Tidal shift

December 1, 2010

Ever since the Patient Protection and Affordable Care Act passed in March, plans have talked about simply leaving certain markets

Ever since the Patient Protection and Affordable Care Act passed in March, one consultant says he's been trying to "talk health plans off the ledge." John Gorman, CEO of Gorman Health Group, predicts plans will simply leave certain markets.

The health reform law hits Medicare Advantage plans with an average 17% rate cut over the next several years-shrinking total payments by $132 billion over 10 years-plus higher operational costs as a result of compliance and reporting requirements. That could drive as many as 30% of plans away, says the Washington, D.C.-based consultant.

Nevertheless, bigger and more efficient plans will stay, and Medicare Advantage enrollment numbers could grow as Medicare itself grows.

Gorman's generally upbeat view of Medicare Advantage is consistent with cautiously bullish forecasts by a number of managed care experts about post-reform growth potential in the individual, small group and Medicaid markets. The analysts say plans that hone their medical management, administrative efficiency and customer relations-and make the right strategic affiliations with other plans and providers-are well-positioned to thrive as millions of customers throng into the insurance market starting in 2014.

That could mean a dramatic turnaround from the steady erosion of enrollment over the past decade, resulting from job losses and other economic factors. But that's only if newly empowered congressional Republicans don't block implementation of coverage programs contained in the Patient Protection and Affordable Care Act.

"Health plans got hammered by the political process over the last 18 months, and they still view themselves as victims," says Jeff Goldsmith, a veteran industry forecaster based in Charlottesville, Va. "Nevertheless, there are huge opportunities all over the place. They can feel bruised and abused, or they can figure out how to grow profitably under the new set of ground rules."

EXCHANGE RULES KEY

Much depends on how those rules are written, particularly for the state-based American Health Benefit Exchanges and Small Business Health Options Program Exchanges. Under the reform law, every state, or group of states, must offer an exchange so individuals and small businesses of up to 100 employees can select from an array of plans. Lower- and middle-income individuals and families will receive a subsidy to buy coverage through the exchanges. Larger businesses will be able to buy through the exchanges in 2017.

Except for grandfathered plans, products sold inside the exchanges must conform to four standard benefit designs with different cost-sharing levels; a separate catastrophic package will be available to people aged 30 and under.

Within the design of exchanges, experts say health plans want:

Overall, plans seek to ensure that the exchanges attract enough healthy enrollees to create a viable risk pool and allow the market-rather than regulators-to determine winners and losers.

"The exchange will become the lion's share of the individual market, so there's a huge growth opportunity," says John Grgurina, CEO of the San Francisco Health Plan, which covers more than 100,000 Medicaid and public-program enrollees. "But there's a whole list of questions for every plan to decide whether it's right for your company to join."

In California, new legislation will establish a seven-person state board that will select the plans allowed to participate in the two exchanges for individuals and small groups, to the dismay of the health plan industry. The question now, Grgurina says, is whether the board will draft and apply fair criteria for participation based on rate-setting, quality of care, provider network and service.

"Plans are waiting to see how it's designed and how it will work," he says. "But many recognize that a well-run exchange will bring millions of Californians into the market and could provide more choice than what even many large employers offer today."