Commissions: In or Out of MLR Calculation?

The National Association of Insurance Commissioners is meeting with the intent of finalizing rules surrounding the medical loss ration requirements contained in the Patient Protection and Affordable Care Act. The impact of their decision will be profound on consumers, employers, carriers and brokers. A final vote is scheduled for tomorrow (October 21st) by the full membership on the rules – and on amendments to those rules – which have been worked on for hundreds of hours by NAIC committees. Whatever emerges from the NAIC plenary session will be forwarded on to the Department of Health and Human Services. The Department may make amendments to the NAIC proposal, but The Hill has reported that HHS is reluctant to “override” the commissioners on NAIC medical loss ratio rules.

What this means is that a lot of issues surrounding the MLR provisions of the new health care reform law – provisions which take effect on January 1, 2011 – will come into clearer focus tomorrow. Again, HHS may still modify these rules, so these won’t be the final rules. And states are given some flexibility in applying the medical loss ratio regulations on carriers doing business within their boundaries, but there will be far greater clarity tomorrow than there is today.

Some of the issues being hashed out are esoteric (not to actuaries, but to the rest of us). But one issue that is of great concern to brokers is how commissions will be used in calculating a carrier’s MLR. As noted previously in this blog, the National Association of Health Underwriters and other agent organizations have been working hard to have broker commissions be removed from the medical loss ratio formula. The logic behind this is that carriers collect broker commissions as an administrative convenience to producers and their clients, passing 100% of these dollars along to independent third-parties. The carriers receive no benefit from this process, but the cost to brokers and policy holders, in the aggregate, is greatly reduced, lowering overall administrative costs.

Exempting this pass-through of commissions from the medical loss ratio calculations is not currently a part of the NAIC MLR regulations. However, I’ve been told that at least 10 Insurance Commissioners are co-sponsoring an amendment to create this pass-through exemption in the rules sent to Health and Human Services. And supporters believe they are closing in on the majority of the Commissioners needed to adopt this amendment.

Politico is reporting on the upcoming commission amendment, too. They note that “This could be a tough one for many commissioners who say that if agents/brokers go out of business – because their commissions would decrease – they’re going to get flooded with consumer inquiries and requests for help.”

Inclusion of the pass-through provision in the NAIC’s medical loss ratio rules would certainly decrease the pressure on carriers to dramatically reduce commissions. However, pressure on commissions will still continue. Tying broker commissions to a percentage of premium – premiums that increase based on medical cost inflation, not general inflation – is still likely to fall as carriers’ commission systems are refined to accommodate different calculations. And broker commissions will need to be disclosed to employers and consumers (carriers will need to separate broker fees from premium). In some states this is likely to result in downward pressure on commissions. And the guarantee issue provisions taking effect in 2014 will also tend to lead to lower commissions. On the positive side, the Insurance Commissioners’ recognition that brokers play an important role after the sale in counseling and advocating for their clients will tend to assure that brokers are compensated fairly.

Of course, all of this is moot unless the NAIC approves the amendment, HHS concurs with this provision and states don’t enact laws or regulations that run counter to it. We’re about to get some clarity. Certainty, however, is still to come.

MLR Rules Still in Play

The Patient Protection and Affordable Care Act requires carriers to spend a specified proportion of the premium dollars they take in on medical care and health quality efforts. That’s the law. As I’ve noted previously, legislation creates a framework. It’s the regulations and day-to-day interpretations of the law that determines its impact. There are lots of opportunity for regulators to soften the edges of the law or sharpen them up.

  • How should the law be applied to small or new carriers who may be subject to extreme fluctuations in their spending ratios that are beyond their control?
  • How should nurses hotlines be treated?
  • Should health quality efforts be considered non-administrative expenses only if they actually improve quality? And if so, what will that do to innovation?
  • How should commissions and other fees received by carriers but passed-through entirely to independent third-parties be treated?
  • At what level should carriers be required to meet the medical loss ratio requirements (i.e., state level? nationally?)

And the list goes on.

The National Association of Insurance Commissioners, working with the Department of Health and Human Services is tasked with resolving these issues. The NAIC provided some meaningful clarity last week when it published draft rules for how carriers were to calculate their medical loss ratios. But there are still many issues that are  far from being settled. The Hill reported that Brian Webb of the NAIC outlined a host of MLR-related regulations the Commissioners are still considering during a presentation he made to the Congressional health Care Caucus.

What’s significant about what Mr. Webb had to say is not just the long list of rules being modified at this late date (the MLR requirements take effect January 1, 2011, so settling on how this provision is to be interpreted is of urgent concern), but his description of how the process of resolving these issues will play out. He indicated that an NAIC panel is expected to adopt the draft regulations on Monday, October 4th. That will no doubt be widely reported. But what will be important for those concerned about the nitty-gritty of the MLR rules to remember is his prediction that the regulations are likely to change before the full NAIC adopts the them in mid-October.

And this vote by the NAIC is unlikely to be the last word. HHS Secretary Kathleen Sebelius has to “certify” the regulations, which gives the Obama Administration an opportunity to tweak elements. Then each state has to adopt its own regulations. And while the NAIC proposal will carry great weight, states will have flexibility to adjust elements of the MLR calculation to suit their own health insurance market — and political — environments.

The Hill also reports that the NAIC will urge Secretary Sebelius to allow, on a state-by-state basis, a transition period phasing in the medical loss ratio targets as it applies to plans sold to individuals and families (non-group plans). Such an exemption would not be automatic and states would need to demonstrate that applying the  80 percent MLR on individual plans in their jurisdiction, as is required by the PPACA, would “destabilize the state’s individual market.” According to Mr. Webb, a similar transition mechanism could be established for the small group market as well.

This ongoing uncertainty will have serious consequences. Carriers will make decisions based on the best guess each makes on where the regulations will wind up (and that best guess will no doubt assume the worst possible outcome). As the regulations get clarified the carriers may seek to adjust some of those decisions creating a ripple effect of change.  All of which means consumers, employer and the brokers who serve them are going to be kept busy adjusting to an evolving marketplace well beyond the effective date of the new health care reform’s medical loss ratio provisions.

Change is Hard

Change is hard. Change imposed is even harder. Change that is convoluted, inartful, at times misguided, uncertain, and coming fast is beyond hard. This kind  of change is disruptive, frightening and disheartening.

That brokers feel the coming health care reform will shunt them aside, destroy their careers, and shutter their businesses is, consequently, neither surprising nor without basis. Add to the mix the fact that we’re still in the tea leaf reading stage of how health care reform will play out and the outcome can be a poisonous brew of anger, anxiety and paranoia.

Given this reality recently posted comments are well considered, well reasoned and, to a greater extent than should be expected, objective. (My thanks to all for sharing their thoughts and insights with readers of this blog). That the expressed concerns and conclusions are rational and reasonable, however, does not mean they are accurate or certain. Indeed, I think they’re wrong and in the next few posts I’ll try to explain why.

First a reality check: my perspectives on the impact of reform, how carriers, lawmakers, regulators and consumers will react, and what all this means for brokers is no better than anyone else’s opinions on these topics. As mentioned, all we have now are tea leaves. Yes, the law has been passed, but this only creates a framework for reform, not the details. Think of the Patient Protection and Affordable Care Act as a 2,000-page blueprint. Future legislation, regulations and the actions of real people dealing with it all represents the actual building process – the framing, laying pipes and wiring, painting and additional hard work required to actually create a usable building. The blueprint will give a good idea of what the structure is supposed to look like, but it’s what the carpenters, plumbers, electricians and others that determine what the structure will look like.

Which leads us to Katz’s Two Laws on Laws. The first is the Law of Regulatory Change. It holds that “there is what the law says. Then there is what a regulator says the law says. And what the regulator says the law says is what the law says unless a judge says the laws says otherwise.”

Take the issue of the provision of the health care reform law that prohibits carriers from applying pre-existing conditions on insured children. There’s nothing in the law that says carriers have to accept all children applying for coverage (what’s called “guarantee issue”), only that if a child is accepted for coverage excluding pre-existing conditions is not permitted. Yet President Barack Obama and others talked about the law as if insurers did have to cover children. And preventing exclusion off pre-existing conditions for children doesn’t accomplish much if carriers can simply deny kids insurance in the first place. So regulators (in this case the Department of Health and Human Services) simply declared that health plans did have to accept children on a guaranteed issue basis. And unless a judge says otherwise, that’s the way it is.

The second Law on Laws is the Law of Implementation. This one holds that “there is what the law says and what regulators say the law says. Then there is what carriers say the law says. And what carriers say the law says is what the law says unless a judge or regulator say the law says otherwise” (other industries should feel free to replace “carrier” with a more appropriate implementer).

HHS’s requirement put carriers in a bind. If they are required to guarantee issue coverage to children, what’s  to prevent parents from waiting until their kids are sick or injured before purchasing a policy? This is the functional equivalent of allowing folks to buy homeowners insurance from the firefighters dousing flames or to buy auto insurance from the driver towing their battered car away. The result of such an arrangement inevitably and substantially increases the cost of coverage. Some carriers (as noted by the commentators mentioned above) have responded by dropping children-only coverage. Others are deciding to guarantee issue coverage only on a plan’s anniversary date or during a child’s birth month. And until a judge or regulator says otherwise, that’s what they’re going to do.

While we’re on the topic of laws on laws, here’s another for you, the Law of Unintended Consequences. My definition for this phenomena, which is as certain as the law of gravity, is that “a law may or may not do what it seeks to do, but it will always do some things it did not intend to do.” Congress did not intend to stop health insurance carriers from dropping children-only offerings, but that’s reportedly what’s happening. (And yes, an argument can be – and often is – made that the goal of the PPACA is to drive medical insurers out of business altogether, but that’s not what we’re discussing here. I raise the point here only as a no doubt vain attempt to forestall comments on this post from veering off in that direction).

This examples of how the laws on laws plays out only deals with one small part of the health care reform legislation. It is and will be repeated on provision after provision after provision. Which brings us back to our reality check: predicting what the new law will mean for brokers (or insurers, consumers, businesses, medical professionals or anyone else) is a tricky and maybe futile endeavor.

Then there’s the fact that while I’m a broker, my work day is, to say the least, diversified. Which makes my (relative) optimism (relatively) easier. On the other hand, when you’ve spent your career building financial security around a product that legislation might eliminate, seeing things through very dark colored glasses is more likely and understandable. My point is that one’s stake in the outcome doesn’t determine the validity of one’s predictions (another long shot attempt to keep comments on point).

Because the pessimism of professionals facing this possibility is understandable does not make dour predictions right. It just makes them, well,  understandable.

In future posts, as I’ve done in past writings, I’ll offer my thoughts on why health insurance brokers are unlikely to go the way of travel agents (of which, by the way, there are still tens of thousands in this country). And why I think brokers will need to adapt – and will be able to adapt – to a new reality.

Even if I’m right (and I’m offering no guarantees, just educated guesses) this won’t make dealing with the changes to our industry and profession any easier, but it may mean making such changes is worthwhile.

Grandfathered Health Plans and Dealing With Reform

Brokers are quite naturally concerned about their future under health care reform. Times of change are always unsettling and the new legislation is change of a grand magnitude. Everything from plan design to compensation to distribution mechanisms are undergoing a transformation. What makes things worse is the uncertainty. While the broad outlines of health care reform are pretty clear, in reality there’s more unknown about the details than known. Not only will regulators at the state and federal level interpret the law, but so will carriers, employers and others who need to comply with those regulations. Then there are the inevitable bills Congress will consider to tweak this or that in the legislation (some of which has begun – more about that in a future post).

Brokers are responding to the coming changes and current uncertainty in several ways. Some remain angry that health care reform was passed at all. They rail against the law, call lawmakers names, predict the demise of various political careers, etc. etc. Venting feels good, but outside of the ballot box, it’s hard to argue venting accomplishes much.

Then there’s brokers who ignore what’s happening around them. Today’s just another day and tomorrow will be more of the same. But ignoring reality – change is coming – is no more productive than raging against reality. It’s no doubt better for one’s blood pressure – and may even be kinder to those around you, but it doesn’t accomplish much.

Another group of brokers are preparing for reform. They may be angry about the legislation, but they don’t let their emotions prevent them from dealing with the reality of it. They are examining their business practices, their revenue streams, their client base, their skill sets and they are thinking about the future. They are not making drastic changes right now, but they know they will have to modify, maybe even transform, their business over time.

These brokers are focused on what needs doing now. They know the provisions of the Patient Protection and Affordable Care Act take effect over time, some in a few weeks and and others over several years. They may have hopes for changes to these provisions, but until they’re changed, these brokers know they have to deal with the cards as they’re dealt.

And by doing so these brokers will not only be better positioned for what is to come, but they’ll be more successful in the near term providing them with the resources they’ll need in the future.

Here’s an example of how. The PPACA imposes a host of requirements on individual and group health plans. However, plans can avoid some of these requirements if they meet certain conditions. Such plans are referred to in the law as “Grandfathered” plans because a key criteria is that they have been in-force prior to enactment of the new health care reform legislation (which occurred on March 23, 2010).  Interim Final Rules relating to Grandfathered Health Plans were promulgated by the Departments of Treasury, Labor and Health and Human Services in June 2010. (Comments on the interim rules are due August 16th. While the departments could modify the rules based on this input, they are not expected to be making substantial changes).

There are a lot of resources for understanding the Grandfathered Plan regulations online from folks like Employee Benefit News, the Society for Human resource Management, and HHS’ at their HealthReform.Gov web site. But here’s the gist of what’s involved as I understand it:

Grandfathered plans have to comply with some, but not all, of the Patient Protection and Affordable Care Act. Grandfathered plans can be fully-insured or self-insured, group or individual plans. They must have been in-force on March 23, 2010 and remain with the carrier providing the coverage at that time. While some changes to the plan are permissible, they cannot have significantly increased out-of-pocket costs or reduced benefits. For example, deductibles may and out-of-pocket maximums may increase by medical cost inflation plus 15 percentage points. Plans can voluntarily adopt some of the consumer protection rules contained in the PPACA without losing their status Grandfathered status, but they need to be careful about any significant changes other than complying with new laws or regulations. Significantly, premiums may be increased without jeopardizing a plan’s status. Grandfathered plans must also maintain certain records and there are exceptions for insured collective bargained plans.

Grandfathered plans do not need to meet the minimum benefit requirements laid out in the new health care reform law nor do they need to provide 100 percent coverage for preventive care. They are also exempt from guarantee issue requirements and certain changes to the ways claims will be processed.

However, even Grandfathered plans must comply with the Patient Protection and Affordable Care Act provisions related to pre-existing conditions, excessive waiting periods, the lifting of lifetime maximum benefits (and, for group plans, but not individual coverage, the eventual elimination of annual maximum benefits), and must extend coverage for dependents age 26.

Whether seeking Grandfathered Plan status is in a client’s interest will depend on the specific circumstances for each client. And brokers should contact their carriers to learn more about how each of them are handling this issue.

And that’s the key. Brokers need to be looking at their clients situation, talking to their carriers, and helping their clients navigate this change. Because once a group or individual loses Grandfathered status they cannot get it back. Even though most clients will likely conclude they don’t need to be Grandfathered, its asking the question that matters.

One of the findings from the Trailblazed Sales Project Study I conducted is that High-Growth Producers communicate with their clients more often than do Low- and No-Growth Producers. Doing so results higher retention, more opportunities to meet the needs of those clients, and increases these brokers’ status as a trusted advisor. In short, communicating with clients other than at renewal time is good for your clients and for your business. This is especially so in times of change. If brokers are uncertain about health care reform, employers and individuals are even more adrift. Brokers proactively contacting them about issues like Grandfathered Plan status are demonstrating their value.

There’s another reason why brokers need to be contacting all their clients about the Grandfathered plan issue sooner rather than later. What happens if they meet a competitor who asks that dreaded question, “You mean your current agent has told you about this? That’s just not right!”

Put another way: Clients need help in understanding how the new health care reform law impacts them. Brokers preparing for the future are helping their own clients – and the clients of other brokers – understand these issues. Brokers who are blinded by their anger or who are in denial about reform are not.

There are many ways to respond to health care reform. Some of those responses are just smarter than others.

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.

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.

HHS’ Technology Problem Presents a Real Opportunity

Opportunities sometimes arrive unexpectedly, usually alongside a problem. Health care reform will be no different. A problem facing the Department of Health and Human Services in implementing  a standard database of health plans brings with it an opportunity to eliminate unnecessary spending in the current system and unleash a new wave of sales innovation.

As reported by Tony Romm, writing for The Hill’s technology blog, Hillicon Valley, in less than 60 days HHS must develop a “standardized format” to present health plan information to consumers. Roughly a month later, federal officials are supposed to launch a website providing this information to consumers on a state-by-state basis. In other words, HHS has until July 1st to build what the Hill calls “a central, online health insurance information hub.” The feds will maintain the insurance information site until the states implement their insurance exchanges in 2014.

90 days is not a lot of time to build a new high-tech tool, especially for a bureaucracy like HHS – a heavy-user of technology, but not a dedicated technology organization. But building the quoting engine is the least of their worries. The tough part of the job is be coming up with a way to feed disparate data into a single platform. And when it comes to how insurance companies present their rates and benefits, “disparate” understates the case.

Today health insurance companies are free to develop rate tables in any format they desire. They also have tremendous discretion in how they describe the benefits they offer and to some extent, what benefits they describe.The Babel-esque result is that providing apple-to-apple comparisons among carriers is an extremely labor intensive, subjective task. The idea of creating a standardized information hub is designed to bring some order to this chaos.

And, fortunately, HHS doesn’t have to start from scratch. Quoting systems are a highly-evolved, well-established technology (I’ve been involved in developing more than a few over the past few decades). Several companies have already built effective small group and/or individual quoting systems in use in multiple states. Some of the best known are Connecture, eHealthinsurance, HealthConnect, Norvax, and Quotit. These firms and their competitors already do what HHS is supposed to deliver: provide consumers and their brokers information about available health plans from multiple carriers using a single interface and presenting the carriers’ distinctive information in a common format.

HHS will be hard pressed to meet their tight deadline building a quoting system from scratch. Obtaining one from an established vendor is the only way they’ll deliver what the new health care reform law demands on time.

Enter opportunity. HHS is unlikely to simply lease a third-party quoting system. Instead they will buy a system. Then they will seek to make their purchase the industry standard. One way to do that would be to make the system open source – available for anyone and everyone to build upon.

The biggest operating cost incurred by quoting system providers like those mentioned is not building the quoting technology: it’s inputting and maintaining the rate and benefit information. Each company is required to translate the unique templates and descriptions used by the carriers into a standard format. From an industry point of view this is nonsensical, especially when one realizes the eventual result is pretty much the same: a report displaying carriers’ rates and benefits.

What’s happening with quoting insurance rates is reminiscent of what occurred in the auto industry when the government required them to deploy catalytic converters. Each car company spent many millions of dollars creating a proprietary device. Yet do you know anyone who has purchased a car based on the design of its catalytic converter? Think of how much automobile manufacturers would have saved if they’d come together to create a common device. This would have freed them to compete not on an invisible commodity built into every car, but on design, price, quality and a host of other more meaningful elements.

Similarly, the quoting system vendors are spending considerable sums taking the same information and translating it into their proprietary platforms. The arrival of standard formats and of open source programming will free them to devote their energies on building what truly differentiates them: the myriad products and services they’ve built around their proprietary quoting systems. It is the case management, marketing, HR, client-communication, and other applications with which they’ve surrounded their quoting systems that makes each one unique and adds value.

These are entrepreneurial companies we’re talking about. Dollars currently spent on translating carrier information into their proprietary platforms will be diverted toward creating new ways of helping brokers assist and support their clients. Meanwhile the standards will help carriers reduce their administrative costs. By making the quoting system architecture open source other entrepreneurs could enter the field, bringing their new approaches to the market.

The Department of Health and Human Services cannot duplicate in three months what these enterprises have spent years refining. Nor should they try. Instead, HHS should quickly pick one of the current systems and establish it as the industry standard.

Will this cost-saving opportunity change the world? No. But when it comes to wringing costs out of the health insurance system, any opportunity is welcome.