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April 9, 2014

A Quiet ACA Waiver — and Needed Change

Summary:

A federal waiver for Massachuetts shows it's time to restore the full use of "experience rating" for small employers' health insurance. 

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Massachusetts has been on the forefront of American history since the days of Paul Revere and the Boston Tea Party. It is also the state that inspired the Affordable Care Act, a.k.a. Obamacare, by its groundbreaking universal coverage law implemented under former Gov. Mitt Romney. What has received very little, if any, national media coverage is that the heavily Democratic-controlled state of Massachusetts quietly filed for and was granted a three-year waiver on how premiums are calculated under the ACA for small employers.

The waiver request was so quiet that the Boston Globe reported that Gov. Deval Patrick, a friend and supporter of the president, signed the legislation on the Friday afternoon before the July 4th weekend last year “in private when the statehouse was empty and the majority of voters were on vacation.”

One of the major negative consequences of Obamacare for small employers in Massachusetts and throughout the country is that the ACA destroys the entire concept of “experience rating.” Experience rating has been the cornerstone of how workers’ compensation insurance premiums are calculated since time immemorial. In simple terms, employers’ workers’ comp premiums are based on the type of industry in which they operate, the number and type of employees they have and their historical safety record. Employers with great safety records pay less for insurance, and employers with poor safety records pay more. This approach is not only fair but gives employers a strong financial incentive to provide a safe workplace.

After enactment of the Massachusetts universal coverage law, (which I am told was only 70 pages long, compared with the ACA's 2,000-plus pages and growing) employers’ health insurance premiums were 15% above the national average and the most expensive in the nation. Now, under the ACA, Massachusetts health insurance premiums are projected to go up 50% for the majority of small employers.

The basic issue is that the Massachusetts universal coverage law used nine rating factors to calculate premiums for small employers. These include discounts for using healthcare insurance purchasing cooperatives and for providing a safe workplace. Those nine factors are now preempted under the ACA and have been replaced by only four: age, family size, location and smoking habits.

The Chamber of Commerce and other small-business groups protested the changes vehemently. Gov. Patrick said he privately asked for a waiver and was told “no” by the president and the Department of Health and Human Services. Obviously, it would be a political embarrassment to the president if the place where his healthcare reform began, and one of the “bluest” states in the nation, publicly requested a waiver. However, the state legislature overwhelmingly voted to require the governor to do so.

Massachusetts was, in fact, granted a three-year waiver on the ACA's requirements on rating factors. The request for a permanent waiver was denied last September by Secretary Kathleen Sebelius at HHS.

Of course, “progressive” healthcare reform advocates opposed the waiver, stating that it would be “unfair” to other employers. How is it unfair that employers who promote wellness and a safe workplace are rewarded for their efforts with reduced premiums?

A study by the Pioneer Institute predicts that Massachusetts employers will now have to cut back on employment and the number of insured. Tell me, how is that “progressive”?

The Massachusetts Department of Insurance has reported that a study by the state’s health insurers predict that 60% of small employers will see a 50% or greater rate increase after the waiver expires in 2016, on top of the normal yearly increases.

The president, during his State of the Union address, challenged anyone to identify changes needed to the ACA. Maybe it’s time to dump the ACA premium rating factors in the Boston harbor like the British tea and restore full-blown experience rating for small employers in Massachusetts and in the rest of the nation.

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About the Author

Dan Miller is president of Daniel R. Miller, MPH Consulting located in Morris Plains, NJ. He specializes in healthcare-cost containment, absence-management best practices (STD, LTD, FMLA & workers’ comp), integrated disability management and workers’ compensation managed care.

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