Health-Care Fight Shifts to States, Agencies After House Vote
By Alex Nussbaum
March 22 (Bloomberg) -- Health legislation passed yesterday by the U.S. House changes some rules immediately on insurance coverage while leaving much of the fight over how to remake the medical system to federal regulators, states and courts.
Insurers led by UnitedHealth Group Inc. and WellPoint Inc. must cover children with pre-existing health problems at once under the legislation, headed for a Senate vote, and let parents keep children on their insurance plans through age 26. The insurers will also be banned from revoking coverage because of severe illness and from limiting lifetime or annual benefits.
Beyond those changes, it will be up to U.S. regulators and state lawmakers to structure the marketplaces where health plans will compete, write the rules governing their profit and decide which medical benefits must be covered. While insurers may gain as many as 32 million customers, the potential for pumped-up profits remains unclear, said Sheryl Skolnick, a health-industry analyst at CRT Capital Group LLC.
“There’s going to be a whole other round of uncertainty associated with the implementation of this,” she said in a telephone interview March 19. “There’ll be much, much more to fight on and much, much more to write on.”
The U.S. Health and Human Services Department will have two years to set penalties on hospitals with high readmission rates and longer to test new payment systems for Franklin, Tennessee- based Community Health Systems Inc., the largest U.S. chain, and its rivals. Officials in Idaho and Virginia have promised lawsuits over the bills’ mandate that all Americans get insured.
Senate, Obama
Democrats must shepherd the package of changes through the U.S. Senate before President Barack Obama can sign their $940 billion health-care overhaul, one of his top domestic priorities, into law. The measures subsidize coverage for uninsured Americans, financed by Medicare cuts to hospitals and fees or taxes on insurers, drugmakers, medical-device companies and Americans earning more than $200,000 a year. The tax on those earners begins in 2013.
The subsidies and the expansion of Medicaid, the joint federal-state program for the poor, won’t kick in until 2014. Other changes will take effect with Obama’s pen stroke.
While the measure immediately bans insurers from barring coverage for children with pre-existing conditions, adults won’t be protected until 2014. Until then, they’ll be eligible to join high-risk pools funded by $5 billion in federal grants.
The drug industry, led by New York-based Pfizer Inc., will begin offering discounted drugs to elderly Medicare patients next year, part of $80 billion in concessions agreed to by pharmaceutical companies. Generic copies of biotechnology drugs will be allowed for the first time, though the Food and Drug Administration must draft rules governing the process.
Revealing Costs
Insurers also will have to reveal how much of members’ premiums they spend on medical care, as opposed to executive salaries or other administrative costs. Next year, they’ll owe a rebate to customers if the insurers spend less than 80 percent on benefits for people in individual or small-group plans.
How heavy a burden that imposes on industry will depend on the health and human services department, said Carl McDonald, an Oppenheimer & Co. analyst in New York, in a March 17 note to clients. The cap will be easier to meet if it’s applied companywide rather than to individual lines of business, he said.
The agency also will set formulas for Medicare payments, define the “essential benefits” that insurers must provide and draft rules on how carriers verify claims and pay doctors. Health and Human Services Secretary Kathleen Sebelius, who has spent weeks criticizing insurers’ “jaw-dropping” rate increases, will have the final verdict, McDonald said.
Out From Spotlight
“Over the next couple of years, HHS will be consistently churning out regulations and documents explaining exactly how health reform will be implemented,” he said. “Given the stance of this administration toward health insurers over the past year, it’s hard to see how much of this will be favorable.”
Insurers may benefit by exiting the spotlight of the current political debate, said Len Nichols, a health economist at George Mason University in Fairfax, Virginia. Their arguments that premiums are rising because medical costs are outpacing inflation may hold more sway with government actuaries, he said in a telephone interview.
“It’ll get out of the blatantly political and into the hands of folks who are more used to dealing with these issues,” he said. “It will move the conversation from the headlines to the arena of the actuarial gladiators, which is probably where it should be.”
Health Shares
Health insurance company shares have gained 71 percent in the past 12 months, as measured by the six-member Standard & Poor’s 500 Managed-Care Index, led by the 124 percent increase for Coventry Health Care Inc. of Bethesda, Maryland. WellPoint, based in Indianapolis, is the biggest U.S. health plan by enrollment, and its shares have gained 80 percent. UnitedHealth, of Minnetonka, Minnesota, is second. Its shares have gained 61 percent over 12 months.
Starting in 2014, states have their say. The legislation leaves it to them to set up and run the online marketplaces, known as exchanges, where customers will comparison-shop for coverage. Among other powers, the exchanges will be able to banish plans for premium increases deemed to be unjustified.
Lawmakers may merge exchanges with neighboring states, exposing carriers to more competition. They could set up government-run insurance plans for low-income buyers ineligible for Medicaid to pool their bargaining power or apply for federal waivers to impose stricter rules on insurers.
The legislation also creates an Independent Payment Advisory Board to suggest cuts in spending by Medicare, the government health program for the elderly and disabled, that could threaten payments for drug and device-makers. Starting in 2014, the panel’s recommendations would take effect unless federal lawmakers substitute their own reductions.
A tax on high-cost “Cadillac” policies offered by health plans kicks in in 2018. The industry also faces about $60 billion in additional fees under the health bill through 2018, and more beyond, though it was able to postpone the levy until 2014.
“We suspect that over time, the industry lobby may find ways to chip away at those payments,” said Dave Shove, a BMO Capital Markets analyst, in a March 19 note. “For now, we consider this a successful exercise in kicking the can further down the road.”
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