I’ll be out Monday at our annual Managed Healthcare Industry Forum on Emerging Technology (See Agenda), but I’ll report on the event later in the week.
Click here for a very good Q&A that ran in BusinessWeek between Aetna chairman Ron Williams and Charlie Rose. Here’s an excerpt:
Rose: Will insurance premiums go up?
Williams: The answer is yes, and some of the things that will drive those premiums are significant additional taxes the industry will ultimately have to pay in the first year….
Rose: Are we also going to see consolidation?
Williams: I’m much more worried about the solvency question. If you’re a small plan and you experience costs that you simply weren’t able to price for, there could very well be insolvencies. It’s been a long time since we’ve seen them in the insurance industry, but the insurance commissioners know what can happen….
Rose: Do you feel like the insurance industry was demonized in this debate that took place over the last year?
Williams: Yes, I do. And I think our 35,000 employees at Aetna were perplexed and really, I think, very disappointed in the leadership of the country and their selection to demonize and impugn the motives of employees, doctors, nurses, and pharmacists.
There was a funny moment during the floor speech of House Minority Leader John Boehner (R-OH) during the final healthcare reform debate on Sunday just prior to the vote. It was when he was eliciting responses from members of Congress (I’m guessing the responders were largely Republicans). Anyway, the funny moment starts at the 3:18 mark.
Boehner: Look at how this bill was written. Can you say it was done openly?
Boehner: With transparency and accountability?
Boehner: Without backroom deals, and struck behind closed doors, hidden from the people? Hell no you can’t! Have you read the bill?
Boehner: Have you read the reconciliation bill?
Boehner: Have you read the manager’s amendment?
Boehner: Hell no, you haven’t!
I actually think he almost started laughing at this point.
I’ve received several inquiries this week about the impact of reform on health insurance industry profits. There’s no way to sugar-coat this. Yes, comprehensive healthcare legislation signed into law by President Obama will bring millions of new members to managed care plans. But the law will negatively impact profit margins among health plans – especially those with large exposure to the individual, small group, Medicare and possibly even Medicaid markets.
The argument during the reform debate that somehow this legislation would bring windfall profits to health plans is just silly. Or as Carl McDonald of Oppenheimer says: “The added membership that plans would receive would be far outweighed by the margin pressure the health reform bill would bring.” Here’s a few reasons why:
1. According to our annual report The Outlook for Managed Care 2010, individual membership will increase dramatically after the uninsured gain access to subsidized health plans through healthcare exchanges. Our best estimate is that there are about 11 million individual plan members in the U.S., and that number could easily reach 15 million or 16 million with reform. Unfortunately for health plans, the commoditized nature of the products to be offered to individuals and small groups through the exchanges is likely to hurt plan profits in these segments.
2. Medicaid health plans are probably best served by reform. Overall, reform is expected to add about 16 million new Medicaid members – a large number (perhaps 5-7 million) of whom will choose managed care plans. Aggregate profits will likely increase for Medicaid health plans. Still, there will be challenges. Margins on this new business will remain tight. Furthermore, the addition of childless adults to the Medicaid ranks will mean a whole new group of members with incomplete or unknown medical histories — and potentially higher than expected costs.
3. Medicare Advantage, with about 11 million members, is one segment likely to see membership decline because of reform. Additional reimbursement cuts will mean plan exits, consolidation and pressure on profits. Hardest hit will be private fee-for-service and special needs plans. Medicare HMOs will hang in there, but feel the squeeze. Medicare PPOs will likely see membership gains. All told, we’re estimating a net loss of membership of about 2 million post-reform, perhaps more. In addition, minimum medical cost ratio requirements in the law will further impact profits at Medicare plans.
4. Health insurers will also be saddled with $2 billion in new taxes beginning in 2011, rising to $10 billion annually in 2017.
So here’s a back of the envelope estimate: Figure the health insurance industry generates about $25-30 billion in annual profits. Reform could easily cut that by a third. All of which suggests the likelihood of additional industry consolidation, administrative streamlining (including job cuts) and leaner times ahead. But it also suggests that the innovative plans that truly deliver on the promise of managing care (i.e., improving access and quality while reducing costs) will not only survive but thrive.
Eli Lilly chairman and chief executive John Lechleiter speaking about healthcare reform and the need for innovation to improve quality and access while reducing costs:
Innovation is not a panacea for the challenges facing our health care systems, but it is hard to see any way out of the current crisis – and I don’t think that’s too strong a word – without innovation. Indeed innovation needs to be the purpose of health care reforms.
In the two days since the House passed healthcare reform, a group of 12 healthcare stocks tracked by this blog were up a combined 1.6%. Not surprisingly, there were definite winners and losers. Medicaid health plans, which are expected to enjoy big membership gains from reform, led the gainers. Centene rose 11% in the two days ended March 22 following Sunday’s yea vote on reform, while Amerigroup was up 6%, and Molina rose 3%. Outside pure-play Medicaid plans, another winner was Aetna — which has limited exposure to the small group and individual markets impacted by reform– rising 1.5%. The biggest loser was UnitedHealth, which is big in individual and Medicare, down 4%. WellPoint, which has a large individual and small group business, fell 2%.
Not by much, but still a new Gallup/USA Today poll shows that 49% of Americans think passage of the healthcare reform bill was a “good thing,” 40% think it was a “bad thing,” and 11% had no opinion. The poll was based on telephone interviews with 1005 adults. Democrats overwhelmingly favored passage (79%), while Republicans were overwhelmingly opposed (76%).
Overall results are shown in the chart below from Gallup. The specific question was as follows:
As you may know, yesterday, the U.S. House of Representatives passed a bill that restructures the nation’s healthcare system. All in all, do think it is a good thing or a bad thing that Congress passed this bill?