Socialize

In the end, insurers will benefit from “reform”

By
December 25, 2009

Health insurers get some big presents in the Senate’s health overhaul bill — about 20 million new customers and no competition from a new government plan.

Taking advantage of those boons might take some time, though.

The bill imposes hefty new taxes and coverage rules that will pinch insurers by forcing them to cover more sick people without gaining enough healthy, lower-cost customers, industry insiders say. The industry is also worried the bill doesn’t do enough to control health care costs.

It’s a matter of figuring out how to make those new customers profitable, analysts say.

“There’s opportunity,” Miller Tabak analyst Les Funtleyder said. “Where the rubber meets the road is can you access that opportunity? At least some of them will figure out how to do it.”

The Senate bill is much more favorable to insurers than a similar bill passed in the House that contains a government-run option for consumers seeking individual insurance, something insurers have fought hard. They worry that a government-run plan that sets rates below market prices would pose unfair competition.

Though the Senate bill still has to be reconciled with the House bill, most observers believe the government-run plan, often called a “public option,” will disappear because it lacks Senate support.

Both bills call for the creation of insurance exchanges that help people buy coverage. Insurers likely will lose money on business from those exchanges, said Robert Laszewski, a former insurance executive and president of Health Policy and Strategy Associates, a Virginia-based health care consultant.

It’s a tradeoff: People without insurance would be required to buy it — in some cases, subsidies will help them pay for it — or face fines if they don’t. Insurers, in turn, would no longer be able to deny coverage based on pre-existing conditions such as diabetes or cancer.

But the proposed fines are too weak and the subsidies too meager to truly motivate people to buy insurance, Laszewski said. This means the people most motivated to buy coverage through these exchanges will be those who already have health problems — who are money losers for insurers.

Insurers need a mix of healthy people enrolled in their coverage to help balance out claims they pay for patients who use more insurance.

The Senate bill calls for fines for people who do not purchase coverage and are not exempt from a mandate to buy it. They start at $95 in 2014 and rise to $750 by 2016.

That’s a lot more affordable than what some people would pay for insurance. A sliding scale of subsidies will help people or families with incomes up to 400 percent of the federal poverty level, or $88,200 for a family of four this year. But a family of four with income of $65,000 would still have to pay nearly 10 percent of that income, or $6,500, toward coverage.

“There aren’t a lot of families with an extra $6,500 in their checking account,” Laszewski said. “The problem with this bill is the subsidies are really quite modest, and there really aren’t any penalties.”

An ideal bill for insurers, he said, would pair better subsidies for the uninsured with higher penalties that motivate people to buy coverage and get more healthy people into the risk pools.

The Senate bill hurts managed care companies in other ways. Insurers use a person’s age and other variables to figure out the price of an individual insurance policy. Older people often have to pay more because they tend to generate more claims. But the Senate bill limits how much more insurers can charge for older customers.

That means people under age 30 likely will see a “substantial increase” in the cost of a policy — making them less inclined to buy insurance — while older people will see a smaller decrease, said Brad Fluegel, chief strategy and external affairs officer for WellPoint Inc., the nation’s largest health insurer based on membership.

The Senate bill also calls for the industry to pay annual fees for the plan that start at $2 billion in 2011 and increase to $10 billion by 2017. Analysts say costs like these will be passed to consumers because insurers want to protect profit margins, which are generally thinner than other health care companies like drugmakers.

“I think we’re going to be discussing health care reform continuously for the next several years as we try to fix all the things that are broken with this existing bill,” Fluegel said.

Added up, insurers say the bill would mean higher premiums for consumers and likely for employers who buy coverage. And that’s on top of hikes spurred by rising medical care.

The stock market no longer seems worried. Shares of the five largest managed care companies have risen more than 120 percent, on average, since they bottomed out in early March. In contrast, the Standard & Poor’s 500 index has increased about 63 percent over the same span.

Investors had big worries when the debate picked up steam last spring, but stocks started climbing as they realized “doomsday scenarios” such as a government takeover would not happen, Funtleyder said.

He thinks insurers will learn to live with the overhaul and eventually benefit from it. They should be able to adjust their prices to accommodate taxes, fees and the new regulations once they understand the claims their exchange customers will generate.

“It’s kind of tricky, at least in the beginning.”

Posted by on December 25, 2009. Filed under FUBAR. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

9 Responses to In the end, insurers will benefit from “reform”

  1. DejaVuAllOver

    December 26, 2009 at 2:40 pm

    I agree, Carl….. If there is ANYTHING good about this mess, it may be that the mask is falling off the financial/business/government mob that REALLY run the show.  When socialism and corporatism merge, you got a nifty little thing called fascism.   Maybe some folks like you and me will FINALLY start calling a spade, a spade.

     

    In the meantime, HAPPY NEW DECADE.   Let’s hope it somehow brings the change Obama promised, but will not deliver.

  2. Carl Nemo

    December 25, 2009 at 7:37 pm

    I thought readers might enjoy an article by Brian Darling director of U.S. Senate Relations at The Heritage Foundation concerning the Constitutionality of these healthcare bills in both the House and Senate.

    It certainly seems the government has no rights granted under the U.S. Constitution to force “We the people” to purchase a product or service provided by private enterprise. To me it’s collusive in nature and wreaks of grand socialism at its worst.

    Here’s the link to the Heritage Foundation for further reading. It’s my hope that these sorry, “statist” bills, if passed in their current form are challenged in the Supreme Court and for whatever the reason the court shoots these healthcare bills, both engineered for the benefit of private insurers, down in flames as they should!

    http://www.heritage.org/Press/Commentary/ed121109d.cfm

    Nancy Pelosi, Speaker of the House was asked this question concerning Constitutionality, she said, “are you serious?” Seemingly this ‘dim star’ concerning the Constitution and our rights as citizens doesn’t have a “clue” no differently than most other issues she’s involved with as well as her brethren in the U.S. Senate… : |

    Carl Nemo **==

  3. silentSCREAM

    December 25, 2009 at 11:02 pm

    Constitution? We don’t need no stinking constitution. We don’t have to abide by no stinking constitution!

    Congress nor the presidency have ever been bothered with questions of constitutionality before. There’s no real reason for ‘em to start any new habits now. And thoughts of the supremes coming to the rescue? I won’t be holding my breath. Lapdogs have a way of agreeing with their masters.

       

  4. Carl Nemo

    December 26, 2009 at 12:53 pm

    Good point silentSCREAM… : )

    It’s just my hope beyond all hope that some technicality like this might eventually throw a ‘monkey wrench’ into the implementation of this evil, corporatist friendly legislation. Most likely…not! : |

    Carl Nemo **==

  5. griff

    December 27, 2009 at 7:16 am

    As usual, they’re saying the authority comes from the interstate commerce clause.

  6. Carl Nemo

    December 27, 2009 at 8:38 pm

    Hi Griff,

    I’ve spent some time perusing the Commerce clause of the U.S. Constitution; ie., Article I, Section 8, Clause 3 and can find no interpretation concerning it’s use over time in that it could be used to force citizens to purchase insurance from private insurers along with penalties for not doing so. 

    For the government to have provided a “public option” via Medicare or some new function would be one thing, but not for the government to  “collude” with business; forcing citizens to participate in the face of sanctions levied against them.  If so, then this will be a fresh interpretation of the clause with intent to move us all down the path of corporatist sponsored fascism with seemingly a socialist slant as bait for the unwitting populace concerning healthcare for all.  / : | 

    http://en.wikipedia.org/wiki/Commerce_Clause

    In 1995 there was a SCOTUS ruling in U.S. vs. Lopez affirming a lower Appeals court ruling in that the Congress of the United States had overstepped itself in its blanket useage of the Commerce Clause.  This was the first challenge to their useage of this clause since the Great Depression.  So possibly once all the facts of the case are presented then we’d get a ruling against their healthcare legislation; at least in the way in which they want citizens to pay for such care along with their mandated penalties for not doing so. 

    ***

    United States v. Lopez

     514 U.S. 549 (1995) was the first United States Supreme Court case since the Great Depression to set limits to Congressional power under the Commerce Clause of the United States Constitution. 

    http://en.wikipedia.org/wiki/United_States_v._Lopez 

    ***

    I’m sure a challenge will come forth from the hybrid versions of these two crippled pieces of legislation.

      Carl Nemo **==

     

     

     

     

     

     

  7. drich291

    December 26, 2009 at 4:57 pm

    “It’s a matter of figuring out how to make those new customers profitable, analysts say.”

    This sums it up.  I thought this exercise was to help people get better medical care and be healthy.  NOOOO.  It is to make profit.

     

     

  8. bryan mcclellan

    December 26, 2009 at 5:26 pm

    There is no limit to the in your face arrogance each time they opine as to the roses they will be smelling and the steaming pile of compost we will be expected to churn lest we burn..

     A good gardener knows compost untended has any number of problems, of which one is, it’s bent to ignite.

    Anyone else here in the pile feel that it’s looking more like arson by the powers that be?

  9. Kent.Shaw

    December 27, 2009 at 10:51 pm

    The whole thing may be nothing more than a “psyop” used to determine just exactly how much BULLSHIT Americans will swallow without rising up at least in major protest if not outright violence. I mean, COME ON! FORCING people to purchase “health care” insurance? This is beyond fascism. Surely there are some without insurance who could actually afford it, but I speculate that there are very few in that category. I believe that most people without health care insurance would already have it if they could afford it. How is a law mandating they acquire insurance going to help them? And a FINE imposed by the IRS upon those who do not purchase? Come ON!! Bullshit bullshit bullshit. Screw this country. If I could afford to leave I would do so.

    Kent Shaw

  10. woody188

    December 28, 2009 at 2:38 pm

    I have to agree, I’d prefer the socialist systems of Canada and England to the fascist health care bill currently waiting reconciliation.  And I agree it’s some kind of test or distraction from what really matters.