Individual mandate proposals driving insurers to expand offerings

Health insurers are preparing for an influx of customers expected from a federal individual mandate by broadening offerings and rethinking the way they sell insurance directly to consumers.

Analysts say that. baring a dramatic shift, some form of a requirement for health insurance will be in the final health system reform bill that passes Congress. Health insurers have pushed for an individual mandate to accompany other regulatory changes they expected to come with reform, including a national guaranteed-issue requirement.

Consultants say the companies have been preparing for this scenario for months and even years: introducing lower-cost individual plans; targeting subsets of the uninsured; marketing directly to customers rather than through brokers who sell to groups; and trying out new partnerships with physicians and hospitals that would expand the profit margin for individual business.

The growth in the marketplace is expected to be dramatic. Estimates for how many will sign up for individual insurance, if it's required, range from 15 million to 25 million. The most recent estimates, from 2007, showed that about 6.6 million people carry individual health insurance.

The number of people and percentage of the population buying individual insurance has dropped since 1996, the October research paper showed.

That may be due to cost. According to research released in October by America's Health Insurance Plans, the average annual premium for non-group coverage was $2,985 for a single person and $6,328 for a family of three.

Greg Scott, Pittsburgh-based principal with Deloitte, said there's a consensus that the individual market is "dysfunctional," and that higher prices correlate with lower enrollment. Some in the insurance industry argue that guaranteed-issue requirements in some states have driven up premiums, actually pricing more people out of the market, he said.

Experts believe that is less likely to happen on a national level if a federal mandate passes, primarily because every proposal for a mandate is combined with subsidies for at least low-income households.

Experts and the health plans themselves say there are key variables still to be determined in Congress that dramatically would change the way a mandate would play out. But there are some predictable effects, and insurers already are reacting to those.

First, experts say, insurers will have to rethink the way they market to individuals and potentially invest heavily in new efforts.

Insurers said they already are working on it.

"Our belief is that there will be a very good individual market, but it will have little in common" with the current market, Coventry Health Care CEO Alan Wise said in a July 28 quarterly earnings conference call.

Insurers have been conservative in estimating profit margins for individual business under a mandate scenario. Cigna, which just entered the individual market in 2008 and still has a very small share of that market, is hoping to grow it when a mandate kicks in.

"With reform, and particularly with an individual mandate, there is likely more opportunity," Cigna CEO H. Edward Hanway said at an August investor conference. "While margins may be somewhat less in some of those products than they have been historically, for us they will be very attractive margins."

Capturing new customers may be expensive, however.

Billboards and TV ads are tremendously expensive, and if the companies are trying to keep down price, they won't be able to afford those luxuries, Scott said.

"Some of the more sophisticated plans are thinking, 'Web is cheap, Web is effective, and if I do it right I will be able to attract the attention of perhaps that portion of the population I'd rather have as customers.' "

Also, experts say, insurers will be under pressure to cut costs and could pass along that pressure to physicians and hospitals by trying to cut reimbursements. But the most successful plans will find a way to work with physicians and hospitals to cut costs without dropping reimbursements, experts said.

Gil Irwin, a New York-based senior partner with consulting firm Booz & Company, said the plans that are preparing best already are doing pilot partnerships with doctors and hospitals, including patient-centered medical homes, accountable care organizations, and other pay-for-performance and quality reporting programs.

It may be that plans will need physicians' and hospitals' cooperation more than ever before to succeed in the new marketplace.

"Providers will be in relatively strong negotiating positions, because they're going to be key to the expanded marketplace and health plan success," Scott said.