Benefits Business

Health care reform is coming

As competing proposals are debated, agents and insurers can expect dramatic changes

By Len Strazewski

Employee benefits business continues to be profitable—a powerful reason why so many property/casualty agents have committed to building a book of benefits business that could match or even exceed their revenues from P-C insurance.

Fueled by steadily rising health care costs, premiums have increased each year, and even agents and brokers who have guided their clients into tough cost control measures can count on increases of 5% to 10% at each renewal.

In addition, benefits producers have taken on an expanded role, not only guiding their clients in the annual health plan renewal process, but also moving them toward a diverse set of fee-based services that could provide some long-term value in creating a healthier, more productive work force that would need less acute and expensive health care.

Wellness and health management programs, incentive systems and employee health education have become additional tools that agents and brokers can promote and market as a supplement to traditional health plans.

However, the employee benefits business is set for a dramatic change—and much sooner than expected. Health care and health insurance reform legislation is in the works and is likely to be passed before the end of 2009, potentially transforming nearly every aspect of health insurance marketing.

While legislators and the health insurance industry continue to debate the actual provisions, the consensus is that the change will involve a total overhaul of the private health insurance market and mandate either employer-based coverage for employees or individual health insurance for those not covered by employer plans and the development of a government alternative to private health insurance.

High on President Barack Obama’s agenda, health care reform stalled early in the year as the Administration focused on economic stimulus legislation. In late March, however, the Democratic leaders of five powerful congressional committees began quiet negotiations about how health reform should proceed in Congress.

Senate testimony and statements by these leaders point to what agents and brokers can expect. Among the provisions the Democrats are discussing is a mandate that would require every individual to carry insurance and require their employers to help pay for it. They also agree that the government should offer a public health insurance plan as an alternative to private insurance.

Kennedy offers clues

Sen. Edward Kennedy (D-Mass.) provided some additional clues in a statement to the Senate Health, Education, Labor and Pensions Committee hearing on health insurance market reform on March 24, 2009. He supports the Massachusetts state reform model.

“To reform our system, we must change how we provide and administer health insurance. In most states, insurers legally avoid providing coverage for the sick, while competing only for the healthy. In national health reform, insurers must interact with consumers efficiently, respectfully and transparently. Health insurance should help people become healthy and stay healthy. In a reasonable health insurance market, insurers should compete on price, value and patient satisfaction, not on avoiding those in need,” Kennedy declared.

“Massachusetts’ recent success in achieving near universal coverage shows the promise of sensible reform. A key component is the requirement that all individuals must have health insurance and that insurance must meet a minimum standard of coverage. To assist those who have difficulty finding affordable health insurance, a statewide ‘Insurance Connector’ was created to pool individuals together,” the senator explained.

“The plan assists low-income residents with a sliding-scale subsidy to ensure affordability. Although the nation has many diverse health insurance markets, Massachusetts’ reform shows that insurance market reforms can make a large difference—insurance coverage has risen from 94% when the plan took effect in 2006 to over 97% today.”

Sen. Sherrod Brown (D-Ohio) also addressed the committee hearing: “I think we can all agree that the private health insurance market in this country is broken. Every day I hear from constituents frustrated with health insurance that is nearly impossible to afford; with health insurance that fails to protect them from catastrophic health costs; with health insurance that openly discriminates based on their age, gender, location, or medical history; with health insurance that puts onerous restrictions on which providers patients can see and on which treatments and prescription drugs they can get; with health insurance that waits literally months to pay claims, or requires enrollees to fight for every penny the insurer owes; and with health insurance that doesn’t respond to customers’ questions, problems, and appeals,” he said.

The senator attacked the health insurance industry for its coverage restrictions, insufficient “reasonable and customary” payments of claims, and exclusion of pre-existing conditions, and he voiced his support for publicly funded alternatives to private health insurance.

“Private insurance isn’t a panacea. Regardless of what insurance reforms we apply, President Obama is right that there should be an option like original Medicare for Americans to choose—the competition will be healthy, and those Americans who want to avoid health plans tethered to profit targets should have another choice.”

Industry knows change is coming

The employee benefits and health insurance industry lobbyists have their own points of view and proposals, but most admit that reform is coming and that it is needed. The American Benefits Council, which represents the employee benefits industry—mostly employers and service providers but not health insurers directly—concedes that some health reform is necessary and likely but asks for fiscal caution.

“The Council and its employer members agree strongly with President Obama: We can no longer afford to put health care reform on hold,” said President James A. Klein. “The president has demonstrated his commitment to health care reform by tackling one of the toughest issues first, the source of revenue that will be necessary to achieve it.”

A proposal from the health care and health insurance industry offers a more moderate reform plan and less fiery rhetoric and fewer mandates, but it is probably too little and too late to shape the legislation in the works.

On the heels of the Senate testimony, Health Reform Dialogue, a group that represents 18 organizations including insurance industry associa­tion America’s Health Insurance Plans, the Blue Cross and Blue Shield Association, and the U.S. Chamber of Commerce, presented its own reform ideas and concessions. They include:

• Improving and expanding Medicaid and the Children’s Health Insurance Program (CHIP) instead of creating a single public health plan alternative with nationwide eligibility and more federal funding.

• Tax credits and subsidies on a sliding scale to allow individuals to purchase health insurance and assistance with out-of-pocket expenses for low-income individuals and families.

• Subsidies for small businesses to provide health insurance for employees.

• “A fair and transparent marketplace” for purchasing insurance regardless of health status, age or other factors.

As the final legislative proposals move toward resolution later this year, agents and brokers can count on employee benefits business as usual to change; and in particular they can expect the revenue from health insurance premiums to be shaped more by regulation and less by market forces than ever before.