By William Rusteberg

The Affordable Care Act (ACA) is damn complicated. No one I know seems to have all the answers. Anyone who says they understand ACA is probably delusional or related to Dennis (http://blog.riskmanagers.us/?p=12682). At least that is my perspective after talking to many of my peers in the insurance industry during the SIIA annual convention in Chicago the past several days.

I did meet one person though, with a deep southern accent (probably from Mississippi) who kindly spelled out the essence of ACA in a way that most would understand:

“Bill, look at it this way…………..Under ACA all health plans must have no more than a $6,350 maximum out-of-pocket for each insured, or double that for a family. So just think about that for a moment…………once an individual reaches that limit, easily done with the high costs brokered by managed care companies, there is absolutely  no incentive to limit costs by either the patient or the provider…………in fact just the opposite is true……………….the quicker medical expenses add up the quicker “insurance” starts paying 100% of all expenses with no maximum limitations.”

My new best friend continued “So, how are insurance companies going to compete?…………All are mandated to limit out-of-pocket expenses to $6,350, so the competition will be formed around how to get there. Which proposal takes the longest to reach the maximum out-of-pocket, or the shortest, to reach the magic number? And, what about the cost of the insurance? Who will have the cheapest costs? Or, which proposal has the lowest out-of-pocket exposure!

Consumers will key in on out-of-pocket exposure and price, that is all.

Since all health plans will essentially be the same (insurance kicks in 100% after $6,350), upon what basis can carriers compete? The answer is pretty simple – lower reimbursements to a limited number of providers willing to work for less or unilateral forced strategies employed utilizing Cost Plus / Reference Based Pricing methodologies. The key to competition has now pivoted to relationships with willing providers or forced relationships with unwilling ones.

The market for self-funding opportunities has never been better. Employers, unlike clueless plan participants, look beyond the participant’s maximum out-of-pocket exposure. The plan sponsor’s out-of-pocket exposure is unlimited. Who do you think has the most incentive to control costs?

Smart providers will seize opportunities to selectively pick their customers. In return for quick and easy access, they will charge a premium. Do you mind paying more at Circle K for a gallon of milk, or do you park at HEB, walk 500 yards to get the same gallon of milk at a cheaper price?

We are entering some interesting times.