Change coincides with, cites ObamaCare “as a factor”
Texas Insider Report: AUSTIN, Texas – In another pre-election blow to Democrats, Principal Financial Group said it will exit the health insurance marketplace in which it covers some 840,000 lives. The Wall Street Journal also reports this morning that 3M “informed retirees & workers it will stop offering group health insurance to retirees not old enough for Medicare by 2015, citing the federal health overhaul as a factor.”
3M’s decision to eliminate coverage for Medicare-eligibles beginning in 2013 exactly coincides with a provision in the law scheduled to take effect that year, which eliminates the tax deductibility of a federal subsidy provided to companies that cover their retirees’ prescription drug expenses.
Even more concerning, analysts say, is if more insurers are likely to follow Principal’s lead as they try to meet the new rules requiring plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers.
“It’s just going to drive the little guys out,” said Robert Laszewski, a health policy consultant in Alexandria, Va.
The memo to 3M employees notes that “health care reform has made it more difficult for employers like 3M to provide a plan that will remain competitive.”
Specifically, 3M’s Medicare-eligible retirees will be converted to a health reimbursement arrangement (HRA) in 2013, and retirees not yet eligible for Medicare will be converted into an HRA beginning in 2015, once the insurance Exchanges and subsidies are scheduled to come online in 2014.
Earlier this year 3M took a $90 million write-down as a result of this provision – which, as predicted, is leading companies to modify their coverage choices. In August, the Medicare actuaries predicted that nearly 6 million retirees would lose their current employer-sponsored drug coverage as a result of this provision.
This type of change – converting a defined-benefit plan into a defined-contribution model – has been advocated by some in the policy community, as it may give retirees more flexibility in their coverage options. However, to the extent that employers place more of their workers on insurance Exchanges to receive federal subsidies, such plans would obviously increase the federal deficit – in addition to breaking the President’s promise that those who like their current coverage will be able to keep it.
It will also be interesting in the coming days to see the responses from Democrats regarding this development, particularly given what a Journal Editorial last week characterized as “political intimidation” against McDonald’s when a leaked internal memo showed the company apparently wavering on whether to continue offering coverage to their employees.
Sen. Jay Rockefeller sent a letter late last week seeking detailed information from McDonald’s insurer “in order to understand the costs and benefits of the insurance products you are selling to McDonald’s employees.”
Political intimidation or not, companies have been given strong economic incentives – higher taxes for those employers offering retiree drug coverage, and a federal government willing to subsidize insurance for all low-income employees – to modify or drop their coverage entirely.
In the long run, those incentives will be extremely difficult for successful firms to ignore, despite the short term political hue and cry from elected officials.
Principal Financial Group to exit health insurance marketplace
Both the New York Times and the Wall Street Journal ran stories Friday morning covering the exit from the health insurance marketplace of Principal Financial Group, which currently covers about 840,000 lives.
All these individuals will have to change their current coverage in the coming months as their policies expire.
More troubling however are the concluding paragraphs of the Times piece, which suggests that Principal’s decision may be one of many made by smaller carriers to exit the health insurance marketplace thanks to the health care law:
More insurers are likely to follow Principal’s lead, especially as they try to meet the new rules that require plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers. Many of the big insurers have been lobbying federal officials to forestall or drastically alter those rules.
“It’s just going to drive the little guys out,” said Robert Laszewski, a health policy consultant in Alexandria, Va. Smaller players like Principal in states like Iowa, Missouri and elsewhere will not be able to compete because they do not have the resources and economies of scale of players like UnitedHealth, which is among the nation’s largest health insurers.
Mr. Laszewski is worried that the ensuing concentration is likely to lead to higher prices because large players will no longer face the competition from the smaller plans. “It’s just the UnitedHealthcare full employment act,” he said.
Democrats claimed that their unpopular health care law would protect Americans from abuses by “Big Insurance.” But if the overhaul leads to industry consolidation – and higher prices as a result – how effective can it be?