Health Care Reform: The Individual-Small Group Seesaw

One of the most frequent questions I’m asked about health care reform is whether the Patient Protection and Affordable Care Act will result drive people from group plans to individual plans or vice versa. It’s an interesting question. We have enough information to make some guesses, but not enough to know. And there are reasonable scenarios that can be created for each conclusion.

An individual coverage scenario: No small business owner I’ve met got into business for the thrill of buying health insurance for the company.  Now health care reform makes it easy for them to get out of the insuring business: give every worker a small raise along with the URL for the state health insurance exchange. The employees benefit: they get to choose their own health plan and some may qualify for premium subsidies. Their coverage isn’t tied to their employment and they can keep their plan if they change jobs. They don’t even need to spend all of their raise on premiums nor are they locked into the exchange. Once the employer decides not to provide coverage they can obtain individual coverage where they please.

Employers benefit from no longer having to shop for health insurance for their workers (they’ll have to shop for their own families, but that’s a lot less stressful). No more complaints. No more  bookkeeping.

A small group coverage scenario: Small business owners aren’t required to purchase coverage today, but there are good reasons for their doing so — and those reasons aren’t changed by health care reform. Providing health insurance helps small businesses recruit and retain good employees. Employers’ contributions to health insurance premiums makes coverage more affordable for employees. Yes, the Patient Protection and Affordable Care Act provides subsidies to some workers, but only those earning less than 400 percent of the federal poverty level ($43,320 for an individual and $88,200 for a family of four in 2010).  So, depending on their salary, sending employees to the individual market will be perceived as a loss to some employees.

Even if employees receive a small raise to help them with buying their own coverage, employees may see the loss of work-based coverage. How long before that raise is considered just part of their salary? A month? A quarter? The connection between the raise and the coverage is tenuous and easily forgotten. Look at it from an employee’s point of view who …

  • Receives a raise and buys own coverage: my boss gave me a $200 raise. Coverage costs $250. Wow that’s a lot. Of course, after the raise it’s a net expense of $50, but still — $250 a month for insurance is a lot of money.
  • Has employer-provided coverage: My share of the health insurance premium is just $50. My neighbor pays $250. I’ve got a good deal.

Which way?

There’s a lot of other factors that will impact the movement of consumers between individual and small group plans. Employers may cover the cost of Bronze benefit plans and allow each employee to buy-up to a Silver or Gold offering. Companies could drop — or add — ancillary products like dental, life, long term care or disability coverage. The exchange could be easier to use than is anticipated today — or much harder.

Predicting whether health care reform will shift consumers from small group to individual or move them the other way is simply guesswork at this point. My advice to brokers who ask what they should do to prepare for this seesaw ride is to get engaged in both market segments. Brokers active in both the individual and small group markets will have plenty of customers regardless of which direction the teeter totters. I also suggest they become expert on assorted other benefit plans (voluntary benefits, group dental, life, long term care and disability). That way they’ll have additional opportunities to meet clients’ needs. Success under health care reform will go to the nimble and flexible.

What’s your guess? (Please vote only once)

[polldaddy poll=3135404]

Health Care Reform Odds and Ends

Depending on your perspective – and stress level – every morsel of information about health care reform is either big news or not. But regardless of whether you perceive the information beginning to emerge as substantial or just more hints about what is to come, the good news is the information is coming. This post presents some odds and ends concerning health care reform along with some interesting resources readers may want to know about.

  1. USA Today has a short (surprise, surprise) article on upcoming key dates concerning health care reform.
  2. Publicly traded companies are required to disclose about possible risks to their future earnings and performance. When a number of large enterprises began reporting that health care reform would hurt their earnings, however, some lawmakers were, as the New York Times put it “skeptical.” Now that they’ve investigated the matter, however, the Times is reporting that “House Democrats have concluded that the companies were right to tell investors and the government about the expected adverse effects of the law on their financial results.
  3. Health care reform will not lower the cost of health insurance for most Americans. In fact, given the taxes imposed on medical suppliers and carriers, restrictions on health plans ability to manage risk, the incentives for some healthy individuals to go without coverage until they need it, and a host of other provisions in the bill, it is inevitable that health insurance premiums are headed up – steeply and soon. Politicians will no doubt pound on carriers for this result, but serious lawmakers realize that the only way to restrain the cost of medical insurance is to restrain the cost of medical care. The New Hampshire legislature is showing signs of dealing with this reality. Bloomberg recently reported lawmakers in the Granite State are considering establishing a board to review hospital costs.
  4. The Centers for Medicare & Medicaid Services’ Office of the Actuary released their analysis on the Patient Protection and Affordable Care Act. The independent review is given great weight. Not surprisingly, however, what someone takes away from the report seems to reflect more about that someone than the data in the report. Just check out some of the comments about the CMS report gathered by the Kaiser Health News site. Given that no law delivers on all its promises, or on what critics fear it will bring, an objective view of the bill can’t help but provide ammunition to both sides. And the CMS report does just that.
  5. For those who need to atone for past sins, you can do penance by reading the two bills now known as health care reform.
  6. One group who will need to read the bill are insurance commissioners. They have substantial responsibilities for interpreting and refining the law. The National Association of Insurance Commissioners web site has a thorough library of information about the new reforms. It’s a great resource on various aspects of the reforms.
  7. One of the best resources around concerning health care reform is provided by the National Association of Health Underwriters to its members. If you’re a broker and not a member of Health Underwriters, you’re doing your profession a disservice. And you’re unable to get to NAHU’s resource page. Which is a shame because its definitely worth the price of admission.

There’s a lot more odds and ends out there. I’ll cover more in future posts. Hopefully, however, this is an interesting start.

Health Care Reform: (No Doubt Inaccurate) Predictions

I’ve tried not to make too many predictions about the impact of health care reform. Not that readers – especially brokers – aren’t concerned about what the Patient Protection and Affordable Care Act will have on how and where people obtain health insurance coverage. I get questions all the time about whether employers will tend to drop coverage and send millions of consumers to the exchange or into the individual market? Or will Americans who currently purchase their own health insurance find new coverage opportunities in the group market? How big are the exchanges likely to get?

For brokers there’s an additional layer of concern: what’s likely to happen to commissions and will the migration of consumers from one market segment to another offset expected changes (i.e., reductions) to compensation?

The questions are appropriate – and numerous – but my hesitancy in offering answers is because no one really knows. Lots of people are willing to make lots of predictions. But the truth is reality has a way of throwing its weight around in unanticipated ways. We’re talking about a lot of regulations, court cases, and proposed amendments still to come. And since many of the provisions that will determine consumer choices don’t take effect until 2014, even educated guesses are more guess than educated.

But you’ve asked for tea leaves, so here’s some tea leaves. But be forewarned, predictions can cause more stress than insight. And if they’re wrong (as they’re likely to be) why worry about them? So the sane among you will stop reading now. For everyone else, just two requests: 1) don’t shoot the messenger; and 2) assume I’m wrong. With those ground rules, please feel free to read on.

Impact of Reform on Market Segment

Of all the folks making projections on how folks are likely to move between group and individual coverage and the exchanges, the Congressional Budget Office is probably one source with credible insight. Not just because their projections are what Congress relied upon in passing health care reform, but because they’ve spent considerable time and resources trying to model this out.

What’s well known is that the CBO estimated 32 million otherwise uninsured non-elderly Americans would obtain coverage under the original Senate health care reform bill and the clean-up legislation (HR 3590 and HR 4872, for those keeping score at home). What’s less well known is that the letter (on page 21) also estimated where non-elderly consumers would obtain their coverage (non-elderly is the focus because those age 65 are eligible for Medicare).

Unfortunately, the CBO didn’t break-out coverage between large and small employers, but their projections are interesting nonetheless.

In 2010, the CBO estimates 150 million non-elderly Americans have employer sponsored health insurance, 27 million have non-group coverage (which includes Medicare – the CBO estimates roughly half of this category are in the individual market, which tracks with the estimates I’ve seen that approximately 17 million Americans buy their own coverage), and 50 million are uninsured.

Without the health care reform bill, the CBO projected that by 2015 the group market would have grown to 162 million non-elderly Americans, the non-group market segment would grow to 29 million and the number of uninsured to 51 million.

With the reforms, however, the CBO is estimating that the number of Americans with group coverage in 2015 will be 163 million (an additional one million people), those with non-group coverage will number 26 million (three million less than without reform and one million less than today), 13 million Americans will obtain coverage through the Exchange and the number of uninsured will have fall to 26 million.

The important figure here is the loss of one million consumers buying non-group plans. Given that roughly one-half of these are in Medicare, that’s a loss of approximately 500,000 people in the individual market segment. If there are 17 million in today’s market, that’s a drop of about three percent.

Then there’s the eight million the CBO estimates will be in the exchanges. This population is around half of today’s individual market. To put this in context important to producers: if brokers are fairly compensated for helping even 10 percent of these enroll in the exchange they will have more than made up for shrinkage in the individual market projected by the CBO. If brokers are engaged in just 50 percent of these enrollments they will have increased their customer base over today’s number by over 20 percent

Commissions: The New Math

Commissions on individual coverage today vary considerably from state-to-state. As a result, changes to commissions resulting from health care reform are likely to be far more noticeable in high-commission states (think California) than lower commission states (for example, Texas). But the math remains the same. Here’s how I see the calculations working out. These assume that disease management, nursing call centers and the like are considered health related and not as administrative costs. It also assumes taxes and fees are taken out of the equation.

  1. Mature, large carriers are likely to need to spend approximately 7-to-8 percent of premium for administration their individual plans.
  2. Carriers need to achieve at least 4-to-5 percent of premium for profit (or for retained earnings for non-profits) from this market segment.
  3. Given that individual carriers must spend 80 percent of premium on claims and other activities that improve health care quality, that leaves roughly 8 percent for distribution costs.

Some other considerations: the days of tying broker compensation to medical inflation are likely coming to an end – and this is what happens when commissions are calculated as a percentage of the client’s current premium) are probably over. Instead, distribution compensation will likely be based on a per contract, per member or original premium basis.

If carriers use the same math I do, commissions in this range will be a modest change in some states. In others, this math leads to a far more dramatic result. Of course, the math, like most predictions you’ll hear today, is probably wrong.

Medical Loss Ratios Will Be First Indication of Health Care Reform’s Real Impact

 The Patient Protection and Affordable Care Act requires carriers to spend specified percentages of the premium dollars they take in on paying claims and other activities that improve health care quality. This Medical Loss Ratio (“MLR”) requirement will have far-reaching effects on health care coverage, carrier costs and broker compensation. So the details concerning how it will be implemented is of critical importance.

For example, when dealing with any percentage there’s a numerator (the amount a health plan spends on claims and health quality improvements) and the denominator (the amount of premiums it takes in). Seems simple enough – until you get into the specifics.

The law says money spent on taxes (federal and state), licensing and regulatory fees are excluded from the calculation altogether. And it takes into account dollars spent on risk adjustments and reinsurance. The federal MLR targets are 85 percent for larger groups (100 employees or more) and 80 percent for individual and small group coverage. States can impose higher Medical Loss Ratio targets, but the Secretary of Health and Human Services can lower the targets if doing so is necessary to stabilize the individual market in a state.

If health plans spend less than the required percentage on claims and health care quality expenses, the underpayment must be returned in the form of rebates to its enrollees.

That’s pretty much what the law provides for. As I’ve mentioned before, however, the law is just a framework; the actions of judges, regulators and those living under the law are what brings it to life. It’s what happens after the law is passed that fills in the details.

Three federal Departments, working with the National Association of Insurance Commissioners, are tasked with filling in a lot of the details concerning. To help draft the devil’s new home — the details — the three Departments have requested input from the public concerning Medical Loss Ratios. (For those interested, you can submit comments online within 30 days from when the request was published in the Federal Register on April 14th).

What’s interesting is the questions they ask. (In the hard copy of the Departments’ Request for Comments relating to Medical Loss Ratios they start on page 13). Some of it is purely informational: what data is currently collected concerning MLR calculations at the state level? Some, however, go directly to the issue of whether this provision will result in a vibrant private market for health insurance or not. For instance, on page 17 of the hard copy the request seeks information on the impact of aggregating data “at the policy form level, by plan type, by line of business, by company, by State.”

Think about that for a moment and compare two scenarios In the first, each specific small group product a carrier offers has to individually meet the MLR requirement and do so each year. In the second scenario, all of a carriers’ small group products offered in a state have to meet or exceed the Medical Loss Ratio targets in the aggregate.

The first scenario leaves little room for error, meaning pricing and plan design will be extremely conservative. No innovation welcome. Actuaries and the health plan executives who love them will stick to the tried and true. The second scenario, however, will allow for some flexibility. New products can be offered with the knowledge that its impact will be minor in the MLR calculations relative to the carriers’ existing block of business. The result will be the continued introduction of new product designs and increased consumer choice.

The Departments are also looking at whether carriers should be allowed to aggregate their Medical Loss Ratio at the state or national level, how the data will be reported (the law requires each carriers’ MLR to be posted on the Internet), whether new carriers and regional health plans should be treated differently than national carriers. In addition to their stated questions, commentators can provide information and perspective on any issue related to the MLR issue.

The task of defining the rules, regulations, and definitions concerning Medical Loss Ratios will not be an easy one, especially given the need for speed. For most carriers, the MLR requirements will be based on the premiums they take in and spending they incur starting January 1, 2011 — less than eight months away. By law the regulations have to be in place by December 31, 2010. As a practical matter, however, to be implemented in 2011, health plans need to have their new business models in place by early Fall at the latest. Secretary of Health and Human Services Kathleen Sebelius is aware of these realities. She asked for input from the National Association of Insurance Commissioners by June 1st so the regulations can be published as soon as possible.

As I’ve written previously, the impact of health care reform will be revealed over time. The MLR regulations will be the first indication of where reform is headed. They will tell us a great deal about the viability of private coverage, the role brokers will play under a reformed health care system, and whether consumers will find much choice in the health insurance marketplace. These are not just details, but important details.

When It Comes To Health Care Reform, Nothing Is Easy

One of the most welcome elements of the health care reform package signed into law by President Barack Obama concerns the creation of high risk pools. For Americans with pre-existing condition who are unable to obtain insurance from the private sector and do not qualify for government programs like Medicaid, these pools are their only source for health insurance coverage.

According to an article by Sean Carr for A.M. Best Company, in 2009 35 states offered high risk pools enrolling roughly 200,000 people. To qualify for these pools, applicants have to first be rejected by commercial carriers on medical grounds. The coverage is more expensive than in the private market (not surprising since, by definition, the pool is made up of individuals with much higher than average usage and claims) and the benefits are leaner than generally available (to help keep the programs affordable). The Patient Protection and Affordable Care Act set aside $5 billion to establish new ones in states currently without them and to supplement existing programs. This aspect of health care reform is to take effect July 1st.

A safety net for those unable to get traditional coverage providing a bridge until exchanges are established in 2014. Whether you approve of the overall health care reform bill or not, this might seem like a good deal for $5 billion.

Well, not necessarily. For example, if you’re running for high office high risk pools can be an opportunity to score political points. And if you’re one of those 200,000 consumers already enrolled in a high risk pool, you might feel as if you’ve entered the Twilight Zone. And what if $5 billion isn’t enough?

There’s an underlying assumption, but not a requirement, that it would be state governments which establish these new high risk pools. But state governments are political beasts, so nothing is ever simple. So perhaps it’s not surprising that, as Mr. Carr reports, Georgia Insurance Commissioner and candidate for Governor, John Oxendine, has announced his state will not participate in the program in a letter, dated April 12th, to Health and Human Services Secretary Kathleen Sebelius.

Most “business mail” between government officials are boring, straight-to-the-point, well, business letters. This one is different. Commissioner Oxendine’s letter begins “I am in receipt of your April 2, 2010 letter detailing the first step in the recently enacted federal takeover of the United States health care system.” Not your typical opening for a formal inter-governmental missive. The letter then goes on to attack the Patient Protection and Affordable Care Act as a hastily drafted “government takeover of 17 percent of the United States economy, for being unconstitutional, and for eventually imposing an additional $1 billion burden on Georgia for Medicaid spending.

Commissioner Oxendine then questions whether the high risk pools, which are supposed to go away when carriers are obliged to accept all applicants regardless of their existing medical conditions will really be a temporary program. Consequently, he writes, “I cannot commit the State of Georgia to implement a federal high risk pool program that is part of a broader insurance scheme which I believe the Supreme Court will hold to be unconstitutional, leads to the further expansion of the federal government, undermines the financial security of our nation, and potentially commits the state of Georgia to future financial obligations.” He then ends his political attack on the health care reform plan Secretary Sebelius worked hard to enact as only politicians can: “With kindest personal regards ….”

My point for going into all this is not to comment on the merits of Commissioner Oxendine’s position (some of his arguments are overblown; some legitimate). Rather the letter strikes me as evidence that implementing health care reform – even the so-called “easy parts” – is going to be an extremely rocky road.

Keep in mind, Commissioner Oxendine’s letter does not mean Georgians in need will be denied access to a high risk pool. As Mr. Sean reports, the law allows HHS to contract with a qualified non-profit entity to run the pool if the state declines to do so. In this regard, Commissioner Oxendine is playing the equivalent of a candidate’s free card. He gets to use his state office to attack the federal government and the Administration’s health care reform plan without doing anything more than inconveniencing that federal government and some of his state’s citizens. What’s not to like?

Then there’s the coming Twilight Zone episode: Those enrolled in state high risk pools will be ineligible to participate in the new federally-funded program even though the coverage will be better than what they currently receive and less expensive than what they currently pay.

The reason, as reported by the Associated Press, is that only individuals who have gone at least six months without health insurance coverage are eligible for the federally subsidized high-risk coverage. Allowing the 200,000 individuals with coverage through state pools to move to the federal program would dramatically increase the cost of the new high risk pools. So unless they’re willing to drop their current coverage for six months (unlikely given that the high risk pool coverage is generally desperately needed to pay existing medical costs) current high-risk enrollees are “locked in” to their current coverage.

The good news, of course, if for the 375,000 people the Associated Press reports are expected to sign up for the new high risk insurance program. For them, the program could well be a lifeline that gets them to 2014 (when such programs will presumably be unnecessary) with their finances intact.

But will the $5 billion be enough to fund the program to 2014? Not likely. The federal pool will operate alongside existing state pools while HHS will create a national program to serve residents of states with no existing pools or who opt out of the program. Funding the program for nearly four years may prove a more extensive task than Congress has budgeted. The Associated Press article describes a letter from Medicare economists warning that “the program could go through $4 billion in its first year and run out of money as early as 2011.”

If correct there are three likely alternatives. Starting with the least likely:

  1. Require the states to pony up money (making Commissioner Oxendine a prophet).
  2. Reduce the benefits provided to enrollees and increase their premiums, making the federal high risk pool look more like the state versions.
  3. Pump more federal dollars into the program.

There are numerous moving pieces in the new health care reform legislation. High risk pools should be one of the easy ones. After all, high risk pools are a generally accepted, reasonably popular approach to reducing the number of uninsured Americans. As Commissioner Oxendine’s letter, the disappointment those in current state pools will feel, and the inadequate funding allocated to creating the new federal program all indicate, when it comes to health care reform, nothing seems to be easy.

How New Health Care Reforms Make Single Payer Less Likely

There are those who view the Patient Protection and Affordable Care Act, the health care reform legislation signed into law by President Barack Obama, as the first step toward a complete government takeover of America’s health care system. While I don’t agree with their arguments, they do have a case to make. That is:

  • because the reforms fail to restrain the out-of-control growth of medical costs, insurance premiums will continue to rise
  • because the reforms place constraints on health insurance companies, the private sector will be squeezed between increases in the underlying cost of care and their ability to charge adequate premiums to cover those costs
  • meanwhile the government-run health insurance exchanges, to be operational by 2014, which is also when Medicaid is set to dramatically expand, increases the percentage of health care coverage provided or made accessible by governments

Throw in a few other provisions (elements of the reform some say will undermine Medicare Advantage, the new taxes imposed on health insurance carriers and others), season to taste with paranoia and the belief that the recently passed health care reforms is merely the first steps down a path leading to a single payer system gains significant heft.

Given this scenario, one might expect folks on the left to be gleeful with the reforms. Many liberals publicly and fervently support a government-run health plan that would completely remove private health insurance companies from the marketplace. If they believed what emerged from Washington moved that goal closer, you’d expect them to celebrate, at least a little.

If so, the folks at Consumer Watchdog failed to get the memo. This group, led by Jerry Flanagan, considers health insurance companies to be the manifestation of evil in our plane of reality. OK, I’m paraphrasing here, but you get the idea. They are unabashed advocates of a single payer system for California and the nation.

On April 8th, wrote a letter to President Obama, Secretary of Health and Human Services Kathleen Sebelius, and members of Congress identifying what it calls loopholes in the newly enacted health care reform bill. (Consumer Watchdog Letter on Health Care Reform Loopholes). Among the group’s concerns is that the minimum benefit requirements to be proposed by HHS will preempt stronger minimum benefit standards at the state level, that its approach to Medicare Advantage could “push traditional Medicare into an economic death spiral,” that the law fails to attack recent price hikes by pharmaceutical companies, and that carriers will continue to be permitted to rescind coverage for intentional misrepresentation, without creating new regulatory oversight to ensure that exception is not abused by health plans.

Most interesting, however, is Consumer Watchdog’s fear that the new health care reform bill will prevent states from adopting a single payer system at least until 2017. Under the heading “States Rights to Innovate,” the letter states, “Under the current law, states must wait until 2017 for waivers from the federal government to use federal Medicaid, Medicare, tax subsidies
and other funds to support state alternatives to the private insurance market, whether that
be by adopting a state single-payer model or a state ‘public option.’”

Since states can’t divert funds from existing public programs to new government programs, the new health care reform law blocks initiatives to create single payer systems at the state level. In fact, the new reforms block states from creating a health plan to compete with private carriers (unless it can do so without federal funds, tax subsidies and the like).

I suppose what this proves is there is a balance in the universe. The same legislation some fear will inevitably lead to a single payer system is the same legislation that prevents states from creating a single payer system.

Of course some will argue that this simply delays the coming of a single payer system to 2017. However, think about the recent reform package. The Patient Protection and Affordable Care Act. It was passed by the slimmest of margins and only after intense debate and adroit legislative maneuvering. It’s passage was possible only because Democrats occupy the White House and have substantial majorities in both chambers of Congress. Yet the legislation has no public option and is built around private health insurance. Nonetheless it is criticized as “socialism” by some and a “government takeover” by others.

Does anyone realistically believe the country is going to move further to the left in future elections? That’s one of the reasons the Administration pushed so hard to pass health care reform in 2009. The party occupying the White House nearly always loses seats in mid-term elections. They knew the Democratic majorities resulting from the 2006 and 2008 elections were the high watermark for Democrats in Congress. Long before the tea party started brewing the Administration understood the 2010 elections would reduce their working majorities in Congress. Why would anyone think future Congresses would be even more liberal than this one?

That’s why Consumer Watchdog is concerned about the new health care reform package. It prevents them from moving forward with a state public option or single payer system until 2017. And by then, given the pendulum that is American politics, the odds of a government takeover of health care is likely to be slimmer than it is today.

Preparing for Health Care Reform

The Patient Protection and Affordable Care Act is the law of the land. And it will stay that way for a long time. The new health care reform law will evolve, but it won’t be repealed. President Barack Obama would veto any outright appeal, which means a two-thirds vote in both Chambers would be required to overcome that veto. There’s not mathematical possibility, outside of a Karl Rove’s hallucination, in which that two-thirds threshold comes close to being met any time soon.

So the law is here to stay. However, that doesn’t mean the law won’t be changed. Legislation is like a blueprint, in this case defining the outline of health care reform. But as I’ve mentioned before, it is “the regulators, judges, businesses and civilians interpreting, implementing and simply trying to figure out how things are supposed to work” that make the law real. That process has only just begun. For example, one of the few elements of the law that takes effect in 2010 concerns the tax credits available to some small businesses to offset the cost of health insurance premiums they provide their workers. The IRS has begun providing guidelines on how this tax credit will work.

Another example: The Department of Health and Human Services has clarified an ambiguity in the law as to whether carriers must accept children for coverage regardless of any pre-existing conditions. HHS has decided children under 19 years of age are eligible for guarantee issue and carriers have agreed to go along with this interpretation. Good to know. And we’re being told in before the guarantee issue provision takes effect (in July for those keeping track).

There are a lot of guidelines, clarifications and new regulations still to come. But here’s the good news: like those mentioned above, they will be coming well in advance of the effective date of the health care reform package’s various provisions.

For health insurance brokers, uncertain of their role in the new world, this is good news. They will have plenty of time to prepare for changes in the health insurance industry before they take effect. And there are plenty of folks out there – associations, carriers, general agents, service providers, and even a blogger or two – who will be providing the information brokers need to deal with the coming changes. (Note: On April 13th at 10:30 Pacific Time I’ll be participating in an online conversation discussing health care reform and how brokers can prepare for it., This is a free webinar sponsored by Norvax. Also worth noting: the National Association of Health Underwriters has been offering a series of informative, insightful and helpful webinars for its members).

Of course, brokers have alternatives to preparing themselves for reform. They can stress out. They can panic. They can descend into anger. I hear denial can be comforting for awhile. But indulging in these reactions won’t accomplish much, especially in the long term.

Instead, brokers need to be thinking about the kind of agency that will survive and flourish in the years ahead. In my mind, this means spending the next few months refining one’s agency so it is both nimble and flexible. This will allow brokers to to adapt to a changing environment as new provisions of the law take effect, avoid the inevitable pitfalls created by new government bureaucracies or existing health insurance carriers, and to seize opportunities created by those same bureaucracies and carriers.

Notice I didn’t say “quickly avoid” or “immediately seize.” I’m not convinced victory will go to the swift this time around. Instead, I believe during this time of transition the advantage will go to the prepared, the informed and the thoughtful. Speed is required when change comes quickly. But when it comes to health care reform regulations will likely be in place six months or more before the legislative elements they refer to go into effect. This relieves brokers from the need to predict the future. Instead, prepared agencies will have at least some time to think about the developments as they emerge and figure out the right response. Given a choice between “quick” and “right” I’m going with the latter every time.

All of this means now is not the time to panic. Instead, now is the time to take stock of your business practices and determine which ones foster readiness – and which don’t. Now is the time to ignore the blathering of so-called news organizations that are more interested in whipping up partisan passion than informing insurance professionals or the public (yes, I’m looking at you Fox and MSNBC). Instead, plug into the vast support network out there, starting with NAHU, who are ready, willing and able to help you understand not just the letter of the new health care reform law, but how it is being brought to life.

Health Care Reform: Haven’t We Been Here Before?

Legislation is like the framing of a house. For example, the recent health care reforms the President signed into law provides the basic structure for a new way of doing business. But that’s all. Similarly, when a contractor puts up the frame of a house it provides a sense of where things are headed, giving a clear sense of the broad outline of what’s coming. But without the carpenters, plumbers, painters and other craftsmen, it’s not a home. Same with legislation. Without the regulators, judges, businesses and civilians interpreting, implementing and simply trying to figure out how things are supposed to work, the legislation is merely a law, not a part of life.

Nothing like an overwrought metaphor to start off a blog posting, but there you go. What got me thinking about this was coming across some material I wrote in the aftermath of California’s comprehensive small group health care reform. Best known as AB 1672 the law took effect in 1993. The legislation included guarantee issue for all small groups, limits on how carriers could rate for risk and a state-run purchasing pool. In short, AB 1672 changed the way small businesses shopped for, purchased and renewed their coverage. Immediately after the legislation was signed into law there was tremendous consternation among health insurance brokers, carriers, and others. Clients had questions. Entrepreneurs wondered about their future. Executives needed to figure out how to adapt their businesses to the new world. Eventually, they did and have prospered.

With the passage of HR 4872 and HR 3590 (the bills embodying President Barack Obama’s health care reform plan) the anxiety, fear and confusion is palpable in ways very similar to the early 90s in California. Which is reassuring. Because we too often forget that we’ve all survived tectonic shifts in the business before. All states enacted some version of health care reform in the past couple of decades. Yet, for the most part, the transition worked out. (There are exceptions. The state reforms in Washington and Tennessee, for example, needed to be dramatically rewritten when they proved impractical and ineffective. And they were).

There was also significant consternation when the Health Insurance Portability and Accountability Act (much better known as HIPAA) became law in 1996. And many were concerned about the Children’s Health Insurance Program. And let’s not even get started on the fear generated when Medicare was first enacted in the 60s. In the end, however, the insurance industry, business community and the public adapt and even prosper. In short, it’s a familiar drill. Markets change. Regulations change. Products change. Been there. Done that.

Yes, President Obama’s health care reform plan will have much greater consequences than state laws and even HIPAA. The new law touches upon more people and a greater part of the economy than Medicare and Medicaid. Yet, it is far from the government takeover of health care that some critics contend. The new law does not create a single payer system. Nor does it do away with private enterprise. As Howard Fineman wrote recently in Newsweek, “If this (health care reform) is socialism, then Warren Buffett is Karl Marx.” (Please note, this is not an invitation for a host of screeds on the Obama Administration, Republicans, Democrats, television pundits, the mainstream media or the state of American politics. We’ve had more than enough comments along those lines on this blog already. If you absolutely have to, go ahead, but please do not feel obliged to add to the heap).

Yes, the new laws will require change. But keep in mind, insurance companies, and health insurance companies in particular, have long been one of the most regulated industries in the country. Those regulations will change because of the new law. There will be more of them. But it’s not like regulations are being imposed for the first time.

Yesterday (well, in 2008) governments at all levels accounted for roughly 45 percent of health care spending. Tomorrow (let’s say 2014) it will be somewhat more. But it was going to be more even without reform.

Think of it this way, if the government was taking over health care and the health insurance industry, would there be so many people spending so much time figuring out how to deal with the reforms? Brick walls are pretty easy to identify and to deal with – find a new job. Instead we have a much more challenging task: we have to be ready to adapt the way we do our jobs to an uncertain future, but a future that includes a role for us.

And when I say “uncertain future,” I mean uncertain. That’s because, as in the stretched metaphor above, legislation is just the starting point, the framework, for defining that future. There’s a lot more to come. The good news is, for the most part, the regulations, court decisions, carrier policies, etc. will bring some clarity and certainty to the situation.

What will the exchanges look like? The law says there will be exchanges, they will be run by the states, and that nothing prevents brokers from selling their products. There’s more, but it’s more framework along these lines. How the exchanges actually work is unknown at this time, but we’ll be learning more over the next few years.

And even when the regulations come out there’s this nasty thing called reality that tends to make its presence known. The best laid plans of mice and regulators are no match for 300 million Americans. What will give health care reform shape and substance is how Americans use the new system; what parts they seize and what aspects they ignore.

Consider this: there’s nothing in the law that says doctors have to give up their private practices. Yet as the New York Times reports, fewer young physicians are opening up private practices, instead preferring to become salaried employees of hospitals and health systems. The article notes older doctors are following suit. These doctors are reacting to regulations (and to the economy and a host of other factors). But what they’re doing is beyond and besides what current laws require. Similarly doctors, insurers, brokers and consumers will make decisions beyond and besides the new laws.

People who know they are going to be impacted by the new law want to know what those impacts are. The anticipation of change, like the anticipation of a shot or dentist visit (or worse, a shot during a dentist’s visit) is usually worse than the actual shot and/or visit. But for now, anticipation is all we have. The framework is there. The details are not.

So what to do? Worrying simply adds to the stress. Fretting is non-productive. Nothing is going to come as a surprise. And nothing will come suddenly. So the smart thing to do is to prepare.

How to get prepared? I’ll offer my thoughts in upcoming posts.

IRS Offers Guidance on Health Insurance Tax Credit for Small Businesses

One of the first benefits to arrive from the Patient Protection and Affordable Care Act, the health care reform bills signed into law by President Barack Obama, is the assistance it provides small businesses in providing coverage for their employees. The tax credits are available beginning with the 2010 tax year and can reimburse small employers for as much as 35 percent of their contribution to worker  health insurance premiums for eligible employers. The IRS has recently issued guidelines concerning the small business health care tax credit. The process for determining if the you or your group qualify for the tax credit — and if so, for how much of one — requires some careful calculations (these are IRS guidelines after all). But those calculations are fairly straightforward (as these things go). Which makes spending some time with the IRS FAQs well worth the time.

(Please note: I’m not giving tax advice here nor am I qualified to do so. I’m simply reading through the IRS’ FAQ and commenting on some interesting aspects of the tax credit — as I understand them. Consult with your tax advisor before taking any action).

The full tax credit (35 percent) is available to qualified employers with 10 or fewer workers (not counting the owner and family members on the payroll) whose workers earn, on average, less than $25,000 annually. “Workers” in this context are not physical bodies, but “full-time equivalents” or “FTEs”. Calculating FTEs is simple: a full-time employe is expected to work 2080 hours per year. Simply add up the number of hours actually worked by each employee and divide the total by the number of bodies on the payroll (rounding down to the lowest whole number). Determining the average salary of these employees is easy, too. Take the total annual wages paid by the company and divide it by the number of FTEs. (The IRS health care tax credit FAQ provides examples). That the IRS is not counting business owners in this calculation will significantly increase the number of firms considered to be qualified employers.

Qualified employers with up to 25 FTEs and providing average wages of up to $50,000 are also eligible for a smaller tax credit on health insurance premiums they pay. The formula for determining the dollar amount of their tax credit is in the IRS FAQ.

One interesting twist: the premium paid by the small businesses against which the tax credit is calculated is capped by the average premiums paid by small business the in the state. (The IRS will be publishing a list of those averages later this month). So as noted before, there’s some careful calculations required to determine eligibility and the credit amount.

Still, a subsidy is a subsidy is a subsidy. And for small business owners this is a welcome subsidy. The Kaiser Family Foundation in their 2009 Employer Health Benefits Survey reports that only 46 percent of companies with 3-to-9 employees and 72 percent of firms with 10-to-24 workers offer health insurance coverage. Any uptake in the number of these firms will reduce the number of uninsured in this country. And a 35 percent tax credit could make a big difference in those uptake numbers.

My thanks to Bruce Jugan over at BenefitsCafe  who brought the IRS FAQ to my attention. The IRS will be providing additional details concerning the tax credits by the end of April. But so far, as Mr. Jugan notes, the guidelines they have provided so far “look good.”

Trailblazed: Proven Paths to Sales Success

This is an off-topic post. Way off topic. But I have news to share: my book was published this week. The book, Trailblazed: Proven Paths to Sales Success, describes the findings gleaned from a study I conducted that sought to discover the behaviors and attitudes shared by successful sales people, but not widely practiced by their less successful peers.

The study, which was done in conjunction with Steven Miller, PhD of Miller Marketing Insights, focused on health insurance producers in six states who sell individual, small business and senior coverage. We focused on health insurance brokers for two very simple reasons. First, the study was underwritten by insurance companies and a general agency. Second, by law and regulation, health insurance brokers in a given market sell the same products for the same price. They are prohibited from offering discounts. They cannot alter the terms of the policy. As a result their sales success is based on what they do — and don’t do — rather than on what gimmicks they employ. When it comes to identifying the shared practices of successful producers, you couldn’t ask for a better context than that.

What will not surprise brokers who visit this blog with any regularity is that among the characteristics successful producers share are those that underscore the value brokers add to the health insurance products they sell. These include a commitment to the interests of their clients, a desire to be worthy of the trust those clients place in them, and a dedication to finding the right solution for their prospects’ unique needs.

Even more significantly, it turns out the practices, procedures and perspectives shared by successful producers help them master the massive changes that inevitably impact their business, whether those changes are the result of economic trends, losing a major client or new regulations. Given the need to prepare for the impact of health care reform, I consider this a welcome and reassuring finding.

Trailblazed will soon be available through online vendors such as Amazon, Barnes & Noble, and Borders (it takes a few weeks for the publisher to get the book into their systems). But the book is available now at  the Trailblazed Sales web siteAs a way of thanking readers of this blog, and to celebrate the launch of the book, from now through the end of April, the book is available at a 10% discount from the list price when purchased through the Trailblazed Sales web site. You can also learn more about the study there.

As most readers know, I write this blog out of a passionate interest in health care reform, as a forum where I can share my views on the topic and benefit from your views and perspectives. This is also where I can offer an occasional insight on an important issue and provide links to what I consider interesting news and useful resources.

This book is not about health care reform. For those sales professionals among you thinking about the future and how to prepare for it, however, my hope is that Trailblazed: Proven Paths to Sales Success will be an additional source of helpful strategies and ideas.

And now, back to our regularly scheduled blog.