Health insurers weighing options to get ahead of reform

By David S. Hilzenrath
Washington Post Staff Writer
Sunday, April 18, 2010

The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.

To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.

But even before the health-care overhaul was signed into law last month, one of the nation's largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, "medical management," and "clinical health policy," a WellPoint executive said in a March briefing for investors.

Redefining medical spending to make the requirement more attainable is just one way insurers might adapt to the new legislation.

Weeks after the law was enacted, insurers are still scouring it to figure out precisely what it allows. Many of the details won't be known until government officials translate the legislative language into specific regulations, and some of the tightest restrictions won't take effect for years. In the meantime, health insurers face tactical and strategic choices that could alter their short-term fortunes. Should they boost premiums before rates become subject to greater oversight? Should they step up efforts to avoid people with preexisting conditions before they are required to accept even the sickest applicants?

Some analysts say the new law gives insurers powerful motivation to try to increase profits and reserves while they still can.

"They will absolutely try to cherry-pick as much as they can get away with between now and when the legislation is fully implemented," said Wendell Potter, a former spokesman for big insurer Cigna.

Insurers might conclude that they should "get our prices up while we can because after the revolution we're not going to be able to," said Mark V. Pauly, a health-care economist at the Wharton School at the University of Pennsylvania.

But for all the incentives to get more aggressive in the short term, there are also counter-incentives, and it is hard to tell how they balance out.

From an economic standpoint, raising rates could cause insurers to lose business, especially in the more competitive markets.

From a regulatory standpoint, charging excessive premiums during the next few years could give authorities grounds to bar insurers from new marketplaces known as exchanges when they open for business in 2014.

From a political standpoint, pushing limits while officials are still writing the rules could boomerang for insurers. WellPoint's plan to raise rates in California by 39 percent fueled arguments for reform earlier this year and helped drive the legislation to final passage.

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