Impact of the New Health Law on the Digital Health Industry

by Mindi Sue Sternblitz-Rubenstein | Apr. 11, 2011

The Patient Protection and Affordable Care Act ("Affordable Care Act"), passed in the spring of 2010, has some favorable provisions for health insurers. The law, after its full enactment in 2014, will require near universal coverage, resulting in a net addition of 35-40 million members to the existing insured pool.

Private health insurers will benefit from enrolling low-risk populations, e.g., people who opt out of an employer-sponsored insurance plan due to belief that they are healthy. Premiums from these healthier members will help offset high claim costs from less healthy members and those with pre-existing conditions. For the latter, insurers previously could reject their coverage but no longer due to the new health law. Parks Associates believes that this provision, if enacted fully and precisely, will provide health insurers, collectively, with net financial gains. Gains for an individual insurer, however, will vary significantly based on their respective local market characteristics (health insurance coverage rates, demographics, competition, etc.).

Digital Health News Logo 2011A less obvious benefit from the new healthcare law comes from U.S. government's cut on Medicare spending. The spending cut is bad news for care providers but good news for private health insurers as reduction in government reimbursement rate will lessen pricing pressure for them as well. This benefit may translate into better operating margins.

There are several potential negative consequences as well. Along with the mandate on preexisting conditions, private health insurers will be under increasing pressure to cut administrative expenses. A mandate in the new law requires them to maintain a minimum medical expense ratio. Another blow is the government's plan to phase out the Medicare Advantage program (MA), which will further erode their profitability.

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