Risk & Compliance

Health Insurers: We’ll Continue with Reforms, Regardless

Three plan to keep offering some popular benefits even if the law is struck down.
David McCannJune 11, 2012

[Editor’s note: this article, including the headline and sub-heading, have been updated from the original version because of additional announcements by insurers.]

Just over two weeks before the Supreme Court is expected to rule on the constitutionality of the Affordable Care Act (ACA), three large insurers announced today that they will continue some of the consumer-protection provisions of the health-care reform law no matter what the court decides.

The court could opine that the law’s “individual mandate” provision is unconstitutional and, based on that position, decide that other provisions or even the whole law would not be able to stand without the mandate. But UnitedHealthcare (UHC), by many measures the largest health-care-benefits provider in the United States, had its own idea. It said early today that it will continue the law’s requirements to cover dependents up to age 26 under their parents’ insurance, provide preventive health-care services without co-payments, and prohibit lifetime dollar limits on policies.

Also, UHC will not pursue rescissions — retroactive terminations or cancellations of coverage — except, as provided for in the reform law, in cases of fraud or intentional misrepresentation of a material fact.

“The protections we are voluntarily extending are good for people’s health, promote broader access to quality care, and contribute to helping control rising health-care costs,” said Stephen Hemsley, president and chief executive of UHC, in a press release announcing the company’s new policy.

Later in the day, just before press time, Humana and Aetna said they would also cover children to age 26 as well as some preventive-care services without co-payments. Cigna, though, announced it would wait for the Supreme Court decision before revealing its intentions.

But the insurers may have other, less magnanimous reasons for its commitment to continuing many of the most popular ACA provisions. Health insurers were very much against the reform law for a variety of reasons, but in large part because it caps their profits relative to their medical costs for insureds and administrative costs, says William Sarraille, a health-care attorney and partner at Sidley Austin.

If the individual mandate and, by extension, the intact law itself remain in place, most U.S. residents would have to buy health insurance starting in 2014. That would put health insurers in line for a revenue boom. On the other hand, besides having their profits capped, they would have to share a portion of their new income with the government in order to fund the state health exchanges slated to be operational by 2014.

“The insurers feel the law created price controls on them, and they foresee a tremendous potential benefit in striking the law,” says Sarraille. “If enough insurers join this pledge, it might suggest to the Supreme Court that it’s not that big a deal if it decides to strike down the law” because key consumer-protection provisions would effectively remain in place.

None of the three insurers included a major ACA provision — a ban on refusing coverage to those with preexisting health conditions — among those they will adhere to even if the reform law falls. “Critics will point to the absence of that as an indication that the ACA is still needed,” says Sarraille.

He adds that if other insurers do emulate the UHC, the state exchanges could address the preexisting-conditions issue or the federal government could expand its high-risk pools, which are lately showing some signs of success.

The high-risk pools, created under the ACA, were among the earliest implemented aspects of the law, which took effect in March 2010. They were designed for patients with preexisting conditions and were funded, state by state, with federal dollars. The thought was that by collectively negotiating through the pool, government administrators could help cut the costs for such patients. After a rocky start, with relatively few people signing on, the government increased its subsidies and significantly more participants joined the pools.

“If the law were to go down, it might be possible in the lame-duck session that follows the election or thereafter to convince a group of Democrats and Republicans to continue the high-risk pools,” suggests Kathryn Bakich, senior vice president and national health-compliance practice leader for The Segal Company, a benefits consultancy.

For her part, Bakich says the insurers’ moves may not affect corporate health-plan sponsors as much as it might appear at first blush. The ACA requires insurers to give rebates to employers and individuals when the percentage of an insurer’s revenue used to satisfy medical claims falls below 85%. That threshold applies per state and per each insurer’s product and service lines. However, most “large” employers (those with more than 50 employees, as defined in the ACA) already are at or above the 85% figure in most jurisdictions and for most products and services, she says.

Further, even before the ACA took effect, many such employers had already done away with caps on lifetime coverage and the exclusion of preexisting conditions.

Still, employer health-plan sponsors could be hit in the wallet. “Most employers did not previously cover kids up to 26, and they had lifetime coverage limits, and they did not provide the extensive free preventive services that the ACA requires,” says Bakich. “So, if the law is overturned but these insurers continue [to offer services that were mandated under the law], the related price increases we saw with the ACA are going to be maintained.”

Not only would the current high prices remain, they could go up. UHC did not, for example, say whether it would charge an extra premium to cover kids to 26, something that was prohibited under the ACA. “They’re keeping these reforms in place, but how much are they going to cost? That’s the big question,” says Bakich.