicians at Johns Hopkins recently made comments supporting the individual mandate provision in the healthcare reform law. Just a few days later, the 11^th Circuit U.S. Court of Appeals struck down the provision, ruling it unconstitutional. While the decision is seen by most as just a way station on the way to the Supreme Court, it does point to the sensitive nature of the provision.

As actuaries, we can’t help but see the mandate a little differently than either physicians or judges. Regardless of our political views—and if you’re wondering, mine happen to be independent, moderate, and centrist—our professional expertise tells us that in the absence of underwriting and other traditional insurance risk management provisions, something is necessary to address adverse selection. The individual mandate may offer that something—as I indicated almost two years ago in a paper co-authored with Ron Harris. Without it, the sustainability of private health insurance is at risk.

What is meant by “adverse selection”? Adverse selection is simply people acting in their own economic self-interest. Health insurance is not cheap, especially if you don’t have an employer subsidizing some or all of the cost. The purchase of health insurance is a significant financial commitment that thoughtful people will weigh carefully in light of other economic needs. (Many commentators, including the Hopkins physicians, refer to those going without health insurance as “free riders”; I find this phrase to be unfortunate, as it is simplistic and pejorative without recognizing the economic realities that families face in making this decision).

Read more…

Reform adverse selection, individual mandate, Tom Snook

With the proposed accountable care organization (ACO) regulations issued yesterday, it’s all eyes on ACOs. This video captures the cost challenge and explores how ACOs may offer a solution.

We have a large library of ACO materials–you’ll find them here. Highlights include papers and posts about:

• Patient attribution
• ACO nuts and bolts
• The role of evidence-based guidelines
• Building an accountable care information system 
• Cancer-focused ACOs
• And here are a few key terms

Check back soon for more on ACOs and the new regulations.

Cost, Quality of Care ACOs, Clark Slipher, Ed Cymerys, Rich Moyer, Rob Parke, Stu Rachlin, Susan Pantely, Tom Snook

A new video examines key actuarial and operational considerations for state health insurance exchanges. The video includes perspectives from the CFO of the Massachusetts Health Connector and from several actuaries.

Reform adverse selection, Clark Slipher, Diane Laurent, Ed Cymerys, Jean Yang, Lorraine Mayne, Massachusetts, Mike Sturm, risk adjustment, state exchanges, Stuart Rachlin, Tom Snook

The fourth installment in our “strategic considerations” series (see #1, #2, #3) looks at state health insurance exchanges.

The state exchanges mandated by the PPACA are not required to be in effect until 2014, but states are planning for them now and insurers need to consider how to position themselves with respect to the exchanges. States have a wide-ranging authority to set the conditions of the exchanges, and there are many questions to be answered in each case, for example:

• What level of product and essential benefits will be required by an exchange?
• Will there be separate exchanges for individuals and small groups, or will they be combined in one pool?
• What kinds of market forces may be created by exchanges that influence carriers operating outside the exchange?
• Which states’ exchanges will have a cost-control mechanism, and which will not?¹
• Will there be interstate exchanges?
• The political atmosphere within some states is strongly opposed to the healthcare reforms. Will those states try to avoid developing an exchange, or establish an exchange so weak that it cannot function effectively?

Read more…

Exchanges, Reform Greg Herrle, state exchanges, Tom Snook

One of the central concepts of healthcare reform is the move toward guaranteed issue, which includes new rating limitations for insurers. The evolution will not be complete for several years still but has near-term implications:

The PPACA provisions for guaranteed issue coupled with rating limitations will add other major constraints on insurers, especially in the individual and small group markets. Many companies have served these markets successfully, even without big provider discounts, because they are adept at underwriting and managing their portfolio risks. These companies may now find it more difficult to meet the MLR requirements and to price their products at levels that meet “reasonable” regulatory standards. Therefore, companies may need to consider new strategies to remain competitive and some may even leave the market.

The PPACA also requires that the age bands in the individual market narrow to a maximum of three to one, which is lower than currently used in the industry (e.g., five or six to one). This narrower range can only be achieved by lowering rates for older insureds and raising them for younger persons. The latter will provide an even greater disincentive for young and healthy people to purchase health insurance, increasing the effect of adverse selection.

Read more…

Reform Greg Herrle, Guaranteed issue, rating limitations, Tom Snook

Continuing our discussion of key healthcare reform (HCR) implications facing health insurers this year, we turn to the topic of new rate review regulations.

Another challenging provision in the PPACA legislation requires the federal Department of Health and Human Services (HHS) to work with state insurance commissioners to conduct an annual review of “unreasonable increases in premiums.” The law does not clearly define what constitutes an “unreasonable” increase and what the states and/or HHS will do with this information, though recent proposed regulations have begun to clarify the intent. It may be that this provision is primarily meant to ensure transparency in the rate-setting process; whether it will lead to tighter rate regulation in all states is not yet clear. HHS has emphasized that this is not a “one-size-fits-all” regulation and that authority still resides with the states, where current practice varies substantially. Some state insurance departments conduct thorough actuarial reviews of rate-increase requests, whereas some exercise only minimal regulatory action.

Some states have already begun to take a tougher stance against insurers’ requests for rate increases; others that have not done so to date may be compelled to increase scrutiny under the new regulations. HHS itself has no statutory authority to regulate premium rates. In states where the insurance department has little or no authority to regulate rates, HHS grant funds can be used to lobby the legislature to expand the insurance department’s statutory authority. Additional uses of the grant money include improving or enhancing the existing rate regulation and approval process.

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Reform Greg Herrle, rate review, Tom Snook

A new article looks at the strategic implications for insurers in the coming year as they grapple with near-term healthcare reform (HCR) requirements. The first consideration: The creation of new minimum medical loss ratio (MLR) requirements. Here’s the deal:

The obvious question about the new MLR requirements—80% for individual and small group plans and 85% for large groups—is: Can health plans meet them?

The short answer is: It depends. Meeting the new requirement will probably be most difficult for insurers in the individual market and least difficult (although generally not easy) for certain types of companies in the large group market. Insurers that can significantly lower administrative and marketing costs, as well as those that are able to shift some risk to healthcare providers, will have an edge on those that cannot.

Read more…

Reform Greg Herrle, Minimum loss ratios, Tom Snook

A new article by Greg Herrle and Tom Snook examines reform-related strategic considerations for insurers. There are four big issues ahead:

Of the many complicated reforms in the Patient Protection and Affordable Care Act (PPACA), four in particular present near-term strategic issues. Two of them require immediate attention in 2011:

• Meeting the new medical loss ratio (MLR) requirements
• Changes in premium rate regulation

 

Two others do not come into full effect until 2014, but insurers need to be planning for them now:

• Guaranteed issue and related rating limitations
• State health insurance exchanges

 

How these topics affect insurers varies according to type of health insurance carrier (large, multistate insurers; regional carriers; provider-sponsored or integrated health plans) and nature of regulatory environment in individual states (heavily regulated, less regulated).

Further complicating the picture is the evolving U.S. political and legal environment, in which some parts of the PPACA are being challenged. We will address this issue below, but it is important to remember that, for now at least, the legislation as passed is the law of the land and healthcare plans must proceed with implementation steps.

The full article is available here.

Reform 2011, Greg Herrle, medical loss ratios, Tom Snook

While not one of the more immediate provisions in the healthcare reform law, the individual mandate is likely to be one of the most talked-about elements. As we indicated last week, the composition of any health risk pool has significant cost implications, and an effective individual mandate can help encourage better health risks to enter the pool. The individual mandate is intended, among other things, to prevent a selection spiral. 

There is plenty of related press coverage this week, especially over the subject of whether the individual mandate will pass legal muster. The Internet is crowded with individual mandate-related headlines. Ezra Klein with the Washington Post has weighed in twice (here and here).

How will the public react to the individual mandate? While it has been relatively well received in Massachusetts, the reaction may vary from one location to another. An LA Times op-ed on Wednesday supporting the individual mandate drew some heat. 

This is one story to keep an eye on.

Mandates individual mandate, Ron Harris, Tom Snook