President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It's clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama's plan.
The health-reform law caps how much insurers can spend on expenses and take for profits. Starting next year, health plans will have a regulated "floor" on their medical-loss ratios, which is the amount of revenue they spend on medical claims. Insurers can only spend 20% of their premiums on running their plans if they offer policies directly to consumers or to small employers. The spending cap is 15% for policies sold to large employers.
This regulation is going to have its biggest impact on insurance sold directly to consumers—what's referred to as the "individual market." These policies cost more to market. They also have higher medical costs, owing partly to selection by less healthy consumers.
Finally, individual policies have high start-up costs. If insurers cannot spend more of their revenue getting plans on track, fewer new policies will be offered.
Restrictions on how insurers can spend money are compounded by simultaneous constraints on how they can manage their costs. Beginning in 2014, a new federal agency will standardize insurance benefits, placing minimum actuarial values on medical policies. There are also mandates forcing insurers to cover a lot of expensive primary-care services in full. At the same time, insurers are being blocked from raising premiums—for now by political jawboning, but the threat of legislative restrictions looms.
One of the few remaining ways to manage expenses is to reduce the actual cost of the products. In health care, this means pushing providers to accept lower fees and reduce their use of costly services like radiology or other diagnostic testing.
To implement this strategy, companies need to be able to exert more control over doctors. So insurers are trying to buy up medical clinics and doctor practices. Where they can't own providers outright, they'll maintain smaller "networks" of physicians that they will contract with so they can manage doctors more closely. That means even fewer choices for beneficiaries. Insurers hope that owning providers will enable health policies to offset the cost of the new regulations.
Read more from Dr. Scott Gottlieb here online.wsj.com/article/SB100014240527487
Dr. Scott Gottlieb, a former official at the Centers for Medicare and Medicaid Services, is a fellow at the American Enterprise Institute and a practicing internist. He's partner to a firm that invests in health-care companies.