Insurers Prepare for Market Reforms

Challenges Include Cost Concerns, Legal Disputes

Despite bipartisan opposition in Congress and failure to win support of a majority of the public during months of debate, federal lawmakers were able to enact a comprehensive reform bill that creates new ground rules for the health insurance industry. The market reforms will improve access for millions of Americans who previously could not afford or qualify for enrollment in a health plan, but employers and insurers are warning about the lack of cost controls and the expense of new insurance mandates. Compounding the challenges of implementation, some states are disputing the mandate for individuals to purchase insurance as well as provisions that would expand state Medicaid programs.

The healthcare bill that ultimately became public law, the Patient Protection and Affordable Care Act (HR 3590), passed the Senate on December 24, 2009, by a 60 to 39 vote. The House of Representatives cleared the bill for the White House on March 21, 2010, by a vote of 219 to 212, and it became public law on March 23. President Obama signed a separate reconciliation bill that amended the new healthcare reforms, titled the Health Care and Education Reconciliation Act (HR 4872), on March 30.

For several months before the new reforms were enacted, public opinion polls consistently found more Americans opposed to the Democrats’ healthcare plan than in favor. And after HR 3590 was signed, 50% or more of respondents to Rasmussen Reports, USA Today/Gallup, and Washington Post polls were opposed, with 42%, 47%, and 46%, respectively, in favor. In the USA Today/Gallup poll conducted from March 26 to 28 that included 1033 adults, 65% said the reforms will expand the government’s role in healthcare too much and 64% said it will cost the government too much. Fifty-eight percent of respondents said the bill does not do enough to curb rising costs.

Despite public concerns about some of the less popular aspects of the healthcare bill, the president expressed confidence at the signing ceremony that Americans would come to support the reforms. “When I sign this bill, all of the overheated rhetoric over reform will finally confront the reality of reform,” he said, calling passage of the bill “a testament to the historic leadership—and uncommon courage—of the men and women of the US Congress.”

In an interview with First Report – Managed Care (FR-MC), Georganne Chapin, president and CEO of Hudson Health Plan, said she expects that as a managed care organization that works with Medicaid and other government health programs, “our business is going to continue quite as usual for now.” Hudson Health Plan, a nonprofit insurer that provides medical and dental coverage to more than 90,000 members in New York’s Hudson Valley, ranked highest in New York’s 2009 Quality Incentive Program, an annual grading of Medicaid managed care plans by the New York State Department of Health.

Under the newly minted healthcare laws, states are provided federal funding to set up insurance American Health Benefit Exchanges and Small Business Health Options Program Exchanges by 2014. The exchanges are intended to allow individuals and small businesses to participate in larger risk pools, but Ms. Chapin said that creation of the insurance exchanges will be a difficult step in the implementation process. “We’re going to be hard pressed as a nation and on a state-by-state level to get these exchanges in place,” she said. “Massachusetts did it, but they are a little state with a lot of resources.”

Ms. Chapin added that implementation of the exchanges “is not a no-brainer. It’s a whole new bureaucracy that is going to be created. This could be quite daunting for some states. It is also not clear how many insurance companies will operate in the respective states, who is going to stay in the business, and who is going to have to leave the business.”

Cost Concerns
Insurers and reformers alike have argued in favor of some of the new consumer protections included in the healthcare legislation, but both sides have expressed concern over the absence of measures that slow the increase of healthcare costs. Although she supports new healthcare provisions that set minimum standards for health plans and allow more Americans to qualify for Medicaid, Ms. Chapin is concerned that costs will continue to be an obstacle. “Of course what we’re going to be up against, as always, is costs,” Ms. Chapin told FR-MC. “So even with everybody covered…there’s not that much in it that speaks to significant savings of the actual cost of medical care.”

Karen Ignagni, president and CEO of America’s Health Insurance Plans, expressed similar sentiments after enactment of the bill. “The access expansions are a significant step forward, but this legislation will exacerbate the healthcare costs crisis facing many working families and small businesses,” she said in a statement.

Echoing Ms. Ignagni’s concerns, Janet Trautwein, CEO of the National Association of Health Underwriters, explained the high cost of healthcare has been the primary problem with the US healthcare system, and that the reform bill does little to rein in costs. She also criticized the individual mandate and market reforms guaranteeing coverage, saying they will “encourage people to wait until they are sick to purchase coverage, causing premiums to skyrocket significantly for everyone.”

Ms. Trautwein added that implementation of new mandates will come at the expense of those who are already paying for insurance. “Tens of billions of dollars in new insurer fees and taxes, expansion of Medicaid, tight limits on age rating, and high minimum benefit levels will make private health insurance unaffordable for the hundreds of millions of Americans who are currently insured,” she said.

Legal Challenges
Having lost the battle in Washington, opponents are fighting the new federal law in state legislatures and the courts. On the day HR 3590 was signed, attorneys general from Alabama, Colorado, Idaho, Louisiana, Michigan, Nebraska, Pennsylvania, South Carolina, South Dakota, Texas, Utah, and Washington joined Florida’s lawsuit, filed in the US District Court for the Northern District of Florida. The complaint alleges the new law infringes upon the constitutional rights of Floridians and residents of the other states by mandating all citizens and legal residents have qualifying healthcare coverage or pay a tax penalty.

The lawsuit further claims the healthcare reform law infringes on the sovereignty of the states by imposing onerous new operating rules that Florida must follow as well as requiring the state to spend billions of additional dollars without providing funds or resources to the state to help subsidize the cost of implementation of the law.

Ken Cuccinelli, attorney general of Virginia, filed a separate lawsuit in the US District Court in Richmond asserting that the healthcare reform bill creates a conflict of laws between the federal government and Virginia. Before the president signed HR 3590 and the reconciliation bill, the Virginia Healthcare Freedom Act was enacted. The law says that no resident of Virginia shall be required to obtain or maintain a policy of individual insurance coverage. The American Legislative Exchange Council has identified 37 other states that have similar bills pending or have announced that they will introduce such legislation.

Mr. Cuccinelli concedes that such conflicts are normally decided in favor of the federal government, but he made his case for pursuing litigation. “With this law, the federal government will force citizens to buy health insurance, claiming it has the authority to do so because of its power to regulate interstate commerce,” he said. “We contend that if a person decides not to buy health insurance, that person—by definition—is not engaging in commerce, and therefore, is not subject to a federal mandate.”—Charles Boersig