on July 27, 2013 by admin in Insurance Industry, Comments (0)

Insurance Companies Face Uncertainty

MINA KIM: I've mentioned a few ways the Affordable Care Act, which was signed into law three years ago, has already changed the private insurance market. What are some of the regulations that have had a surprisingly large effect?

LARRY LEVITT: Well, I think the biggest one, is what is called, and this is a technical term, the medical loss ratio. And what this has done is say to insurers that of the premiums they take in from individuals and small businesses, 80 percent of that revenue has to get paid out for actual medical claims -  to doctors and hospitals and pharmacies. And if insurers don't hit that 80 percent threshold, they have to return the difference to consumers and businesses in the form of rebates. And it's had a surprisingly large effect. There have been a lot of rebates, upwards of a billion dollars returned to individuals and small businesses. And it's also had the effect of keeping premiums down, since insurers don't want to have to miss those thresholds and have to pay money back.

KIM: In a lot of people's minds the Affordable Care Act is a huge boon to the insurance industry. I mean, the federal government is requiring people to buy their product, essentially. So what are some of the risks companies face, particularly the ones that have chosen to take part in the state's insurance marketplace, Covered California?

LEVITT: Yeah, in many ways, insurance companies will be seeing higher revenues from more people buying insurance. Congress made a judgment that the way we were going to get more people insured was through the private insurance system. So, that's on the one hand a very good thing for insurance companies. On the other hand, there's a lot of guesswork and a lot of risk involved for insurers in this new system. There will be millions of uninsured people coming into the insurance system, and no one knows exactly how much health care they are going to use, and how much they're going to cost. Plus, as we open up the insurance system to people with pre-existing conditions, there's a lot of uncertainty about how much that will increase premiums as well.

KIM: And the insurers who chose to participate in Covered California already had to set the premiums based on what they hoped would be the pool of folks who would buy into them...

LEVITT: Exactly. The business of insurance is very much a business of making guesstimates. You have to project how much health care is going to cost over the next year and who is going to buy your insurance. And that's often a difficult thing for insurance companies to do, to project 18 months in advance how much health care your enrollees are going to use. But, it's really uncertain over the next year, because of all the changes going on in the market.

KIM: And how quickly can they adjust premiums, say, if a lot more sick people sign up?

LEVITT: If insurers get more sick people than they expect, they'll essentially have to eat those costs, because their premiums are locked in for twelve months, for the 2014 calendar year.

KIM: Open enrollment for plans on Covered California starts in just over two months. When might we start seeing insurance companies advertising their products?

LEVITT: Right now, people are very confused about Obamacare. They don't know enough about it to even judge how it's going to affect their families, and people are hungry for information. At the same time, you can't really do anything yet, until open enrollment starts. So, I think in September and then really in October, people are going to be maybe hearing more about Covered California and Obamacare than they really care to.

KIM: As a private insurance industry analyst, what will you be watching for in 2014?

LEVITT: I think, you know, the biggest challenge, and frankly the biggest measure of success is whether we can enroll young and healthy people as well. And I think all the ads we'll see on TV are going to be focused on those Millennials this fall.

KIM: Mr. Levitt, thanks for talking with us.

LEVITT: Thank you. My pleasure.

Article source: http://www.californiareport.org/archive/R201307261630/c

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