Top 10 Health Plan Stories of 2011

It has been a year full of health plan surprises as insurers prepare for the continued implementation of healthcare reform. Controlling the patient cost curve was the focus of mergers, acquisitions, and new alliances undertaken during 2011.

New rules set minimum standards for medical costs, and one insurer took a controversial step it hopes will help control healthcare costs. And as an early Christmas gift for health insurers, the Department of Health and Human Services declined to set a federal standard for essential benefits.

Here, in no particular order are the top health plan stories of 2012:

1.HHS Punts on Essential Health Benefits
Charged with the political hot potato of deciding just what benefits health plans will be required to cover as part of the Patient Protection and Affordable Care Act, HHS took a time honored approach—it kicked the decision down the road.

On a Friday afternoon in mid-December when most people were probably thinking more about Christmas shopping than healthcare policy, HHS announced that each state will have the flexibility to select an existing health plan to set the benchmark for the items and services included in an essential health benefits package.

States will still have to make sure that their health insurance plans cover the 10 categories of care mandated in the PPACA, such as preventive care, emergency services, maternity care, hospital and physician services, and prescription drugs, but this decision provides states with flexibility in how the categories will be covered.

2.Four Health Plans Agree to Share Information
In September Aetna, Humana, Kaiser Permanente, and UnitedHealth Group launched the Health Care Cost Institute and agreed to provide 10 years of information on more than five billion claims representing more than $1 trillion in healthcare spending to qualified researchers.

The treasure trove means that for the first time, researchers will have extensive access to private health insurance data, including utilization and patient outcomes, and its impact on healthcare delivery.

Previously, researchers have had to make do with Medicare data, which covers only 30% of the insured population and is limited to beneficiaries over age 65. Early research projects are focused on how economic conditions and population aging affect costs, and how policies like price disclosure requirements affect costs.

3.Aetna and Carillion Form an ACO
Back in March, before HHS first presented its proposed Medicare shared savings ACO rules, Aetna and Roanoke, VA-based Carilion Clinic announced their collaboration on a commercial ACO featuring co-branded commercial health insurance plans for individuals and businesses as well as new payment models with rewards for meeting quality targets and shared cost savings.

The announcement caused a stir because although healthcare stakeholders were talking behind closed doors and off the record about the possibility of commercial ACOs, few had taken the plunge. Now it seems almost every day there's another announcement about hospitals, health plans, or physicians creating an ACO and developing their own rules for meeting quality standards, cutting costs and earning bonus payments.

4. New Medical Loss Ratio Requirement Takes Effect
Beginning Jan 1, 2011 health plans are required to spend 80 cents to 85 cents of every premium dollar collected on member medical care. Health plans that don't meet the standard may have to rebate millions of dollars back to their members. Health plans are not amused.

They have appealed to their state departments of insurance to request waivers to delay implementation of the MLR requirement. Meanwhile, brokers who work on commissions contend that the MLR is costing them their livelihood. Congress, or at least a couple of House committees, is itching to jump into the fray on behalf of the brokers.

But here's the rub for legislators: nine million health plan members—make that voters??could be eligible to share rebates worth as much as $1.4 billion.

5.Highmark Purchases Its Own Health System
Contract negotiations between payer and providers can often turn a little ugly with both players threatening to walk away from the contract. The protracted negotiations between Highmark and the University of Pittsburgh Medical Center are so acrimonious that the Blues plan acquired a competing health system, West Penn Allegheny Health System.

Motivated by a combination of spite, business sense and altruism, the acquisition means the Highmark-WPAHS team could challenge the dominance of UPMC in the Pittsburgh-area market. But first the successful Blues plan needs to get the five-hospital West Penn system on firm financial footing. Highmark has already committed $475 million to the task.

There's more to this acquisition than just growing market share. Owning WPAHS makes Highmark the ultimate insider in assessing the cost drivers of the healthcare delivery system. It puts the insurer in the driver's seat in terms of implementing quality and cost control programs across a large, vertically integrated system. Meanwhile, UPMC and Highmark remain at loggerheads and Pennsylvania Gov. Tom Corbett is threatening state intervention to resolve the contract dispute.

6.WellPoint Hires IBM's Watson
In the hiring coup of the year WellPoint has teamed with the well-known "Jeopardy!"champ to develop computer-based solutions that will aid the delivery of evidence-based healthcare to patients. Watson, a super computer developed by IBM, can sift through about 200 million pages of data, analyze the information and provide a response in less than three seconds.

The idea is to allow physicians to easily coordinate medical data programmed into Watson with specific patient factors to help identify the most likely diagnosis and treatment options in complex cases such as cancer, diabetes, chronic heart and kidney disease.

Applications envisioned for Watson will allow healthcare providers to use the computer to consult patient medical histories, review recent test results, and compare recommended treatment protocols with the latest research findings loaded into Watson to develop the best and most effective courses of treatment with their patients.

While there have been some early complaints that using Watson will dehumanize medicine by making patients nothing more numbers on a page, for the most part the healthcare industry is taking a wait and see approach. For his part, Watson declined to comment.

 Work colleagues, who asked not to be identified, admit that Watson is a bit of a know-it-all but also credit him with being a team player who is happy to share his knowledge.

7.Health Plans Expand Medicare Advantage Holdings
Over the past 12 months three health insurers, CIGNA, Humana and WellPoint, have made significant acquisitions in the Medicare Advantage HMO market. Plans like Aetna and UnitedHealth are looking at acquisition opportunities.

Driving interest is the aging baby boomer population and a move by businesses to shift their 65 year-old and older retirees off of employee -sponsored plans and onto Medicare Advantage plans. Since 2005, the number of beneficiaries enrolled in Medicare Advantage managed care plans has more than doubled from 5.3 million to 11.1 million in 2010, according to the Kaiser Family Foundation.

Health insurers are looking to jumpstart their participation in the Medicare Advantage market (CIGNA's acquisition of HealthSpring), to expand their geographic footprint (Humana's acquisition of Arcadian Management Services), and to gain expertise in treating chronic conditions ((WellPoint's acquisition of CareMore Health Group).

8. Blue Shield of California Caps Income
In June Blue Shield officials announced that the health insurer would voluntarily limit its income to 2% of revenue and rebate around $180 million to its members and others. CEO Bob Bodaken called the cap a "paradigm shift for a health plan" and asked other health plans to take a similar step to help "solve the seemingly intractable problem of rising healthcare costs." The move was greeted with a healthy dose of skepticism by just about everyone. Some suggested that if Bodaken was really concerned about healthcare costs he should consider reducing his own $4.6 million salary.

Others interpreted the cap announcement as an admission by the insurer that it was making excessive profits. Consumer groups pointed to the Blues plan's $3.6 billion in reserves, which is considerably in excess of what is required to meet state financial solvency requirements, and asked why Blue Shield wasn't giving more money back to its policyholders.

Cynicism aside, Blue Shield members were notified in November that credits ranging from 18% to 54% percent of one month's premium would appear on their December bills.

9.Humana Taps a New Leader
CEOs come and go at most companies but Humana likes to keep its leaders around for a while. In November the company announced Bruce D. Broussard as its incoming president and future chief executive. Broussard will be the company's fourth CEO in its 50-year history.

Michael B. McAlister, the current president, CEO and board chair is expected to retire by mid-2014. He assumed the leadership position of the struggling company in 2000 and is generally credited with focusing its efforts on more lucrative books of business, including Medicare Advantage.

Broussard joins Humana from the drug wholesaler McKesson where he was CEO of McKesson Specialty Health. Before joining McKesson he was CEO of US Oncology where he worked closely with the Centers for Medicare & Medicaid Services. That's an important connection given Humana's emphasis on Medicare business.

Broussard has worked in a variety of healthcare sectors including oncology, pharmaceuticals, assisted living/senior housing, home care, physician practice management, surgical centers and dental networks. That makes him a great fit to implement Humana's long-term strategy. During Humana's third-quarter 2011 earnings call in October McAllister touted the revenue prospects for home care, pharmacy and integrated wellness.

10. Three Blues Plans Acquire Majority Ownership of Bloom Health
WellPoint, Health Care Service Corp. and Blue Cross Blue Shield of Michigan acquired Minneapolis-based Bloom Health, a private health insurance exchange that offers defined contribution plans to employers.

The move could mean the insurers are settling in to create a nationwide exchange that will compete for employer clients with the state-run health insurance exchanges being developed as part of healthcare reform. The Blues plans already have a health plan presence in 19 states.