Health insurers and supporters of the Obama administration’s health-care reform law are currently in the midst of drawing up possible contingency plans in case the Supreme Court overturns the Affordable Care Act’s individual mandate.

The insurance industry argues that premiums are likely to skyrocket without the individual mandate in place to aid in pushing millions of new enrollees into the marketplace, as healthy people will be less likely to buy insurance, while insurers will still be required to sell policies to all applicants. In fact, a repeal of the individual mandate would increase insurance premiums by 25 percent, according to a study released by the Robert Wood Johnson Foundation.

“The insurance reforms would have to change if the mandate were struck,” said Justine Handelman, vice president of legislative and regulatory policy for the Blue Cross and Blue Shield Association trade group.

Health-insurance officials say that if the mandate is repealed, “their first priority would be persuading members of Congress to repeal two of the law’s major insurance changes: a requirement to cover everyone regardless of his or her medical history, and limits on how much insurers can vary premiums based on age.” Their next step would be to “set rewards for people who purchase insurance voluntarily and sanction those who don’t.”

Other possible alternatives to the individual mandate that insurers are weighing:

- Penalize those who enroll outside of short annual windows; deny treatment for specific conditions, especially right after a policy is purchased

- Reward certain insurance buyers, such as offering much lower premiums for younger and healthier people

- Expand employers’ role in automatically enrolling employees for health insurance

- Urge credit-rating firms to use health-insurance status as a factor in determining individuals’ ratings

Although the mandate has been upheld in two appeals courts, it was struck down in a third. The Supreme Court hearings are scheduled to begin March 26, and an official ruling is expected to be delivered in June.

– Fatima Najiy

Aetna CEO, Chairman and President Mark Bertolini praised the Affordable Care Act during the HIMSS12 Conference in Las Vegas this week, arguing that while the new law and its regulations have “pulled [the insurance industry] through the crucible” and “reshaped” the health care market, “For most of what has already been implemented, it has been a pretty good thing”:

So what will the health insurers look like in the future? Bertolini offered a strong endorsement of the accountable health organization model, positioning health insurers as uniquely suited to usher in an era of coordinated care. “We need to move the system from underwriting risk to managing populations,” he said. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.” [...]

Pondering the future of the health care exchanges, Bertolini foresees the brands of health systems superceding those of health insurers. “We want to leverage or technologies and capabilities to allow you to be the face in marketplace,” he said.

Indeed, Bertolini says this new arrangement makes great sense from the perspective of the customer. The lack of coordination inherent in the current system stems largely from the various stakeholders acting rationally in their own self-interest. “For the patient it’s a nightmare. Think of a hockey game where everybody has their own puck.”

The Aetna chief also “discounted the prospect that the results of the 2012 presidential election or a Supreme Court decision striking down aspects of the ACA would deter the change,” noting, “Reform is not going to stop. It won’t go away.”

Insurers have generally accepted the inevitability of the ACA and have worked to shape its implementation to meet their needs. For instance, health lobbyists are pressuring Congress to repeal taxes on the industry, and have urged the Department of Health and Human Services to adopt exchange regulations that would allow almost all private insurers to participate in the new marketplaces and provide greater leeway for plans to design the standard essential health benefits package that will be offered in 2014. Insurers have also lobbied conservative governors to establish health care exchanges.

At the same time, the industry is preparing for the expansion of new customers. Last September, Cigna — one of the nation’s largest health insurers — kicked off a $25 million ad campaign designed to attract the individual consumers who will begin shopping for their own policies and the industry joined forces with health care and consumer groups to form the “Enroll America” campaign, an effort to “encourage states to make it easy for people to sign up for coverage, by providing model regulations” and “get the word out among the uninsured, through advertising and community outreach.”

“If a woman’s employer is a charity or a hospital that has a religious objection to providing contraceptive services as part of their health plan, the insurance company -– not the hospital, not the charity -– will be required to reach out and offer the woman contraceptive care free of charge, without co-pays and without hassles.” — President Obama, 2/10/12

The big question from today’s unveiling of the updated contraception coverage rule — which would require insurers to directly and seamlessly provide birth control to employees of nonprofit religious organizations that opt out of the requirement — is, why would the insurance companies provide the benefit at no additional cost? After all, if the employer isn’t paying for the birth control and the employee will receive the benefit at no additional cost sharing, aren’t insurers on the hook for the upfront costs of the contraception?

The economics of insurance suggest that they’re not — at least not over the long term. That’s because when insurers or employers provide contraception, they’re avoiding the much higher costs of unintended pregnancies. The Guttmacher Institute points to the literature:

– “A 2000 study by the National Business Group on Health, a membership group for large private- and public-sector employers to address their health policy concerns, estimated that it costs employers 15–17% more to not provide contraceptive coverage in employee health plans than to provide such coverage, after accounting for both the direct medical costs of pregnancy and indirect costs such as employee absence and reduced productivity.”

– “[E]very dollar invested by the government for contraception saves $3.74 in Medicaid expenditures for pregnancy-related care related to births from unintended pregnancies. In total, the services provided at publicly funded family planning clinics resulted in a net savings of $5.1 billion in 2008.”

– “A study from the early 1980s looked at a policy change in California under which the state began charging copayments for state-funded family planning services. The study, commissioned by the state department of health, found that nearly one in four clinics that charged copayments saw a decrease in their client population, and a similar proportion reported a decrease in necessary follow-up visits.”

As a White House administration official explained on a call with reporters this morning, “contraception services save a lot of money in the overall health care system” and don’t come at an additional premium. Still, insurers have yet to weigh in on the new rule and it’s not immediately clear how they will offset the initial upfront cost of swallowing some share of the cost of providing birth control to employees of religious institutions that opt out of the birth control requirement.

Sarah Kliff points out that the government’s growing reliance on private health insurers to manage Medicare and Medicaid has led to “a pretty stellar financial year” for the industry. According to a new Bloomberg Government study, “returns on investments have surged ahead of general stock indexes and, as the above chart shows, anyone who invested $1 in health plans back in October 2008 has seen that grow to about $1.70“:

Those profits will likely continue to grow as more Americans acquire health insurance as a result of the mandate in the Affordable Care Act. A July 2010 report from PricewaterhouseCoopers concluded that the law’s state-based health care exchanges provide private insurers with a lucrative new market in which they stand to gain up to $200 billion in revenue by 2019, despite some of the provisions designed to curb industry gains.

Insurers, in other words, will continue relying on government for its growing revenues, while lobbying for the repeal of health reform’s taxes and paying its congressional allies to pretend that any additional government regulation of the industry will eliminate the private insurers altogether.

In October, the health insurance industry released a report alleging that the Affordable Care Act’s taxes on health insurance plans will force companies to shift costs to consumers, adding up to “at least $73 billion in fees through 2019 and increase premiums between 2.8 and 3.7 percent in 2023.” Weeks later, Republican Sens. John Barrasso (WY) and Orrin Hatch (UT) publish an op-ed in Politico echoing this very same warning:

This is how it works: Starting in 2014, health insurance companies will be whacked with a tax based on their net premiums written in the fully insured market. Eighty-seven percent of small businesses purchase insurance in this fully insured market. It is also the place that the self-employed and uninsured go to purchase insurance.

So who will pay this tax? Ultimately, small businesses and their employees. It will most likely get passed through to employees — who will pay for it in lower wages or higher premium contributions. The average employee with a family plan will see take-home pay reduced by $5,000 over the next decade because of this tax, according to one study.

Set aside the hypocrisy of Republicans complaining about policies that pay for spending legislation — remember how they demanded that health care reform be fully paid for? — and what you have are two senators who are gulping down the industry’s kool-aid on premium increases. Both men count the insurers among their top campaign contributors, so it’s certainly no accident that they’re asking Congress to repeal taxes on an industry that’s earning record profits and is about to benefit from tens of millions of new customers as a result of the Affordable Care Act (ACA).

Of course, the appropriate response isn’t to roll back the taxes — which are necessary to finance reform and ensure that coverage expansion is fully paid for — but to strengthen provisions that help lower costs and mitigate the cost-shift. The ACA already requires insurers to spend 80 to 85 percent of their premium dollars on health care rather than administrative expenses and forces companies to justify proposed premium increases. And if the industry is now arguing that it doesn’t have the tools to control premium increases, then perhaps Barrasso and Hatch should bring back some of the cost control measures they helped defeat during the health reform debate. I’m looking at you, public option.

A new report from the health insurance industry alleges that the law’s taxes on health insurance plans will increase costs for consumers, adding up to “at least $73 billion in fees through 2019 and increase premiums between 2.8 and 3.7 percent in 2023.” The Hill’s Julian Pecquet pulls out additional findings:

– Affect individuals and smaller firms most of all;

– Further incentivize employers to self-insure their health benefits coverage as a means of avoiding these fees, which will further shift the burden of the fees to smaller employers and individuals who continue to purchase fully insured coverage;

– Increase costs in the Medicare Advantage and Medicare prescription drug programs that will result in increased cost-sharing and premiums for enrollees;

– Increase pressure on state budgets to address increasing costs for Medicaid managed care plans; and

– Exacerbate adverse selection in the individual and small group markets as younger, healthier individuals forgo coverage, “leading to a less stable risk pool and higher premiums.”

Republicans will certainly appropriate these talking points to argue for repeal, but it’s difficult to shed any tears for an industry that’s earning record profits and is about to benefit from tens of millions of new customers as a result of the Affordable Care Act. If anything, the appropriate response isn’t to roll back the taxes — which are necessary to finance reform and ensure that coverage expansion is fully paid for — but to strengthen the law’s regulatory provisions.

The ACA already requires insurers to spend 80 to 85 percent of their premium dollars on health care rather than administrative expenses and forces companies to justify proposed premium increases. And if the industry is now telling us that it doesn’t have the tools to control premium increases, then perhaps we need to bring back some of the cost control measures it defeated during the health reform debate. I’m looking at you, public option.