Health reform rule-making creates battle lines between insurers, Democrats

HHS Secretary Sebelius predicted that health plans would fight increased industry regulation mandated by the health reform act.

By Doug Trapp — Posted May 3, 2010

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As health system reform enters the implementation phase, insurers and policymakers are starting to exchange blows over exactly how new regulations and restrictions on health plans will roll out. New bills to give the government more clout in the process already have emerged.

The Obama administration is working with insurance companies to implement coverage expansions mandated by the health reform law, and the White House said cooperation is producing positive results. But Democrats also have come down hard on the industry after some health plans said in advance of reform implementation that they were raising premiums by significant amounts. The lawmakers want to give the Health and Human Services secretary new power to reject such hikes if they are deemed unjustifiable.

Democrats support expanding private coverage to millions of uninsured under the law. But they also want to limit the profits that flow to insurers.

The rhetoric has become more heated with announcements of increasingly larger plan profits and a perception that some insurance companies have been padding their bottom lines to gain a more favorable post-reform position.

"We have a duty to protect the American people from the corporate greed of these for-profit, publicly traded health insurance companies," said Sen. Dianne Feinstein (D, Calif.), the sponsor of the bill to overrule excessive premium hikes.

HHS Secretary Kathleen Sebelius said she is pleased health plans are working proactively with her to implement a provision in the health reform law allowing dependents to stay on their parents' coverage to age 26. Several major insurance companies said they will offer this coverage before the health reform law's September deadline. The insurer WellPoint, under pressure from lawmakers, also announced April 27 that it would stop the practice of rescissions in the individual market starting May 1, also months ahead of a federal requirement to do so. UnitedHealth Group announced the next day that it would cease rescissions immediately.

Sebelius predicted that implementing some of the law's tighter regulations of health plans would be "hand-to-hand combat." For example, some health plans suggested that a provision in the law aimed at ending coverage denials for children with preexisting conditions would not actually mandate such a change the way it was written. HHS immediately said it would issue rules, if necessary, to enforce the requirement, which takes effect in September.

The health reform law will phase in additional insurance industry regulations over the next five years, governing health plan decisions on spending, benefits and coverage.

Feinstein's bill would give the HHS secretary the power to reject premium increases found to be unreasonable. Because some states already conduct some type of rate review, the federal review would cover only the remaining states, said Michael McRaith, director of the Illinois Dept. of Insurance, in testimony at a Senate Health, Education, Labor and Pensions Committee hearing on April 20.

McRaith said the rate review process is not designed to be punitive or to make health plans insolvent. It also could educate lawmakers and consumers on how health plans account for their spending, he said.

Anticipating reform

Reform supporters are concerned that insurers are taking steps now to minimize the impact that future regulations will have on their bottom lines.

Some health plans have begun adjusting their accounting to meet the law's requirement that plans spend 80% of premiums on actual health care starting next year. WellPoint, for example, said it will count disease management, medical management and a nurse hot line -- among other spending once considered administrative -- as health care expenses. That's from a March 17 WellPoint communication to investors published by Consumer Watchdog, an advocacy group. A WellPoint spokesman said the company has expanded care management based on recent health care trends.

McRaith said he is concerned that some insurers could hike premiums on costlier members in advance of the health reform law's requirement to offer health insurance to everyone starting in 2014.

"I do think there's a distinct possibility that less-responsible companies are going to attempt to price out people who might be sick or injured, or might become sick or injured between now and 2014," he said.

Democrats publicly have hammered the health insurance industry for recent premium and profit increases, large executive salaries and anecdotal reports of coverage denials.

Also, internal WellPoint e-mails from fall 2009 obtained by a House Energy and Commerce subcommittee discuss submitting rate increases for individual market plans in California that would guarantee a larger profit. Months later, the company said it would hike individual market premiums by nearly 40%.

WellPoint executives said during a February hearing that the e-mails were preliminary and that the company lost money on its individual market policies in California in 2009.

Insurers: We're not driving costs

The insurance industry and its Capitol Hill allies point out that health plan profits account for a very small fraction of total annual health spending -- by some accounts about $15 billion out of more than $2.5 trillion.

Sen. Tom Coburn, MD, (R, Okla.) said at the HELP hearing that health plans' profits may be excessive, but they are not the main problem with the U.S. health system. "We continue to treat the symptoms and not the disease, and the disease is costs."

Sen. Lamar Alexander (R, Tenn.) said Democrats should have focused on reducing costs instead of expanding coverage.

Although the Congressional Budget Office estimated that the health reform law would reduce the federal deficit by $143 billion over a decade, an analysis released April 22 by Rick Foster, the Centers for Medicare & Medicaid Services' chief actuary, concluded that the law actually would boost deficit spending by $251 billion over a decade.

The Obama administration has said previous projections by Foster underestimated the law's potential cost savings.

America's Health Insurance Plans opposes the rate review bill in part because the industry already is adjusting to sweeping changes in the health reform law that will shed more light on how health plans operate, AHIP President and CEO Karen Ignagni said. Existing law should be allowed to take effect before adopting new laws, she said, and very restrictive rate reviews could force some health plans to abandon certain markets or push them into insolvency.

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Tightening the leash on health plans

With a health overhaul measure enacted, the administration, lawmakers and insurers will spend the coming months and years wrangling over regulations to implement insurance reforms. The law:

July 2010: Creates temporary, high-risk insurance for Americans who are uninsured due to a preexisting condition.

September 2010: Extends dependents' eligibility for their parents' coverage until age 26. Prohibits coverage cancellations due to illness. Ends lifetime caps on benefits and tightens restrictions on annual coverage limits. Requires new plans to cover free preventive health care and allow appeals of coverage cancellations.

2011: Requires health plans to spend at least 80% of premiums on health care. Requires all new plans to disclose and justify planned premium increases.

2012: Mandates that health plans explain coverage options using a standard format.

2014: Prohibits health plans from denying coverage based on preexisting conditions or health status. Bans annual coverage limits for new health plans and existing employer plans. Places annual limits on out-of-pocket charges for all new plans. Subsidizes private coverage through health insurance exchanges.

Source: Senate Democratic Policy Committee

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Filling in health reform's blanks

The national health reform law includes terms and standards that must be defined by federal regulators before certain provisions can be implemented.

Preexisting condition: People with certain medical conditions who have been uninsured for at least six months will qualify for new temporary high-risk coverage starting July 1.

Health care spending: Health plans will be required to spend at least 80% of premiums on health care starting in 2011 -- 85% for large group plans.

Qualifying health coverage: Individuals will be required to have health coverage by 2014 that meets certain minimum standards or else pay a tax penalty.

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