Despite passage by House of Representatives, details still unresolved in federal legislation
Editor’s Note: This is the fourth in a five part series examining the ramifications of health care reform conducted by PricewaterhouseCoopers. The last of the series will run Nov. 27.
Health care reform has come to focus on the insurance industry — and no matter what emerges in the final bill, the industry will face some big changes moving forward.
PricewaterhouseCoopers analysts say public policies could create new ways for states to work together, new insurance cooperatives — and could signal the end of both the small group market and the individual markets.
“What we do know is that if we are going to have a stable insurance market, we need to have young, healthy lives in the risk pool,” said Kelly Barnes, partner and leader in U.S. health industry at PricewaterhouseCoopers. “So adding people without insurance to the pool is going to mean we have to add those people as well.”
While there is uncertainty about how those people will be added and what regulations insurance companies will have to follow, one thing is clear: there will be more government oversight.
“The market varies state to state, right now,” said Bill Rosenberg, director of the PWC global human resource solutions practice. “Insurance premiums are determined by age, job, geography, risk assessments. But federal law will have to be applied in conjunction with state law. We believe this means guaranteed issue, elimination of pre-existing condition qualifications and guaranteed renewals.”
The new federal law could allow states to work together to create insurance exchanges, but what form those exchanges might take is still hazy.
“The exchanges might allow consumers to comparison shop, venue shop,” he said. “It will standardize enrollment procedures, and affect affordability.”
States will be responsible for implementing the new rules with federal oversight, and each insurance company will be able to develop a variety of plans within those federal guidelines.
“There will be overlap, of course, in what the insurance industry offers,” said Jeff Fusile, partner in the health industries advisor payer practice. “There will be some nooks and crannies where insurance companies can add extras to be competitive.”
The choices will allow consumers to compare prices, shop for value and select a plan within their price range. But it’s not really comparing identical products.
“It’s apples to apples like comparing delicious apples to Granny Smith’s,” he said. “The actual policies will vary in scope and level.”
The government will pay subsidies for people who qualify, Rosenberg said.
“Current bills say people qualify if they are a family of four making up to 400 percent of the federal poverty level, or $88,000,” he said. “Basically, the bills say that insurance costs should be no greater than 2 percent of income to start— so the subsidies will vary according to income.”
For instance, a family at 133 percent of the federal poverty level, will only pay $288 for insurance premiums, but in eight years, those making $88,000 will pay about $10,500 a year.
The problem arises, Rosenberg said, if premiums rise faster than incomes — as they have done for the past few years. That will increase the government’s share beyond what it can pay for, he said.
That’s where the federal government is wielding a stick: insurance coverage will be mandated. And people without coverage will face a fine. That policy follows the Massachusetts model, which fines people who are without insurance for more than 90 days in a year.
And how will those government subsidies be paid for?
Fusile said that people who make more than $500,000 a year will face a 5.4 percent tax on income. Other bills require a drop in Medicare Advantage payments, which would create $126 billion in savings. The recently passed House bill fines companies 8 percent of payroll if they don’t offer coverage. Companies with payrolls in excess of $500,000 — or about 20 employees — would pay the fine.
But much of the structure of insurance reform — and how to pay for it — is left vague in many of the proposals currently being considered, the experts say.
“The devil is in the details,” Rosenberg said. “The public option, the exchanges, the physician rates — all of it is going to have to be ironed out.”