Top Health Industry Issues of 2011

2011 is a makeover year for health industry organizations reacting to and preparing for new rules and payment models. Continuing cost pressures and new customer demands require a fresh look at existing roles of industry players.

This issue is one of six health industry issues for 2011. For the full Top Health Industry Issues of 2011 report, please see www.PwC.com/us/TopIssues2011

Issue #2 Highlights:

Gearing up to redefine health insurance: From MLRs to insurance exchanges

Legislating coverage was the first step. Implementing coverage is the next. And, that implementation has new guardians. The percent of insurance premium dollars allocated to providing care, known as the medical loss ratio (MLR), will be a primary focus of the government and the health insurance industry.

In 2011, health plans must start reporting their MLRs for individual and small group health insurance for each state in which they do business. The deadline won’t be until 2014 for state health insurance exchanges to connect individuals and small businesses with health insurance, but states must apply for certification by January 2013 or let the federal government set up an exchange for them.

The new health reform rules significantly impact profit margins for health insurers by setting a floor for MLRs: 80% for small employers currently defined as those with fewer than 50 employees, and 85% for large employers. That means that if insurers don’t spend what the law mandates as the minimum percentage on medical services, they must provide a rebate for customers, beginning in August 2012.

Leading up to the health insurance exchanges, employers may continue weighing the advantages of staying put with employer-based coverage. According to PwC’s consumer survey, 72% of consumers said they would be willing to trade their health insurance for an increase in salary. Yet, the survey indicated that consumers may not know the full value of their health insurance benefits (See Figure 2). Overall, consumers overvalued their single coverage and undervalued their family coverage. As employers determine which direction to turn, they need to remember the importance of health insurance coverage in terms of worker recruitment and retention.

Beginning in the second quarter of 2011, the federal government will provide grants to plan and establish online insurance marketplaces, called American Health Benefit Exchanges and Small Business Health Options Program exchanges. With 13.8 million people expected to enroll in health insurance exchanges in 2014, states, health plans and employers have much work to do. Fifty-six percent of consumers said they would be willing to use an exchange if they could get better coverage. State legislative activity around the exchanges is expected to be high in 2011.

Look for more discussion in the full Top health industry issues of 2011 report www.PwC.com/us/TopIssues2011

Implications

• As employers and health insurers work with state agencies to influence development of the new health insurance exchanges for consumers, states may become laboratories of innovation. Different flavors of implementation and interesting insurance experiments could emerge.
• Definitions on what a qualified health insurer is in an exchange will drive definitions outside of that marketplace. Health insurers will want to size the individual and small employer markets and provide input to the legislative process around measuring quality and meeting standards of care.
• Employees’ willingness to trade their health insurance for an increase in pay may challenge the commonly held view that insurance is a differentiator in recruiting and retaining employees. Employers need to model scenarios to inform their strategy decisions around offering benefits. Tax policies and federal subsidies will also be key considerations for employers and consumers.
• Consumers need a better way to understand the value of their health insurance coverage. States, employers and health plans need to gain a better view of what their customers value and what drives their decisions.