As States Create Health Insurance Exchanges, Insurers Are Benefiting from the ACA

The same insurance companies that spent millions of dollars working to defeat the Patient Protection and Affordable Care Act (ACA) claiming it would raise costs and disrupt coverage, are seeing their profit margins soar to levels not seen since before the recession and are benefiting financially from the law, a Bloomberg Government study shows.

Insurers recorded their highest combined quarterly net income of the past 10 years after the law was signed in 2010, said Peter Gosselin, the study author and senior healthcare analyst for Bloomberg Government. The Standard & Poor’s 500 Managed Health-Care Index rose 36 percent in the period, four times higher than the S&P 500.  “The industry that was the loudest, most persistent critic of this law, the industry whose analysts and executives predicted it would suffer immensely because of the law, has thrived,” Gosselin said. “There is a shift to government work under way that is going to represent a fundamental change in their business model.”

Health insurers gave $86.2 million to the U.S. Chamber of Commerce to oppose the law after Obama administration officials disparaged their desire to chase profits by raising customer premiums.  America’s Health Insurance Plans (AHIP), still claims the law will increase costs and cause consumers to lose coverage.  Even so, the insurers saw their average operating profit margins expand to 8.24 percent in the six quarters since the ACA became law, compared with 6.88 percent during the previous 18 months.

One significant finding of an annual California Employer Health Benefits Survey released by the California HealthCare Foundation, a research and grant-making non-profit organization, is that in California fewer companies provided healthcare coverage for their employees last year; those that did raised premiums for coverage. According to the survey, premiums have risen 153 percent since 2002, a rate more than five times the increase in California’s inflation rate.  During the last two years alone, the proportion of state employers offering coverage to workers fell to 63 percent from 73 percent, according to the survey.

“This is a departure from previous years and could be an early sign of future changes,” the foundation report noted in commenting on data collected between July and October 2011 in interviews with 770 private firm benefit managers.

Increasing costs and shrinking coverage are speeding up, said Anthony Wright, executive director of Health Access California, a group that advocates for expanded health insurance coverage.  “They are frankly multi-decade trends,” he said. “What is notable is that this is more significant than usual.”  What’s been a “gradual erosion of employer-based coverage in good years” has evolved into “a steep one in bad years,” Wright said. “To be down to 63 percent (of California companies offering coverage) is huge.  It used to be up over 80 percent.”

There is good news, however, in the fact that 13 states have functioning health insurance exchanges, two have pending legislation to establish them, while another five are planning their exchanges. Health insurance exchanges are state-regulated standardized healthcare plans where individuals can purchase health insurance and be eligible for federal subsidies.  The remaining 30 states are moving more slowly.  For example, Pennsylvania is gradually moving toward a health insurance exchange.  “Pennsylvania has taken steps towards the establishment of an exchange, which I think is positive — there are other states that have moved more aggressively, including states whose governors are part of the lawsuit,” said Sharon Ward, director of the Pennsylvania Budget and Policy Center, a non-government organization that supports the federal health care law.  Two states — Louisiana and Arkansas — have opted out of the insurance exchange program.

Insurers are of two minds regarding the issue of insurance exchanges. Some favor the programs because they would help them to reach more consumers.  Consumer advocacy groups and insurance analysts claim that exchanges would increase competition to the industry, with the ultimate result of cutting prices nationwide.

Writing in the Green Bay Press Gazette, Jeff Mason, CEO of the BayCare Clinic, believes that, generally speaking, healthcare payments need fixing. According to Mason, “Healthcare finance is complicated even in the best of times.  Unfortunately, it isn’t the best of times.  We’re in a climactic period in healthcare when the finance mechanisms don’t work anymore.  Employers can’t continue to pay the spiraling healthcare costs.  Providers can’t continue to shift their low-reimbursement government work to employers. The government can’t expect any more free care out of providers.  Right now, our clinic collects less than half of what we charge to all of our customers in aggregate.  We collect 11 cents of every dollar we charge to Medicaid, and 13 cents of every dollar we charge to Medicare.  This is considered our “low-pay” business, and is extremely difficult to manage financially.

“This physician/hospital payment problem is a government experiment that started in the 1980s and has gone terribly wrong.  It followed the concept that a large purchaser of a service should get a better price and began discounting government payments to providers.  Medicare started by shaving a few percent, but then it got larger and larger.  All along, health care providers were shifting the shortfalls to the private employers.  At the same time, health care expense continued to grow as we obtained more expensive new medications and new technologies to improve patient treatments.”

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