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The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

HOW DOES THE HEALTH CARE LAW AFFECT INSURANCE AGENCIES?

In late March, 2010 Congress passed the health care legislation that was one of the keystones of the President’s campaign. We won’t address the economic, political and social implications of that law and how it was passed through Congress. Each of us has his own ideas of the social benefits and the positive and/or negative ramifications on the future of health care in the U.S. as the result of this landmark change. We’re not going to enter a political conversation in this article.

We ARE going to address Chicken Little and the “Sky is Falling” crowd who were certain that we should all be selling our agencies while the selling was good, ahead of the collapse of the health insurance industry.

As is always the case with legislation sprouting from our Capitol, the intent is rarely reflective of the result.

1. The government-run health care plan that would compete against private insurers never made it out of the Senate.

2. The price controls on the drug industry was dropped last fall.

3. Reductions in payments to hospitals was cut to very modest levels and won’t be effective until 2014.

How will this law affect health insurance, premiums and commissions?

1. The act will cause 32 Million more Americans to get health insurance, either through Medicaid (if they qualify) or through private health insurance.

2. The poorest people will be subsidized with much of their subsidies coming from those who refuse to obtain health insurance and who will pay $695/yr (certainly less than the cost of the insurance) in fines to the government for the privilege of being uninsured. Sounds like an “uninsured” tax, doesn’t it?

3. The law bans insurers from denying coverage to people with pre-existing conditions. As a result, insurance premiums (and commissions) will increase for the rest of us.

4. Insurers who offer Medicare Advantage will see their rates frozen. This will cost the industry about $20 Billion per year for the next 10 years.

5. A new round of rate increases will occur in 2014 when the law imposes fees on the insurance companies that will cost them around $74 Billion over ten years. This is the cost of setting up the new government entities and oversight of the health insurance industry.

6. Please Note: The law does NOT regulate premium increases nor does it reform the medical system that is a part of the reason for the crisis.

What about the other industries affected by the law?

The pharmaceutical industry is rushing to pay $90 Billion of new taxes (more government growth). There is no regulation on the cost of prescriptions. The law closes the gap in Medicare coverage for drugs, so our seniors will use more medications, as well. The law also gives a victory to the more expensive biotech drug industry which will have 12 years of sales free of the competition from the lower cost generic drug equivalents.

Hospitals will benefit the most from the new law. With less uninsured rushing the hospital emergency rooms and more insurance coverage, hospitals should see their financial “crunch” relieved. Most of the hospitals’ bad debt will be relieved with the expansion of Medicaid as well as the requirement of health insurance. The deal the hospital industry cut to achieve these benefits was a (relatively) modest $155 Billion reduction in Medicare reimbursements. And even this $155 Billion number appears to be much more than the actual cuts that will be made.

How do we know the news isn’t bad for the insurance industry?

Even ahead of the passing of the law the Standard & Poor’s health care index gained 30% since it’s market bottom last March. It is now just 12 percent from its 2007 peak. On March 22, the day after the passing of the bill, the Dow Jones industrial average rose 44 points. Tenet Healthcare Corp rose 9% . The insurer, United Health Group, fell 3.2% due to continued uncertainty. This last fact points to the conservative nature of the market.

You see, with all the give-backs, concessions and good news that were required to get enough votes to pass this health care bill, no one knows the machinations that will take place in the next few years as the legislators, prompted by the President and the Special Interests (on both sides), try to grow and change the law into the form that each of them desire, for better or for worse. The only thing of which we can be relatively certain is that it will cost us more money in the long run – money that we don’t have nor have no way of generating.

However, as insurance agents, we may find ourselves the recipients of windfall revenues, at least in the short term, with no way of divining the future. All we know is that our calls for caution and continued progression of health insurance as well as other financial, property and casualty protective devices still form the basis of our industry and will continue to support our businesses for many years to come.