One of the most illuminating health care stories to come along in the last couple weeks was Politico’s take on the J.P. Morgan Health Care Conference in San Francisco. Politico’s story sang with information. The insurance industry is going to make a killing on health reform. But, then again, we’ve known that ever since the public option was eliminated.
The big takeaway from the conference was this: “Investors say they’re increasingly optimistic on health insurers’ future for two crucial reasons: regulations released this year have been relatively industry-friendly, increasingly stability, and the health reform’s new business opportunities are beginning to look more tangible.” Kind of makes you think health reform was about expanding markets for insurance sellers as much as it was about covering the poor and uninsured.
The big carriers that have been consolidating the insurance market for years will have no trouble meeting the much-ballyhooed minimum loss ratio, which specifies a minimum amount that must be paid out in benefits, and HHS Secretary Kathleen Sebelius has granted more than 200 waivers for one year to such companies as Aetna and Cigna, and such businesses as Waffle House and McDonald’s, so they can keep selling or offering their mini-med policies. Those are the policies that cover very little and cost very little; sometimes, premiums are as low as $40 or $60 a month. In a document on its website dated late December, Aetna said that 430,000 of its policyholders owned these policies, and that it planned to ask for another waiver next year. It’s a good bet others will too.
Insurers are salivating at the prospect of 32 million new customers by the end of the decade. About half will be buying their coverage in the new state-run insurance exchanges, and the other half will have incomes low enough to qualify for Medicaid benefits. Either way, that’s more dinero for the bottom line.
What makes Politico’s story so juicy is all those quotes reporter Sarah Kliff either heard or managed to extract from industry officials who have become increasingly close-mouthed when dealing with reporters. Aetna, she reported, is exploring how to capitalize on the individual market, which will be booming in 2014. Good reporters will want to know what role those mini-meds will play in Aetna’s strategy. And while they’re at it, they might want to know how the company will price its products to cover the claims of all the sick people they soon will have to cover.
“We’re clearly understanding the risks,” Aetna’s CFO, Joseph M. Zubretsky, noted in his presentation to health investors. “Medicaid is going to be a critical component of our business model,” he added. How the private industry has managed health care for a state’s poor people is a topic that’s always ripe for exploration.
Humana weighed in, too, giving a strong clue to its business strategy. Having risen from practical obscurity as a regional carrier into nearly the top tier of the insurance hierarchy, Humana says it sees gold in both the individual and the Medicare markets, where it has been a strong seller of Medicare Advantage plans. Humana CEO Michael McCallister said: “We’re likely to have 51 flavors of this.” Sounds to me like it intends to be the Baskin-Robbins of health insurance. Pity the poor consumer who has to make confusing decisions about what to buy from such an expansive menu. Health policies ain’t like ice cream.
And then there was WellPoint, last year’s big bad boy, fighting with California insurance regulators and the White House over how much they could charge policyholders. At one point last year, Sebelius said that WellPoint’s mistakes were the gifts that just kept giving, and pushed health reform to the finish line. But Politico reported that the company is now a White House pal. Said WellPoint CEO Angela Braly:
We’re working collaboratively with the administration and intend to continue to do so. We have brought to them input both from our voice and our consumer advisory group, and they give us a lot of feedback.
WellPoint has found the new regulations manageable, Politico reported. Whatever the negative impact from spending at least eighty percent of the premiums collected on medical care, the company’s CFO said it was not unmanageable, hinting that the company will pay lower commissions to brokers as a way to make sure it is in compliance.
During the vacation, I had some long conversations with consulting actuaries. They said distribution—or how insurers would sell their new offerings—would be crucial. “Companies will have to reduce commissions,” one said. “The customer will end up paying some of the commission. This will happen more in the small group market.” What about the individual market, where all those newly insured people will go to buy policies? “It’s too early to tell,” he said.
One thing is certain. Lower commissions lead to more aggressive selling, and aggressive selling leads to more deception in the marketplace. The buyer-beware story for journos is the subtext of Politico’s report.