Health insurance outlook: What's coming next?

Big changes are coming to the health insurance industry in 2014 thanks to the Patient Protection and Affordable Care Act. However, that doesn't mean you'll have to wait until then to see how the law is impacting health insurance plans.

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According to industry experts, insurers can be expected to continue efforts to control costs as they gear up for what will likely be a competitive individual market in 2014. In addition, they will be watching government regulations closely to determine how best to provide health insurance for individuals. As health insurance companies get ready to implement reform provisions, consumer health care could see changes within the next year.

Cost cutting leads to changing business practices

"One of the bigger things we are starting to see emerge is that of payment transformation," says Joe Parente, Principal for KPMG Healthcare, which recently surveyed senior healthcare executives on the subject.

According to the KPMG survey, approximately one quarter of executives do not see their current business model as sustainable and depending on their company's role in the industry, many see significant changes on the horizon.

Of executives for U.S. healthcare systems, 65 percent believe there will be major changes to how they do business in the next five years. Meanwhile, 40 percent of health insurance plan executives said the same.

Tactics to reduce health care costs

To adjust to the changing face of health care, executives are looking to reduce their costs through a variety of means. More than half of executives responding to the KPMG survey say they believe partnerships between health care providers and suppliers could be used to curb costs.

Consumers may also see health care organizations ramping up their use of the following tools, all reported by executives as potentially effective ways to reduce health care expenses:

• Health information technology, such as electronic patient health records
• Evidence-based medicine, in which health care providers use the latest research to make treatment decisions
• Disease management programs
• Pay for performance incentives that reward health care providers who meet certain quality or efficiency benchmarks

According to Parente, health insurers and health care systems have been moving to cut costs for several years.

"I think it was definitely emerging before health care reform was happening," he says. "Insurers were looking to progressive models for payments, but health reform threw some fuel on the fire."

Other ways health insurance companies may try to cut costs in the coming year include an increased deployment of wellness programs as well as a continuation of emphasis on consumer-directed health care such as high deductible health plans. In addition, Parente says affordable care organizations are an emerging trend to coordinate patient care and bring down costs. (See: "Take care or pay a higher share of your health insurance premium.")

Competitive premiums may be on the way

While some of the upcoming changes in health care will be behind the scenes, others will trickle down to affect consumers.

Sabrina Corlette, a research professor with The Center on Health Insurance Reforms at Georgetown University, points to already enacted medical loss ratios and an upcoming enhanced benefit summary as two of the health reform provisions that may impact consumers the most in the next year and a half. (See: "Group health premiums up 97 percent since 2002.")

"I think because of the medical loss ratios and enhanced benefit review, there will be a lot of pressure on insurance companies to price appropriately," she says.

Health reform provisions to watch

Medical loss ratios refer to the amount of money health insurance plans must spend on direct health care costs. As of January 2011, insurers must spend 80-85 cents of each premium dollar they receive on medical care and quality improvement. Those that fail to meet this threshold must refund the excess premiums back to policyholders. (See: "Health reform sticks: Now what?")

According to the Department of Health and Human Services, 12.8 million Americans were slated to share $1.1 billion in rebates this year. Those refunds were expected to be distributed to eligible policyholders by August 2012.

The enhanced benefit summary is scheduled to go into effect on September 23, 2012. This health reform provision mandates health insurance companies provide a standard summary of benefits sheet to those enrolling in their medical plans. The summary will include a plain English explanation of plan costs such as co-payments and deductibles as well as coverage examples and contact information for the insurer.

A November 2011 tracking poll conducted by the Kaiser Family Foundation found the enhanced benefits summary was the most popular provision of the Patient Protection and Affordable Care Act. More than 80 percent of those surveyed viewed this provision very favorably.

Corlette says the summaries as well as the medical loss ratios could help keep consumer costs in check.

"Premiums aren't going to go down," she says. "[Policyholders] may still get an increase but not as big an increase."

Government rules expected shortly

By the end of the year, Corlette says government rules regarding benefit packages, coverage of pre-existing conditions and other health reform requirements should be unveiled. While these rules will be of particular interest to health insurance companies, consumers will also want to pay attention to these details. The government regulations are expected to have a significant impact on both the costs and coverage of health insurance for individuals in 2014.

"The individual market will be highly competitive," notes Parente.

While 2014 may be the big event when it comes to health reform, consumers shouldn't assume changes won't be occurring before then. The next year will be important as health insurance companies continue to roll out new policies and plans that are intended to prepare them for the 2014 provisions.