ACA Implications for Health Insurers

Written by Mike Tuffin, Guest Contributor | 28 June 2012

Today's ruling provides health insurers a window of certainty as they prepare for the reformed marketplace in 2014. The question is how long will that window remain open?

That question cannot be answered until we know the outcome of the 2012 elections.

The trillion-dollar coverage expansion will be on the table by default if the president is re-elected and the "grand bargain" bipartisan deficit reduction scenario re-emerges. The president will of course strive to protect the funding for his signature law, but nothing can be considered safe at a time when Washington is running trillion-dollar deficits for as for as the eye can see.

Should they win in November, Republicans are dead-set on repealing, scaling back or otherwise thwarting the law through every legislative and regulatory tool at their disposal. While full repeal will be very difficult, perhaps impossible, to accomplish, the financing and the mandate — I mean tax — can be done away with via simple-majority, party-line votes through budget reconciliation.

Insurers have to sort through all of this as they simultaneously prepare for selling guarantee-issue, community-rated policies through the forthcoming exchanges. Of course there is still more uncertainty associated with the exchanges as it is still not clear if Red states will set them up and the clock is ticking much faster than people realize.

The law includes many highly popular consumer protections and insurance regulations, such as a prohibition on medical underwriting and giving parents the option of keeping their young adult dependents on their policies.

Nevertheless, the law compels millions of currently insured people to purchase a lot more coverage than they currently have, taxes the sale of that coverage and provides multiple powerful disincentives for younger, healthier people to defer purchasing coverage. All of this unquestionably adds up to meaningful premium increases for millions of individuals and small employers. While the law provides generous subsidies for low- and middle-income Americans, approximately 40 percent of those expected to purchase in the exchanges will not be eligible for financial assistance. And a little-noticed provision in the law ultimately caps how much the government can spend on the subsidies, meaning they may not be able to keep pace with increases in medical costs.

The insurance industry has deftly handled the implementation of the law to date; for example, bringing popular provisions online ahead of schedule, providing clarity on the status of consumers' benefits and delivering a consistent message on affordability. In anticipation of the reformed 2014 marketplace, many health insurers are strategically repositioning as consumer-friendly health services providers.

Now, insurers face the very daunting prospect of being the bearer of bad news to consumers and employers about the cost of covering highly popular benefits. This presents the industry with major communication and reputational challenges, particularly at a time when the political system seemingly forecloses sound, bipartisan approaches to addressing these issues.

The legal issues are settled, but the political battle rages on and the marketplace challenges associated with a hugely complex 2,700-page law are just beginning.

Managing director of APCO Worldwide's Washington, DC, office, Mike Tuffin previously served as executive vice president of America's Health Insurance Plans (AHIP). This post was republished with permission by APCO's Virtual Vantage Points Blog.