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According to an ancient Mayan calendar, a 5,000-year cycle will conclude Dec. 21, 2012, signaling the end of humanity — or so say some interpretations. While the world might still be around next year, industry oracles contacted by HPW warn that 2012 could be an apocalyptic year for health insurers that are unable to keep their footing on an ever-shifting landscape.

Here’s a look at nine challenges that could have a profound impact on insurers in the year ahead:

(1) The Supreme Court decision: The most significant headline in 2012 will be, “Supreme Court Rules Against Health Reform; Now What?” predicts Ronald Bachman, president and CEO of Healthcare Visions, Inc., and a senior fellow at the right-leaning National Center for Policy Analysis. But such a ruling could lead to chaos and possibly “energize Obama’s core to re-elect him and a Democratic Congress to correct the [law] and make it constitutional,” he tells HPW. Other observers doubt the reform law, or parts of it, will be overturned. The court has scheduled oral arguments on the case for March 26-28. While some industry observers anticipate the court will render a decision in June, it might wait until after the presidential election. Regardless of when a ruling is made, “substantive policy development will begin this year” for health insurers, says Paul Ginsburg, Ph.D., president of the Center for Studying Health System Change. A key challenge for health insurers in 2012 will be to pre-emptively lobby Congress and the administration in anticipation of a ruling that could be disruptive to the industry, he adds.

Insurers Face Headwinds in 2012

(2) Reform implementation: As more provisions of the reform law are implemented, or draw closer to implementation, health insurers will need to change their competitive strategies. The law “will create major winners for those willing to be nimble and take calculated risks,” says consultant William TenHoor, president of TenHoor & Associates, a strategic planning and market analysis firm based in Duxbury, Mass. “Already-large organizations will become larger, new entrants providing supportive services to individual market players will emerge and highly risk-adverse organizations will grow reserves and margins for the next year or two, but will gradually pay a growing market-share penalty,” he predicts. In his recent industry outlook report, Standard & Poor’s analyst Joseph Marinucci said he was optimistic that the reform law wouldn’t negatively impact the industry, and said insurers “are better positioned to make strategic plans for their future now that the risks and opportunities of health reform have become clearer.” The insurance marketplace, he added, will see greater integration and consolidation.

(3) Advocacy: Along with lobbying on the federal side, Ginsburg says advocacy at the state level will be an important issue for insurers. For at least the first half of the year, he explains, health plans will need to focus their advocacy efforts on states, “where the most important policy decisions relating to implementing health reform will be made.” While only about a dozen states have enacted legislation that allows them to move forward in developing an insurance exchange, Ginsburg says decisions made by those states are likely to influence others. Insurers will want to weigh in on what should be included as an “essential benefit” now that HHS has passed that duty on to states (HPW 12/26/11, p. 1). They also should help exchange boards determine whether their exchange will be an active or passive purchaser, he says.

(4) State insurance exchanges: State exchanges must be certified by HHS in less than 12 months, and will begin enrolling members 10 months later. That means health insurers have little guidance and limited time to develop products that can be sold through the new entities. “Carriers are going to have to make a ton of assumptions about who will enroll in their plans” via the exchange, says Dave Delahanty, an employee benefits consultant at Towers Watson. “They’ll also have to decide how to price their products and [determine] how aggressive they want to be.” And the first open-enrollment period in October 2013 could be crucial. “Once an individual chooses a plan, they don’t move very often, so the 2014 [plan year] will lock in enrollments for years to come. But no carrier wants to lock in unprofitable business.” Delahanty predicts that some large health plan operators will determine the exchanges are a financial risk and opt not to participate. “The White House might not be very happy if that happens because the exchanges will look less attractive,” he says.

(5) Self-funded coverage: Health insurers will need to compete in a post-health reform market that “provides significant incentives for self-funded [administrative services only] and minimum premium-type arrangements,” says John Hickman, an employee benefits attorney at the law firm Alston & Bird. “Insurers will see a significant portion of their business in the medium to small-group market examine and experiment with self-funded and hybrid self-funded arrangements. Insurers will react by re-energizing the small self-funded group market with new products [e.g., stop-loss coverage, wellness programs] targeted at the self-funded small-group market.”

(6) Health information exchanges (HIEs): In December 2010, Aetna Inc. said it would pay a half billion dollars to acquire Medicity, a Utah-based health information vendor (HPW 12/13/10, p. 1). That news came on the heels of UnitedHealth Group’s August decision to acquire Axolotl, a California-based HIE firm. To survive and thrive — both inside and outside of the state exchanges — health insurers are turning to HIEs to improve connectivity between providers, brokers, employers and members. Bachman predicts 2012 will be an important year for the nascent development of HIEs. “These private information exchanges will be full-service public and private insurance resources that will triage qualified leads to agents for sale of individual and small groups, as well as connect to Medicaid and [Children’s Health Insurance Programs] eligibile enrollees.”

(7) Acquisitions: Humana Inc. on Jan. 4 completed its acquisition of MD Care, a Medicare Advantage company based in Long Beach, Calif. The company has about 15,000 members. A day earlier, Coventry Health Care, Inc. completed its acquisition of Children’s Mercy’s Family Health Partners, a Medicaid health plan previously operated by Children’s Mercy Hospital in Kansas City, Mo. Over the past quarter, 15 health insurers have been acquired by larger companies, notes health care consultant William DeMarco, president and CEO of Pendulum HealthCare Development Corp. “And the interesting thing is all but one was a Medicare Advantage plan,” he tells HPW. “This is part of the solution for insurers to focus on expanding market segments into Medicare and Medicaid, but this expansion requires the ability to reduce medical expense and administrative overhead.” Midsized, well-run insurers are valuable as acquisition targets, he adds.

(8) Medical utilization: After more than two years of decelerating medical utilization, several equity analysts predict utilization will edge up. In a December note to investors, Credit Suisse analyst Charles Boorady predicted utilization would rebound by 0.5% to 1% in 2012, remaining below historic norms. He suggested that health plans would be able to counter the increase through “greater effectiveness at unit cost management.” In her note to investors, Cowen & Co. analyst Christine Arnold agreed that utilization patterns appear to have stabilized. While some service areas are likely to remain low, physician visits have increased for three straight months, she wrote.

(9) Provider networks: Many health insurers are looking for “stronger controls” over primary care physicians by either developing exclusive contracts with them or by acquiring practices via their management services organizations or individual practice associations, says DeMarco. “Not just large plans, but smaller plans as well are engaged in purchasing these practices and turning them into an asset by consolidating enrollment around high performance panels.” TenHoor says insurers will need to reduce “long-established tensions with the provider community [and work toward building relationships] where mutual rewards are aligned for both parties.” To achieve improvements in cost and quality through accountable care organizations, for example, health insurers will need to overcome “deeply held reservations and certain traditional values.”