Health Care Reform: Balance is Key

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The National Association of Insurance Commissioners, a panel made up of individual state insurance commissioners, is meeting in Florida to determine how much of each premium dollar insurers must spend on medical care, as opposed to administrative costs and contributions to the proverbial bottom line.

Specifically put, a Kaiser Foundation spokesperson tells Reuters that in a nutshell, insurance companies will find out exactly how much money they get to “keep,” versus how much they cannot retain.

Currently, the health care reform bill states that insurers offering large group plans must spend 85 cents of every premium dollar on medical care, while those insuring individuals and financing smaller plans must pay 80 cents per dollar.

There are several “controversial” issues that are going to have to be explained clearly before insurers will be able to proceed with their financial predictions for 2011.  A spokesman for UnitedHealth Group Inc is stating that the company will not make any projections until the rules are clearer. 

One imperative of the NAIC ruling is that clear definitions be presented – for example, what exactly constitutes “medical care costs” versus admin costs?  The NAIC proposal will extend the medical care umbrella to include wellness programs, medical mistake prevention, and improvements in medical technology.   Excluded will be costs related to fraud prevention.  The group will also likely recommend that nurse hotlines be split between medical care and administrative costs.

After the NAIC’s final vote, their recommendations will be passed on to Health and Human Services Secretary Kathleen Sebelius, who has the option to sign off on the proposal as is, or make amendments to it before doing so.

As is obvious, the NAIC’s job is to implement some sort of balance.  They have already made it clear to Sebelius that strictly defining what costs are considered to be under the medical care paradigm could damage the bottom line for some insurers, ultimately leading to a less competitive industry.

In addition to balance in determining how each premium dollar should be spent, equilibrium is also critical when it comes to pushing employer sponsored group plans.

In an article published by the Wall Street Journal, author Philip Bredesen, who is a democrat, claims that the Obama administration failed to consider one basic tenet of gaming strategy, and that is to “think like your opponent.”

In a carefully laid out scenario, Bredesen illustrates how the federally subsidized exchange program, which will kick in 2014, will ultimately lead employers to consider dropping health care plans altogether.

This is because, despite the $2,000 penalty that companies who do not offer health insurance will incur beginning that year, those expenses will cost them significantly less than would a group health plan they currently contribute to.

Not only will dropping coverage be attractive to employers, but employees may also decide that going through the exchange program, with their employer’s assistance, would be more beneficial than contributing 20% to a group health plan.  The primary reason for such a decision would be that the cost to the consumer for federal subsidies will be reasonable, and they will not be subject to pre-existing condition limitations.

Clearly, the health care reform balancing act has merely just begun.

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