Tag Archive: small group market

Individual market could turn into SHOP’s biggest competitor

In a post last December, I characterized small group as the most voluntary – and consequently the most vulnerable – health insurance market segment notwithstanding Patient Protection and Affordable Care Act reforms designed to improve it. Whether these reforms will ultimately help shore up this distressed market segment remains to be seen, I wrote at the time.

A key ACA reform to create market power on the buy side to help drive down rising premiums – small employers identify high premiums as the biggest barrier to covering their employees – is the mandate each state health benefit exchange establish a voluntary small employer purchasing pool known as the Small Business Health Options Program (SHOP). However, experts have recently suggested that in the eyes of potential small employer SHOP enrollees, SHOP’s biggest competition could come from the individual marketplace as they cease providing employer-sponsored coverage.

Ezekiel J. Emanuel, who helped draft the Affordable Care Act as a health policy adviser to the Obama administration, had this to say to The New York Times small business blog You’re the Boss:

I’ve always been a bit perplexed by the idea of setting up a SHOP exchange, since I don’t understand why it’s just not better if you’re a small business to say, all right, everyone, I’m just going to give you X amount of dollars and let you shop in the individual market. That seems to me to be a way to go – why should a small business set up a lot of machinery around it? Why should exchanges set up a lot of machinery? And it would be better for exchanges to have these workers in the individual exchange.

As small employers who early renewed plan year 2013 plans late last year migrate to ACA-compliant plan year 2015 plans, a quarter of small group plan members could end up moving to individual coverage from November 2014 through January 2015, estimates health insurance industry veteran and consultant Michael Lujan. Lujan is former SHOP director at California’s exchange, Covered California.

 


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. 

Concerns over large group plan exchange option overblown

Concern is being raised that a Patient Protection and Affordable Care Act provision allowing large group plans (defined as those offered to employers of 101 or more beginning in 2017) to offer plans on state health benefit exchanges could disrupt the large group market. The basis of the concern is an ACA requirement at Public Health Service Act Section 2701(a)(5). The section would apply the ACA’s mandate on individual and small group plans, requiring they use modified community-based rating (rather than risk rating) to large group plans in those states that elect to allow large group plans to be sold via their health benefit exchange marketplace:

(5) SPECIAL RULE FOR LARGE GROUP MARKET.—As revised by section 10103(a). If a State permits health insurance issuers that offer coverage in the large group market in the State to offer such coverage through the State Exchange (as provided for under section 1312(f)(2)(B) of the Patient Protection and Affordable Care Act), the provisions of this subsection shall apply to all coverage offered in such market (other than self-insured group health plans offered in such market) in the State.

My impression is this concern is overblown. It’s both unlikely that states will be interested in bringing large group plans into their exchange marketplace or that large group plans would want to participate. The Affordable Care Act’s enhanced risk spreading mechanisms contained in market rules and the exchange marketplace needed in the individual and small group markets are less necessary for large group plans that already benefit from greater scale and spread of risk. In addition, a robust private exchange marketplace is springing up to offer large employers more opportunity to create even larger pools and greater spread of risk.

 


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. 

Federal government expands ACA transitional relief for individual, small group plans

The U.S. Department of Health and Human Services issued guidance today affording states and health plan issuers more time to optionally keep in place health plans not compliant with Patient Protection and Affordable Care Act requirements relating to minimum benefit levels, modified community based rating and guaranteed issue to all applicants without medical underwriting.

The Center for Consumer Information and Insurance Oversight’s extended transitional policy provides transitional relief from these requirements for plans issued through October 1, 2016 as well as the ACA’s requirement that health plan issuers use single statewide risk pools for the individual and small group markets, respectively.

The newly issued guidance follows on similar guidance issued to state insurance commissioners in November 2013 that gave states the option of relieving individual and small group plans from these ACA provisions through September 2015. That guidance was issued in response to a consumer uproar when health plans issued cancellation notices for non-ACA compliant health plans — many of them falling into a time gap between grandfathered plans that were in place when the ACA was enacted in March 2010 and January 1, 2014 when all individual and small group plans must be ACA compliant. President Obama complained the ACA grandfather clause proved “insufficient” in allowing for this gap.

Today’s guidance also extends guidance issued December 19, 2013 permitting individuals whose non-ACA compliant policies were cancelled to qualify for a hardship exemption from the requirement all individuals have health coverage. That exemption allows them to purchase catastrophic coverage and is being extended to October 1, 2016.

Under today’s guidance, states may choose to adopt both the November 2013 transitional policy and the extended transitional policy through October 1, 2016, or adopt one but not the other. States also have the option to apply the relief to both the individual and the small group markets or just one market. Additionally, states can opt to apply the transitional relief solely to large employers if they choose to define the small group market as being employers of 100 or fewer employees for policy years beginning on or after January 1, 2016 as authorized by the ACA.

 


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. 

For some areas, Affordable Care Act’s goal of enhanced competition proves elusive

The individual and small group insurance market reforms of the Patient Protection and Affordable Care Act are based on a principle known as managed competition. As the term implies, managed competition attempts to bolster market competition by imposing market rules governing what is sold in a given market segment and under what conditions. (The role of managed competition in health care was first described in the late 1970s by economist Alain Enthoven).

The Affordable Care Act’s brand of managed competition is designed to improve choice and value for individuals and small employers when it comes to buying health plans. For insurers, the reforms are also aimed at restoring functionality to these insurance market segments by enhancing the risk spreading function of insurance by mandating they lump together individuals and small employers, respectively, into single statewide risk pools.

The Affordable Care Act gives health plan issuers — including those of multi-state plans created under the law aimed at boosting plan competition and choice — the option to determine whether to offer plans in a given state rating region and at what price. It also doesn’t affect the number of health care providers in a given region, which can vary widely across the United States and particularly between urban and rural areas. Consequently, the Affordable Care Act’s goal to enhance competition and value in individual and small group health coverage can be difficult to achieve in some areas of the nation as Jordan Rau of Kaiser Health News reports. Click here for Rau’s piece published in The Washington Post.

 


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. 

Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors | The Henry J. Kaiser Family Foundation

Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors | The Henry J. Kaiser Family Foundation

The Kaiser Family Foundation produced this excellent primer on the Patient Protection and Affordable Care Act’s Premium Stabilization Programs. Working together, these mechanisms are intended to smooth the transition for health plan issuers subject to the Affordable Care Act’s new marketplace rules that took effect this year.

The individual market has temporary shock absorbers for plan years 2014-16 while both individual and small group plans benefit from an ongoing risk adjustment mechanism designed to level the risk burden among plan issuers to ensure they don’t take on more or less than their share of higher cost insureds.

 


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. 

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. 

Health plan issuers could keep pre-ACA plans in place through September 2015 under Obama administration guidance

President Obama this week offered an administrative fix to quell the uproar over the imminent cancellation of health plans in the individual and small group markets that will not be compliant with coverage standards for plans effective after January 1, 2014 under the Patient Protection and Affordable Care Act.

According to a fact sheet posted at whitehouse.gov, it would allow insurers to renew their current policies for current enrollees without adopting the 2014 market rule changes. State health plan regulators would have the final say as to whether plan issuers can leave in place plans based on the pre-1/1/14 standards, which prescribe minimum essential benefits and plan actuarial value.

Plan issuers however already had the option to keep their 2013 plans in place though 2014 before this week’s presidential announcement, courtesy of what has been termed a “loophole” in existing federal regulations. I blogged about the loophole back in April. Plan issuers can use it to issue a one-year policy covering all of 2014 under the pre-1/1/14 rules as late as December 31 of this year and simply call it a 2013 plan, exempting it from Affordable Care Act standards.

With this week’s action, the administration gave plan issuers even more leeway to keep using pre-ACA plans. If the plans were in effect as of October 1, 2013, they could remain in effect through September 30, 2015 — and possibly even later — per this November 14, 2013 letter (.pdf) to state insurance regulators:

Under this transitional policy, health insurance coverage in the individual or small group market that is renewed for a policy year starting between January 1, 2014, and October 1, 2014, and associated group health plans of small businesses, will not be considered to be out of compliance with the market reforms specified below under the conditions specified below. We will consider the impact of this transitional policy in assessing whether to extend it beyond the specified timeframe.

 


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. 

ACA individual, small group market reforms curb underwriting in hopes of restoring risk spreading function

Since the individual and small group market reforms of the Patient Protection and Affordable Care will become effective in less than two months, many Americans and especially those who buy their own health plans or who work for small enterprises are now becoming much more aware of them.

Many do not however understand what brought them about.

Insurance is based on two essential functions: risk spreading and underwriting. Insurers spread the risk of losses across a large number of people or enterprises. Underwriting is selecting those that will be offered coverage and on what terms.

The ACA reforms came about because in recent years health plans experienced increasing difficulty spreading the risk of claims for medical services. Without adequate spread of risk, insurance simply doesn’t work anymore than, for example, fire insurance if the insurance company insures 100 homes and several are on fire while many others are firetraps.

Since risk spreading was no longer working very well, plans relied more on selective underwriting to ensure they were covering individuals and small employers the least likely to incur high medical costs. But that presented a Catch 22. The more they tightened medical underwriting standards, the fewer individuals and small employers could qualify for or afford coverage. That generated fewer insureds to share medical costs for the plan though their premiums and membership fees. Plans were collapsing in on themselves in a process known as adverse selection.

The ACA hopes to restore these market segments by significantly paring back the role of underwriting in determining who gets coverage and under what price and conditions. Beginning January 1, 2014 health plans must accept all individuals who apply for coverage and cannot base premiums on the health status of a small enterprise’s employees. Underwriting factors are limited to age, residence, and family status and in states that permit it, tobacco use.

The idea is by limiting the use of underwriting, the risk spreading function can be restored to health by getting more individuals and small employers into the risk pool. To enhance the spread of risk, the ACA also puts all individuals and small employers into two separate, single statewide risk pools.

Whether these reforms will achieve adequate spread of risk and restore these market segments to healthy functioning won’t be known for at least several years since they represent a radical rejiggering of how these markets have operated for decades.

 


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. 

California limits stop loss coverage for self-insuring small employers

After legislation in the previous legislative session limiting the use of medical stop loss insurance by self-insured small employers failed to advance to the governor’s desk, a measure that would do so was signed into law this week by California Gov. Jerry Brown.

SB 161 bars stop loss policies issued or renewed on or after January 1, 2014, and prior to January 1, 2016 that cover losses with attachment points of $35,000 or less for any individual employee or losses for all employees exceeding $5,000 times the number of employees, 120 percent of expected claims or which provide direct rather than excess of loss coverage.  After January 1, 2016, the measure outlaws stop loss policies having aggregate or total limits of less than $40,000. The bill grandfathers policies in effect as of September 1, 2013 provided the stop loss limits of those in-force policies remain unchanged.

SB 161 sparked division within the insurance industry and business groups. Supporters including Blue Shield of California, Kaiser Permanente and Health Access California see the measure as necessary in order to give the Patient Protection and Affordable Care Act’s and state small group rules including a single statewide small group risk pool and exchange marketplace, the Small Business Health Options Program (SHOP), a chance to work. Otherwise, they argue, it would be too easy for small employers with relatively younger and healthier workforces to retain their own risk for employee health coverage with the safety of relatively accessible stop loss coverage with low attachment points. Also of concern is by making self-insurance a more viable option, small employers could more easily move between self-insurance and the insured market based on their claims experience, potentially producing adverse selection against the small group insurance market and the SHOP exchange marketplace.

Opponents of the bill including CIGNA Life and Health Insurance Company, the National Federation of Independent Business and brokers view self-insurance as a useful market option for small employers struggling with high insurance premiums. However one opponent, the American Association of Preferred Provider Organizations, contends SB 161’s attachment points (which were about three times higher in the original version of the bill) are “unaffordable for small businesses who already take on the calculated risk in administering a complex stop-loss self-insurance program,” according to a Senate analysis of the bill.

 


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. 

Health reform alters traditional state regulation of health insurers

The traditional role of state regulation of health insurance products is being transformed with the implementation of the Patient Protection and Affordable Care Act. Nearly three dozen states opting not to set up state-based health benefit exchange marketplaces are effectively ceding regulation of some or all elements of the individual and small group health insurance markets to the U.S. Department of Health and Human Services’ (HHS) Center for Consumer Information and Insurance Oversight. This Los Angeles Times article provides more detail.

The feds already have a large degree of premium rate oversight authority. 45 Code of Federal Regulations (CFR) Part 154 authorizes HHS to establish an annual rate review process to identify “unreasonable” health insurance rate increases. The regulation is enforced jointly by the feds and state regulators or solely by the federal government if states opt not to participate.

This raises questions regarding the future of state-based regulation of individual and small group health coverage. Will health care reform ultimately produce a hybrid of state and federal regulation? And since a majority of states is opting out of the state-based exchange marketplace, will it create momentum for a future shift to full federal regulation?

 


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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