Reform legislation troubles insurers

August 1, 2009

Democrats back insurance market changes, coverage mandates and a public plan option. House leaders generally ignored Republican protests.

WASHINGTON, D.C. - Health reform legislation is moving forward on Capitol Hill under intense prodding from the White House. The key maneuvering will take place this fall, as the House and Senate seek to reconcile disparate initiatives. Although many changes are likely, Democrats are fairly united on a set of principles that radically alter the current health insurance market and its key players.

The massive reform bill offered by House Democrats last month expands coverage through mandates and reforms. It requires individuals to obtain insurance, penalizes employers that fail to provide worker coverage, makes major changes in the private insurance market and establishes a national insurance exchange that will offer private and public plans to individuals and small employers.

The House bill is slated to cost up to $1.5 trillion over 10 years and provide coverage to more than 90% of Americans, largely by expanding Medicaid and providing subsidies for the less wealthy to purchase insurance. Much of the price tag will be paid by a new tax on the rich, starting with individuals earning $280,000 a year. Individuals and businesses that remain without coverage will pay additional fees, as will insurers and other providers. A lead cost-cutting proposal is to reduce payments to Medicare Advantage plans.

REPUBLICANS LEFT OUT

Efforts to craft legislation that enjoys bi-partisan support fell by the wayside as Democrats accelerated efforts last month to push through broad reform proposals. House leaders generally ignored Republican protests and proposals, offering minor concessions to conservative Democrats who oppose major increases in federal spending.

The Senate Health, Education, Labor and Pensions (HELP) Committee ended up approving its much-debated bill along a strict party-line vote. Sen. Mike Enzi (R-Wyo.), top Republican on the panel, issued an unusually strident statement at the time, slamming the Committee's bill as likely to drive up the deficit, eliminate jobs and deprive many Americans of their existing coverage.

INSURERS HIT HARD

All reform bills propose significant changes in insurance market operations, some backed earlier by industry in an effort to stave off more onerous requirements. There is a ban on exclusions for pre-existing conditions; required guaranteed issue and insurance renewal; insurance rating for age, location and family, but not sex or health status; curbs on policy rescissions; and a ban on annual or lifetime coverage caps. Insurers will offer plans that provide "essential benefits" and access to sufficient providers, as defined by some government entity, and fully disclose terms, conditions and costs.

Administrative simplification is an important goal. Insurers generally support efforts to establish transaction standards that can identify patient coverage and adjudicate claims more efficiently. But that comes with medical loss ratio standards and insurer audits to ensure compliance with all the rules.

The biggest problem for health insurers arises from proposals to establish public plan options (see Politics and Policy). Although House Democrats insist that the government-run plan would operate on a level playing field with private insurers, the fine print makes that unlikely. The legislators propose that public plans base rates on Medicare and offer billions in start-up funding to get these plans rolling.

The main issue in the final deliberations will be program costs. Conservatives on both sides of the aisle seek to reduce government subsidies for expanded coverage and to identify more ways to curb healthcare spending. Democrats prefer to expand revenues, possibly through added fees on insurers along with surtaxes and other levies. Employers claim current proposals will cost jobs, and insurers predict an ultimate government takeover of the nation's healthcare system. But Obama has staked his presidency on enacting major health reform legislation and appears ready to lead the fight.