While health insurers have largely embraced the provisions of the Patient Protection and Affordable Care Act, the competitive outlook of the market changed this morning when the U.S. Supreme Court upheld the entire act, including the individual mandate on the grounds of the government’s ability to tax.
The mandate is a tax enforced on those who choose not to purchase health insurance. The bill was originally enacted in 2010—this morning’s ruling simply supports the initiatives insurers have been faced with for two years.
“Most insurers, especially the larger ones, have already implemented provisions in place in the bill,” said Kunal Pandya, senior health care analyst with Aite Group. “As far as tier 2 and tier 3 insurance companies go, they have been slightly slower as far as being able to cope with some of the changes from a document and content management perspective, so they will have to start formulating strategies to expedite those areas. It’s going to become critical for some of the insurance companies that have been a little lackadaisical in their approach, but the majority were bracing for the larger changes, such as the medical loss ratio rebate and certain other implications.”
The ruling this morning gave health insurers a deadline of 2014 for embracing such provisions. On the other hand, competitively speaking, this places much more of a burden on large health insurers to provide a wide range of packages that appeal to demographics that may not have been on the radar.
“I think one of the immediate focuses for insurers will be to start formulating some individual plans,” said Pandya. “Managing better variations, creating better pricing; being able to sell to the uninsured population or self-employed population or low-income population that might be looking to get health insurance, and also some of the smaller employers that may be looking to get into the exchange to transfer out of their current health plans.”
For tier 2 and tier 3 insurers already focusing on niche markets, this will likely present a boon for them. This surge to the mid-market demographics could lead to market consolidation and increased M&A activity after the dust has settled.
"There could be a possibility that larger plans may absorb smaller plans,” Pandya said. “Not all of them are doing a great job, but I’ve worked with some of the local plans, and they have a great philosophy of going after niche markets, ethnicities and approaching things from an income standpoint, and they develop products around those particular parameters. They would probably have a chance at competing, but there’s a greater possibility of them getting acquired.”
President and CEO of American’s Health Insurance Plans Karen Ignagni spoke to the competitive and pricing nature of the health insurance market in her official statement following the ruling, saying, “Maintaining the link between market reforms and universal coverage is essential to avoiding significant cost increases and loss of choice for consumers and employers. Health plans will continue to work with policymakers on both sides of the aisle to make coverage more affordable, give families and employers peace of mind, and promote choice and competition.”
Following these statements, the release outlined the provisions in the PPACA that have been forecasted to grow premiums, citing an increase from 1.9 percent to 2.3 percent by 2014. The provisions cited were the elimination of age rating in the small-group and individual markets as well as the minimum essential health benefits requirement.
For a full timeline of events surrounding the origin and implementation of the PPACA, click here.
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