By Craig Lack, Special for USDR
Health insurance companies suddenly want in on the Obamacare action for 2015. Is this a very positive sign for the exchanges? Let’s explore the question in a way that goes deeper than just the ideological talking points.
In order to provide some context to the conversation we need a metaphor. So, picture an enormous leaky bucket with various size holes leaking water out of the bucket. The insurance carriers own the bucket, the premiums are the water and the Exchanges fill the bucket with more and more water.
Obamacare mandates when water can be added and then restricts the volume of water that can be added by the limiting the annual rate increases. Consequently, the insurance carriers are attempting to estimate the rate at which water will leak out while being restricted on how often and how much water can be added. And, Obamacare has incentivized the sickest people to enroll first which increases the number, size and frequency of leaks.
One might say, it’s a very fluid situation!
What kind of rate decrease/increase can we expect by this trend?
The ACA requires that insurance companies inside state exchanges requesting rate increases of 10% or more must be approved by committee. So, safe to say you will see many 9% increases on the exchanges.
Let’s remember, the insurance companies just enrolled their new guaranteed issue exchange members in the first quarter of 2014 and already were required to submit their 2015 rates for approval in June of 2014. Of course the insurance companies weren’t even sure yet exactly who was enrolled, if they had paid premiums or the severity of their pre-existing conditions.
To no one’s surprise, enrollment in the exchanges was comprised of mostly older and sicker individuals who undoubtedly will consume far more in benefits than they pay in premiums.
What is known is the relative market share of insurance companies inside the exchanges. So, expect rate decreases only from the plans with the least number of enrollment and rate increases from the rest.
How will Obamacare continue to work in a positive light?
The medical delivery system in the United States, we euphemistically call healthcare, has created a system where sickness is the revenue model for the providers. The system perversely incentivizes providers by paying them a fee for service based on the volume of treatments they deliver. The Institute of Medicine’s latest report indicates that as much as 30% of medical treatments are fraud, waste or unnecessary care.
Unfortunately, many of the providers don’t want to change the way they deliver medicine, unless the incentives (compensation) are changed to reward them fairly for keeping people healthy.
Obamacare attempts to change the compensation incentives to providers by rewarding them for keeping people healthy. The system change is beginning in the Medicare population but also includes strong incentives in the employer sponsored market. So, this is the start of an evolutionary change to the medical industrial complex. The change will be painful and vary dramatically depending on which region of the country you live.
Make no mistake, this new outside-in approach, where we transition the sickness elimination medical delivery system to more of an actual healthcare system, will take time, but it is only a half measure.
The revolution in improving life expectancy and delivering greater value for the money spent on healthcare will only be realized with an inside-out focus on health. In other words, we need to take personal responsibility for our health and the lifestyle and behavior choices we make that influence our health status.
Additionally, we need to create incentives and medical insurance policies that monetize good health. Obamacare, despite its drawbacks, delivers a much needed change of focus from eliminating disease to promoting health.
What challenges are coming in the near future?
Change is often perceived as a four letter word that sounds a lot like work. Obamacare will change every facet of healthcare in the United States. Insurance companies will be perceived to have a good ride through 2016, but the real drama begins starting in 2017 when the artificial financial backstop created by Obamacare is discontinued.
Hospitals and physicians will be under constant pressure to change their delivery system to align themselves with the new direction of healthcare. Undoubtedly as hospital admissions and demand for acute care go down and margins are squeezed by higher overhead, we will see many community hospitals become obsolete.
Consumers will be affected with more access to coverage, less access to all providers and all medical insurance options requiring “skin in the game” plan designs. The lesson to be learned is that good health is by far your cheapest health insurance policy.
Is this progress for the hospitals, consumers, doctors and insurance companies?
Only time will tell how fast change will result in progress. One thing is for sure, every participant in the US healthcare system will be impacted. Physicians will be paid to promote health, hospitals will have to improve non-acute care solutions or specialize in specific treatments and insurance companies will have to recreate and reposition their role or become an obsolete added cost.
Consumers, more than any other constituent, have the greatest potential impact on healthcare costs. Our focus should be on providing incentives to consumers to take responsibility for their health because ultimately demand drives cost. Reducing the demand for preventable chronic conditions holds the key to a long term sustainable healthcare system in the United States. The old adage that an ounce of prevention is worth a pound of cure has never been more true and appropriate.
Craig Lack is a nationally-recognized health care expert, bestselling author, speaker and CEO of ENERGI. He is the creator of Performance Based Health Plans® which Inc. magazine said is “The next big thing.” He has appeared in national media including Fast Company, USA Today, radio and America’s Premier Experts, which aired nationally on the major network affiliates. He’s a member of the National Academy of Bestselling Authors for achieving No. 1 bestseller status on Amazon.