Devil in the details: Full effects of health reforms on insurance industry hard to pin down

Mike Moran
Business Times

Steve Erkenbrack

The devil is often in the details. And when it comes to health insurance, the details of national health care reform are difficult to pin down.
But two large issues seem certain — the effects of reform already are trickling down to Mesa County and more effects are on the way over the next four years. And it’s all ostensibly in the interest of improving health care quality and keeping costs within the reach of average Americans.

The dual mission of the federal changes under the Patient Protection and Affordable Care Act (PPACA) is daunting and will carry some kind of price tag even as it seeks to keep costs down.

“There is a cost for the system,” says Steve ErkenBrack, president and chief executive officer of Rocky Mountain Health Plans (RMHP), the health insurance provider with the most clients in Mesa County.

Yet, supporters of national reform say costs to change the system could be partly offset by increased efficiencies in health care. For example, more patients could be enticed to practice preventive care, such as yearly physical exams. And they could take more generic prescription drugs instead of paying for higher-priced name brand medications.

“The difference (in price) is huge,” says Dr. Steve Nolan, director of pharmacy for RMHP. Nolan says that on average, a brand name prescription drug can cost $130 a month, compared to $22 a month for a generic brand. Because physicians typically don’t know the cost of drugs, they offer patients samples with good intentions. Then the patients become accustomed to taking the medicine and suddenly face a large monthly cost.

Steve Nolan

While not every brand name drug has an effective generic counterpart, there are cases in which the generic brand does the job, Nolan says. He’s heartened by the potential of generic competition for biologic drugs that treat such illnesses as arthritis, rheumatism and psoriasis.

Nolan says 80 percent of the drugs prescribed through RMHP are generic. He says the percentage is five to eight points higher than the Colorado average and about 10 percent higher than the national average.

ErkenBrack says that because RMHP already provides much of the service dictated by the national health care reform law, the local insurer is ahead of the game. For example, many RMHP policies offer coverage for routine physicals and child exams, prescription drugs, mental health care and dependents up to age 26.

Such benefits from RMHP, combined with a unique agreement between RMHP and the local Independent Physicians Association (IPA) and partnerships with with other local health care organizations, have pushed the Mesa County health care system into the national spotlight. ErkenBrack routinely travels to Washington, D.C., to attend national health care discussions. ErkenBrack and others boast of the system in which RMHP guarantees doctors receive higher payments for treating Medicare and Medicaid patients if those patients carry RMHP coverage as additional insurance. In return, RMHP gets the majority of the health insurance business in Mesa County.

Doctors in the group generally agree to earn less money per patient than they might in other counties and larger cities.

Proponents of Mesa County’s system also say such charitable programs as Hilltop’s B4 Babies pre-natal care program, the Marillac Clinic and Hospice and Palliative Care of Western Colorado also join in providing services for young and old and for wealthy and the poor.

While a proponent for national reform in light of the success of the cooperative health care system in Mesa County, ErkenBrack isn’t convinced PPACA is the best solution.

“This shifts a lot of things to Washington, D.C., which concerns me,” he says. “But it also creates opportunities for communities to take steps toward lower costs, preventive care, generic drugs and help for pregnant women.”

ErkenBrack sees potential danger in federal directives concerning administrative costs. Beginning next year, about 80 percent of every health insurance premium is supposed to go toward patient care, with 20 percent allowed for administrative costs.

That sounds logical, says ErkenBrack, until one tries to define what’s classified as patient care and what constitutes administrative cost.

Are nurses considered administrative expenses? What about people who complete paperwork for the B4 Babies program, which can make the program run more smoothly and result in better care?

While RMHP is expanding its coverage into other Western Colorado counties, it’s also generally raising insurance premiums as annual renewals come up.

“The rates have been going up year after year,” says ErkenBrack. But he says clients would be mistaken if they attribute the increases solely to this year’s health care legislation. Such factors as the age of the insured, the health of clients, the cost of prescription drugs and the cost of new technology all factor into premiums. People who are willing to risk paying a high deductible rate will pay lower monthly premiums than those who don’t want to pay a deductible fee.

Because some of the federal directives are already in place locally, RMHP has already incorporated those costs into its premiums. More federal directives are on the way, however, and they could affect coverage and costs. A 10 percent tax on indoor tanning and cuts in Medicare payments to psychiatric hospitals took effect during the summer. By October, health insurance plans will be required to provide some protection for children with pre-existing conditions. Reductions in funding for the Medicare Advantage program are due to kick in next year, as are Medicare cuts to home health care. Employers who provide health care payments for employees will add the cost of health insurance to workers’ W-2 income statements.

It’s fairly easy to surmise that less coverage under the federal Medicare program can lead people to purchase more insurance coverage from private companies, while changes that add to people’s income tax payments would serve as another form of increased medical cost.

By 2014, PPACA calls for a health insurance exchange distribution system. Such insurance exchanges would be partly run by the government, helping insurers to comply with federal regulations, offering expanded coverage to more people and reducing risks for the insurer. Exchanges would not bear risk themselves, but would contract with private insurers and possibly offer a public option for health coverage. Anyone choosing to refrain from buying health insurance would face an additional tax of $695 or 2.5 percent of income, whichever is greater. Exceptions could be made for people who show they can’t afford such insurance. Employers who don’t offer health insurance for their employees would face a penalty of up to $2,000 per employee.

A hyperbaric chamber at St. Mary’s Hospital in Grand Junction applies oxygen under pressure to treat injuries and other ailments. The chamber offers an example of how changing technology is changing health care, including its cost. (Business Times photo by Mike Moran)

Another factor affecting insurance costs is the price of ever-improving technology. From electronic sharing of patient files to the use of hyperbaric chambers that treat wounds and decompression sickness, new inventions hit the market seemingly every month. The prices are usually high until increased demand leads to mass production. The costs eventually show up — either in direct billing or higher insurance premiums.

Over time, such inventions can lower costs. For example, storing files electronically saves on paper costs.

ErkenBrack also suggests direct delivery of health care will continue to change, particularly is there’s a shortage of doctors. Nurses and physicians’ assistants already perform procedures once the domain of medical doctors.

“How we do health care 10 years from now might be very different and who we use (might be different),” ErkenBrack says.

Such questions about the future will no doubt have a big effect on health insurance policies and rates, as will the projected changes to come from national health care reform over the next four years.