California Health Insurance Reform Update: March 2012

There’s been a lot of talk about health insurance reform during the last few years. Passage of the Federal reform legislation in March 2010 accelerated the discussion – and confusion. To help make sense of the new law and to help people navigate the ever-changing landscape of health insurance, we’ve made a list of the most important items that individuals and small businesses in California should know about the Patient Protection & Affordable Care Act, signed March 23, 2010 and the Health Care & Education Affordability Reconciliation Act, signed into law March 30, 2010. Collectively the new law is referred to as “PPACA.”

The health insurance companies are complying with the new law. There is nothing specifically that a small business owner or individual with his/her own health insurance needs to do as of March 2012 to comply with the new law.

Additional issues to consider:

  • The U.S. Supreme Court will decide on the future of PPACA
    Likely the Supreme Court will likely decide by summer 2012. The major concern is the constitutionality of requiring everyone to purchase a private product, i.e., the individual mandate (IM) to buy health insurance. If the Supreme Court finds the IM unconstitutional then it must decide if that invalidates the entire law, or, if their decision only impacts that portion of PPACA.Most people believe that regardless of the Supreme Court’s decision, fundamental changes to the health care financing and delivery system are inevitable. Double digit annual price increases can not be sustained. Also, the health insurance companies have already invested $2-3 billion in implementing the early requirements of PPACA and in preparation for 2014 changes. Likely, some form of health insurance reform will remain.One suggestion to replace the IM is to apply a system that is similar to that of Medicare Part D: a person who does not enroll when first eligible must pay an increased premium for part D. The premium increases by 1 percent per month and the increase continues forever. So if someone delays enrollment for a year he/she would pay 12 percent more for his/her benefits. No tax. No mandate. People are free to delay enrollment and pay a higher premium when they do enroll.
  • Few of the PPACA reforms lower the cost of care while many reforms will likely increase the cost of health insurance, including:
    • modified community rating; o “free” preventative benefits; o essential benefits;
    • guarantee issue; o weak or no penalties of individual mandate; o Medical Loss Ratio;
    • Taxes on Insurance & Pharmaceutical companies passed on to consumers
  • Accountable Care Organizations (ACOs) will become more common
    ACOs vary greatly, but they all include cost and risk sharing between an insurance company and medical providers (doctors and hospitals.) Likely, this will result in more “Kaiser-like” plans. For example, regarding ACOs, Blue Shield of California states that its partnership with “Hill Physicians and Catholic Healthcare West on behalf of 41,000 CalPERS members in Sacramento produced significant results, including a 17% reduction in readmission rates, a 14% reduction in bed days, and a half day reduction in average length of stay. We hope to implement more accountable care organizations in other regions.”