With a sweeping overhaul of the nation’s health care system, Congress would be giving the health care industry as many as 32 million additional paying customers in the next few years.
That would mean millions more Americans buying private health insurance and better able to pay for their hospital stays, doctors’ visits, prescription drugs and medical devices.
And some analysts said as the vote neared that the final legislation was shaping up as much kinder to the industry than many initially feared. Hospitals and drug makers, which supported the final legislation, would be clear beneficiaries, analysts say, even if the outlook for insurers was less certain.
Yet the bill would not create the thing that insurers feared most: a government-run public option, a health plan that would compete with the private insurers.
Over all, the legislation would be a positive for much of the industry, said Les Funtleyder, who oversees health care strategy for Miller Tabak & Company, a New York investment firm.
There is no question that insurers would face the most strikingly different business environment, with drastic changes in the way insurance is sold to individuals and small businesses, one of the industry’s most profitable areas. There would also be much heavier regulation.
“It’s a huge business risk,” said Rick Weissenstein, a health care policy analyst at Concept Capital, which follows developments for investors. “There are going to be some insurers that aren’t going to adapt very well.”
But insurers are expected to benefit from the influx of new customers after years of shrinking enrollments. About 16 million of the newly insured are expected to enroll in private plans. The rest would become eligible for Medicaid, the state-administered program for the poor, but some of those would probably sign up for privately run Medicaid plans available in different states.
One place where the rules of the insurance game may shift most significantly is in a new kind of state-supervised marketplace, called exchanges, in which insurers would be required to sell their policies for individuals and small businesses. The exchanges are expected to involve much greater regulatory oversight than insurers now typically face and to alter their business models drastically.
Currently, insurers seek to protect profits by trying to enroll only the healthiest individuals, while also charging enough to recoup the expense of covering sick people. But the legislation requires insurers to cover even people with potentially costly pre-existing conditions.
The new law would also place strict limits on how much more an insurer could vary premiums among the people taking out the same policy, largely to factor in age differences.
As a result, the insurers, whose main trade group, America’s Health Insurance Plans, vehemently opposed the legislation, have been quite vocal about their concern that young and healthy people will not enroll because the new requirements will make their premiums higher to help subsidize the older and sicker.
To help spread the costs and risks of insurance, the legislation would eventually require most Americans to have insurance or pay a federal penalty. But insurers have worried that the penalties are too low or will not be enforced.
Insurers have also complained that the legislation calls for the government to begin paying them much less in federal payments for the private Medicare Advantage plans that they sell to older people as an alternative to traditional Medicare.
The insurers are also subject to a range of new fees, although the timing has been delayed.
Indeed, for anyone assessing the impact, it is important to remember that few of the legislation’s main provisions would take place immediately, noted Jason Gurda, an analyst with Leerink Swann. “Most of the health care provisions that would impact the health insurers do not kick in until 2014,” he said. “From an investment horizon, that’s a long time.”
Hospitals have little to fear. The number of newly insured is expected to decrease significantly the amount that hospitals now lose each year when they provide care to people with no means to pay.
But the expanded enrollments in the low-income Medicaid program could be a mixed blessing, analysts say, because Medicaid typically pays hospitals less than the actual cost of care. So the question becomes whether hospitals were already treating many of these patients without any reimbursement at all, or whether they will now see an influx of new money-losing Medicaid customers.
For their part, the hospitals agreed to help defray the costs of the legislation by agreeing to contribute $155 billion over 10 years, largely by accepting lower payments under the Medicare program for older Americans.
Doctors are another group likely to benefit from more paying customers, which is a reason that the American Medical Association last week began publicly supporting the legislation.
Yet doctors must still wait for Congress to handle the sharp payment cuts they perennially face under Medicare as a result of the formula the government uses to pay doctors. In recent years, Congress has annually stepped in with a so-called doc fix to stave off those cuts.
“The fact that there’s not a physician fix leaves in limbo physicians,” said Paul Keckley, the executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm.
Drug makers, meanwhile, may have the most clear reason to celebrate the legislation. Pharmaceutical companies are going to be asked to contribute $85 billion toward the cost of the bill in the form of industry fees and lower prices paid under government programs over 10 years. But they can look forward to tens of billions of dollars in additional revenue as more people with insurance visit doctors and fill prescriptions.
The legislation will also eventually close the gap in Medicare drug coverage, known as the doughnut hole, in which elderly patients must pay for prescription drugs rather than having them covered by the government. Many chose to stop taking their medicine or switched to lower-price generics.
And significantly, the legislation allowed the drug industry to “avoid any of the issues that were particularly of concern—price control or more regulation by the federal government,” said Barbara Ryan, an analyst with Deutsche Bank .
As a result, the pharmaceutical industry has been a significant proponent of the legislation, in sharp contrast to its behavior when the Clinton administration tried to pass a similar overhaul. The industry spent an estimated $100 million in TV advertising, grass-roots organizing and other marketing efforts to promote reform.
The generic side of the drug industry had somewhat less to celebrate. Legislators left intact a bill provision giving name-brand drug makers 12 years of marketing exclusivity on expensive medications called biologic drugs, which are made out of living cells. Many of those drugs, including cancer treatments, cost thousands or even tens of thousands of dollars a year.
“Real reform could have expanded access to affordable medicine to patients in need,” Kathleen Jaeger, the president of the Generic Pharmaceutical Association, said in a statement.
But generic makers stand to benefit from Congress's omitting a provision that had been proposed and that would have placed new restrictions on patent settlement agreements.
Critics, including the Federal Trade Commission, argue that such deals are anticompetitive. Jon Leibowitz, the chairman of the Federal Trade Commission, said last week that consumers would suffer if Congress allowed such deals to continue.
“The big winners are some of the branded pharmaceutical companies who have engaged in these deals and some of the generics who have done the same,” he said. “The big loser is the American consumer, who is going to have to pay an extra $3.5 billion a year in much-needed drugs.”