Tag Archive: indvidual mandate

Small group most voluntary market segment under ACA – and faces unique viability risks

Of the three major health insurance market segments – large group, small group and individual – small group is the most voluntary market under Patient Protection and Affordable Care Act rules that take effect January 1, 2014.

Large employers, defined by the ACA as employing 50 or more full time workers, are subject to the employer shared responsibility requirement to offer coverage to nearly of these employees. All individuals must have some form of health coverage under pain of a tax penalty for going bare. Small employers on the other hand have the greatest degree of freedom of choice as to whether to play in the small group market.

The ACA strengthens the functionality of the small group market with several provisions. It eliminates risk rating of small employers by health plan issuers. The ACA also enhances the risk pooling power of small employers by combining them into single statewide risk pools. Finally, the law affords small employers the purchasing power of large employers through the Small Employer Health Options Program (SHOP) of the state health benefit exchange marketplace. The SHOP also serves as a benefit administrator of sorts for small employers, helping them select plans and billing them for monthly premiums.

The extent to which these reforms work as intended to shore up the small group market will become clearer over the next few years. There are several factors that could result in the leakage of potential covered lives out of the small group market, potentially adversely affecting the viability of the small group pool and the SHOP, particularly if a significant number of small employers now offering health coverage to their employees adopt them. They include:

  • Opting to participate in “private” exchanges set up by health benefit plan administrators and insurance brokerages instead of the SHOP
  • Offering a defined contribution benefit or stipend to help workers buy their own coverage on the state exchange individual marketplace instead of directly offering coverage
  • Self-insuring for employee health care costs.

Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Renewed debate over individual mandate

The individual health insurance market reforms of the Patient Protection and Affordable Care Act are designed to restore a dysfunctional market by forcing sellers and buyers together with mandates on health plans to accept all individuals who apply for coverage and individuals to have some form of health coverage.

The biggest obstacle to health plan issuers and consumers meeting in the marketplace is the cost of coverage. Surveys have shown the top reason individuals forgo buying coverage if they are not covered under an employer or government plan is difficulty affording monthly premiums. Jettisoning the ACA’s coverage mandate on individuals however is now a renewed point of discussion and debate just as the mandate is about to take effect early next year such as this one at the Yahoo! Finance Blog:

Virtually all experts agree that, without a mandate, fewer people would enroll in Obamacare. Yet the federal subsidies that cut the cost of insurance for enrollees, depending on income, would still be a strong incentive for people to sign up, provided their income was low enough to qualify. “In terms of people participating, subsidies are far more important than the mandate,” says economist Sara Collins of the Commonwealth Fund, which promotes research into a more efficient healthcare system. “The main reason uninsured people don’t have coverage is usually affordability.”

The dropoff in enrollees would still raise costs, however. In formal studies, estimates range from a mild 2.4 percent increase in the cost of premiums for those who remained in the program, to a more problematic 27 percent rise, according to an overview of studies conducted by the Rand Corp. The estimates vary because it’s hard to predict what mix of healthy and sick people would still get insurance through a state-run exchange if there were no law requiring them to be covered. A higher percentage of healthy people would lead to lower premiums, while premiums would rise if the sick were overrepresented in the pool of insured.

I tend to agree with Collins the carrot of subsidies for coverage purchased in the state health benefit exchange marketplace likely provides a stronger incentive than the stick of the penalties for going bare given the prominence of the premium affordability issue.  That incentive isn’t there, however, for more than half of Americans in the individual market who earn too much to qualify for the subsidies according to a Kaiser Family Foundation paper issued in August. For this cohort, the penalty itself would have to suffice as an incentive under the new market rules.

But it may not be enough given these individuals would have to bear the full cost of the premiums without government assistance. Many might thus opt to instead pay the penalty or request an exemption from the mandate if premiums for the lowest cost “bronze” plans exceed 8 percent of their incomes. Remove the mandate and penalties and there’s even less incentive aside from the prospect of facing high list charges if misfortune puts them in a hospital – a gamble many might be willing to take. That prospect would likely frighten health plan issuers worried about adverse selection even with the mandate in place — and who insisted on the mandate as a keystone of the political compromise leading to the 2010 enactment of the Affordable Care Act to achieve a better spread of risk in state risk pools.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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