The Supreme Court ruling to uphold the PPACA will have major implications for healthcare stakeholders. Strategic considerations outlined in a report by Milliman are featured below. Concerns for those in the healthcare industry include adverse selection, strength of the individual mandate, new complexity surrounding Medicaid expansion and changes to employer-sponsored insurance.
"Since 2009, Milliman has worked with its clients to prepare for and implement the healthcare reform law," said Clark Slipher, Milliman Health Practice Director. "With the law's constitutionality bound up in court, it's been an uncertain time for our clients, which include insurers, employers, providers, and state and Federal governments. This ruling clarifies the road ahead for American healthcare, and while it is reassuring to know where we are going, healthcare stakeholders face many strategic challenges that will require innovation and sound financial planning in the years ahead."
Ten Strategic Considerations
1. Adverse selection may still be a challenge.
Healthcare reform can create adverse selection if the individual mandate is ineffectively enforced. Without a stringent enough penalty, healthy individuals may decide not to enroll in a health plan in order to gain immediate economic benefits. In order for pricing to be sustainable, healthy people must enroll to balance the insurance pool cost and risk.
2. Medicaid expansion just became a far more complex and variable proposition.
In states that decide not to participate in Medicaid expansion, there are two overarching questions:
- How will their program operate; and
- How that will affect the group of people who would have been eligible for Medicaid had the state chose to expand.
Milliman points out additional serious questions:
- To what extent will those below the 133% poverty level threshold qualify for other tax credits?
- Is it possible to have a partial expansion?
- Will other provisions of PPACA not directly tied to Medicaid expansion apply to states that opt out?
3. Employers grapple with new options and plan requirements.
Many employers intend to maintain their current employer-sponsored health benefit plans, while others are considering the modification of their plans in order to control costs. In earlier posts, such as Benefits of Self-Funded Plans and Is Self-Funding Right For Your Company, we discuss the benefits of self-funding as a potential option in controlling cost.
PPACA requires employers with over 50 employees to pay an additional plan affordability penalty for employees under the 133% FPL, if not otherwise covered by expanded Medicaid. If the state chooses not to participate in Medicaid expansion, the additional cost imposed on employers with over 50 employees is a concern.
4. What is the effect on early retirees?
PPACA creates new options for individuals between ages 55 and 65; making exchanges an affordable place for attaining coverage. Factors such as limitations on age rating, no medical underwriting, and availability of premium and benefit subsidies are expected to increase affordability.
5. Rate review scrutiny and no risk selection: Something’s got to give.
PPACA has increased scrutiny of rate increases, with a 10% increase deemed “unreasonable”. Without traditional underwriting or risk selection, a flood of less healthy people joining the insurance pool could mean less profitability and increased financial risk for insurers, making it difficult to stay under the 10% ceiling. The individual mandate, if implemented properly, may alleviate this concern.
6. Which states will get on the exchange bandwagon?
All states have not moved forward in implementing a state health insurance exchange with some resisting in hopes that the PPACA will be repealed under possible new leadership. However, the two upcoming deadlines in 2013 and in 2014, may be enough incentive for states to begin implementation.
7. Minimum loss ratios (MLR) pose an ongoing challenge for insurers.
The minimum loss ratio states that 80-85% of each healthcare dollar should be used for medical care and insurers are required to pay out rebates in low claim cost years. This may pose a problem for insurers as they typically use the reserve of money maintained in low claims cost years to offset the higher claim cost years.
Consumers with high deductible health plans are also affected by MLR and encouraged to choose their plans carefully since the MLR calculation includes only plan expenses, not patient expenses. MLR pose a potential challenge to small insurers who do not have large enough volumes to spread financial risk.
8. Risk adjustment is essential.
Risk adjustment helps align revenue with health status and is a key operative in a health system competing on health and efficiency rather than volume. Risk adjustment may be even more important if the exchanges face adverse selection challenges, as stated in the 1st consideration.
9. Will cost shifting hold steady, increase or decrease?
The cost of uncompensated care as well as low Medicare and Medicaid rates is shifted onto other payers. The increase or decrease in cost shifting will be partly determined by whether or not the PPACA can successfully cover the uninsured, the number of Medicare enrollees and changes in Medicaid expansion.
10. The cost problem persists. What can be done about it?
The PPACA focuses on expanding coverage but it does not directly address utilization and the major underlying drivers of healthcare costs. There are some provisions that may affect cost such as accountable care organizations, which give providers incentives for quality and efficiency. Accountable care organizations are a significant step, but are not an ultimate solution to the increasing costs of the entire healthcare system.
While PPACA being upheld makes bounding steps in the direction of beginning to solve problems in our healthcare system, there are several areas of concern that remain. Questions on how states’ decision to participate in the Medicaid expansion will affect employers to concerns about the cost of healthcare still linger unanswered. For more detailed information on these strategic considerations, visit insight.milliman.com/article.php?cntid=8113.