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Who Gets the Benefit?

In the short term health care reform will negatively impact insurer profits. There will be a reduction in government payments to medicare advantage plans. Insurers will no loonger be able to sell policies with lifetime caps on insurance, exclude children from coverage on the basis of pre-existing conditions or drop adults when they are sick (also known as recission).

In just four (4) years, insurers will no longer be able to deny coverage to people with pre-existing conditions. It is predicted that this requirement will lead to an explosion in premiums because health care reform doesn't create universal coverage.

Again, in the short term premiums are predicted to rise to those who earn too much to merit government subsidies; but other individuals will see their premiums drop (according to the Congressional Budget Office). As insurance companies get 32 million new customers, they will receive a tremendous infusion of cash that should enable them to reduce their prices.

In the long run, if insurance costs drop, more of the 23 million people (a third of them illegal immigrants) who remain uninsured will be able to afford coverage, and there will be less danger that people will buy it only after they get sick.

The bill requires that insurers provide a certain minimum level of benefits in the health insurance exchanges that individuals and small firms must use to buy coverage, beginning in 2014. That should help carriers because they can charge more for mandatory benefit packages than for the catastrophic plans that they often sell in the individual and small-group markets.

Also, people who are now covered by their employers will be able to buy insurance through the exchanges if the actuarial value of their plans is less than 60 percent and/or their share of the premiums costs more than 9.8 percent of their income. While itís unclear how many people will be affected, moving them from a low-benefit employer-provided plan to a higher-benefit individual plan purchased in an insurance exchange should also raise revenues for insurance companies.

It looks as though the benefit is definitely to the insurance companies. So if this reform bill is so good for insurers, why have they opposed it, and why does the stock market view reform as bad for insurance companies? It may be because of short-term thinking as pointed out above.

Stay tuned....as the debate continues.

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