New Jersey is rapidly moving ahead with federally mandated healthcare reform. On July 1, it became one of 29 states to launch high-risk insurance pools, which provide interim coverage for anyone denied insurance because of preexisting conditions. In September, it will permit children up to 26 years old to be added to their parents’ policies. And the the Garden State has already plugged the Medicare Part D “donut hole,” thus helping seniors pay for their prescriptions.
But these are only the first steps of what’s going to be a very long journey. President Obama’s healthcare reform bill came in at 2,000 pages. But mapping out how the state will implement every facet of the law, which rolls out from now until 2018, could take 40,000 to 60,000 pages of regulations, says Michael McGuire, CEO of UnitedHealthcare New Jersey Healthplan. “We’ve written a law, but we don’t know how to execute on it.”
The devil, as always, is in the details. And some of those details are sure to have unforeseen consequences. Many industry experts are already predicting higher insurance premiums. The new healthcare legislation delivers a broad range of new benefits. Insurance carriers will pass along the costs of those benefits to their policyholders — and the law does not mandate a cap on price increases.
First Fruits of Healthcare Reform
Garden State residents are already reaping the benefits of federally mandated healthcare reform. An estimated 109,000 New Jersey senior citizens last month got $250 checks to help close the gap between what Medicare does and doesn’t pay for prescriptions.
The state’s elderly aren’t the only ones being helped. Health insurance coverage is slated to be extended to youths up to 26 years old under their parents’ insurance. That affects 27,800 New Jerseyans. And the federal reform also bans insurers from setting lifetime caps on coverage, impacting 5.3 million Garden State residents.
As part of the healthcare overhaul, New Jersey is also putting in place high-risk insurance pools. Preliminary estimates are that the state will receive $141 million of the $5 billion being allocated nationally to fund these pools, which provide interim coverage until 2014,when insurers can’t turn anyone down.
Even though these changes are being enacted, most of the actual regulations — the nuts-and-bolts of how New Jersey and the other states will actually implement the complex landmark federal legislation — haven’t been written yet.
“This [healthcare reform] is actually a collection of hundreds of huge changes in the way healthcare is financed and delivered,” says Joel Cantor, director of the Rutgers Center for State Health Policy. “Lots of things are unresolved.”
Healthcare advocates and insurers alike agree with him. In a statement, UnitedHealthcare, New Jersey’s second biggest insurer, covering 1.3 million residents, said, “Now it is time for the difficult work of translating the new healthcare law into practical market-level execution.”
“So much more is unknown, it’s unnerving to me and to all of us,” McGuire notes.
Premium Prices: Up or Down?
Ironically, federal healthcare reform may drive premium prices up in the short — and possibly long — term. Employers told consultants Mercer and Towers Watson in two different surveys that they are bracing for insurance premiums to increase this year, not despite — but because of — health reform. And a Towers Watson survey of employees said they expect to see a reduction in the benefits offered to them, as well.
Whether this is a short-term reaction to the new requirements or a long-term result is unclear. But at least in the near term, many agree that by offering the additional benefits that health reform mandates, there will be an increase in cost to insurance carriers, which they will pass down to employers, who will pass it down to employees.
“We call it cost containment: The policymakers call it barriers to care,” says Joseph Reilly, senior vice president for Aon Consulting, a human-resources consulting firm. “All of this is going to increase the cost burden that we’re all feeling already.”
Reilly adds that “from an enlightened societal perspective” it is good that the Medicare D donut hole is being plugged, helping cash-strapped seniors pay for their medications.
The flip side is “somebody’s got to pay for that,” Reilly notes. And in all 2,000 pages of Obama’s health reform law, there is no provision that sets caps per se on increases in health insurance premiums, he says.
Piling On the Percent
Mercer’s survey of almost 800 employers nationally found that one-fourth of them expect healthcare reforms that take effect in 2011 to add an extra 3 percent or more on top of anticipated increases of 8 percent to 10 percent a year. Rich Fuerstenberg, a Mercer partner and actuary based in Princeton, estimates that the annual incremental cost increases could be anywhere from 2 percent to 6 percent, not only nationally but in New Jersey.
Another Mercer survey took a look at healthcare costs across the country. New Jersey is already at the top of that list. In 2009, health benefit costs per employee per year – for medical, dental and vision — averaged $10,951. Costs for the New York metro area came in at $10,365; the Northeast, at $9,934; and the United States, at $8,945, according to the Mercer survey.
The expected health benefit costs for 2010, after employers change their plans to comply with health reform, will rise for all, with the Garden State remaining on top, the survey also found. The cost in New Jersey will increase to $11,674, in the New York area it will be $11,028, in the Northeast $10,550 and nationally it will average $9,446.
“There are some things in the law that I think can lead to some long-term improvements that can make healthcare better and more cost-effective, reduce the rate of growth of costs,” Cantor says. “But I think the operative term there is long term.”
Establishing Insurance Exchanges
Federal health reform requires that by 2014 each state must establish a health-benefit exchange where people can buy coverage. That will help hold down insurance costs, according to New Jersey Congressman Frank Pallone, D-6th District, chairman of the health subcommittee that was primarily responsible for the controversial reform legislation in the House of Representatives.
“When everybody is now eligible to go on the health insurance exchange, it’s like being part of a large insurance pool,” Pallone says. “So the costs inevitably are less because you’re part of a large pool. You can essentially shop around. You’re essentially negotiating.”
By the 2014 deadline, employers with at least 50 full-time workers that don’t offer health coverage must pay a “Shared Responsibility” fee of $2,000, multiplied by the total number of employees (minus 30), if any of their full-time workers gets insurance through an exchange.
But as one of the unintended consequences of the law, Fuerstenberg predicts that some companies will decide to drop their health coverage entirely, figuring that it’s worth forking over the $2,000 per-employee penalty instead of paying $7,000 a year to insure each of their workers.
And exchanges in the past haven’t succeeded in curbing skyrocketing premium increases, according to both Reilly and Fuerstenberg. Three years after they were set up in Massachusetts, the state Attorney General said the exchanges “had done nothing about lowering costs,” Reilly says.
There are 1.3 million to 1.4 million uninsured people in the Garden State, and health reform will help them find coverage, says Evelyn Liebman, director of organizing and advocacy for New Jersey Citizen Action, a watchdog group. Estimates are that about 920,000 of them become insured as a result of the reform, with roughly 470,000 of them through Medicaid.
Having more state residents insured will largely eliminate the charity cases that New Jersey hospitals treat now, according to Pallone.
“Because everyone gets covered, you don’t have the cost of uncompensated care,” he says. “You don’t have people going to the emergency room [for treatment]. In New Jersey, almost every policy probably has another built-in $1,000, $1,500 a year because you’re paying for uncompensated care of others who don’t have insurance.”
Nationally 15 million to 20 million will get coverage via the healthcare overhaul through an expansion of Medicaid, according to Reilly.
“As a civilized society, that’s a great thing,” he says. “But what happens to the way hospitals get reimbursed, and providers?”
The New Jersey Hospital Association has voiced the same concern. Currently the state’s hospitals provide $1.4 billion annually, treating those without insurance. Hospitals on average get 45 cents on the dollar from the state for caring for those patients, and most absorb the rest in their bottom line, according to NJHA spokeswoman Kerry McKean Kelly.
“We have about 1.3 million people in New Jersey without health insurance right now,” Kelly says. “Some of them will become insured under healthcare reform. Some of them will not. And the big concern moving forward is, for those new patients that move onto insurance programs, we need to be very cautious about how much hospitals will be paid for taking care of those patients, because if the payment rate is low — for example, the 68 cents on the dollar that Medicaid currently pays — then the drain on hospitals will only continue.”
According to Kelly, “The big question, and the big unknown, is how will these patients be insured, and at what payment rate to hospitals?”
Ultimately, New Jersey will come out way ahead with healthcare reform, according to Pallone. That’s because in 2014 the federal government will pick up the tab for all of the Medicaid costs for all the states.
In the private sector, according to the Mercer employer survey, companies are expressing the most concern about a provision of the reform that isn’t even effective until 2018: An excise tax that will be imposed on so-called Cadillac health insurance plans. Such plans tend to be expensive, either because the benefits are extremely rich, the cost of medical care is high, or both. To the extent employers pick up 80 percent or more of plan costs, the excise tax will make those high-cost plans even more expensive for employers.
Companies use these generous benefit plans to lure and retain top-notch talent.
“We think half of all employers [nationally] are going to be subject to the excise tax if they do nothing between now and 2018, and it’s probably higher than that in New Jersey,” Fuerstenberg says.
The logic of taxing generous plans, according to Fuerstenberg, is that “when you have very rich plans, people get an entitlement mentality….There’s no pushback, and providers do what they want.”
So, in another unintended consequence of health reform, the excise tax will wind up acting as an incentive for companies to only offer stripped-down versions of their current generous plans, so they don’t have to pay the excise tax, Reilly argues. That sets a lower ceiling for benefits for employees, he adds.
But state health-reform proponents like New Jersey Citizen Action don’t believe that employers will cut back health benefits.
“This idea that the quality of the care is going to be reduced, we don’t buy that,” Liebman says. “We just don’t buy that, and because of the fact that the reform doesn’t address every single problem, there is still is a lot to do with cost. I think we are going to see premiums rising. Hopefully, they won’t be rising as much. Hopefully, some of the rate regulation-reform will actually allow us to get a much better handle on it than we have now.”