Healthcare: Health insurers gird for reform

by Kevin James Shay for the Gazette

Coventry Health Care prides itself on offering high-quality health plans at a lower cost than most. “We deliver exceptional value every day, driving solutions that help people enjoy optimal health,” the Bethesda medical insurance company says on its website.

That philosophy has worked well enough to enable Coventry to turn a fairly substantial profit even during tough times. The company’s net earnings in the first half this year were up by 57 percent from the first six months of 2009 to $98.3 million.

Hoping to maintain that pace, Coventry, like some other health insurers, is cutting costs and taking other measures to prepare for a changed landscape sparked by the new federal health reform law. The company is reducing costs in areas such as employees and real estate, as well as making other changes such as outsourcing some radiology benefit management, John Stelben, interim CFO, said this week at a conference in New York. Coventry’s operating expenses in the first half this year declined by 19 percent from the same period last year to $5.6 billion.

“At the end of the day, long-term, low cost is going to win,” Stelben said, according to a webcast of a session during the Morgan Stanley Global Healthcare Conference. “We’re really focused on continuing to improve our cost structure. … We’re doing all the right things, I believe, to prepare ourselves for the future.”

A few provisions of the Patient Protection and Affordable Care Act passed in March already have taken effect. Those include a new insurance plan — administered by the state of Maryland with federal funding — that provides coverage options to Americans or legal immigrants who have been uninsured for at least six months and have been unable to get coverage because of a pre-existing condition. Maryland is one of 29 states that have chosen to run the program, rather than the federal government.

The program is a transitional one until 2014, when insurers will be banned from discriminating against all individuals with pre-existing conditions, officials said. Locally, the plan is operated by the Maryland Health Insurance Plan, a state-managed health insurance program; premiums run from $141 per month for people younger than 30 to $354 for those 65 and older. Maryland is expected to receive some $85 million in federal funding for the program through 2013.

A few other provisions of the new law take effect Thursday. Those include covering dependents up to age 26, prohibiting insurance companies from denying coverage to children younger than 19 because of a pre-existing condition, and not allowing insurers to impose lifetime dollar limits on essential benefits such as hospital stays.

Significant impact not expected until 2014

The changes kicking in next week are not expected to significantly affect Kaiser Permanente of the Mid-Atlantic States, said Ken Hunter, COO of Kaiser’s local operation, which has headquarters in Rockville. Kaiser has about 500,000 members in Maryland, Virginia and Washington, D.C.

For example, Maryland already passed a law to allow dependents up to age 25 to remain on their parents’ insurance plans, Hunter said. “That going up by one year will not result in a huge expansion for us,” he said.

The most significant changes will come in 2014, Hunter said. That’s when an insurance exchange, a competitive marketplace where individuals and small businesses can purchase health plans, takes effect. Also starting that year, plans will no longer be allowed to cap annual benefits. Even members of Congress are scheduled to start getting health insurance through exchanges then.

Kaiser is planning for expected membership growth by hiring new physicians and other personnel, as well as opening medical centers, Hunter said. A 200,000-square-foot medical office building on Watkins Mill Road in Gaithersburg is expected to open in mid-2012.

“We see the reforms as a good opportunity to expand access,” Hunter said.

CareFirst BlueCross BlueShield in Baltimore, which has about 3.4 million members in the mid-Atlantic region, expects to see the number of insured people grow in the next few years, said spokesman Michael Sullivan.

“As the region’s largest health insurer, we hope to play an important role in filling that need,” he said.

With many details related to the implementation of medical loss ratio requirements and other aspects of the federal law not yet finalized, it’s hard to accurately assess the impact the changes will have on insurers, executives said.

“We are following the developments on this front closely and will gauge the potential impacts as they become more apparent,” Sullivan said.

UnitedHealth Group of Minneapolis, parent of UnitedHealthcare, which also has a significant number of subscribers in Maryland, is well-positioned to meet the challenges ahead, G. Mike Mikan, CFO of UnitedHealth Group, said at the Morgan Stanley conference this week. UnitedHealth Group’s profits in the first half of this year rose about 26 percent over a year earlier to $2.3 billion.

UnitedHealth executives also are closely following developments such as any new specific federal rules, he said. The November elections could have an impact on the situation because “states will be very involved in the implementation of reform,” Mikan said.

An unintended consequence of reform could be the consolidation of smaller plans into larger plans, thus reducing competition instead of increasing it, Joseph Zubretsky, CFO of Aetna, another significant health insurer in Maryland, said at the Morgan Stanley conference. Aetna’s profits rose 34 percent in the first half this year from a year earlier to $1.1 billion.

“Hopefully, we will get it out of the gate, a good regulation that allows new entrants and allows the free flow of capital from market to market,” Zubretsky said.

Many questions

As a senior benefits adviser with insurance brokerage agency Potomac Basin Group Associates in Beltsville, Nader Barakat said he hears a lot of questions these days about the new federal reform law.

His brokerage works with most of the top health insurers, including Aetna, CareFirst BlueCross BlueShield, Kaiser Permanente and UnitedHealthcare.

“A lot of people don’t know what to expect. … Everyone is anxious,” said Barakat, who was at UnitedHealthcare’s Health Care Lane this week at the Montgomery County Conference Center in North Bethesda. UnitedHealthcare’s replica of a small town is traveling around the nation — it plans to be in Hunt Valley next week and Reston, Va., the following week — to educate brokers and others about the latest in its benefits and programs.

Barakat said he hopes the federal reform will help lead to lower costs, as advocates of the plan predict.

“But it’s too soon to make that statement,” he said,

UnitedHealthcare’s “town,” which officials said takes a couple of days to set up and take down, is a great idea to bring home what is happening in the industry, Barakat said. The “town” filled a large conference room with sections such as a bank, where brokers viewed the workings of health savings accounts; a library, where they could learn insurance terms; a Wi-Fi café to calculate benefits online; and a fitness center to exercise using a Nintendo Wii and other devices.

“People can get a feel of how all the products work and what [United] has to offer,” Barakat said. “They are a cutting-edge leader, technology-wise.”

The setting is more informative and fun than merely sitting in a room listening to a presentation and viewing handouts, said Jodi Wrublik, a representative with brokerage agency Insurance Marketing Center of Rockville. She had her own questions on the reform law.

“Everyone is in a wait-and-see mode,” Wrublik said. She said some providers have increased costs already, citing changes such as raising the dependent age to 26.

For Coventry, the company’s local health plan model is a key factor to success in the changing future, Stelben said.

“It’s that local knowledge and local relationships that we’ve built over a period of years that I think are going to enable us to be able to do more creative things with providers in terms of partnerships and better models for care,” Stelben said. “I think they are going to give us a competitive advantage as we walk into the future.”

Uninsured climbs

The number of Americans without health insurance coverage rose from 46.3 million, or 15.4 percent, in 2008 to 50.7 million, or 16.7 percent, in 2009, according to the U.S. Census Bureau. The number of uninsured in the South region, which includes Maryland, increased from 20.2 million, or 18.2 percent, in 2008 to 22.1 million, or 19.7 percent, in 2009. In 2008, the last year state breakdowns are available, the uninsured in Maryland declined to 669,000 from 762,000 in 2007.

Between 2008 and 2009, the number of people covered by private health insurance nationally decreased from 201 million to 194.5 million, while the number covered by government health insurance rose from 87.4 million to 93.2 million. The number covered by employment-based health insurance declined from 176.3 million in 2008 to 169.7 million in 2009.

About 61 percent of Maryland private businesses offered employees health insurance in 2009, up from 58 percent in 2008, according to the Kaiser Family Foundation. The national average inched down to 55 percent in 2009 from 56 percent in 2008.

About 49 percent of Maryland companies with fewer than 50 employees offered insurance in 2009, up from 44 percent in 2008. Some 96 percent of those with 50 or more employees did so in 2009, down from 99 percent in 2008. The national average was 96 percent for larger businesses and 41 percent for smaller ones in 2009.


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