UPDATE: Heath Care Reform Redux

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Expert Perspective UPDATE by Robert Cirkiel of UHY and a member of Grahall’s Editorial Board 
Wednesday May 26, 2010

Robert Cirkiel writes: “Since publishing the blog Health Care Reform Redux (below), “interim final regulations” have been issued regarding the age 26 dependent coverage requirement.  These are not proposed regulations, and the “interim final” tag means that they are final but the agencies are accepting comments. 

If you think this means that comments will have no impact and therefore commenting is a waste of time I can’t disagree. 

Regardless, my actuarial group will be issuing a comment letter nonetheless, as we believe we have uncovered a number of potential “unintended consequences”.  Also, if the use of “interim final” is a portent of things to come, it means that the time honored process of issuing regs in proposed form that are subject to change may be curtailed. Stay tuned.”

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Expert Perspective by Grahall’s Editorial Board
Monday May 24, 2010 

In his May 15, 2010 New York Times article Health Insurance Companies Try to Shape Rules  author Robert Pears writes:  “Health insurance companies are lobbying federal and state officials in an effort to ward off strict regulation of premiums and profits under the new health care law. The effort is, in some ways, a continuation of the battle over health care that consumed Congress last year. Insurance lobbyists are trying to shape regulations that will define “unreasonable” premium increases and require them to pay rebates to consumers if the companies do not spend enough on patient care… The health care overhaul provides a classic example of how the impact of a law depends on regulations needed to interpret it.”

Weighing in at over 900 pages in length, the Patient Protection and Affordable Care Act provides little insight, however, into what employers, insurers and individuals must do to comply.  (For a little “light reading” you can access the bill at http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf). 

With such limited information and ambiguity in the bill, the regulations will be key to how both providers and users of healthcare are impacted.  Regulators have a long way to go to get the regulations drafted. Even for those elements of the bill with 2010 effective dates , there has been nothing provided other than some narrow  “guidance.”  And like any other regulatory process, once regulations are drafted, comment periods, hearings and redrafting will follow, based on input from constituent groups.    And lobbying will be part of this process.

Let’s take a closer look at the two areas that Health Insurance providers find so unpalatable: regulating premium increases and increasing medical loss ratio (MLR) requirements.  What’s the problem with these two areas as far as Health Insurance companies are concerned?  Simply, that these two areas of the bill could dramatically impact health insurer’s profits. First, premium increases that are considered to be excessive can be prohibited, and secondly, insurers will be required to use 80-85% of premiums – that’s the MLR – for patient care, leaving only 15-20% for administrative costs (including salaries) and profits.

Is this reasonable?  Clearly the insurance companies don’t think so, and since they have been positioned as the primary villains in our Health Care cost crisis maybe we should support these provisions.  But let’s take a look at the situation with the MLR through a different lens.

If you think of MLR as a measure of efficiency, and if MLR is high, then insurance companies will need to be efficient and drive excess costs out of the system. Innovation would be spurred and there would be streamlined electronic reporting, uniform claims and eligibility forms, and electronic accessibility to medical history, etc.  Under this scenario where “efficiency” equals a claims payment rate as close to 100% as possible, one might ask: “Who is the most ‘efficient’ provider in today’s environment?”  Well, it’s Medicare, which pays nearer to 100% of premiums for patient services than any commercial program, and sadly Medicare is far from an innovative insurer. In fact, they generally don’t audit claims from providers; they simply, pay and pay and pay.

So what does increasing MLR really do?  Essentially, it validates sickness. The more an insurer pays, the sicklier is its clientele. As UHY’s Robert Cirkiel says: “Truly, the most desirable MLR is ZERO. Under that scenario people are HEALTHY and don’t need medical attention and services.”  Sounds crazy? Cirkiel agrees that this an unobtainable goal of course, but his point is convincing: the best circumstance for American citizens would be to be so healthy that their premium payments don’t need to be used to cover the cost of any medical treatment.  His problem with the MLR rules in the new law is that they validate and institutionalize the current health insurance model based on managed care.  “It’s why the existing handful of remaining health insurance companies didn’t mind this new law one bit” according to Cirkiel.  He reasons that given the prohibitive cost of starting a new managed care insurance company, this aspect of the law actually stifles the very competition that it professes to promote.  “And if you think the current system is broken, why would you purposely perpetuate what hasn’t worked” he asks? Isn’t the expression “if you’re in a hole, stop digging?”
 
The other issue with these provisions is their requirement for a major overhaul of the business strategy for many insurers.  For example, those companies who distribute their programs through brokers might find that the cost of broker commissions will make the attainment of the required MLR impossible.  These and other insurers challenged by the new rules might simply decide to exit the business that is no longer adequately profitable. 

And what might that mean?  A public option may be the only remaining viable choice.

For more on the changes looming as a result of Health Care Reform, join the 2nd in a series of seminars hosted by Grahall on What Health Care Reform Means For Your Business.  This session will be held on Wednesday, June 02, 2010 11:00 AM – 12:30 PM (Eastern Time). 

During this session, presenters will delve deeply into the immediate concerns affecting your plans in 2010 and 2011.  Takeaways include strategies on dealing with rate hikes, dependent status, small business tax credits, and keeping your grandfathered status.

To download information from the first seminar including a recording, all presentation materials, and other information go to http://www.grahall.com/knowledge/event-transcripts/.  (Note that the conference content begins about 6 ½ minutes into the recording.)

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com


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