insurance

Reforms shake up health insurance companies

President Barack Obama's historic Affordable Care Act is bringing sweeping changes to your health care. Insurers can no longer deny you coverage due to pre-existing conditions. Preventive care and wellness screenings are now available at no additional cost. Lifetime dollar limits on health plans are a thing of the past. And beginning in 2014, new state health exchanges are supposed to make shopping for health insurance easier and more affordable than ever.

There's a lot at stake, not only for you but also for America's health insurance companies. They've had to reinvent themselves and re-price their products to meet the requirements of health care reform.

"It's an enormous change," says Tom Billet, senior consultant for the risk management firm Towers Watson.

As health insurance transforms itself, patients may feel a few side effects -- such as short-term price increases, name changes and some confusion during the transition.

Reform comes amid health care evolution

Health insurance was already evolving. Not long ago, it was a relatively sleepy industry that primarily designed group plans for employers to offer to their workers.

"The health care system was largely focused on acute care," adds Susan Pisano, a spokeswoman for America's Health Insurance Plans, an industry trade group."You broke your arm, went to the doctor and got it set."

Today, health care is largely focused on chronic disease, a more expensive proposition that has, in part, caused employer-sponsored health plans to decline. The percentage of Americans covered by health insurance at work has fallen from 64.4 percent in 1997 to 55.1 percent in 2011, according to U.S. Census Bureau figures. And insurance companies have decided they no longer want people to wait for a big, costly emergency before going to the doctor.

"We used to be very dismissive, as a health care system, of prevention and wellness, but at this point, we realize that those are now the fundamental tools we have in our arsenal," Pisano says.

The Affordable Care Act tidal wave

Insurers eventually came to accept that the long-term savings from early detection and treatment of diseases would more than compensate for their investment in "free" preventive care.

Amid all of this gradual transformation washing over the health insurance industry, along comes the tsunami of the Affordable Care Act, which requires most Americans to obtain health insurance beginning in 2014. The so-called individual mandate is expected to deliver an additional 30 million new customers, most through the new state health exchanges. Health care reform also includes incentives for states to expand Medicaid to help subsidize many of the individual policies sold through the exchanges.

Experts say there are bound to be some growing pains that will be felt by plans and their patients.

'Dramatic premium increases' possible

An insurance industry that has been focused on selling group plans to employers must now suddenly recreate itself to cater to a huge, entirely new market of individual consumers. Billet points out that insurers have no idea how costly it will be to provide health care to the new customers, many of whom are not working and have not been insured for a long time. That uncertainty could result in higher rates for some, at least initially.

"Being able to accurately price and run plans without dramatic premium increases in the first few years would be the biggest challenge," Billet says.

Some plans may be sidelined

Some insurers may not have to worry about any of that -- because they'll have trouble obtaining entry into the lucrative new exchange market. Their health plans lack a kind of "good housekeeping" seal, so you won't find them listed among the choices if you use your state's exchange, says Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, D.C.

"To get into an exchange, a carrier has to be certified by the National Committee of Quality Assurance or other certification agency," says Chollet. "With no incentive to do so, many insurers never gave a thought to certification."

Now that health insurance companies need it, certification may be beyond their reach. It requires their quality to be rated by doctors and hospitals, and Chollet says many of them are unprepared to routinely provide that kind of feedback.

Insurer names, they are a-changin'

Not surprisingly, health reform has fueled a merger and acquisition frenzy as large group insurers acquire smaller carriers that cater to individuals. The result has been confusion for some consumers.

"Companies that have purchased smaller companies and left them with their name in place are now rebranding everything," says Chollet.

That's not necessarily a bad thing because it could make your health insurance more portable, she says. "They want to put the biggest face they can out there so when you go into an exchange and buy their brand, you know that if you lose your job or get a job that has health insurance, you can take that with you because it will be offered in the exchange."

You might not feel a thing

If you already have employer-based health insurance, it's possible that you may notice virtually no change from the coming flood of newly insured Americans, Billet says, at least in the short term.

"For most employees, some of the biggest changes have already happened: free preventive care (and) no lifetime limits on coverage," says Billet. "A few companies may someday choose to drop their plan and send employees to the individual exchanges, but for the vast majority, I think it's unlikely."

And what will happen to health insurance companies that don't care to pursue the coming rush of individual customers?

"They will care in 2014" when so many key aspects of health care reform take effect, Chollet predicts. "In 2014, the world changes. Nonparticipating insurers might survive for two or three years, but after that, I think they're going to collapse. The market is very concentrated, and it's going to become more so. You don't want to be a niche player in this market."

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