More Health Care Reform Catch-up

Yesterday I began the process of catching up with various odds-and-ends related to health care reform. Here’s some more items worth noting.

1. One of the items in the previous post considered whether the phrase “Medical Loss Ratio” is appropriate. Paying claims is, after all, the purpose of health insurance. So maybe such spending should be renamed “Wellness Investments.” But whether you call it Medical Loss Ratio or Wellness Investment (as the Venture, the fact is the MLR requirement contained in the new health care reform law is going to impact the way carriers and brokers do business. The Wall Street Journal notes that “the first to feel the effects of the nation’s health care system overhaul are insurance salespeople.” (A subscription is required to read the entire article). The gist of their point is that with only 20% of premium dollars to spend on all administrative costs, profits and commissions, today’s commission schedules in the individual and small group markets simply aren’t sustainable. My take is that a lot will depend on what state one works in. The differences in commission schedules from state-to-state are quite striking. In California it’s not uncommon for brokers to receive 20% of the first year commission on an individual sale. In states such as Texas and Georgia I’ve heard first year commissions top out at 10%. The transition to post-health care reform commissions in Texas and Georgia will be a lot less painful than in California. Whatever carriers are going to do about commissions they’ll have to announce sooner than later. The Medical Loss Ratio provisions of the new health care reform law take effect in 2011. So commission changes will need to be announced sometime in the Fall.
2. As I’ve written before, I don’t think commissions are going away. And in the small group market, where commission levels are lower than for individual sales, the need for major change to compensation schedules is relatively less critical. What will change, in both the individual and small group markets, is tying broker compensation to medical cost trends, which is what happens when renewals are linked to the then current premium paid by the group). Instead, carriers are likely to experiment broker compensation based on a flat fee per subscriber and/or dependent or tie the commission to the premium in-force at the time of the original sale (either of these formulas should be, and probably will be, subject to cost-of-living adjustments). Neither approach will be comfortable for brokers. During a webinar I participated in for Norvax, a poll of the 400+ brokers was taken: two-thirds supported keeping commission structures as is. Understandable, but not likely.
3. Brokers aren’t the only ones having to deal with new financial realities. The Motley Fool financial site shows the hit pharmaceutical companies will take as a result of the reforms. The amounts are large (for most drug companies $200-$400 million in 2010) although as a percentage of their 2009 revenue they seem slightly less severe (from 1.6%-to-5.6%). Not that this is an insignificant hit to a company’s bottom line, but it’s hard to feel too bad for these enterprises given the high prices Americans pay for the same pills sold for far less elsewhere.
4. A few weeks ago I ran a poll asking readers to predict whether health care reform would move consumers from small group to individual medical coverage, move them from individual to small group health plans or have no effect on either market. Over 100 readers took the time to respond and there’s a definite consensus: 69% predict health care reform will move consumers who currently are covered by their employers into the individual market. Only 17% expect the new law to have no effect, and 14% see the legislation to spark a migration from individual to small group coverage.
5. Reader Malcom Cutler posted an interesting question the other day about how the small business tax credit the Patient Protection and Affordable Care Act (“PPACA”) impacts the deductibility of premiums paid by small businesses. My thanks to reader Michael B who found the answer. Michael noted that in the IRS guidelines concerning the health insurance premium tax credit, it states that ” In determining the employer’s deduction for health insurance premiums, the amount of premiums that can be deducted is reduced by the amount of the credit.”  The IRS recently mailed out over four million postcards to small businesses about the health insurance tax credits. Brokers — and others — will want to stay up-to-date with the resources available to answer the inevitable questions coming their way. (For those interested, here’s a copy of the postcard).
6. Of course, the tax credit goes away if the health care reform package were to be repealed. The chances of that are slim. It will take a two-thirds vote of both chambers of  Congress to repeal health care reform while President Barack Obama occupies the White House. And even if a Republican were to take his place in 2013, 60 votes would be needed in the Senate to overcome a filibuster. In other words, repeal is unlikely. But it is, apparently, popular. According to a recent poll by Rasmussen Reports, 56 percent of respondents favored repealing the new health care reform law, while 39 percent opposed repeal. This percentage has been fairly consistent since passage of the bill. Of course, when people agree with the polls, they argue Congress should listen to the will of the people; when they don’t like the survey results they tend to praise those who stand on principle instead of basing their positions on, well, polls. So what one thinks Congress should do about this poll results depends a great deal on where you stand on the reform package. The reality, as noted above, however, is that the law is unlikely to be repealed. The reform legislation will evolve, even as it is implemented, but change is coming. The key is to prepare for it.
7. Preparing for reform is what the California Medical Association is doing. You may remember an earlier post on this blog about the CMA’s efforts to elect the former chair of its legislative committee to the California legislature. The theory is sound: there’s no better place to have a lobbyist than sitting inside the majority caucus. Especially with so many health care reform issues required to be made at the state level.  How much does it cost to buy an assembly seat?  The CMA and its allies have poured more than $200,000 into the race — including an independent expenditure committee set up by the CMA with an initial investment of $106,000 and not counting at least three “off-the-campaign book mailings. This investment is necessary because the CMA’s candidate, Richard Pan has been singularly unsuccessful in raising much in the way of campaign dollars from within the district. Obviously the CMA doesn’t care about the interests of the residents of the Fifth Assembly District. The job of the CMA is to look out for the financial interests of their members. And they’re certainly doing that. For all their dollars, however, the CMA is having trouble with their acquisition plans. They spent plenty trying to buy the official Democratic Party endorsement, but were blocked by supporters of a community-based candidate for the seat, Larry Miles. Their spending did, however, garner support from most of the Capitol establishment. But Mr. Miles is running a strong, grass-roots campaign and, from all accounts I’ve heard, the race remains extremely close. (By the way, I’ve known Larry since we were roommates in college — many, many years ago. Not surprisingly, then, I’ve contributed to his campaign. If you want to help Larry stand up to the CMA, or are simply interested in helping elect a qualified, thoughtful leader to the California legislature, I encourage you to  do the same).

 Well, that’s enough catching up for now. Please leave a comment with your observations of some of the more interesting health care reform related developments of the past few weeks. Thanks.