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Tax Would Let Big For-Profit Plans Take Over the Insurance Market, Nonprofits Say

By John Reichard, CQ HealthBeat Editor

January 13, 2010 -- Fees on insurers in Senate health care overhaul legislation totaling $70 billion over 10 years could allow big for-profit health plans to control the health insurance market in several years, executives with nonprofit health plans say.

The $70 billion provision in the Senate overhaul bill (HR 3590) disadvantages the more innovative non-profit plans that health policy analysts look to as models for controlling costs because they primarily serve the "fully insured" market, while a big piece of the business done by the big for-profit companies is in the "self-insured" market, said Patricia Smith, president of the Alliance for Community Health Plans (ACHP).

The premium tax would only apply to fully insured plans, not self-insured plans. "In effect, it will end up placing a higher price tag on plans that are in the fully insured market because somehow or other you've got to pay for that," Smith said in an interview Wednesday.

Smith's membership includes plans such as Group Health Cooperative of Puget Sound in Seattle, Kaiser Permanente and the Geisinger Health Plan. They are often cited as models of better organized care that deliver treatment in the most cost-effective settings, emphasize preventive treatment and closely watch pharmaceutical and other costs.

Fully insured plans are those in which the insurer takes on the financial risk for covered health care costs apart from whatever premium dollars they collect; if treatment costs exceed premium revenue, fully insured plans are on the hook for those costs.

Self-insured plans are plans funded by employers who take on that financial risk. Typically, it's only big companies that have the deep pockets needed to self-insure. When they do so, they rely on an insurer to process claims and offer a network of providers, but treatment costs are entirely on the employer's dime.

"By putting a tax in place on (fully insured) plans and not applying it to the self-insured market, what you're doing is pushing every employer that possibly can (switch) into the self-insured market and out of these plans where they are basically in the environment of more innovative care delivery, more coordinated delivery," said Smith.

"And that's not been the direction that we want, or that lots of people have talked about health care reform ought to be going" she noted.

Smith said her members are more apt to serve smaller employer groups as well as individuals. Big for-profit plans more often serve large national employers who prefer the "one-stop shopping" of dealing with a single national plan rather than a number of smaller community plans.

Big for-profit insurers such as UnitedHealth Group, Aetna, Wellpoint and Humana are better able to absorb the tax because they have bigger profit margins.

According to a financial analysis prepared by the University of Pittsburgh Medical Center Health Plan, a member of ACHP, the five insurers with the largest revenues in the United States had operating income of $6.5 billion in 2008, compared to $9.1 billion in operating income for the entire insurance industry.

Their operating profit margins averaged 6.37 percent while that of the other 360 or so insurers averaged 1.06 percent.

"The five largest insurers will still enjoy the probability of significant profitability post implementation of this tax whereas the other 359 insurers in the nation would collectively operate at a loss," the analysis said.

Smith said that her group's goal is to get negotiators to drop the premium tax entirely. The funding mechanism is not a part of the House health care overhaul measure (HR 3962). Smith didn't specify how the lost revenue could be replaced. "They've got a big puzzle to put together as it is to figure out financing," she noted.

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