Insurers Flip the Script: Making Sense of Givebacks

They’ve been cast as villains for so long in the health reform debate that it almost doesn’t compute: Major health insurers are giving back millions of dollars to their customers.

  • Blue Shield of California on Tuesday pledged to cap its income, returning $180 million to policyholders, providers and its own foundation.
  • Aetna recently received approval to lower individual plan premiums in Connecticut by an average of 10%. “Yes, you read that right: reduce the premium,” Michelle Andrews wrote in Kaiser Health News this week.

While it’s tempting to take the two tales and call it a trend, there’s no clear evidence that other insurers will immediately follow suit.

But the pair of payers, 3,000 miles apart, do raise two key questions.

Why are some insurers willingly ceding their earnings?

And how much of this is driven by the health reform law?

History of Givebacks

Blue Shield’s move is getting a lot of attention — partly because the organization has been actively seeking it.

“It represents a paradigm shift for a health plan,” the insurer’s CEO, Bruce Bodaken, said on a Tuesday conference call. Bodaken announced the decision in a San Francisco Chronicle op-ed earlier in the day.

But just a few months ago, four Minnesota health plans agreed to a 1% cap on profits for 2011. Blue Cross and Blue Shield of North Carolina last year pledged to refund $156 million to policyholders. Other not-for-profit insurers, at times, have paid down their reserves by lowering premiums.

So Blue Shield and Aetna’s decisions aren’t unprecedented. But will they set a precedent?

Bodaken certainly hopes so. Blue Shield is providing an “example that may challenge others to consider what changes they can make,” he said yesterday.

The Wall Street Journal‘s Anna Wilde Mathews concurs that other Golden State health plans — to say nothing of not-for-profit insurers around the nation — will feel pressure to make similar moves. Blue Shield’s decision may particularly affect one sector: its fellow Blues plans, which collectively insure 100 million Americans and can have an outsized impact on local health care markets. Like Blue Shield of California, about 95% of the plans are not-for-profit.

Caution Amid Applause

Some industry analysts and consumer advocates are taking a wait-and-see approach before hailing a new era of insurer largess.

Blue Shield’s move is “welcome but needs to be scrutinized, including on how revenues, costs, reserves, and other factors are being calculated,” said Anthony Wright, the executive director of Health Access California.

The insurer has been making news for its premium decisions all year, Wright pointed out.

Just a few months ago, Blue Shield was in the spotlight for pursuing a series of successive rate hikes that could have totaled as much as 59% for policyholders in the individual insurance market. The insurer eventually called off plans to impose those premium increases, as well as any additional rate increases across 2011.

What is clear is that federal regulations, economic hardship and persistent scrutiny fueled the recent changes — and those drivers aren’t going away.

In Aetna’s case, its individual policies in Connecticut had a medical-loss ratio of just 54.3% in 2010. That’s well below the new Affordable Care Act standard of 80%, which takes effect this year.

Blue Shield’s leaders took pains to say their decision wasn’t driven by MLR rules, but rather on conversations that began last summer and were accelerated by the persistently sluggish economy.

In his Chronicle op-ed, Bodaken stressed that the “incredibly challenging economic times” create an “obligation to tighten our budget, just like everyone else.” Minnesota’s health plans also obliged their governor’s request to help pay down the state’s budget deficit.

Finally, the ongoing scrutiny of insurer behavior — which mounted during the reform debate, fairly or not — will continue to push payers. HHS Secretary Kathleen Sebelius, while applauding Blue Shield’s voluntary decision, called for a sustained approach to ensure “rigorous state review of insurance rates.” California’s version, a bill (AB 52), by Assembly member Mike Feuer (D-Los Angeles) that would allow the state to regulate health insurers’ premium hikes, passed the Assembly last week and is now before the Senate.

The Shape of Things to Come?

According to Timothy Jost — a law professor at Washington and Lee University and a consumer representative to the National Association of Insurance Commissioners — Aetna’s move shows “the shape of things to come.”

Jost notes that “if you have an insurer whose costs are leveling off and it continues to increase premiums, then there’s going to be a day of reckoning” when “they’ll have to pay a big rebate” once all the MLR requirements kick in. Overall, the Obama administration estimates that MLR provisions could result in up to 9 million people being eligible for rebates totaling $1.4 billion by 2012.

Meanwhile, policy experts are still processing how replicable Blue Shield’s decision will be. But some are cautioning not to let the size of the giveback overwhelm the larger picture.

According to Robert Laszewski, a former insurance executive, “We need to focus on the overall cost of health insurance and this isn’t even nickels and dimes. This is one penny.”

Here’s a look at what else is making health reform news around the nation.

Eye on State Health Insurance Exchanges

  • Fewer than 25% of states have taken concrete steps to create health insurance exchanges under the federal health reform law. Louisiana is the only state to announce that it has no intention of developing an exchange. About 12 states have defeated bills that would have created exchanges, and 13 states have not yet considered such bills, according to data from the National Conference of State Legislatures and the Center on Budget and Policy Priorities. Paul Dioguardi, HHS director of inter-governmental affairs, said states that have been slow to develop exchanges will be able to catch up by modeling their programs after states that have made quicker progress (Goldstein/Aizenman, Washington Post, 6/5).
  • In related news, several of the seven states that received HHS‘ “Early Innovators” grants have yet to move forward on key aspects of implementing their health insurance exchanges and have not yet passed legislation to set up online insurance marketplaces. In New York, lawmakers have not yet passed health exchange legislation, while an Oregon bill is stuck in a Republican-led committee. In Kansas, Gov. Sam Brownback (R) opposes the exchange and has vetoed elements of its implementation. Meanwhile, Oklahoma recently pulled out of the program by deciding to forgo a $54 million federal grant to set up the exchange (Nocera/Kliff, Politico, 6/1).
  • Last week, Colorado Gov. John Hickenlooper (D) signed into law a bill (SB 200) establishing a statewide health insurance exchange for individuals and small businesses to buy coverage, as required under the federal health reform law. A board of nine members — four representing insurers — will govern the exchange, which will be run independently from other state agencies and initially will be funded by gifts, grants and donations. State officials have not yet provided information on what kind of insurance plans will be included in the exchange (Fung, National Journal, 6/2).
  • Last week, the Connecticut Senate voted 23-13 to approve legislation that would establish a state-based health insurance exchange mandated by the federal health reform law. Under the legislation, the Connecticut Health Insurance Exchange would launch in 2014 and would be managed by a 14-member board. CHIE is intended to provide state residents and employers with up to 50 workers with a range of health coverage options. CHIE would be able to certify, recertify and decertify health plans, schedule enrollment periods and maintain a website that provides standardized comparative information on health plans (AP/Boston Globe, 5/31).
  • Meanwhile, Alabama Gov. Robert Bentley (R) is spearheading efforts to hasten the state’s implementation of a health insurance exchange and ramp up Medicaid expansion under the federal health reform law. Last week, Bentley returned to the state Legislature a budget measure that would have increased Medicaid funding by $7 million, well below his recommendation for a $247 million increase. In addition, he issued an executive order to push forward the state’s exchange program (Kliff, Politico, 6/6).

Rolling Out Reform

  • This year, consumers could begin to see their insurance premiums drop or could receive refunds because of a provision under the federal health reform law that requires insurers to spend at least 80% of the premium dollars they collect on medical claims or quality improvement efforts. The Obama administration estimates that these “medical loss ratio” provisions could result in up to nine million people being eligible for rebates totaling $1.4 billion by 2012. The average rebate could be $164 per person for individuals who do not purchase employer-sponsored insurance (Andrews, Kaiser Health News/Washington Post, 6/6).
  • Last week, HHS announced that the proposed regulation on health insurance exchanges that was expected this spring instead will be released this summer. Steven Larsen, director of the Center for Consumer Information and Insurance Oversight, said, “HHS plans to issue a proposed regulation this summer that will provide further guidance to states and stakeholders. This proposed regulation will reflect the input we have received on issues relating to state exchanges and will solicit further comment on a number of key issues in advance of issuing a final rule” (CQ HealthBeat, 6/2).
  • The Obama administration has granted nearly 1,400 waivers to ease requirements of the federal overhaul. According to the AP/Washington Post, a majority of the waivers have been given to employer plans, are time-sensitive and apply to medical-loss ratio requirements or per-patient caps on coverage. In addition, there are another 10 requests pending from states. Critics have said the waivers have been awarded to the president’s political allies (AP/Washington Post, 6/6).
  • Last week, CMS issued a proposed rule that would allow certain organizations to access Medicare data to compile quality and safety reports about health care providers. Under the rule — which was mandated by the federal health reform law — CMS will provide standardized extracts of claims data for Medicare Parts A, B and D for a fee to certain entities that can process data according to standard performance evaluation measures. The Medicare reports will be combined with private sector claims data reports to identify the highest quality physicians and hospitals in an effort to educate consumers on health care provider performance (Mosquera, Government Health IT, 6/3).
  • The Robert Wood Johnson Foundation recently ended its annual “Cover the Uninsured Week” after eight years. The national campaign began in 2003 to raise awareness about uninsured U.S. residents. RWJF now will focus on a new campaign — “Enroll America” — that is intended to raise awareness about health insurance options for the 34 million uninsured U.S. residents who will be eligible for coverage in 2014 under the federal health reform law. The campaign is scheduled to launch in several weeks (Vesely, Modern Healthcare, 5/31).

On the Hill

  • Last week, House Republicans faced scheduling problems in their efforts to hold hearings to discredit the federal health reform law. The House Energy and Commerce Health Subcommittee scheduled a hearing on the overhaul for last Thursday. However, it was at the same time the full House Energy and Commerce Committee was meeting to discuss an unrelated bill. As a result, the health subcommittee hearing was delayed for several hours. When it finally was held, there was only enough time for opening statements by Subcommittee Chair Joe Pitts (R-Pa.) and a panel of seven witnesses (McCarthy, National Journal, 6/2).
  • Insurance brokers and agents are pressuring Congress to alter a federal health reform law provision known as the “broker rule” to protect the income and jobs of those who sell insurance. The brokers say that insurers are struggling to meet new federal medical-loss ratio rules. Brokers also say that their fees are among the first expenses to be cut because they are not considered a service or a quality improvement cost. They argue that their fees should not be counted toward medical-loss ratio regulations (Norman, CQ HealthBeat, 6/3).
  • House Republicans are pushing a measure that would allow health insurers to sell policies across state lines while revoking many coverage expansions and consumer health protections included in the federal health reform law. Proponents say that some states’ coverage requirements are artificially inflating premiums and making insurance unaffordable for millions of people. Meanwhile, Democrats argue that allowing health plans to be sold across state lines while repealing the ban on excluding those with pre-existing health conditions would hurt at least the same amount of residents that it would help (Trapp, American Medical News, 6/6).

Spotlight on ACOs

  • Last week, American Hospital Association Executive Vice President Rick Pollack sent a comment letter to CMS calling for major changes to the proposed rule governing the creation of accountable care organizations under the federal health reform law. Pollack wrote that although AHA still “strongly supports the goals and principles that support the ACO program and delivery system reforms” mandated by the reform law, “[m]any of our members are disappointed with the design of the ACO program as proposed” (Reichard, CQ HealthBeat, 6/1).
  • In related news, America’s Health Insurance Plans recently sent a comment letter to CMS stating that it disagrees with health care providers’ assertions that the proposed rule on accountable care organizations is too stringent. AHIP wrote that the rule might create loopholes that hospitals and physician groups could use to gain higher payments. The group said regulations should go further in subjecting health care providers to market competition reviews, stating that more collaboration among health care providers would drive up costs and lower care quality (Carlson, Modern Healthcare, 6/1).

In the Courts

  • This week, a three-judge panel of the 11th U.S. Circuit Court of Appeals in Atlanta will hear arguments on whether to reverse a Florida judge’s ruling that struck down vast portions of the federal health reform law. The suit involves 26 states, the National Federation of Independent Business and two individuals, who have argued that the individual mandate exceeds Congress’ power to regulate interstate commerce. The appeals court took up the case after U.S. District Court Judge Roger Vinson ruled in favor of the plaintiffs and concluded that the mandate is “inextricably bound” to other provisions in the law, thereby invalidating the entire law (AP/Washington Post, 6/4).
  • In related news, a three-judge panel from the Sixth Circuit Court of Appeals in Cincinnati recently heard arguments in a lawsuit challenging the constitutionality of the federal health reform law. The suit — filed by the Ann Arbor, Mich.-based Thomas More Law Center — reached the appellate court following a ruling by U.S. District Court Judge George Steeh that upheld the constitutionality of the reform law and individual mandate. During oral arguments before the appeals court, acting U.S. Solicitor General Neal Katyal said the mandate is necessary to regulate the way residents pay for health care that they inevitably will use (Sack, New York Times, 6/1).

On the Campaign Trail

  • Last week, former Massachusetts Gov. Mitt Romney (R) officially announced his candidacy for the GOP 2012 presidential nomination and pledged to repeal the federal health reform law if he is elected. In an interview, Romney criticized Democrats’ attempts to link the reform law with his health reform initiative in Massachusetts. Romney said that if he ever gets the chance to debate President Obama on the subject, he would ask, “Why didn’t you call me? Why didn’t you ask me whether the Massachusetts plan was working or not? What parts didn’t work? What things you shouldn’t do? Because I know this: ObamaCare would bankrupt this nation” (Memoli, Los Angeles Times, 6/2).

Related Topics

Insurance Road to Reform The Health Law