Finding quality, affordable health insurance has never been easy. According to its supporters, the Affordable Care Act (ACA), also known as “Obamacare,” was designed to expand coverage and increase options for employers while mitigating future cost increases.
Has the law succeeded? Reports from the field suggest that the ACA in its early stages can best be described as “a mixed bag.”
“Some smaller employers may have gotten better deals under the ACA,” said Adam Solander, an associate at the law firm of Epstein Becker Green, Washington, D.C. (ebglaw.com). “Most, though, have experienced cost increases, in some cases large ones.”
Premium Hikes
Reports from the field lend credence to Solander’s analysis. Nine out of 10 employees responding to a recent survey by the International Foundation of Employee Benefit Plans (IFEBP) stated their health care costs had increased as a result of the ACA. While the median reported increase was 4%, one in seven respondents said their rates went up by over 10%. Some small businesses claimed spikes of some 20-50%.
In 2014 the premium for employer-provided family coverage averaged $16,834, a rate 3% higher than the previous year, according to the “2014 Employer Health Benefits Survey” from the Kaiser Family Foundation (kff.org). The average annual premiums for such coverage have risen 26% over the past five years.
While these increases are unwelcome, the Kaiser Foundation points out that they are smaller than the escalations for the previous five year period. Too, some higher premiums have not arrived absent advantages. “Premium increases often result from the law’s requirements for coverage of better quality than what employers have offered in the past,” commented Solander.
Experience Ratings
One ACA benefit seems certain: Small employers are no longer penalized by skyrocketing premiums when one employee incurs an expensive treatment. That’s because the ACA eliminated what insurers call “experience rating,” or the assessment of premium levels by the medical history of participating employees.
“Some employers had found it challenging to provide coverage at a reasonable cost if they’d had adverse health experience among their employee population,” explained Julie Stich, Director of Research at the IFEBP (ifebp.org). “With premium reform, adverse experience can no longer be taken into consideration and can no longer jack up premiums.”
The disappearance of experience ratings has also resulted in an overall leveling effect. “Before the ACA, employers with healthier employees would have seen premium discounts, while employers with less-healthy employees would have seen premium surcharges due to poor experience,” said Stich. “After the ACA, some employers that had previously received discounts may be seeing increases. Those who had previously seen surcharges may be seeing lower costs or cost increases that aren’t as high.”
Finally, any assessment of the ACA has to consider whether premiums might be higher without the law. That is indeed the conclusion of at least one expert on health care costs. “There has been a 2% point downward pressure on insurance premiums,” estimated Steven Eastaugh, a Washington, D.C.,-based health economist and consultant. “This has been caused by a combination of consumer comparison shopping and competition among insurance companies.”
But for companies that have good experience ratios, the ACA changes have led to rising premiums. Some are looking for creative solutions to avoid Obamacare requirements.
Self-insurance Offers Flexibility, Shield from Obamacare
Facing significant price increases in health insurance due to Obamacare, some companies are taking a bold step by offering self-insured health coverage to workers. Even a few years ago, this would have been virtually impossible. Insurance carriers were only offering self-insurance backed by a stop-loss policy to large or mid-sized employers. You had to have at least 100 or more employees in the pool to make it work.
Today, the landscape has changed, and if you have a good experience ratio for your employees, you may qualify for self-insurance. Due to the fact that companies that self-insure are exempt from Obamacare “essential benefits” coverage requirements, some Obamacare taxes, compliance with community rating rules and other Obamacare requirements, the costs of self-insurance are much cheaper. Another major benefit is that the employer can tailor its coverage to fit the needs of its workforce instead of simply having to offer lots of medical coverage that the employees don’t either need nor want.
Self-insurance is a medical plan where a company directly funds its own medical costs rather than paying premiums to an insurance company. The employer may work with an insurance carrier to provide claims processing or other services, but the cost of the insurance and claim coverage is born by the employer and the payments made by its employees. But what if you have an employee who experiences a major accident or sudden health emergency that costs thousands of dollars? Is your company on the hook for that bill? The answer is usually no because most companies insure themselves against such a risk with a stop-loss insurance policy. This policy kicks in if a claim goes over a certain amount that the company has saved in an account.
Insurers are promoting stop-loss policies as a way to provide the safety net of insurance without the costs and strings attached to traditional insurance. Large companies and unions have been using self-insurance programs for years. Why would insurance companies offer such coverage? The answer is that the risks are low and the reward is high because Obamacare limits on insurance profits do not exist for stop-loss coverage. Under traditional coverage plans, at least 80% of the premiums for small businesses must be spent on medical care.
Self-insured plans are also exempt from Obamacare provision on minimum loss ratios and annual rate increase review policies.
Some states have moved to limit the availability of self-insurance to small businesses concerned about the impact of too many firms taking this approach. Robert Graboyes, PhD, senior research fellow at the Mercatus Center at George Mason University, commented, “There are special burdens placed on small businesses in this law that are not placed on large employers, labor unions and governments.” He added that keeping self-insurance and stop-loss plans available to small business would be a step toward leveling the playing field.
New Requirement for 2015
As of January 1, 2015, businesses with 100 or more full-time equivalent employees (FTEs) must provide health benefits to at least 70% of their FTEs (95% by 2016) or pay a $2,000 annual penalty for each employee, excluding the first 30.
The deadline is later (January 1, 2016) for businesses with 51 to 99 FTEs. Employers with 50 or fewer FTEs are not required to offer any coverage at all.
