Health Reform Legislation

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Under the Patient Protection and Affordable Care Act, underwriting will effectively disappear. Enrollee demographics and medical history can no longer be used to calculate premiums. Two exceptions allow for rate variation based on age and smoking, although even in those cases the degree of variation is legally capped. Without the ability to use underwriting for risk selection or assigning premiums, insurers will have to find new ways to compete. Premiums will no longer reflect the underlying risks, and rate variation will cease to be a meaningful tool in competing for a healthy insured population.

Although medical underwriting can no longer be used for risk selection, the new law will provide some useful protections for insurance companies. One new program will establish reinsurance for high-risk populations. This reinsurance program will assess fees from insurers with low-risk populations, and provide reimbursements to insurers with high-risk populations. If the program operates as intended, health plans will no longer be as sensitive to the risk of their insured population. With this program balancing population health risk between different insurers, competition for healthy applicants will no longer provide a market advantage.

With the face of the competitive landscape changing, insurers who can effectively adapt will find new opportunities to stand out in the marketplace. Instead of matching premiums to risks or competing for the healthiest customers, insurers can compete on the quality and efficiency of their plans. Reforms such as the new insurance exchanges, public reporting requirements of quality metrics, and a new health plan rating system will help insurers use the merits of their products to attract new applicant...

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...ity to support the national strategy. This center will be responsible to develop, disseminate, and provide training in strategies for quality improvement. Part of this role will include identifying providers that consistently deliver high-quality, efficient care, and use best practices that are adaptable to other companies or circumstances. These providers will be used as a model for what can be achieved by other providers, and the new center will make recommendations for how other providers can implement some of the same practices. This program could provide a tremendous leadership opportunity for health plans that succeed in improving their quality and efficiency. Insurers who are dedicated to providing excellent quality and efficiency will receive public recognition of their efforts, and this leadership role could prove to be an important competitive advantage.

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