Plans do heavy lifting under reform law

WASHINGTON-Although Republicans and other critics have vowed to rescind the new healthcare law, the arduous task of implementing the measures already has begun.

First up is an overhaul of the formula for calculating Medicare Advantage (MA) payments. The relative good news is that rates will be frozen for 2011-instead of decreasing. That provides time for the Centers for Medicare and Medicaid Services (CMS) to establish a new system for setting benchmarks that will reduce the 14% in "overpayments" to MA plans.

The $206 billion in projected MA "savings" includes $136 billion from revising benchmarks plus $70 billion from reductions in Medicare fee-for-service (FFS) payments, as calculated by the Congressional Budget Office.

"We think the MA market will shrink somewhat, but we don't think it will disappear," says Bob Atlas of Avalere Health. The changes could mean the end of private fee-for-service plans, "but those plans that can truly coordinate care ought to be sustainable over the long run."

In 2014, somewhat later than originally proposed, insurers will start paying $60 billion in additional fees, based on market share. Tax-exempt plans such as Kaiser Permanente will pay less.

In addition, there's the Cadillac tax, which is expected to generate approximately $32 billion over 10 years. This tax policy aims to discourage marketing of high-end policies by imposing a 40% nonrefundable excise tax on the aggregate value of employer-sponsored coverage that exceeds $27,500 for a family or $10,200 for individuals. The only good news here is that implementation was delayed in the final bill until 2018, which gives insurers time to develop and market more economical plans.

The scope of the "essential" benefits package for plans sold through exchanges will likely force policy-design changes throughout the market.

BROADER RAMIFICATIONS

As the fees and rate cuts hit insurers, they'll also feel a squeeze from broader changes in provider payments and regulatory requirements. Significant reductions in Medicare reimbursement rates to hospitals and providers, for example, are likely to increase the cost shift to private payers.

New medical loss ratio (MLR) requirements will have a big impact. How leaders define the terms used for calculating the MLR, such as "non-claims costs," will determine the effect on plans, says Avalere's Bonnie Washington.

Plans are awaiting guidance on a new process for reviewing and justifying annual premium increases, which Health and Human Services and states will implement. Meanwhile, insurers are redoubling efforts to sign up the uninsured.

"Moving forward," says Karen Ignagni, president of America's Health Insurance Plans (AHIP), "health plans will focus on minimizing disruption for the more than 200 million people we serve and working with stakeholders to streamline the process of bringing new people into the system."

At the same time, insurers will be watching their risk pools closely to see if the fear of penalties is enough to prompt young, healthy individuals to purchase health insurance and to encourage small employers to provide benefits for workers. Penalties for individuals start at only $95 in 2014, but rise to nearly $700 or 2.5% of income by 2016.

The main selling point of the reform package is that it extends coverage to some 32 million people: about one-third from expansion of state Medicaid and Children's Health Insurance Programs, and the rest through insurance exchanges. In total, plans will pay nearly $300 billion over 10 years in fees, taxes and money lost through rate cuts-about one-fourth of total financing for the reform package, according to Atlas.

A late change in the law delays when some fees and rates kick in, providing a little time for insurers to adjust.