Congress makes the final modifications to medical care, the insurance industry to explore derivatives

Congress is finished with health care reform. With approvals of the final modification bills, the lawmakers have now ended their work, leaving it to U.S. health providers and insurers to adapt to the new system -- a series of changes set for dates that stretch through the next eight years.

In this largest reform of health care since the establishment of Medicare, insurers won't have long to adjust to some initial changes. Though some of the most significant market modifications don't start until 2014, major changes will begin throughout this summer. Within three months, the uninsured with pre-existing conditions will be able to get into a government-organized high-risk pool. Within six months, plans would have to largely end the use of lifetime caps, restrict annual coverage limits, stop health-related recissions, offer preventive care with no co-payments in new plans and cease rejections of children based on pre-existing conditions. By the start of 2011, 80% of premiums must be spent on medical care in individual and small-group plans and 85% in large group plans.

It took less than a week of voting to get all the components of the final health reforms through both houses of Congress. The final portion was the reconciliation bill that made some changes to the reform package already signed into law by President Barack Obama. Republicans succeeded in delaying it a bit in the Senate and forced some changes that required it to get a last approval in the House, but it all went off without a hitch for congressional Democrats.

In the House, the several votes were typically a handful more than the 216 that Democrats needed for passage. And in the Senate, 56 Democrats favored the reconciliation bill. While that wouldn't normally be enough to escape a filibuster, the special parliamentary rules for budget reconciliations exempt such a bill from that increasingly common blocking tactic.

The last piece of legislation, which had cleared the Senate and House on March 25, now moves to the White House for Obama's signature, which he has already placed on the bulk of the reforms that passed several days earlier. But even with the reforms now finalized on paper, insurance companies and analysts are still trying to work out what the changes will bring.

Janet Trautwein, chief executive officer of the National Association of Health Underwriters, said the reforms are "such a penalty-heavy package" -- especially for employers, who will be called on to insure employees at specific levels or face fines. "The combination of things in there could jeopardize the ability of employers to do what they are doing today," Trautwein said.

For Doug Badger, a former senior adviser in the Bush administration who now represents health care companies as a partner at Nickles Group, the new system is going to bring up a major moral hazard for Americans. "People who are relatively healthy will be forced to pay premiums that are far in excess of the risk they present." By 2014, people will begin to decide whether to obtain insurance or take what may be a more cost-effective penalty. "How the people react to that, that's the first question." His contention is that, for now, nobody can be sure what will happen. "All of that suggests that these changes might not work out as well as everybody hopes they will."

Badger expects the new laws will drive premiums higher, which he thinks will cause Democrats to point fingers again at health insurers. "I think you're going to see a very strong push to say, 'See! we told you you couldn't trust these people.'" The result, Badger believes, will be a renewed push for a public option to be added into the new system.