Health Insurers Seek Tax, Profit Changes in Health Reform Bill

By | January 8, 2010

Health insurance lobbyists are pushing lawmakers to eliminate caps on profits and other administrative spending and delay a hefty, industry-wide tax under the massive healthcare reform legislation being finalized in Congress.

Health insurers, which include companies such as Aetna Inc., Humana Inc. and UnitedHealth Group Inc., became ripe targets for reform as President Barack Obama and fellow Democrats slammed everything from premium costs to the denial of care.

Bills passed by the Senate and the House last year would increase regulation of the industry. They also make it mandatory for people to purchase health plans, a move that could bring insurers roughly 30 million more customers.

Lawmakers are now working to reconcile the two bills into one proposal for Obama to sign into law. But significant differences remain, and Karen Ignagni, head of industry lobby America’s Health Insurance Plans, said insurers are still pushing for changes before a final bill passes.

Congress needs to ensure that there is “a transition that is smooth, that is not disruptive, that doesn’t inadvertently … increase costs,” Ignagni told reporters Thursday.

Both bills set how much insurers can dedicate to medical care versus administrative costs, profits and other areas, an allocation known as the medical-loss ratios. The ratios are closely watched by Wall Street as a sign of profitability.

The House bill would require that at least 85 percent of revenues from patient premiums go toward care, while the Senate measure would let some small group and other insurers devote 80 percent. Companies would have to report how they allocate their money and offer consumers rebates as necessary.

Insurers and investors are concerned because the fixed limits by Congress would cap profits and could significantly alter how companies operate, although advocates argue the move protects patients by ensuring enough funds go to paying for medical care.

‘UNINTENDED CONSEQUENCES’

Ignagni said there is no problem with reporting spending but that setting medical-loss-ratios could raise long-term costs by prompting insurers to put off needed technology investments that boost efficiency.

“We have no problem with disclosure, but there are unintended consequences,” she said, adding that profits were not an issue for an industry which she said sees just 2.5 percent in profits on average.

The Senate bill also includes a $70 billion tax spread out over 10 years.

“I think Congress needs to look very carefully at this tax,” which takes effect in 2011 but would have to start being assessed as early as this year, Ignagni said.

Insurers face numerous other taxes, such as the tax on more costly “Cadillac” health insurance plans, she said. All told, insurers face as much as $225 billion in fees and taxes through 2019, Ignagni said.

Both the profit cap and the taxes could raise costs for consumers and some smaller employers before the bulk of reforms take effect in 2013 or 2014, Ignagni said.

Some members of Congress seem open to reallocating some of the taxes over the 10 years, she added.

But Massachusetts Democrat Senator John Kerry said while the Cadillac tax must be changed to avoid hurting middle class consumers, it must remain in any final bill to help reduce health care spending.

“So let’s fix it, not nix it,” Kerry wrote in the Huffington Post blog. “I believe the final health care reform bill will include appropriate adjustments to preserve its cost containing benefits while increasing the fairness of this provision.”

It is not clear what changes Democratic leaders in Congress will make as they close in on a final deal to blend the two bills. Lawmakers aim to finish the legislation before Obama’s State of the Union address to Congress in early February.

“I think more can be done in the transition to make sure there are no unintended disruptions in coverage or cost increases,” Ignagni said.

Shares of health insurers have fluctuated widely since reform took the political spotlight last February. On Thursday, stocks closed up 3 percent on the Morgan Stanley Healthcare Payor index and 3.7 percent on the S&P Managed Health Care index.

(Reporting by Susan Heavey, editing by David Alexander and Eric Beech and Sandra Maler)

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