Tag Archive: small group market

Congressmen call on feds to look into exchange participation mandates in Vermont, DC

This item today from the California HealthCare Foundation’s California Healthline reports on the effort by some members of Congress to call out two small jurisdictions – Vermont and the District of Columbia – for mandating participation in their health benefit exchange marketplaces.  In so doing, the lawmakers have spotlighted a point of tension between the letter of the Affordable Care Act and its policy intent in requiring states to set up exchanges.  In asking the federal government to crack down on the two jurisdictions, they correctly note that the ACA does not compel participation in the exchange marketplaces for neither health plans nor individuals and small businesses.

On the other hand, the exchanges are intended to aggregate the market – particularly on the buyer side – in order to restore functionality to the distressed individual and small group health insurance market segments.  In small jurisdictions like Vermont and the District of Columbia, attracting the market into their exchanges is harder because there are fewer residents to draw from.  And with fewer residents, statistically speaking there are smaller numbers of individuals and small employers to potentially participate in the exchange marketplaces.  Which makes them less attractive to health plans since with fewer insureds, they can less easily spread the risk of high cost “covered lives.”  That in turn increases the risk of adverse selection, which can leave the individual and small group markets at least as dysfunctional and unaffordable as they were before the exchanges opened for business.

To some degree or another, smaller state exchanges are likely to face the challenge of attracting and retaining sufficient numbers of individuals and small employers – particularly the latter.  The problem is particularly acute in the least populous states, a point made in this previous blog post where I discuss ACA provisions that allow smaller states to create bigger risk pools to help ward off the specter of adverse selection.

 


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. 

Risky Health Insurance Bets Could Backfire for Small Employers – Businessweek

Risky Health Insurance Bets Could Backfire for Small Employers – Businessweek

Small employers lacking bargaining power with insurers have in recent years fled the small group health insurance market to escape rising premium costs by opting to self insure their workforces’ medical costs.  That trend is colliding with Affordable Care Act reforms designed to make small group coverage more accessible and affordable, in turn reducing the number of medically uninsured small business employees.  The two primary ACA reforms aimed at boosting the health and viability of the small group market: 1)Mandating insurers underwrite all small employers as a single risk pool and; 2) Requiring states to create separate small business marketplaces within their health benefit exchange marketplaces in order to aggregate small employers’ purchasing power.

Insurance market reforms such as these won’t be as effective if small employers don’t participate in the small group insurance market.  Less participation reduces the size of the small group pool — and potentially the ability of the Small Business Health Options Program (SHOP) in state exchanges to concentrate sizable numbers of small employers to drive a better deal with insurers on premium rates.

There’s another even more worrisome risk facing policymakers as this Businessweek article points out.  Small employers playing in both the insurance and self-insured markets and moving in and out of each depending on the health status and claims experience of their employees.  Doing so would provide them a means to create adverse selection against the insurance market by opting to insure when their medical claims costs rise and self insuring when claims costs are low.

State policymakers are addressing this concern by making self insurance a less palatable option for small employers based on model law adopted by the National Association of Insurance Commissioners limiting the use of stop loss coverage that covers self insured employers once medical costs reach a specified amount such as the Colorado measure mentioned in the Businessweek story and SB 161 pending before the California Legislature.

 


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. 

To pool or not to pool

That is the question some small businesses are confronting, with those with healthy employees considering opting out of the insurance pool and paying workers’ medical costs themselves. Today’s Wall Street Journal has the story. 

As the story notes, self insurance can be a high risk proposition for companies of fewer than 100 workers since they don’t benefit from risk spreading as do larger (and insured) businesses.  That’s why it has traditionally been employed solely by larger businesses.  However, as small employers sought relief from rising insurance premiums over the past decade, some turned to self insurance.

From the perspective of policymakers, the timing of the trend is highly inconvenient given the rollout of Patient Protection and Affordable Care Act reforms in 2014 that require insurers to treat all small employers in a given state as a single risk pool, prohibiting them from risk rating a small enterprise based on the health status of its work force.  Policymakers worry that if too many small employers self insure their medical risk, it will hamstring the Small Business Health Options Program (SHOP), the small employer exchange marketplace, and foster adverse selection against the small group market as a whole if small employers with older, less healthy workers concentrate in it.

California legislation intended to make self-insurance among small employers a less attractive option by limiting their ability to insure medical claims that reach relatively low dollar amounts – known as stop loss coverage – continues to advance this year after a similar measure stalled in 2012.  SB 161 is supported by the Department of Insurance and some large insurers and opposed by business and producer groups.

 


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. 

Wall Street Journal article details how employers could continue offering “tin” coverage next year

Today’s Wall Street Journal via Yahoo News reports large employers of 50 or more employees may opt to offer mini-med or “tin” metal value health plans to workers since the Patient Protection and Affordable Care Act mandates only individual and small group plans provide coverage for hospitalization and nine other categories of essential health benefits. Moreover, the WSJ article notes, some large employers with large numbers of low wage workers may risk paying a $3,000 penalty for each employee who opts out of this coverage and instead buys richer, subsidized coverage through a state health benefit exchange that includes all essential benefits.

Limited plans may not appeal to all workers, and while employers would avoid the broader $2,000-per-worker penalty for all employees not offered coverage, they could still face a $3,000 individual fee for any employee who opts out and gets a subsidized policy on the exchanges.

But the approach could appeal to companies with a lot of low-wage workers such as retailers and restaurant operators, who are willing to bet that those fees would add up slowly because even with subsidies, many workers won’t want to pay the cost of the richer exchange coverage.

Small employers of fewer than 50 employees could also continue offering low value “tin” plans for nearly all of 2014 if payers exploit a previously reported loophole enables payers to continue offering individual and small group plans that fall short of providing essential health benefits and actuarial “bronze” metal tier value of at least 60 percent.

The low-benefit plans are just one strategy companies are exploring. Major insurers, including UnitedHealth Group Inc., Aetna Inc. and Humana Inc., are offering small companies a chance to renew yearlong contracts toward the end of 2013. Early renewals of plans, particularly for small employers with healthy workforces, could yield significant savings because plans typically don’t need to comply with some health law provisions that could raise costs until their first renewal after Jan. 1, 2014.

Low value coverage offered by large employers with sizable numbers of low wage workers runs counter to an underlying policy assumption baked into the Affordable Care Act that large group plans tend to provide relatively expansive coverage compared to small group and particularly individual plans.  Hence, the law prescribed minimum coverage standards for these plans, but not for the large group segment of the health insurance market.

 


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 insurer worried that loophole could lead to adverse selection against exchange

A Blue Shield of California executive is urging California lawmakers in an op-ed article in today’s Sacramento Bee to close a loophole sanctioned by federal regulations that could front load the exchange marketplace with high cost individuals and families. That could leave plans participating in California’s exchange marketplace, Covered California, carrying an inequitable cost burden in the first year of its operation, asserts Janet Widmann, the health insurer’s executive vice president of markets.  It would do so by allowing plans to elect to continue to operate into 2014 under current rules that allow plans to medically underwrite applicants and reject those with potentially costly medical conditions. Unless the loophole is closed, Widmann warns, all health plan issuers would be tempted to exploit it since they could still medically underwrite and select applicants for plans sold off the exchange marketplace so as to not initially end up with a disproportionate share of high cost insureds. Widmann explains:

Since these loophole policies will enroll only those who are healthy enough to obtain coverage under the current discriminatory system, policies that meet the requirements of the new law will be left to cover a disproportionate number of less healthy people. As a result, premiums for coverage offered through the insurance exchange will be significantly higher. Even insurers that have supported reform and want to see the exchange succeed will be pressured to sell the loophole policies to avoid losing healthy customers to competitors.

Plans sold in the Covered California marketplace would be unable to exploit the loophole under policy adopted by Covered California last week requiring qualified health plans with which it contracts to terminate plans they currently offer that are not compliant with the Affordable Care Act as of December 31, 2013.  The “level playing field” provision is at section 3.04(b) of the Covered California QHP Model Contract:

(b) Contractor agrees that, to the extent not already required to do so by law, effective no later than December 31, 2013, it shall terminate or arrange for the termination of all of its non-grandfathered individual health insurance plan contracts or policies which are not compliant with the applicable provisions of the Affordable Care Act. Contractor agrees to promote ways to offer, market and sell or otherwise transition its current members into plans or policies which meet the applicable Affordable Care Act requirements. This obligation applies to all non-grandfathered individual insurance products in force or for sale by Contractor whether or not the individuals covered by such products are eligible for subsidies in the Exchange. All terminations made pursuant to this section shall be in accord with cancellation and nonrenewal provisions and notice requirements in California Health and Safety Code Section 1365, California Insurance Code Sections 10273.4, 10273.6 and 10713, and relevant state regulations and guidance.

Last week, California enacted two bills, ABX1-2 and SBX1-2, establishing 2014 market rules for the individual and small group markets and conforming state law to Affordable Care Act provisions. The measures did not include a provision that would close the loophole. Widmann suggests legislation mandating all non-grandfathered health plans (those not in effect when the Affordable Care Act was enacted in March 2010) play under the 2014 market rules barring medical underwriting of applicants.  That would require new special session or urgency legislation that would take effect before the end of 2013.

 


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. 

“Loophole” has potential to delay health insurance market rules, disrupt exchange marketplace in 2014

Health insurers could have the option to take an extra year to overhaul their individual and small group offerings to meet Patient Protection and Affordable Care Act requirements effective in 2014 and to decide if they want to participate in the state exchange marketplace. Such are the startling implications of a Los Angeles Times story early this month that reported that some health plan issuers are considering waiting until 2014 to revamp their plans to comply with the law.  The Times story cites “a little-known loophole” in the Affordable Care Act “that enables health insurers to extend existing policies for nearly all of 2014.”  The story quotes Timothy Stoltzfus Jost, a law professor and health policy expert at Washington and Lee University as saying that insurers have discovered the loophole, raising the question of “how many will try to game the system.”

The likely loophole?  The Affordable Care Act qualifies certain health plan requirements as applying in “plan years beginning on after January 1, 2014.”  So when does a plan year – the key operative term – begin?  45 Code of Federal Regulations 144.103 defines “plan year” relative to employer-sponsored coverage (such as would be offered through the exchange marketplace Small Business Health Options Program) as follows:

Plan year means the year that is designated as the plan year in the plan document (emphasis added) of a group health plan, except that if the plan document does not designate a plan year or if there is no plan document, the plan year is—

(1) The deductible or limit year used under the plan;

(2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year;

(3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer’s taxable year; or

(4) In any other case, the plan year is the calendar year.

For individual coverage:

Policy Year means in the individual health insurance market the 12-month period that is designated as the policy year in the policy documents (emphasis added) of the individual health insurance coverage. If there is no designation of a policy year in the policy document (or no such policy document is available), then the policy year is the deductible or limit year used under the coverage. If deductibles or other limits are not imposed on a yearly basis, the policy year is the calendar year.

Here’s my read on how the loophole might come into play.  The italicized text basically allows plan issuers to define the plan or policy year as they choose.  Theoretically, they could issue coverage on December 31, 2013 and designate it for plan or policy year 2013, thereby avoiding Affordable Care Act requirements for plan years beginning on or after January 1, 2014.

If health plan issuers opt exploit the loophole, there could well be litigation over how the relevant provisions of law are to be interpreted and applied, creating uncertainty and delay in the application of the Affordable Care Act’s health insurance market rules as well as the planned rollout of the exchange marketplace in 2014.  The uncertainty also has the potential to complicate contract negotiations currently underway between “active purchaser” state exchanges and health plans seeking qualified health plan status with those exchanges. Plan issuers could opt to exercise the so-called loophole and issue “plan year 2013” coverage as late as December 31, 2013 if they are unable to reach negotiated contracts with these exchanges.

A study prepared for the health plan industry group America’s Health Insurance Plans by the actuarial consulting firm Milliman would appear to support the notion of having plans designated plan year 2013 still in force in 2014 and exempt from Affordable Care Act provisions such as offering essential health benefits (EHB) and minimum actuarial value of 60 percent of projected claims costs. “The final market and rating regulation released by the (federal) HHS at the end of February made clear that individual policies can stay in place until their scheduled renewals in 2014 instead of requiring all individual plans to convert to an ACA-compliant EHB plan on January 1, 2014,” Milliman opined in its projection of factors affecting premium rates in 2014 dated April 25, 2013.

 


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. 

Connecticut official, exchange board mull 85% minimum MLR for individual, small group insurers

Barnes’ proposal would go beyond that, requiring that administrative costs for insurance plans on the individual and small group markets also be limited to no more than 15 percent of the money collected in premiums.

The proposal was intended to lower premiums at a time when many people are concerned about how much insurance will cost beginning next year, when many provisions of Obamacare take effect.

“I’m deeply concerned that the success of the Affordable Care Act nationally and in Connecticut will be undermined if there is rate shock that so many people have called on,” Barnes said.

via Barnes, exchange board want to limit health insurers’ profits, administrative costs | The Connecticut Mirror.

This proposal invokes the right of states under Section 2718(b)(1)(a)(ii) of the Patient Protection and Affordable Care Act to set a minimum medical loss ratio (MLR) for payers above the 80 percent level specified in the law for individual and small group plan issuers.  It would effectively standardize Connecticut’s minimum MLR ratio — the portion of plan issuer revenues that go toward paying medical claims — at a uniform 85 percent across all market segments.  That is the minimum MLR specified in the ACA for the large group market.  The ACA also provides that the minimum individual and small group MLR adopted by a state is subject to adjustment by the federal Health and Human Services Department if it determines its use would destabilize the state’s individual health insurance market.

 


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 benefit exchanges: A market intervention mechanism aimed at preserving individual, small group health coverage

State health benefit exchanges mandated by the federal Patient Protection and Affordable Care Act of 2010 have been commonly described as online marketplaces where buying a health insurance policy or managed care plan can be done as easily as booking a flight or vacation.  Ease of purchase, however, is not the driving policy rationale behind the exchanges.  They came about in response to market failure in the individual and small group market segments, particularly in the former.  In insurance terms, market failure means the dreaded death spiral of adverse selection.

Insurance fundamentally is about spreading costs across a group of insureds, known as the insurance principle.  The principle is based on the law of large numbers.  If too few people purchase an insurance or health plan, the law of large numbers is violated and the insurance principle breaks down.  For those insureds left in the group, their share of the group’s costs – paid as premiums or membership dues – must be sharply increased.  The pool shrinks and only those most likely to use medical services remain since they need coverage, putting further upward pressure on premiums.

There is a limit what any insured can afford to pay.  Eventually market failure results and the insurance or managed care plan becomes economically unviable.  As plans close, the fewer remaining health plans pass along relentlessly rising medical care costs and the unvirtious cycle proliferates until the entire marketplace is at risk.  That was — and still is — the situation the individual and small group health insurance markets leading up to the enactment of the ACA in 2010.  Ultimately, health benefit exchanges are an attempt to preserve these markets by concentrating plan issuers and purchasers into a government-sponsored marketplace with incentives and disincentives for individuals to participate in the form of tax credit subsidies and tax penalties, respectively.

Whether the exchanges are able do so won’t be known for several years after the exchanges begin pre-enrolling individuals and small businesses for 2014 coverage starting in October 2013.  What is certain is the exchanges as insurance marketplaces – like the failed market they seek to remedy — are also subject to the insurance principle. They must attract sufficiently large numbers of individuals and small businesses if they are to successfully achieve the market aggregation solution that led to their inclusion in 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. 

Time will tell whether PPACA can save individual, small group health insurance market segments

Last week’s Supreme Court decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) and specifically the so-called individual mandate turned on the penalty for not having minimum essential coverage under Section 1501 of the PPACA.  While the court ruled the government cannot compel all Americans have health coverage, the government may require payment of a penalty for not having it as a permissible exercise of Congress’s power to levy taxes.  The penalty gives the mandate real teeth.  Without it, the mandate would be a paper tiger.

The individual mandate in turn is designed to work with upfront tax credits to subsidize the cost of coverage for those who earn above 133 percent of the federal poverty level and are thus ineligible for Medicaid.  The penalty for not having coverage is the disincentive or stick and the tax subsidy to defray plan premiums or fees is the incentive — the carrot.  Insurers and health plans also have a mandate to sell coverage to whoever is willing to buy it starting in January 2014 regardless of their medical condition.

Together, the carrot and stick built into the individual mandate along with the requirement insurers and health plans accept all applicants (per sections 2701 and 2704 of the Act) is intended to save the individual and small group health insurance market segments from the black hole of adverse selection and ultimately market failure.  The acceleration in adverse selection in recent years occurred in the individual market due to increasingly selective medical underwriting standards in states where payers are permitted to screen out people likely to incur high medical treatment costs. Adverse selection also threatens the viability of the small group market due to poor spread of risk among employers of 50 or fewer employees— and particularly numerous micro businesses with five or fewer workers.

In order to preserve these market segments and to also reduce rising premiums in the large group market due to the shifting of medical treatment costs incurred by those without coverage to the insured population, the PPACA has created an alternative and far more compulsory health insurance market than existed prior to its enactment in early 2010Daniel Weintraub, a veteran Sacramento print journalist with deep knowledge of the health care market, described the new market landscape that will fully emerge in 2014 as one in which insurers and managed care plans will effectively become a “quasi-public utility.”

The question going forward is whether this government-drawn and enforced market can achieve sufficient savings and spread of risk to ward off market failure in the individual and small group market segments.  In addition, given that health insurance functions as a pass through mechanism, whether the chronic disease prevention provisions of Title IV of the PPACA will meaningfully slow the relentless rise in medical costs driving up premiums.

 


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. 

Market failure in individual, small business health insurance market segments forces insurer to act

Aetna CEO Mark Bertolini reveals to Sarah Kliff of The Washington Post’s Wonkblog that a strategic review Aetna undertook in 2005 showed the individual health insurance market segment failing and the small group segment in decline.  Market failure can be a strong motivator to act — and will remain a mortal threat notwithstanding how the U.S. Supreme Court opines this week on the constitutionality of the Patient Protection and Affordable Care Act.

Some excerpts from Kliff’s post:

 “We saw an individual market in inexorable decline and, on the small group side, fewer were offering benefits and costs were rising. We knew we had to change something,” Bertolini said.

Aetna has a strong business reason to create a cheaper insurance product: Namely, getting more people to buy it. That motivation stays in place regardless of what happens with the Supreme Court this month.

“We’re really working right now on the underlying cost of health care,” he says. “These investments we’re making are about finding a different way to make models work. We’re committed to fixing that, and feel like we need to fix that.”

 


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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