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Health Insurers Look to Cost Control Following Supreme Court Ruling

Friday, July 6, 2012
Supreme Court Decision Impact on Insurers


  • Key Impact: Focus turns to reducing health care costs and convincing states to implement health insurance exchanges and Medicaid expansion.

  • Next Steps: States have until Nov. 16 to certify whether they will operate exchanges in partnership with HHS.


By Sara Hansard

Following the U.S. Supreme Court's June 28 ruling that the Patient Protection and Affordable Care Act's individual mandate is constitutional as a tax, attention will now shift to finding ways to reduce health care costs and convince recalcitrant states to set up online exchange markets in 2014, legal and health care experts told BNA.

The two associations that represent health insurers stressed the need to control costs. “As the reform law is implemented, health plans will continue to focus on promoting affordability and peace of mind for their beneficiaries,” Karen Ignagni, president and chief executive officer of America's Health Insurance Plans (AHIP), said in a statement. AHIP represents about 1,300 health insurers covering about 200 million people. Major provisions, such as the premium tax that takes effect in 2014, “will have the unintended consequences of raising costs and disrupting coverage unless they are addressed,” she said.

Blue Cross and Blue Shield Association President and Chief Executive Officer Scott Serota also emphasized the tax, saying in a statement that the nation's 39 Blue Cross and Blue Shield plans, which cover about 100 million people, “will continue to implement the law while working with policy makers to fix provisions that will increase costs, such as the health insurance tax that will add hundreds of dollars to families' premiums each year.”

Dan Mendelson, chief executive officer and founder of Washington health care advisory firm Avalere Health, told BNA that the ruling “validates” investments made by health insurers in individual insurance programs and in delivery system reforms to lower costs through closer contractual relationships with providers.

Consumers Declare Victory.
Consumer groups declared the ruling a victory, but they expressed dismay about its limitation against requiring states to expand their Medicaid programs under the law in order to avoid losing all federal funding for the health care program for the poor (see related articles). PPACA expands Medicaid to cover everyone with income up to 133 percent of the federal poverty level.

“Health reform is alive and well and will benefit all of us,” Jim Guest, president of Consumer Reports, said in a statement. Timothy Jost, a law professor at Washington and Lee University in Lexington, Va., and a consumer representative to the National Association of Insurance Commissioners (NAIC), said in a statement to BNA that “it is time for the states and the federal government to move forward expeditiously with implementing [PPACA]. Thousands of lives literally depend on it.”

Consumer Watchdog, a California consumer advocacy group, said in a release that mandatory health insurance required under PPACA “needs rate regulation as [the] next step to make coverage affordable.”

But a big question remains as to what states will do to implement the law. Twenty-six states filed the suit that challenged the constitutionality of the individual mandate, which the court validated.

“The main question is will the states go forward with the Medicaid expansion,” said Christine Eibner, a health economist for the RAND Corp. If states do not adopt the Medicaid expansion, “that increases the number of people who may be on the health insurance exchanges,” she said.

Insurance Purchases Could Increase.
Premium credits are available under the law to subsidize health insurance policies for people with income between 133 percent and 400 percent of the poverty level and cost-sharing subsidies are available to people with income between 100 percent and 400 percent of the poverty level. The subsidies are available only to people who purchase coverage through the exchanges, so a reduction in Medicaid could increase the number of people buying health insurance coverage, Eibner said.

In addition to the question of whether states will adopt the Medicaid expansion, a question remains as to how many states will set up their own exchanges. Under PPACA, the Department of Health and Human Services will create exchanges in states that do not set up their own by 2014.



“The majority of states out there that are not in a position to meet the arbitrary deadlines set forth in the statute will likely have to accept the federal exchange, or enter into a partnership with the federal government to run an exchange because it's more likely than not they will not meet the benchmarks set forth in the statute and corresponding regulations.”
--Christopher Condeluci, Venable LLP

“The majority of states out there that are not in a position to meet the arbitrary deadlines set forth in the statute will likely have to accept the federal exchange, or enter into a partnership with the federal government to run an exchange because it's more likely than not they will not meet the benchmarks set forth in the statute and corresponding regulations,” Christopher Condeluci, an attorney with Washington law firm Venable LLP, told BNA. Condeluci was tax counsel to Senate Finance Committee Republicans during the debate over PPACA.

PPACA opponent Michael Cannon, director of health policy studies for the libertarian Cato Institute, told BNA that, in addition to being able to block PPACA by refusing to expand their Medicaid programs, states can also block implementation of the law by refusing to create exchanges. Cannon has argued that, because PPACA does not state that federal exchanges can issue subsidies, only state exchanges can do so. If states do not create exchanges, the important subsidy provision will be blocked in many states, he said. The administration maintains, however, that it has the authority to issue the subsidies through the federal exchanges, and on May 18, the Department of the Treasury/Internal Revenue Service released a final rule making tax credits available through the federal exchanges.

“The law gives states the power to block Obamacare's new subsidies for private health insurance,” Cannon said. “The Supreme Court just gave states the power to block new spending on federal Medicaid.”

States Will Be Hesitant.
Kansas Insurance Commissioner Sandy Praeger, who is chairman of NAIC's Health Insurance and Managed Care Committee, in a conference call with reporters, said, “There will still be a hesitancy to implement some of the elements of the law until after the November elections.” Praeger, a Republican, has pushed to set up exchanges in Kansas, but the state Legislature and governor have refused to agree to set up an exchange.

“There is going to be a lot more interest now in what the states are doing,” Praeger said. States can still enter partnerships under which states certify plans and oversee consumer assistance and marketing if they notify HHS by Nov. 16, she said. But she said time was running short for that to happen.

In addition, Praeger said that overruling the Medicaid provision of PPACA means “we have to be concerned about what happens to those folks that are below the eligibility level for any of the subsidized products and are not included in our existing state Medicaid program. So there is a potential for some folks falling through the cracks, and we need to address that in some way. And I think there'll be a lot of discussion around Medicaid.”

Florida Insurance Commissioner Kevin McCarty, president of NAIC, issued a statement saying he is “concerned about the potential for increased health insurance premiums and continued disruption to the stability of the marketplace for many Floridians.” His office has expressed concerns about PPACA's “potential for detrimental impacts on the availability and affordability of health insurance.”

Ian Duncan, an adjunct professor of actuarial statistics at the University of California, Santa Barbara, told BNA, “We're seeing a lot of pushback from the states that don't want to be involved in the exchanges.” Duncan, a member of the Society of Actuaries, is a board member of the Massachusetts Connector exchange, which was set up under the Massachusetts health reform law.

IRS Rule Could Be Contested.
Duncan predicted that the IRS rule that subsidies can be administered by federal exchanges will be contested before the courts, “given the amount of opposition to the law, which is clearly going to be a big issue in the election.”

But Joel Ario, a managing director for Manatt Health Solutions, a policy arm of Manatt Phelps law firm based in Los Angeles, told BNA that although only 19 states have enacted laws or issued executive orders to implement state-based exchanges, 49 states and the District of Columbia have received an average of $40 million apiece in grants to implement the exchange provision. “There is a solid infrastructure on which to now move forward,” said Ario, who was director of the Office of Health Insurance Exchange in the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services.

Diane Boyle, vice president of federal government relations for the National Association of Insurance and Financial Advisors, told BNA that her group of insurance brokers and agents is hoping that, with the court decision, they can get traction to enact legislation in Congress that would remove brokerage commissions from the medical loss ratio (MLR) requirement of the law.

The MLR provision effectively limits what insurers can spend on administrative expenses such as brokerage commissions, which has led to cutbacks in what insurers have paid brokers. A bill to remove the commissions from the MLR calculation has more than 200 sponsors in the House and has gained bipartisan support in the Senate, and other senators had expressed concern that brokers would be hurt, Boyle said.

By Sara Hansard

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