Tag Archives: mandate

4 Trends to Expect in Health Insurance

As debate continues to swirl about the future of U.S. healthcare regulation, here are the four high-level trends we may expect, and how stakeholders could be affected:

1. Healthy people may start leaving the individual market

Recent changes eliminate the penalty for not having health insurance. Under the ACA, consumers were charged a penalty for the year they lacked coverage. But now, when consumers file their taxes, they won’t be charged a penalty. Without the penalty, younger and healthier consumers may choose to not have individual coverage. However, this doesn’t mean they don’t need or want health insurance coverage. Expect employers to play an increasingly important role in filling the gap. That being said, not all employers offer health insurance. It’s still ambiguous what the self-employed (think contract, freelance or gig workers) will do. Under the likely scenario in which many of the self-employed forgo insurance under the new regulation, the uninsured rate may increase.

See also: A Road Map for Health Insurance  

2. Carriers may have to adjust their business

The premiums received from healthy people are generally a great hedge for the unhealthier, or higher-risk, populations for carriers. With the changes occurring in the individual market, carriers can expect a worsening loss ratio: The ratios paid by the premiums to the insurance company to cover settled claims begin to decrease. With the risk pool looking worse, carriers may concentrate on boosting their sales in relatively more stable segments.

3. Employer-sponsored coverage will be critical for employee retention

If the ACA’s employer mandate is repealed, small businesses may no longer be required to provide affordable, minimum-value coverage to their full-time employees to avoid penalties. That being said, with many people losing their individual health coverage, employees may increasingly expect health coverage from their employers. Employer-sponsored benefits have always played a critical role in attracting and retaining talent, but, with the current instability in the market, many employees will appreciate the security of an employer-sponsored coverage plan more than ever.

4. States may have increasing regulatory power

States may gain further flexibility to develop new healthcare models, including changes to affordability and choices offered. A number of states are pushing for their own legislation that could potentially give additional protection to residents beyond the federal level. Keep an eye on states like New York and California, which seek to create programs to increase benefits and requirements set by the ACA.

penalty

When a Penalty Is Not a Penalty

The Affordable Care Act requires most Americans to buy qualifying health insurance coverage. Fail to comply with this mandate, and there’s a financial penalty waiting for you come tax time. But when is a penalty not a penalty? When is a mandate not a mandate? Hey, kids, let’s do some math.

The penalty for going uninsured in 2016 is $695 per adult and $347.50 per child, up to a maximum of $2,085 or 2.5% of household income, whichever is greater.

To determine the cost of coverage, we’ll use the second-lowest Silver plan available in a state. That’s the benchmark used to calculate ACA subsidies, and in 2015 Silver plans were roughly 68% of policies sold through an exchange. Even more important, I found a table showing the cost of the second-lowest cost Silver plan for 40-year-olds by state, but I couldn’t find a similar table for other levels.

The least our 40-year-old could spend on the second-lowest Silver plan this year is $2,196, in New Mexico; the highest premium is $8,628, in Alaska. The median is $3,336. Divide the penalty by the premium, and you get 32% of the cheapest premium and 21% of the median premium. Put another way, paying the penalty saves our 40-year-old  consumer $1,500 in New Mexico and more than $2,600 in the mythical state of median.

I did find a table showing the national average premium a 21-year-old would pay for a Bronze plan: $2,411.  In this situation, the $695 penalty amounts to just 29% of the policy’s cost, a savings of more than $1,700.

The purpose of this post is not to encourage people to go uninsured. I think that’s financially stupid given the cost of needing health insurance coverage and not having it. And, personally, I support the individual mandate. I also understand the political obstacles to establishing a real penalty for remaining uninsured.

However, I also believe the individual market in this country is in trouble. (More on this is a later post). Adverse selection is a contributing cause to this danger. The individual mandate is supposed to mitigate against adverse selection. The enforcement mechanism for that mandate, however, is a penalty that, for many people, is no penalty at all.

That’s not just my opinion. That’s the math.

A version of this article was originally posted on LinkedIn.

Why Employers Should Practice Complying With an Obamacare Mandate

The Affordable Care Act (ACA) requires large employers (those with at least 50 full-time equivalent employees) to provide qualifying health care coverage to substantially all full-time employees and their dependent children or pay a monthly “Employer Shared Responsibility” penalty.  The employer mandate was set to take effect in 2014 but was delayed until 2015.  But, even without the threat of tax penalties in 2014, employers should practice complying with the mandate during the 2014 transition period.

Here is a blueprint for implementing a compliance strategy: 

1. Amend health plans to comply with the ACA requirements that were NOT delayed.  Required changes include eliminating annual dollar limits on essential health benefits; eliminating pre-existing condition exclusions for all enrollees; offering coverage to dependents to age 26 who are eligible for other employer coverage; and limiting benefit waiting periods to no more than 90 days.  Non-grandfathered plans also must prohibit discrimination based on participation in a clinical trial; abide by cost-sharing limits; and prohibit discrimination against any health care provider acting within the scope of that provider's license or certification under applicable state law. 

2. Determine whether the employer mandate applies.  In general, the employer mandate applies to “large” employers that employed an average of at least 50 “full-time” equivalent employees on business days during the prior calendar year.  A full-time employee is one that averages at least 30 “hours of service” per week (or 130 hours per month).  All entities in a controlled group are treated as a single employer to determine large employer status.

3. If an employer is determined to be a large employer, assess financial risks under the employer mandate.  A large employer that chooses not to offer minimum essential coverage (MEC) will be penalized $2,000 per full-time employee (minus the first 30) if one full-time employee receives a federal subsidy for Health Insurance Marketplace coverage.  This is often called the “sledgehammer” penalty.  If a large employer offers MEC, but the MEC fails to provide minimum value (60%+ of total allowed costs) or affordability (employee’s contribution toward the premium is ≤9.5% of household income), the employer will be penalized the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 per full-time employee (minus the first 30).  This is known as the “tack-hammer” penalty.  Most employer-sponsored group health coverage is MEC, including, apparently, so-called “skinny” plans that cover only ACA-required preventive services with no cost-sharing and with no annual or lifetime dollar limits on benefits.

4. For a large employer that wants to avoid the sledgehammer and/or tack-hammer penalty in 2015, rehearse employer mandate compliance in 2014.  Finalize plan designs and amend plans now to conform to MEC, minimum value and affordability requirements.  Offer coverage to employees performing 30 hours of service or more per week during a month and, at a minimum, their dependent children to age 26.  If large numbers of variable-hour or seasonal employees make it difficult to track and manage full-time status, establish ACA-compliant “measurement periods” to determine whether these employees actually work enough hours to be offered coverage.  Maintain detailed records, because informational reporting about the coverage and to whom it is offered must be provided to the Internal Revenue Service beginning in 2016. 

Details of each employer’s situation are unique.  But all employers should accelerate and simplify this complex compliance project.  Many independent, third-party administrators can be an invaluable resource for navigating the employer mandate rules and penalties and other complexities of health care reform.

Private Exchanges May Be the Free Market Solution to Cost Control and Healthcare Consumerism

While the Patient Protection and Affordable Care Act (PPACA) is sometimes shortened to the “Affordable Care Act” or ACA, the act has few features that will make insurance more affordable.  Government studies and industry experts have indicated that strict coverage mandates, limited premium classifications, community rating, added benefits, single risk pools, and price compression will raise premiums more rapidly than if the ACA had never been passed.

The development of exchanges, both government and private exchanges, are part of an evolution that will change the way insurance is sold and bought.  It is a new way of connecting products with customers.   Government exchanges are likely to be used mainly by those qualifying for a federal subsidy.  The standards and restrictions on government exchanges are likely to attract poor risks and high cost claimants.  The government exchanges will use government paid “navigators” rather than independent licensed agents.  The government exchanges and navigators are not expected to offer supplemental products, life insurance or other products and services.

Private exchanges may be the free market solution to real cost control and lowering the number of uninsureds.  With 40-50 million uninsureds, the traditional agent distribution system for insurance is not working.   About 60% of the uninsured are under age 35.  Studies conducted in Georgia by the Center for Health Transformation Uninsured Working Group showed that 35% of the uninsured could afford insurance but did not know it.  Another 40% needed lower cost options that were not available to them either because insurers emphasized high premium products, or because existing state laws or legislative mandates increased premiums and favored insurers over consumers.

Many uninsureds work for a small businesses that do not offer insurance. They may be self-employed, part-time, or doing contract work.  In most cases, the need is for individual insurance, not group plans.  Selling single policies can be time consuming with little financial rewards for an agent.  Many potential individual sales are halted at the kitchen table when in the process of completing an application issues arise that could cause a declination.   Information derived by an insurer during the underwriting process is typically fed into an industry association called the Medical Information Bureau.  That information is shared across companies and a declined health application could have ramifications for future applications of life insurance, disability coverage and other forms of insurance. 

Private exchanges are developing that will offer individual and group products that emphasize wellness and treatment compliance for those under medical care.  PPACA requires insurers to “community rate” their products.  That is, individuals or small groups will not get direct credit for healthy activities.  New entities are forming that will likely attract healthy individuals and the less healthy members interested in getting better.  Developing private health cooperatives, captive mutual companies, and new insurers may be unencumbered by an existing unhealthy membership or a current business model that limits attracting customers willing to be engaged in healthy behaviors. 

Healthcare consumerism is more likely to emerge through private exchanges than government exchanges.  Private exchanges will provide a transition from employer-based insurance to individual-centered or consumer-centered insurance.  In theory, both large and small employers will be able to purchase health insurance through the private exchanges, and their employees can choose an individual health plan from those offered by participating insurers.

Time will tell.  We are in the beginning stages of a major market revolution.  We already know that government exchanges as originally promised for small groups have been delayed one year until 2015.  As private exchanges come on line, I believe each will be a little different and offer varying levels of products and services.  For awhile it will be a “wild west” show.  Ultimately, the success and failure of each exchange’s product and distribution model will lead to consolidation and better products, services, convenience, help, and information for the consumer.  In the end, more product competition and price transparency will lead to more citizens being insured and lower insurance costs will prevail.  This is the way free markets create successful products and services that consumers want to buy.

Why Obamacare Is Unraveling

President Obama’s announcement during a Nov. 14 press conference that he would like to see insurance carriers extend non-complying health coverage after Jan. 1 may be the event that unravels the Affordable Care Act (ACA).  Carriers and health plans have worked hard for several years, have spent millions of dollars complying with ACA, have fought with insurance department regulators getting policies approved and, in many cases, have notified consumers of the need to terminate non-compliant policies. Now, carriers and health plans have a new wrinkle thrown their way.  What is going to happen next?

Some of the key principles of ACA are:

  • Clear definition of Essential Health Benefits (i.e., EHB)
  • Clear definition of metallic or metal level plans based upon the actuarial value of the benefit plan
  • Restrictions on premium format and methods to derive premium rates
  • Rigorous rate review and approval process coordinated by a combination of state insurance departments and federal oversight
  • Mandates for participation in some type of health coverage
  • Large number of taxes and fees to help fund ACA
  • Assumption that there would be a reasonable risk pool so carriers could appropriately price and predict future costs of care

Minimum loss ratio requirements to ensure that a reasonable portion of the premium rate goes toward the payment of claims

Carriers have worked hard to comply with the new regulations, which for many have involved significant shifts in the methods used to conduct business.  The rate development process for a typical carrier follows this process:

  • Review of prior claims experience and profitability
  • Determination of what rate increase will be required to maintain a profitable product offering
  • Development of proposed rate for various rate cohorts with competitive comparisons
  • Potential benefit redesign to meet regulatory changes or competitive pressures in the marketplace
  • Obtaining independent actuarial certification regarding proposed rates as a reasonableness test (e.g., Section 1163 required in California)
  • Filing of rates with regulators for approval and follow-up with regulators until rates are formally approved
  • Communication of rates to those insured, and implementation of the new rates

This process can require four to six months to complete.  It is actuarially complex and requires careful analysis of many factors and variables. 

As ACA emerged, carriers had to adjust benefits covered in prior products where they failed to meet the minimum EHB required.  In some cases, products were terminated because they did not meet either the EHB or the minimum actuarial value of 60%.  Carriers worked hard to develop replacement products, filed these with regulators and started to present these to their customers. 

It was obvious that some customers would be concerned about the impact of rate changes associated with ACA-approved benefit programs.  Rates would increase for a variety of reasons:

  • Health care inflation continues
  • Mandated benefits required broader coverage than previously purchased
  • Elimination of gender rating generally increased rates for insured males
  • Minimum Actuarial Values (i.e., > 60% AV) raised benefits for some insureds
  • Assumed average risk score for the individual market was higher than in the past because medical underwriting is no longer appropriate, and, in some cases, carriers raised the average assumed health status built into the rates to reflect the enrollment of additional Medicaid- or Medicaid-like lives.
  • Age rating was affected, requiring higher rates at younger ages to offset some of the reductions at the older ages (i.e., 3:1 limits on age rating curve).

The concerns expressed by the public on higher rates, the concerns expressed about policy cancellations, the delays caused by website challenges, the continued frustrations about ACA all combined into a situation where a large portion of public were frustrated with ACA.  The president’s announcement was a response to many of these concerns and frustrations.

However, there are several complications facing the carrier community as a result of this suggestion or proposal to the insurance departments and affected carriers.

  • Rates for terminated programs were not updated for 2014.  Rates can’t be extended without adjustment because rates were established for a previous time period, and there has been inflation.  Updating would require a minimum of 4 – 6 months.  The software implemented by the federal government and used at the local insurance department level is built around the new ACA requirements and would likely reject restored versions of terminated policies.
  • The risk pool for all of the ACA-approved rates will be changed significantly if individuals are able to continue their prior programs.  Selection bias issues would be significant.
  • The individual mandate for credible health coverage would be compromised if individuals continued their prior, non-compliant coverage.  The anticipated tax base would be jeopardized with the continued offering of non-compliant coverage if penalties were forgiven.
  • The disruption to the insurance industry involved in the exchanges would be significant and potentially would permanently damage the risk pool.
  • More importantly, the public’s perception of the benefit of ACA to them will be affected as changes were required, then they weren’t, then they will be, etc.

Although there are many features of ACA that potentially provide value to the public, the flawed rollout, the delays in implementation and now radical changes to the structure of the ACA program very likely start to unravel the viability of the program.  Only time will tell.