Insurers with healthier, lower-cost patients would share revenue with rivals whose customers run up higher bills under U.S. rules to stabilize insurance markets within the 2010 health-care law.
Insurers such as UnitedHealth Group Inc. would also qualify for $20 billion in subsidies from 2014 to 2016 when they take on the sickest patients, according to the regulations. The money would come from fees levied on the insurance industry.
Rules issued by the Obama administration today attempt to make good on the law’s goal of discouraging private health plans from cherry-picking patients while easing market disruptions when top changes in the medical system take effect in 2014.
“This is a fundamental shift in how insurers are going to think about their marketplace,” said Peter Harbage, a health-policy consultant who has worked for both Democrats and Republicans. “They always looked to limit risk. These rules make them think about how they can manage the broader population with an aim of coordinating care and lowering costs.”
Health-care stocks fell. The Standard & Poor’s Supercomposite Managed Health-Care Index slid 2.6 percent at 4 p.m. New York time.
The rules set standards for U.S. states seeking to offer coverage to the uninsured under the 2010 law using marketplaces called exchanges. Regulated markets where uncovered individuals buy coverage from private insurers are central to the law’s aim to expand coverage to as much as 95 percent of Americans from about 83 percent now.
Guidelines for exchanges are essential to the law’s aim of fundamentally reshaping health coverage. The administration would offer conditional approval to states that have made progress creating an exchange by 2013, and would let states delay start-up past a final deadline of 2014 when they need more time.
The administration is fighting U.S. court challenges by 27 states to strike down the law’s requirement that Americans obtain coverage or face a tax penalty.
“Insurance companies will compete for business on a transparent, level playing field, driving down costs,” Health and Human Services Secretary Kathleen Sebelius said at an appearance in Washington.
The rules have “a couple of positive areas” for insurers, analyst Justin Lake of UBS Securities in New York, said in a note to clients, including steps to help plans manage the risk of high medical costs. Insurers will also benefit from a requirement that people sign up for coverage during annual open-enrollment periods each year, he said.
The Washington lobbying group for health insurers, America’s Health Insurance Plans, said it was still reviewing the regulations. In a statement, Chief Executive Officer Karen Ignagni said the U.S. should leave it up to states to regulate the new insurance exchanges and that they should allow all plans to sell their products.
Taking Insurer Money
The rules create a “risk-adjustment” program that would take money from insurers in a state with low-cost patients and give it to plans whose customers run up the highest bills. The policy applies both to insurers selling coverage within the exchanges and those operating independently.
“The risk-adjustment program serves to level the playing field, both inside and outside of the exchange,” the government said in a description.
The rules also provide a temporary mechanism for revenue-sharing among plans inside exchanges. An insurer with $10 million of projected costs in a market that incurs a $500,000 overrun would get $100,000 from the U.S. to make up for the extra cost. The same plan only spending $9.3 million in a year would have to give the U.S. $200,000 under the rules.
A government-run reinsurance program also will help cover the most costly patients with chronic conditions for three years starting in 2014. The effort is intended to defray costs from sicker people signing up for coverage in early years of the exchanges and discourage insurers from cherry-picking customers.
In the first year of the exchanges, the annual penalty for not buying coverage is $95 in 2014. It rises to $695 in 2016.
“The transitional reinsurance program is a critical element in helping to even out the health insurance market, moderate premium increases and set the foundation for the establishment of the exchanges,” the government said in a fact sheet describing the policy.
The public has 75 days to comment.
States are most concerned about “the boundaries on flexibility” when designing exchanges, said Cindy Gillespie, who leads the health-care policy group at McKenna Long & Aldridge, a Washington lobbying firm. Gillespie helped former Massachusetts governor Mitt Romney design that state’s exchange.
The rules provide “a helpful framework for states” while giving consumers more choices, said Ron Pollack, executive director of the advocacy group Families USA, which lobbies for the health-care law, in a statement.
Final Say Sought
Some states seek to allow as many insurers as possible to sell plans through the exchanges and want a final say on details such as length of enrollment in plans, Gillespie said by phone before the rules were released.
Under the law, states can operate their own exchanges or leave the job to the federal government. Administrators in either case will decide whether coverage applicants are eligible for Medicaid, the federal-state health plan for the poor, or can buy subsidized policies from companies such as UnitedHealth and WellPoint Inc.
The Congressional Budget Office expects 24 million Americans to obtain insurance through exchanges by 2019.
Nine states enacted laws creating exchanges this year, according to a database maintained by the National Conference of State Legislatures, the group representing state lawmakers.
Massachusetts and Utah already operate exchanges, though it isn’t clear whether they comply with the U.S. law. California enacted an exchange law last year, and Louisiana’s governor, Bobby Jindal, has said his state won’t run its own exchange.
The states that passed exchange laws this year include Connecticut, Hawaii, Washington, Colorado, Maryland, Nevada, Oregon, Vermont and West Virginia, according to the NCSL database. Virginia and North Dakota passed laws saying they plan to run their own exchanges, while Indiana’s governor issued an executive order saying his state will run one.