The first big wave of new rules under the federal health care law goes into effect on Thursday, leaving many insurers scrambling to get ahead of the changes.
Insurers are cutting administrative staff to lower overhead costs, investing in big technology upgrades and training employees to field the expected influx of customer inquiries.
Despite the talk among some Republicans of repealing all or part of the law, insurers say they cannot afford to put off the changes. Many said they were fundamentally altering their business models to cope.
“It is really the Manhattan Project because of the scale and the scope,” said Karen Ignagni, chief executive of America’s Health Insurance Plans, a trade group.
Under the new law, insurers that offer child-only policies must start covering all children, even the seriously ill, beginning on Thursday. Insurers must also begin offering free preventive services, and for the first time, their premiums must start passing muster with federal and state regulators by the end of the year.
Companies are choosing to avoid some of the rules by no longer offering certain policies. Aetna , WellPoint and Cigna , for example, have announced that they would stop selling new child-only policies, at least in some states. Ahead of the regulatory review, some also raised premiums this year.
The coming weeks and months should provide an important test of the legislation — and a dry run of sorts for the more far-reaching changes required by the law in 2014, when insurers will have to offer coverage to everyone and begin selling their plans on state-run exchanges.
Adjusting to the new terrain could push some insurers out of business, health care analysts say. In a setback to the bottom line, for example, insurers will no longer be able to pick and choose enrollees to avoid covering people who are likely to run up high medical bills, and many of the markets where they operate will become much less profitable.
“A lot of health plans will struggle and fail,” said Jeff Fusile, a health care partner at PricewaterhouseCoopers.
Blue Shield of California, which was an early proponent of requiring insurers to cover everyone, has trained about 2,500 people — nearly half of its work force — about the impact of the new law. About 250 of the employees are leading teams responsible for reprogramming computer systems, determining the cost of new policies and ensuring that the people answering phones have the correct responses to customer questions, among other tasks.
“The train has left the station, and we’d much rather be the ones with the engineer’s hat,” said Bruce Bodaken, the chief executive of Blue Shield of California, a nonprofit health plan based in San Francisco.
The challenge for the industry as a whole will be to demonstrate an ability to oversee patient care and work closely with hospitals and doctors to find ways to improve the quality of care while trying to contain costs. To that end, insurers are making big investments in technology systems and new areas of expertise.
Blue Shield says it has already increased its efforts to address the cost and quality of care by exploring new ways to pay doctors and hospitals.
“We’re going to do a lot more innovation and experimentation, failing and succeeding, than we’ve ever been doing before,” Mr. Bodaken said.
Like many of its competitors, Blue Shield is also upgrading its technology systems. The plan is spending several hundred million dollars on the effort, and both the new and old systems must be reprogrammed at the same time to reflect the new rules.
But the cost of such upgrades could be the undoing of some plans, said Mr. Fusile, of PricewaterhouseCoopers.
“The biggest challenge facing the payers is that they are going through a pretty massive investment in information technology,” he said.
Even those insurers that were critical of the legislation have little choice but to comply. Still, several have chosen to avoid the new rules by ceasing to offer certain policies. In the case of the child-only policies, insurers say the new rules could require them to cover too many sick children and too few healthy ones.
Aetna, for one, says it would be willing to work with government officials to find ways to keep offering the coverage. “With the right regulatory environment, we would be able to keep plans affordable and continue to offer them,” said Matt Wiggin, an Aetna spokesman.
The Obama administration says that it is willing to work with the insurers, but added that the companies had already promised to continue offering the policies.
“Insurance companies have pledged to offer coverage to children with pre-existing conditions, and we expect them to honor that commitment,” said Jessica Santillo, a spokeswoman for the Department of Health and Human Services.
One of the most critical changes in the coming months will be the final rules dictating how insurers spend their premiums. The federal legislation says that at least 80 cents of every dollar collected in premiums must be spent on the welfare of patients, but the regulations spelling out what qualifies are still being worked out.
Some insurers are acting quickly to make cuts to lower their overhead expenses in anticipation of the new regulations on spending, said Roger Collier, a former health care executive who is now a consultant. Brokers may see their commissions, which are paid for by the insurers, sharply reduced or eliminated as one potential source of savings, he said.
The legislation also requires insurers to have their premiums vetted, in some fashion, by regulators at the state and federal levels. Given the amount of controversy over the double-digit increases some plans have already requested, insurers are readying themselves for a long and potentially fraught process.
Blue Shield recently filed rate increases of less than 2 percent, on average, for all of its policies, and a little more than 4 percent in the individual market, largely to address the expanded benefits under the new federal law.
The timetable to enact the new rules under the health care law is aggressive, and administration officials say they will enforce it. Still, the administration recently announced its willingness to allow insurers more leeway in complying with some rules when the logistical challenges were essentially insurmountable.
The rush to comply has led to some stumbles. When Blue Shield, like some of its competitors, wanted to offer coverage to adult children up to age 26 through their parents’ policies, the insurer notified its customers about the change — only to discover that some employers, who had the final say over whether to speed up the timing of the change, wanted to wait. Blue Shield then sent out follow-up letters delaying the change.