Byline: Marilyn Werber Serafini and Bara Vaida
LOOKING FOR MORE?Related FeatureThe Impact Of New Rules
Ninety-nine percent of the changes in the landmark health care reform act won’t come before 2014. It’s the 1 percent happening now, though, that may matter most to the law’s success.
By the end of September, the Health and Human Services Department must implement regulations requiring health plans to insure some people who have serious health problems. Insurers must accept children even if they have pre-existing medical conditions, for example, and they may not impose lifetime limits on policyholders’ benefits.
The burden of these popular changes will fall squarely on insurers — and on policyholders, who will probably face somewhat higher premiums. “Any additional benefit has additional costs,” said Karen Ignagni, president of America’s Health Insurance Plans. “So there’s no question of ‘if’ here.” Premiums will go up. The question is whether the increases will be tied to the reform act — both in reality and in public perception.
The reform law gave the federal government some leverage to constrain premium increases, but applying that leverage could spark legal challenges in a political environment where popular support is tenuous at best. While polls show that majorities of the public consistently favor elements of reform, such as requiring insurers to cover all applicants regardless of health status, overall support for the law has declined.
In January, Americans were evenly split, with 42 percent of respondents supporting reform and 42 percent opposing it. In early April, after the law’s enactment, however, support dropped to 39 percent, and opposition climbed to 50 percent, according to the Associated Press-GfK Poll conducted by GfK Roper Public Affairs & Media.
“This is a historic enactment by the [Democratic congressional] leadership, but it’s not necessarily politically stable,” said Robert Blendon, professor of health policy and political analysis at the Harvard School of Public Health and the John F. Kennedy School of Government. “These bills are like infants in the neonatal units. They’re most vulnerable in the first year or two.”
Indeed, reform opponents are trying to capitalize on that vulnerability. House Minority Leader John Boehner of Ohio, speaking on the April 12 Bud Hedinger Live radio show in Florida, said, “Repealing this bill has to be our No. 1 priority.” Republicans are likely to highlight any and all premium increases as evidence that the law does more harm than good, and to attribute the slightest rise in health care costs to the reform act.
President Obama, congressional Democrats, and other reform advocates will push back hard, arguing that premiums have long been on an upward trajectory and that the law was not intended to reduce premiums and other costs before the major initiatives phase in four years from now.
And the hit to insurers should be minimal, said Nancy-Ann DeParle, director of the White House Office of Health Reform. She explained that the administration was careful to delay the changes with the greatest impact on insurers until 2014, when the requirement that most people purchase insurance would offset any higher costs. “We have been told by a number of actuaries that if there are increases, it should be pennies or almost nothing,” she said. “Most of the provisions apply to new plans — not all, but most — and other plans are grandfathered. So that, in and of itself, means that the existing plans would not have justification for raising their rates.”
Still, Jonathan Gruber, professor of economics at the Massachusetts Institute of Technology, said, “I’m concerned the whole thing could blow up and be repealed. Insurers will say, ‘See, it’s your fault rates are going up.’ It will provide an excuse for those who want to blame the law for inevitable rate increases they will see.”
Insurance rates have been rising by 7 to 10 percent a year, and premiums will continue to increase at that rate — or slightly faster — in the next year, said Gruber, who added that the increases have little to do with the law. Requiring insurers to pay the full cost of preventive services, without charging patients, might “increase health costs 1 percent,” he predicted, but this and other provisions “will be blamed for the entire 8 percent.”
Insurers are hunkering down for now while they configure implementation teams and consider strategies. They welcome the estimated 32 million new customers that the Congressional Budget Office projects will come to them by 2019, but the near term could prove painful for some insurers if they are forced to take sicker people while getting pressure to hold the line on premiums.
Some health policy experts argue that insurers would be justified in raising premiums because of the law’s mandates; others maintain that insurance companies can afford to absorb the added costs that DeParle characterized as minimal. UnitedHealth Group reported healthy first quarter earnings from operations of $2 billion and a net profit margin of 5.1 percent; the gains marked a 21 percent increase from a year earlier. UnitedHealth attributed the growth to better-than-projected membership and services growth and to “effective cost management.”
Gary Claxton, vice president of the Kaiser Family Foundation, predicted that most insurers will cut benefits before raising premiums, but that some “who were going to raise premiums anyway” will say that it’s because of the new requirements. Insurers have been in the hot seat recently for proposing rate increases of 35 to 40 percent for individuals and small groups.
As HHS pursues quick regulations, Secretary Kathleen Sebelius has significant leeway to interpret and make decisions about the law. Lobbyists jokingly call health reform the “full employment act for K Street.” Because so much fine print is yet to be written, they feel secure in their jobs for at least a decade.
The phrase “as determined by the secretary” appears frequently in the law. Federal policy makers “have to define how to think about the issue of annual limits,” Ignagni said. “They have to think about how to define ‘no lifetime maximum.’ They have to make a definition of dependent care. They have to define the children’s issue and what they mean by pre-existing conditions.”
Public perception this year may be key to the long-term success or failure of the reform law. Will people believe opponents who argue that the law has immediately raised health care costs, or will they buy the message from Obama and public-interest advocates that costs would have gone up anyway this year, and that the act provides desperately needed benefits?<p>Premium Predicament
Although the reform law doesn’t require individuals to purchase health care coverage until 2014, insurers will feel the pinch of some changes by the end of September. If they raise premiums and thus induce healthier individuals to drop coverage, Ignagni said, the pool of insured people would become sicker and costlier. That, in turn, could jack premiums even higher. The recession has already caused some healthier people to drop their coverage, she said.
Will HHS and state governments fight the expected premium increases? Some carriers worry that the recent experience in Massachusetts foreshadows a broader government resistance to rate hikes. Earlier this year, the state’s insurance commissioner, Joseph Murphy, denied 235 of 274 proposed premium increases. The insurers sued, and the premium increases are now part of a court battle.
Raising premiums could backfire on insurers. Currently, states monitor increases, and some regulators have authority to reject them. Under the new law, which will create state-based insurance exchanges, states will report premium trend increases to HHS and recommend whether the exchanges should exclude certain health plans because of unjustified increases. That’s a serious disincentive for insurers to raise premiums, because the exchanges set to open in 2014 promise to provide insurers with a critical link to new business.
Insurers have another deterrent to raising premiums. Starting in 2011, health plans must spend 80 percent (individual and small group insurance) and 85 percent (large group health plans) of their premiums on medical services and some quality improvements. If they don’t, they will have to rebate money to consumers.
These so-called medical loss ratio rules go into effect at the beginning of next year, but the calculations are based on 2010 health plans. That could present a problem because insurers “have long-term contracts with agents that control administrative costs,” said David Kendall, senior fellow for health policy at the progressive think tank Third Way. “In the small-group markets, premium payments are predetermined and need to be factored into what the medical loss ratio is for those years.” In other words, some insurers cannot realign their spending overnight.
But Senate Commerce Committee Chairman Jay Rockefeller of West Virginia has little sympathy for this excuse. Earlier this month, his committee found that large health insurers in the individual market spent in 2009 more than 26 cents out of every premium dollar on administrative costs and profits. Under some individual and small-group insurance policies, he said, insurers are spending more than one-third of premiums on nonmedical expenses.
Meanwhile, late-September deadlines loom for insurers to implement other benefit requirements. For starters, the law bans health plans from requiring patients to share the cost of preventive medical services. Insurers may no longer charge individuals any type of co-payment, deductible, or fee for certain preventive services, which will be spelled out by the U.S. Preventive Services Task Force.
In another big change, the health reform act requires insurers to cover adult children up to age 26 on their parents’ policies. This is a dream come true for many parents whose children are not in school but haven’t landed jobs that offer coverage. Some experts worry, however, that only sicker people will take advantage of this provision in the short term; individuals are not mandated to have insurance until 2014.
Also under the regime that begins in September, insurers may not exclude children from insurance coverage because they have pre-existing medical conditions, may not cancel policies unless the initial application was fraudulent, and may not limit an individual’s lifetime benefits.
The law spends $5 billion over three years to create temporary high-risk pools to help provide coverage for people who are considered hard to insure. The pools will be available until 2014. To qualify for the program, applicants must have been uninsured for the previous six months and have a pre-existing medical condition.
Health care experts warn that the $5 billion could run out in a matter of months, and insurers worry that they could find themselves responsible for some of the cost.
John Sheils, an actuary at the Lewin Group, pointed out on National Journal’s Health Care experts blog on April 13 that the program will be “of little use to people with illnesses who are trying to preserve their coverage once their COBRA or other insurance options terminate,” because they wouldn’t qualify.
Although more than 30 states already have high-risk pools, funding shortages often translate into long waiting lists and prohibitively high premiums. State pools cover 200,000 people, according to Sheils, who noted that premiums often run 150 to 200 percent higher than those for healthier people. “Even at these premiums, expenses in the pool generally exceed premium revenues,” Sheils wrote. “Most states pay for losses with an assessment on insurance in the fully insured markets. Others pay for losses with tobacco taxes or other revenues.”
As is the case for all of the provisions that kick in this year, HHS will have to write regulations in less than half the typical timeline; health care experts caution that the deadlines could slide.
James Gelfand, the senior manager for health policy at the U.S. Chamber of Commerce, vowed that his group will do all it can to hold regulators to deadlines. “If regulations don’t come out before these effective dates, what are our members supposed to do?”
The White House, however, is confident that deadlines will be met. “I don’t look at this as that hard,” DeParle said. “It’s something that we’ve been through before. It’s very manageable.”
From the Hill to K Street
For Bill Hoagland, the top lobbyist for Cigna, this is a hair-tearing kind of month.
He is fielding a multitude of questions from company executives, but he can’t answer many of them because so many details are yet to be decided. “I have a group of managers who are champing at the bit on how this will impact us,” the longtime Hill veteran said. “We have got to plan now for the coming year, and it’s just been a nightmare trying to answer these questions.”
Trying to influence the rule-making may be a challenge, given the vitriolic nature of the health reform debate, when Obama, Sebelius, and congressional Democrats demonized carriers. “The insurers are in an uncomfortable circumstance in that they have to implement a law they opposed, while trying to influence the process,” said one K Street strategist who has worked with the industry. “They have to be cooperative but still figure out how to get to those in Congress who might be able to fix parts of this that they don’t like.”
Sheryl Skolnick, senior vice president of CRT Capital Group, said, “As a health plan, you are in troubled times. You are going to have to spend a lot of money to make the best of a law that is dangerous for you.”
The insurers will probably have more sway in the states, where they have relationships with insurance commissioners and lawmakers, she said.
Much of the immediate lobbying will focus on the definition of medical loss ratio — the share of premium dollars that insurers must spend on medical services and quality. State insurance commissioners will have a big role in fleshing out those details. Sebelius this month directed the National Association of Insurance Commissioners to establish uniform definitions by June 1.<p>For now, instead of attacking, insurers say they are concentrating on inserting their views into the process of standardizing medical loss ratios and other provisions, and they are working closely with the insurance commissioners group.
Cigna and other large national insurance companies, including Aetna, Humana, Kaiser Foundation Health Plans, UnitedHealth Group, and WellPoint, spent millions of dollars to oppose major provisions of the reform effort, but Hoagland isn’t looking backward. “It is the law of the land, and we will comply with it as the regulations come down,” he said. “We aren’t out there to sabotage this.”
He disagrees with Skolnick that the industry will have lots of money to spend on advocacy. “Implementation will require restructuring and fees on top of that,” he said. “Monies that were available in the past for advocacy will be diverted for implementing the law, and there won’t be resources like in the past.”
But some health-industry players are still finding money for campaign contributions: AHIP has donated $135,000 in the 2010 election cycle, with 56 percent going to Republicans and 44 percent to Democrats. Almost all of the large health insurers have given the majority of their 2010 campaign donations to Republicans, according to the Center for Responsive Politics.
End of the Beginning
Health care reform is the gift that keeps on giving to K Street.
Lobbyists reported earning more than $527.8 million on health care-related issues in 2009, and that figure could go even higher in 2010 as insurers and others grapple with impending changes. Buchanan Ingersoll & Rooney is one of many lobbying firms now shifting gears from Capitol Hill to the executive branch. “The old phrase ‘the devil is in the details’ is exactly why you hire someone like me,” said Alan Rubin, director of federal government relations at Buchanan, whose influential health policy team includes former House Ways and Means Committee Chairman Bill Thomas, R-Calif., and Marty Corry, a former Medicare official.
Lobbyists say that their phones are ringing off the hook as clients try to understand the law’s bottom line. Some are hoping to influence the makeup of key panels to be created under the legislation, such as the Patient-Centered Outcomes Research Institute that will focus on research to compare the effectiveness of medical services.
“There will be a huge effort to lobby [HHS] to interpret vague provisions in favorable ways,” said Rich Gold, who heads Holland & Knight’s lobbying practice. Ed Kutler, a senior partner at Clark & Weinstock, agreed. “New regulations are uncharted territory,” he said, “and that means more lobbying.”
The biggest mistake is “not to engage with the agency,” one former HHS official who now works on K Street said. “There were times when I remember someone coming in with good, solid information about how a proposed regulation would have some unintended consequence, and the agency would say, ‘OK, we think you made a good case.'”
To be sure, lobbyists will still have chances to work Capitol Hill. Clients can persuade lawmakers, particularly those who worked most closely on health reform, to weigh in with the executive branch if lobbyists can make a case that a certain regulation might be a problem. Mehlman Vogel Castagnetti, which represents health insurers, laid out many of those challenges for its clients in a 17-page analysis of the final law, titled “The End of the Beginning.”
“Any good [lobbying] effort in the regulatory phase involves Congress in some way,” said firm partner Dean Rosen, who was previously a health care adviser to then-Senate Majority Leader Bill Frist, R-Tenn., and also served as an insurance association executive. “And we fully expect to be engaged in this new phase.”
Big Sales Job
Reform advocates are focused on stabilizing popular support for the reform law by explaining its benefits. Families USA, AARP, and Health Care for America Now all have plans to send supporters across the country to highlight the benefits.
They will attempt to counter opponents who see an opportunity to capitalize on the public nervousness as the congressional elections in November draw closer. These and other activists are looking to Obama, who they believe will be crucial in selling the public on the law’s upsides.
“We are entering a new phase, when people will learn more concretely about how the law will affect the country as a whole and their own family in particular and will come to a more final judgment about this major health care reform,” Blendon wrote in an April 8 New England Journal of Medicine article. “Its provisions are to be phased into actual practice over a long period, during which there will be three congressional elections and one presidential election. The state of public opinion, and specifically voters’ attitudes, could play a role in future congressional support for implementation of the law’s various elements.”
Gruber envisions Republican candidates “holding up graphs which show the cost of insurance premiums in 2010 and 2012 and saying, ‘Since Obamacare, premiums have gone up X percent.’ Obama has to say they would have gone up anyway…. The challenge is explaining to people that this law is making things better relative to where they would have been.”
Blendon added: “All the politically oriented groups understand that the November election could turn out to seem like a referendum on this bill. They have to convince people that, actually, the way this will turn out will work well. It requires real explanations of what happens in the future, how the exchange will work, and what happens in Medicare.”
If they don’t, and Republicans win control of the House or Senate, the problems for the administration worsen. The GOP would probably push to block funding of certain provisions rather than try to undo the law, he said. “I don’t think they can repeal the bill, because it would take two [chambers] plus the president,” Blendon said. “But you can modify the bill by not having appropriations…. That’s where the [Republicans] will say they want to come back to the table.”
Supporters of the law will be pushing hard to bolster public opinion to hold off just such a scenario. The White House is planning to hire a high-profile individual to spearhead health reform communications. Families USA is readying a reform road show with state health care organizations such as AARP chapters to explain the sweeping act. “The more people understand what’s in it, the more they will like it,” said Ron Pollack, executive director of Families USA. His group plans to release a monthly reform report tailored to each state, followed by media conference calls. The giant seniors group AARP, meanwhile, is preparing field hearings, question-and-answer sessions, and inserts in its member newspaper.<p>Health Care for America Now, which has union support, is working to forge a strong political presence in swing congressional districts by attending town hall meetings, sending direct mail, knocking on doors, and making phone calls. “We want to make sure that people know where their lawmakers stand. Was it on the side of the insurance companies or on our side?” Executive Director Ethan Rome said.
In one area of the new health care world, the industry and the reform interest groups are working together: Families USA, America’s Health Insurance Plans, and other stakeholders on opposite sides of the issue are establishing a nonprofit called Enroll America to help newly eligible people sign up for state insurance exchanges and for Medicaid.
Still, despite this one instance of accord, the rules to come from the federal government remain the key for all parties, especially for the business community. “If the regulations don’t accurately reflect congressional intent, we will sue,” the U.S. chamber’s Gelfand said.
Marilyn Werber Serafini and Bara Vaida