BDG Benefit Development Group

Insurers see $100M hit from rate fight.

The top three Massachusetts health insurers collectively will take a $100 million hit from their standoff with state insurance regulators, setting the stage for tough negotiations with area health providers to close the gap between premium rates and the cost of care.

Health plan CEOs said their recent settlements with the state were designed to put the matter behind them.

“Agreeing to the settlements was the only way to end the continued harassment,” Tufts Health Plan CEO Jim Roosevelt said. Roosevelt and other insurance executives said that holding the line on rate increases would have prompted rejection of the rates every quarter. Roosevelt said he expects the insurer to lose $40 million as a result of the DOI action, and warned that rate caps “will ultimately force insurers to go out of business or leave the market.”

The settlements end the months-long dispute with the state Division of Insurance, that began in April with the rejection of the vast majority of proposed premium rate increases for small businesses. Insurance executives say Gov. Deval Patrick took another swing at the health plans this week, signing a bill that instructs them to create new plan designs for small businesses that will be cheaper than those currently available, but which does nothing to regulate the costs hospitals and doctors charge insurers for their services. This sets the two sides on a potential collision course, as insurers try to negotiate lower reimbursement rates with doctors and hospitals.

Roosevelt said that while standoffs have been the norm, it doesn’t have to be that way.

“We got to health reform before anyone else by everyone cooperating and adopting shared responsibility,” Roosevelt said. But, he said, “The government has to be a trusted partner. Now, that trust has been seriously damaged.”

Insurers said resolving the dispute ends months of uncertainty for their small business customers.

“There was a tremendous amount of confusion and disruption in the market. Small employers didn’t know how much to deduct from a worker’s paycheck — the 2009 rates, the new rates — and they were concerned they’d have to pay retroactively if the plans won the appeals,” Jay McQuaide, spokesman for Blue Cross Blue Shield of Massachusetts said. The insurer set aside $55 million to cover losses associated with reduced small business rates, and McQuaide said the reserve is expected to cover Blue Cross’ exposure.

Both Tufts and Blue Cross agreed to lower the premium base rates for small businesses, before a decision was made on their appeals. Actual rates will still vary, depending on the demographics of the small employer’s workforce.

Harvard Pilgrim Health Care actually won its rate appeal, which covered the April to July period. But the plan still agreed to a settlement.

“This is the only way we thought we could get past this rate cap strategy and move on to a productive discussion about the real drivers of costs,” Harvard Pilgrim CEO Eric Schultz said. Schultz said Harvard Pilgrim would lose between $5 to $10 million this year on its small business book of business.

All three plans decided they will not go back and collect the difference between the old and new rates from small businesses for April thought July.

The next step is clear.

“We have gone back to all of our highly paid hospitals — those identified in the Attorney General’s report — and doctor’s groups and asked them for lower rates,” McQuaide said. Opening up existing contracts with health care providers will be difficult, both because hospital budgets are likely tied to current reimbursement rates, and because the Governor and the legislature have shown that they are unwilling — so far — to take on the thorny issue of reining in the fees of such a powerful and popular constituency. Both Tufts and Harvard Pilgrim say they are also talking to providers, but that so far, they have been unsuccessful in garnering any concessions.

Health plan executives said many hospitals postponed negotiations while the bill was being considered, since both the House and Senate versions included some regulations for hospitals. The final legislation is “a major disappointment,” Schultz said. “We continue to struggle in our conversations with providers.”

Schultz said Harvard Pilgrim will now change the way it does business, asking providers not just to lower rates, but to move to a new “global payments” system that will reimburse them per patient, not per service (see story on Page 9 for more details). Tufts said currently 20 percent of its business is through “global payments,” and Blue Cross does 32 percent of its HMO business this way. Some providers are expected to resist global payments fearing that capping per-patient costs will lead to a rationing of care.

Boston Business Journal - by Julie M. Donnelly

Healthcare Reform Costs to Insurers May Exceed Forecasts

Compliance by health insurers with the medical loss ratio provisions in the new healthcare reform law, along with other reforms included in the White House's "Patients' Bill of Rights," may cost those companies more than analysts have predicted, according to research from Weiss Ratings, which provides independent insurance company ratings.

Weiss reported that companies already complying in 2009 had average net profit margins of only 0.7%, while those not yet complying had average net margins of 6.3%—or nine times more.

Starting next year under the new healthcare reform provisions, individual and small group insurers will be required to spend at least 80%--and large group insurers to spend at least 85%--of their premium dollars on medical care and initiatives to improve the quality of care. In addition, insurers renewing on or after Sept. 23 will be required to cover provisions including no arbitrary rescissions of insurance coverage and no lifetime limits on coverage.

"As long as their investment incomes hold up, most large insurers should be able to handle the increased medical expenses expected under the new health care reform," said Martin D. Weiss, president of Weiss Ratings in a statement. "If investment income declines significantly, however, few insurers will be able to comply without debilitating impacts to their bottom line, and ultimately, their financial stability as well."

To view the impact of the reform on the industry's earnings, the Weiss study reviewed 543 health insurers--distinguishing between two groups: 226 not yet compliant companies, or those that spent less than 85% of their premiums on medical expenses in 2009; and 317 "already compliant" companies, or those that already spent 85% or more of their premiums on medical expenses in 2009.

Weiss found that "already compliant" companies including income from both their insurance underwriting operations and from their investments earned a total of $1.74 billion—or an average of $5.5 million each. In contrast, the "not yet compliant" companies earned far more—7.68 billion, or an average of $34 million each.

With underwriting income, the difference between premiums collected and medical claims paid showed sharp differences. Thus as a group, the "already compliant" companies lost $372 million on their insurance operations, with an average underwriting margin of a negative 0.2%; the "not yet compliant" companies earned $6.11 billion with an average underwriting margin of 5%.

The overall size of the insurer was also a factor since larger companies tended to have more investment income--making it possible for them to anticipate higher medical expenses per premium dollar. However, the contrast between the two groups remained great even without the size differences, according to the report.

Janice Simmons, for HealthLeaders Media, August 13, 2010

Tufts Health Plan, state settle on insurance rates

Massachusetts insurance regulators today struck a deal with Tufts Health Plan to limit an upcoming rate increase for individuals and small businesses, making Tufts the third major health insurer to reach a settlement with the state, and resolving a four-month legal dispute.

Small businesses applaud new health care measure

Small-business leaders say new legislation aimed at controlling their health care costs brings them a giant step closer to leveling the playing field in Massachusetts’ David-and-Goliath-like health insurance system.

Health Reform regs overhaul claims appeal process

The Obama Administration released interim final regulations aimed at creating a system of checks and balances for the internal and external appeals processes of health claims.

NEW EMPLOYER FORM W2 HEALTH INSURANCE REPORTING REQUIREMENTS

The Patient Protection and Affordable Care Act (PPACA) adds a new reporting requirement aimed at improving health care transparency and cost awareness by requiring employers to report the value of employees’ health benefits on Form W2s.

Rate Cap for Insurer overturned.

In a blow to the Patrick administration, an insurance appeals board yesterday overturned the state’s cap on health premium increases for small business and individual customers covered by Harvard Pilgrim Health Care.

Disabilities, claims on the rise

The leading causes of disability in the U.S. are musculoskeletal and connective tissue disorders, such as back pain and joint and muscle disorders, according to research from the Council for Disability Awareness.

Court Weighs in on Mental Parity Suit

A federal trial court will be letting the Obama administration proceed with efforts to implement Mental Health Parity and Addition Equity Act interim final rules.

HHS Questions and Answers: Keeping the Health Plan You Have: The Affordable Care Act and 'Grandfathered' Health Plans

During the health reform debate, President Obama made clear to Americans “if you like your health plan you can keep it.”  He emphasized that nothing in the health reform law would force businesses or consumers to change health plans or change their doctor.  The new “grandfather” rule implements the grandfather provisions of the Affordable Care Act designed to allow strong health plans to continue to grow and remain vibrant.  The grandfather rule enables businesses and families to keep their plan while adding important new benefits for all Americans with private insurance.  It provides both market stability and a more level playing field as people, businesses, insurers and medical providers adapt to the historic reforms of the Act.

Here are answers to key questions about how the Affordable Care Act, and the “grandfather” rule which implements part of the Act, will affect individuals, employers and insurers.

PwC Report: Employers will continue cost-shifting to workers

PricewaterhouseCoopers? Health Research Institute expects medical costs to increase by 9% in 2011, a decrease of .5% from the 2010 growth rate, to which the nation?s employers will embrace cost sharing as a means to control these escalating costs.

Managing cancer-related LTD claims

Cancer diagnoses are a growing proportion of many employers' long-term disability claims, yet the incidence rate of group cancer claims has remained relatively flat - about 12% of all LTD claims received.

Consumers Worry Over Health Reform's Costs: Deloitte

A survey found that many consumers are worried about changes to their current health insurance plans and the cost of insurance under the new Patient Protection and Affordable Care Act.

Consumers with employer-sponsored coverage seem to be the most skeptical of health care reform, according to a survey by Deloitte Consulting L.L.P, New York. Deloitte found 61% of these consumers believe their employer will reduce benefits for dependents and retirees. And 32% think employers will stop providing any health coverage for employees.

Health Insurance Caps Blasted in State Official's Email

The official in charge of monitoring insurer solvency at the Division of Insurance sent an internal e-mail this spring warning that rates the state imposed on health plans could lead to "a train wreck" in the insurance industry.

Dental and Vision Plans Eligible to Recieve Small Employer Tax Credit Under New Guidance

"An employer's premium payments are only taken if they are paid under a “qualifying arrangement,” under which the employer pays at least 50% of the premiums for each employee enrolled in the employer's plan . . . . [I]f an employer offers a major medical insurance plan and a stand-alone dental plan, the employer must separately satisfy the requirements for a qualifying arrangement with respect to each type of coverage."

IRS Releases Small Group Tax Credit Examples

The Internal Revenue Service has come out with guidelines for small commercial and nonprofit employers that want to take advantage of a new health insurance tax break.

Teaching Doctors The Price Of Care

When Dr. Ryan Thompson, an internist, was a medical resident at Massachusetts General Hospital in Boston a few years ago, he worried that he and his fellow trainees weren't learning about the cost of medical treatments, the financing of health care and the impact of high medical bills on their patients

IRS offers guidance on dependent coverage

The Internal Revenue Service issued guidance on how tax-free health insurance coverage under the health reform law should be provided for employees’ children who are under 27 years of age.

National Association of Health Underwriters How the Health Care Reform Legislation Will Impact Individuals and Employers

Parsing the New Law on Long-Term Care

The Community Living Assistance Services and Supports Act, or Class Act, the first national plan to help the great majority of Americans who have no insurance for long-term care, became law in March.

COBRA Premium Reduction Fact Sheet

Health Care Reform and COBRA FAQs

Americans with Disabilities Act

(ADA) With the ever-changing statutes to the ADA we recommend taking a few minutes from time to time in order to refresh your memory. Disability.gov provides a synopsis of the ADA’s major titles, and includes content regarding the ADA Amendments Act (ADAAA), where any/all edits can be found.

Common morbidities that lead to Disability.

These resources can prove to be invaluable, and in some cases, may even help prevent a disability from occurring:

American Heart Association - Heart disease prevention and healthy lifestyle tips.

The Arthritis Foundation - The prevention and treatment of arthritis.

American Cancer Society - Cancer prevention information and programs for patients, their family friends and caregivers.

American Diabetes Association - Diabetes research, information and advocacy.

MedlinePlus - Federal government website with information on 700+ diseases and conditions, a medical encyclopedia and dictionary.

Integrated Benefits Solution 2009 Depression Research

ADA Resource Line:

With the recent changes to the ADA Regulations, the US Dept. of Justice re-announces their toll-free ADA Assistance line, which allows businesses, State and local governments, or others to call and ask questions about general or specific ADA requirements including questions about the ADA Standards for Accessible Design. To access the contact information, please click on the link:

Disability claims higher than expected

Many jobless workers may soon lose COBRA subsidy

Medicare Part D: Creditable Coverage Disclosure Notices Due by November 14th

Military Family Leave Expanded:

Sample Notice - Cobra Premium Reduction Ending

Shedding the subsidy's skin? Extending COBRA subsidy likely rests on reform

The Genetic Information Nondiscrimination Act of 2008 Interim Final Regulations

Benefits Buzz: Healthy Families Act & E-Verify

Cobra enrollment soars

Employers may soon see more requests for Worksite Accommodations due to Amended ADA laws:

The Americans with Disabilities Act

Lean Budgets put the spotlight on RX drug plans

Proposed technical changes to the Fair Share Contribution regulation effective October 1, 2009

Weathering the current financial storm, some companies have been able to enhance benefit offerings to Employees: