Obamacare Is Making Insurance Companies More Efficient

Obamacare may already be making private health insurers more efficient, according to a year-over-year comparison of data related to the biggest consumer protection in the law.

Last year, insurers had to rebate $1.1 billion to consumers because they failed to meet the minimum payout percentage required by the law.  That was the first year the payout provision, or mandatory minimum loss ratio, was in effect.

This year, the federal government has announced that the rebate will be just half that – slightly more than $504 million.

And the number of consumers who receive a rebate will also be smaller.  Last year, 12.7 million customers received rebates.  This year, the number receiving rebates has dropped by one-third, to 8.5 million.

Why are fewer and smaller rebates a good thing?

According to the Department of Health and Human Services, this is evidence that insurers are “spending more of their premium dollars directly toward patient care and quality, not red tape and bonuses.”

The loss ratio provision is sometimes described as the 80/20 rule.  It states that, for every health insurance plan it offers, a private insurer must pay out at least 80 cents of every premium dollar on patient benefits, reserving only 20 cents for administrative costs and profits.  (For some plans, the requirement is 85 cents.)  Whenever it does not, it has to rebate its customers the difference.

The provision does not affect Medicare, because Medicare has significantly lower administrative costs than private insurers, and regularly pays out around 95 cents in care for every dollar it takes in.

Those who receive rebates may be happy, but it is better not to receive one.  A rebate is a sign that your insurance company has not paid out enough in benefits to the people as a whole who are covered by your plan.  This can happen to any insurer – especially when its customers have a healthier year than expected.  But if you have received rebates for two years in a row, you might want to ask why, and consider whether another plan would be better for you.

HHS breaks the data down by state and by three categories.  This year there were six states in which every plan met the standard in the individual insurance category, fifteen states in which every plan met the standard in the small group category, and ten states in which every plan met the standard in the large group category.

In no state did every insurer meet the standard in all three categories, but there were six states in which insurers met the standard in at least two categories.  

In Vermont and Alabama, every small group and large group market insurer met the standard.  In South Dakota, Rhode Island, Maine, and Hawaii, every individual and small group market insurer met the standard.  Rhode Island probably edges out the other states as best overall – in the one category its insurers will pay some rebates, the average will be only $43 per policyholder.

For this year, every Connecticut insurer met the standard in the large group market, after at least some fell short in all three areas last year.  And there was a big drop in the average rebate in the individual market, from $124 to $64.  The small group market, though, saw an increase, from $162 to $357.

And even Floridians, with a weak state insurance regulator, have something to celebrate.  The size of the average rebates went down in all three categories, from $240 to $164 in the individual market, from $190 to $94 in the small group market, and from $94 to $51 in the large group market.

In general, the results for this year appear clearly more attributable to the work of the federal government than to the states. 

In fact, last year, there were 37 total times across all fifty states when all the insurers in a given category met the standard.  This year, that number went down to 31.

But the bottom line is unmistakable.  On the whole, insurers are paying attention to this consumer protection, and working to meet this new standard.  And this is something that would not be happening if it were not for Obamacare.

As HHS headlined in its release, consumers have saved a total of $3.4 billion upfront in their insurance premiums this year as a result of Obamacare, in addition to the $500 million in rebates.  This may not be all we wanted.  But it is a start.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/ 

States and Rebates

If you run a small business in Florida, are self-employed in Texas, or work for a large corporation in New Jersey (see an update below), then your state insurance regulators probably haven't been working for you.

The news that 15.8 million people can expect $1.3 billion in rebates from insurers this year because of the Affordable Care Act (ACA) underscores how weak health insurance regulation has been in states across the country. 

It may come as no surprise that Florida and Texas, two leaders in the fight against ACA, have been exposed as anti-consumer.  But they are not the only states with an anti-consumer bias.

First, the good news: last week, the federal government announced that three-quarters of us will get letters beginning on July 1 telling us that our insurance plans paid out at least 80 to 85 cents in benefits for every premium dollar they collected.

This means that under ACA they met the minimum standard for a reasonable benefit payout (which is still ten or more percentage points worse than the Medicare payout). 

But there’s bad news as well.

According to new data released recently by the Kaiser Family Foundation, 31% of consumers who purchase health insurance in the individual market, 28% who get insurance in the small group market, and 19% who get insurance through the large group market were covered by plans that failed to meet the minimum standard.

Assuming the Supreme Court upholds this most important consumer protection in the Affordable Care Act, all of these people are entitled to rebates.

The amount of the rebates will vary widely.  For example, over 2,700 Alaskans in one small group plan will get over $500 each.  Over 325,000 Floridians in thirteen individual market plans will get an average of $152.  And 46,000 Connecticut residents in three individual market plans will average almost $137 in rebates.    But people insured through the individual market in Maine won’t get anything – because they weren’t overcharged in the first place.

Until the Affordable Care Act passed, this type of insurance regulation was handled by the states. 

The new data give us a picture of which states have been looking out for consumers and which haven’t. 

Here’s a link to a tableI created from the data showing what percentage of individual, small group, and large group customers will get rebates in all fifty states (excepting California) and the District of Columbia.

The two states that have done the best job in protecting the interests of state consumers are Hawaii and Rhode Island.  These are the only two states in which every health insurance plan met the minimum standard last year.

At least one plan in every other state falls short.  But New Mexico, South Dakota, Vermont, New Hampshire, North Dakota, Alabama, Alaska, Maine, and Oregon all protect well over 90% of their health insurance consumers.

However, in Florida alone, two dozen plans don’t meet the minimum standard.  Twenty-one fall short in Texas.

By far the worst state overall is New Jersey, where 62% of people covered in the individual market, 79% of those covered in the small group market, and 67% of those covered the large group market have been overcharged for their health insurance. (See an update below.)

Several other states aspire to New Jersey’s low standard. 

South Carolina and the District of Columbia have even worse consumer protection records than New Jersey in two of three areas.  And in Oklahoma, Arizona, and Texas, more than eight out of every ten consumers were overcharged in at least one of the three areas.

Who specifically is paying the price for this?

In Texas – where over 90% of those insured in the individual market were overcharged for insurance – it is people who are either self-employed or have chronic conditions which disqualify them from group coverage.

In Florida and Missouri, it is small business owners and employees.   In Florida, 73% of those covered in the small group market were overcharged for health insurance, and in Missouri, 72%.

Florida’s numbers are worse than the nation’s across the board – in addition to 73% of those in the small group market, 38% of those covered by individual plans and 37% of those covered by large group plans have been overcharged.

And Connecticut – home to the insurance capital of America – was worse than the nation as a whole in both the individual market and the large group market, where 42% and 28% were overcharged, respectively.

So should ACA consumer protections trump states’ rights?  In this case, I can think of 1.3 billion reasons why they had to.

Click here to see the full list of the states in the Kaiser rankings.

Update:  HHS released its final list of the states in June (available at this link).  The final national rebate numbers were amended downward somewhat - to 12.8 million customers receiving $1.1 billion in rebates.  As was pointed out to me by a New Jersey reader, some of the individual states' information changed dramatically in the final analysis - New Jersey's among them. The final New Jersey numbers were significantly lower than the initial Kaiser Family Foundation numbers.  $7.5 million in rebates will be given there - none in the small group market - placing New Jersey in the upper tier of states. 

Supreme Court Ruling Against Individual Mandate Could Result in Care Denial to Poor

Opponents of the Affordable Care Act (ACA) are now looking to the Supreme Court to overturn the 2010 law before time runs out on them.

After ACA became law eighteen months ago, they were optimistic that they could beat back several of its key provisions.  These included the minimum medical loss ratios, the expansion of Medicaid, the health insurance exchanges, and the individual mandate.

A brief review of the current status of each shows why the individual mandate is the last one standing.  But as the arguments for and against it have crystallized in the Courts, they show how the Supreme Court could open a Pandora’s Box best left closed.

 Minimum loss ratios

ACA mandates that all private insurance plans will have to pay at least 80 to 85 cents in benefits for every premium dollar collected, or rebate the difference to policy holders beginning in 2012.  Opponents argued that many existing plans would be forced out of the market because of high administrative costs.

However, the federal government has approved several short-term waivers from the requirement, deflating opposition.  Also the Center for Medicare and Medicaid Services has told Florida that it must meet the 85% minimum loss ratio in its public Medicaid program, too.  Once private insurance rebates start to flow to consumers in 2012, the remaining opposition will likely melt away.

Medicaid Expansion

Beginning in 2014, everyone below 133% of poverty will be eligible for Medicaid.  The 26-state lawsuit against the ACA – the one most likely to be taken up by the Supreme Court this term – argued that the Medicaid expansion imposed an unconstitutional financial burden on the states.

But the Courts have already ruled against the states on this one, and so the Medicaid expansions will go forward in two years unless Congress changes the law.

Health Insurance Exchanges

Beginning in 2014 states will have to have exchanges through which consumers will purchase health insurance.  Only plans offering the minimum benefits mandated by ACA can be offered on the exchanges.  Some state regulators argued that they did not have the authority to enforce the “minimum benefit provisions” mandated by ACA.  Florida decided to establish its own exchange that will not meet the ACA requirements.

However, a dozen other states are already moving forward with their approved exchanges, undercutting “lack of state authority” argument and putting Florida out on a limb.   

The Individual Mandate

Beginning in 2014, a system of subsidies and penalties will go into effect to encourage people to purchase health insurance.  Those making up to 400% of poverty will receive subsidies for health insurance, but all those above 133% of poverty who refuse to purchase insurance will have to pay a federal income tax penalty.

The crux of the legal argument against the individual mandate is that it is unconstitutional for the Federal government to impose a tax penalty on an individual for refusing to purchase a consumer product.  However, opponents have conceded that it would be Constitutional to impose such a mandate at the time of service.

Judge Stanley Marcus, one of the judges who heard the appeal that may now go before the Supreme Court, made this clear in his dissent.

He wrote that “the plaintiffs and, indeed, the majority have conceded, as they must, that Congress has the commerce power to impose precisely the same mandate compelling the same class of uninsured individuals to obtain the same kind of insurance, or otherwise pay a penalty, as a necessary condition to receiving health care services, at the time the uninsured seek these services.”

So what the Supreme Court is being asked to decide is not “if” the individual mandate is constitutional, but “when.”

Some legal experts don’t think that there is much of a distinction in this. 

But if the Supreme Court feels differently, and ultimately decides that it is Constitutional to impose the tax at the time of service, but not in advance, then this may well open up a Pandora’s Box that we would all rather stay tightly closed and locked.

Even a narrow ruling against the “pre-tax” could have a far-reaching unintended consequence for indigent, uninsured people.  These people include many of the over 50 million uninsured people today and the 22 million who will still be uninsured after ACA implementation.  A Supreme Court ruling that holds that people could be forced to pay at the time of service could also be construed as permitting providers to deny care to those who cannot afford it.

Opponents hope that a Supreme Court ruling against “pre-taxing” will result in a political unraveling of the law. It could well happen, but not in the way they intended.

If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, please email gionfriddopaul@gmail.com.

Health Reform's First Birthday

Babies crawl before they walk.



c. Microsoft Office Image

The Affordable Care Act (ACA) marks its first birthday this week.  It may not be off to a running start, but it isn’t exactly sitting still either.
 

The most debated provisions, like the individual mandate and the Medicaid expansions, are still three years in the future.

In the first year, ACA’s biggest developmental milestones have affected older Americans, people with mental and physical disabilities, and consumers in general.  Which of these populations is making the most progress?

Medicare recipients and early retirees have taken the most steps forward.   

As of January 1^st, all Medicare Part B recipients are entitled to a free annual physical, with free cancer, cardiovascular, and skeletal screenings, and free flu shots.  150,000 beneficiaries had taken advantage of this through February 23^rd.  This number will grow, to many millions before the end of the year.

Also, over 3.4 million Part D recipients who fall into the donut hole will receive an average savings of over $500 on brand name drugs this year.  Many already received $250 rebate checks last year, and the value of this benefit will increase annually as the donut hole closes over the next several years.

Early retirees are also keeping up.  The law allows employers to keep retirees between the ages of 55 and 65 on their plans, and to get reimbursed for some of the costs. 

As of December 31^st, 5,452 plan sponsors had been approved to participate in the Early Retiree Reinsurance Program (ERRP).  Two states – New York and California – had over 500 participants.  Eight others – Pennsylvania, Illinois, Michigan, Minnesota, Indiana, Massachusetts, Florida, and Texas – had over 200.

An estimated 4.5 million early retirees, spouses, and dependents were included. 

Also, the Federal Government had reimbursed $535 million in costs as of December 31.

There were huge differences in the amount of reimbursements paid, with just a few states claiming most of the money.  Georgia had been reimbursed for almost $52 million, with $35 million in direct reimbursements to the state plan alone.  All participating plans combined in its next door neighbor, my home state Florida, had collected a mere $305,000. 

Plans themselves are responsible for claiming reimbursement for high-cost retirees.  It's hard to imagine that Georgia has so many more than Florida.

People with mental and physical disabilities are struggling to move forward. 

Children with pre-existing conditions won coverage on their parents’ plans as of September, but the ban on denying adults with pre-existing conditions access to regular insurance doesn’t take effect until 2014. ACA established Pre-Existing Condition Insurance Plans (PCIP) all 50 states in the summer of 2010 to provide temporary insurance for these people.  

The Administration hoped that up to 250,000 people would find health insurance through these plans, but only 12,437 had enrolled in PCIP plans as of February 1.  Pennsylvania led the way with over 2,000 enrollees, followed by Texas, Illinois, Ohio, California, North Carolina, and Florida. 

Although the price of the plans (usually between $300 and $500 per month) is significantly lower than traditional individual plans for people with disabilities, it is still proving too high for many underemployed adults.

Consumers in general are taking one backward step for every two forward ones. 

The implementation of consumer protections was the biggest news of the first year.  As of September, as plans are renewed, parents can cover their children up to the age of 26, and insurance can’t be denied to children because of pre-existing conditions.  It also can’t be cancelled when children or adults get sick, and annual and lifetime insurance limits are on their way out.

However, not every consumer protection applies to grandfathered plans.

Also, to assure that low-cost, low-benefit plans would not go out of business abruptly, the Administration has granted hundreds of one-year waivers from the annual limit provisions.  As of late January, 733 waivers were granted for plans covering 2.1 million Americans.

Since then, the number of approved waivers for all reasons has increased to over a thousand, affecting 2.6 million Americans.  In early March, Maine received the first waiver from the most important consumer protection in the ACA, the one mandating that 80% of all premium dollars in individual insurance plans be paid out in benefits.

This year, Maine’s individual plans will only have to pay out 65% in benefits, meaning that they could theoretically make up to a 50% profit on every premium payment.  Several other anti-consumer states are asking for similar waivers to protect insurers.

While loss-ratio waivers demonstrably harm consumers, the Administration has announced that it is moving forward with another consumer protection.  It published a notice in early March to require any insurer proposing to increase rates by more than 10% to provide a breakdown to customers of the reasons for the increase.

Baby steps.  That’s what we’ve learned to expect from the first year of life, and that’s what we’re getting. 

The Battle Over the Biggest Consumer Protection in Health Reform

Health insurance reform is being implemented now, and it's no surprise that there’s a big battle going on pitting consumers against insurers.  The surprise is that the state regulators charged with protecting consumers are siding with insurers on some key issues.

The Biggest Consumer Protection in Health Reform

If you ask 100 people what the biggest consumer protection in the health reform law is, I would guess that fewer than 10 of them would tell you it’s the loss ratio mandate.

The what, you say?   We know about lifetime caps and pre-existing conditions and minimum benefit packages.  Few of us know about “loss ratios.” As we’ll see, consumers have a lot at stake in the loss ratio battle, including – for some – hundreds of dollars of premium costs per month. 

What’s a loss ratio?

What’s a loss ratio, and why should you care?  Simply put, a loss ratio is the percentage of dollars taken in through premiums paid back out in benefits.  For example, if a plan pays out $75 in benefits for every hundred dollars in premiums, then the plan’s loss ratio is 75.

The reason we should care is because when loss ratios are higher, consumers receive more benefits.  Medicare’s loss ratio has been calculated to be as high as 97.  Paying out up to $97 in benefits for every hundred dollars in premiums is the gold standard for consumers. 

Private insurers can’t touch Medicare when it comes to expenses.  They have higher administrative costs and also need to make a profit.  To make sure they pay out enough, public officials establish a minimum loss ratio through regulation.  Insurers can only sell policies that meet this minimum standard.      

This is enough about loss ratios.  To prevent our eyes from glazing over, from now on I'll just call them “the biggest consumer protection in health reform.”  

 What Congress Decided about the Biggest Consumer Protection in Health Reform

 The 2010 Federal law created a national standard for the biggest consumer protection in health reform.  Advocates initially asked that the standard be set at 90, but Congress considered this too high, and ultimately agreed to 80 for individual plans and 85 for large group plans.  This means that Congress decided that giving private insurance companies a 15-20% allowance for administrative expenses and profits was fair.

These new standards are set to take effect in a few weeks, on January 1, 2011.

A Battle Rejoined

While the battle over the biggest consumer protection in health reform got little attention in the spring, it erupted into a full scale war over the summer.

Insurers amassed their forces to get at least some relief from the biggest consumer protection in health reform and found two allies, health insurance agents and state insurance commissioners. 

Agents thought that they would be squeezed out of their commissions by insurers when the new law took effect.  They were right.  Insurance companies began to cut agent commissions almost immediately.  In response, insurance agents argued that they were primarily consumer agents, not insurance company representatives.  They asked HHS to count their 3-4% commissions as benefits to consumers instead of as administrative expenses, and asked state regulators to support them. 

The other group sometimes siding with the insurers was politically more powerful – the state insurance commissioners charged with implementing the new standards. 

As reported in Health News Florida in late September, Florida Insurance Commissioner Kevin McCarty, President-elect of the National Association of Insurance Commissioners (NAIC), took the lead in making the case against the biggest consumer protection in health reform, arguing that he was “concerned about the ability of our individual carriers to meet that standard in a seamless, non-disruptive manner.”  Florida’s current standard is only 65 for traditional insurance plans, and 70 for HMOs, far less than the new federal mandate.

This means that traditional insurers in Florida can keep up to 35% of premiums for administrative costs and profits.  If your monthly premium in Florida is $1000, then up to $350 of that can be kept by the insurance company.

That’s a lot of money for companies to give up.

What’s Going to Happen?

In mid-October, NAIC submitted its draft recommendations to HHS, which is now finalizing them.  NAIC elected not to support the agents’ position, leaving agents to fend for themselves.

But NAIC did ask HHS for a phase-in of the biggest consumer protection in health reform, staking out an anti-consumer position.

Why do this when your job is to protect consumers?  President-elect McCarty argues that some plans will otherwise go out of business, reducing consumer choice.  But isn’t that the idea?  If the plan’s expenses or profits are too high, then it’s not a good choice for consumers.  That plan should go out of business.  It’s really just that simple, if protecting the American public is the goal.