Late last Thursday the electronic payment to Coventry Health Care cleared our bank account, indicating we have new health insurance coverage effective Jan. 1, 2014, purchased on the exchange created by the Patient Protection and Affordable Care Act. With that action, our household budget changed from health insurance costs that were 38.0 percent of annual expenses to 9.8 percent. The budget decrease was due solely to the federal tax credit for which we qualified, as the new policy cost more than the current plan. As vice president Joe Biden said to president Obama when the bill was signed into law, “this is a big fucking deal.” It is bigger than just one household budget.
Iowa is a place where a large majority of people already had health insurance before the ACA became law. As of Dec. 11, only 757 individual Iowans had signed up for a plan on the new exchange. Iowa’s target for enrollments was only 6,970. Here’s what seems most noteworthy moving forward.
The fact that Iowa’s largest insurer, Wellmark Blue Cross and Blue Shield, decided to opt out of the exchange in 2014 was significant. Since the law was enacted, Wellmark has been bringing their individual policies into compliance, removing the lifetime limits, and increasing the amount of covered preventive care, and taking substantial rate increases as they did. In a brilliant public relations move, they attributed their 2014 rate increase solely to the requirements of the new health care law. (That rate increase was very low at 6.8 percent). For 2015, Wellmark is likely to enter the exchange, and take another significant rate increase, again blaming the ACA requirements.Why is that important?
As a large business with substantial financial reserves, Wellmark will have used the time between 2010 when the law was enacted until October 2014 when the next open enrollment period begins to study the law and its effects on their business and competition to make a smooth transition. But also to maximize market share and profits. Here’s how.
In a marketplace people can shop for things, but they also can compare prices and the value proposition. It’s consumer behavior 101. Prices include the cost of delivery for the service and a gross margin (the difference between the selling price and cost of delivery). Today, almost all of the 30 health plans for which I was eligible were significantly more expensive than my current Wellmark policy, with a lot of variation in coverage. Whatever changes Wellmark has to make to finish the compliance process and enter the market, they will be positioned to sell a similar or better insurance policy for a lower price without substantial changes in their gross margin. This will enable them to pick up increased market share.
What almost no one is talking or writing about is the November report from the White House that describes how the underlying expense of providing health care is coming down already, as a part of the reforms of the ACA. These three bullet points from the report tell the story.
- Health care spending growth is the lowest on record.
- Health care price inflation is at its lowest rate in 50 years.
Recent slow growth in health care spending has substantiallyimproved the long-term Federal budget outlook (Medicare and Medicaid costs are coming down).
What does that mean for companies like Wellmark? Because of the new law and its impact upon underlying costs, they have a generational opportunity to make a bigger profit from their policy holders. This opportunity is made better by the ability to review their competitors’ pricing in the public health insurance marketplace. Wellmark will also benefit by watching what marketplace adjustments are made as the first year unfolds and how their competitors handle them. Thank goodness for the 80-20 rule that requires individual insurance policies to spend at least 80 percent of the premium dollars on health care. If I am missing something, please let me know by commenting on this post, but 2015 should be a very good year for Wellmark.
What about for the rest of us? Like always, I intend to stay away from the doctor as much as I can, taking an annual exam, and a colonoscopy that is covered by my new plan without any copay or expense on my part. (Fingers crossed on the outcome). Other than that, I’ll go on living with one less worry than I had before Obamacare came into reality.