Before the ACA, many self-employed individuals found it challenging to find a health plan on the individual market that met their needs, let alone to pay for it. Post ACA, the ability to obtain affordable coverage not tied to an employer has givenentrepreneurs in the growing ‘gig’ economy the flexibility to pursue their goals without having to worry about maintaining health coverage. These days may be coming to an end if the new GOP health care bill passes, however. Under theAmerican Health Care Act or AHCA, subsidies are dependent on age, as opposed to income (like under the ACA), and are not adjusted for geography, even though health costs vary widely depending on where you live. This could mean big changes in the amount of assistance an individual would receive under the AHCA compared to under the ACA. As cited in the article, a 40 year-old in San Francisco making $30,000 a year would receive $800 less a year under the new plan, and a 40 year-old living in Santa Cruz County, CA would see a $2,490 less per year -- potentially putting coverage out of reach.
A study published by the McKinsey Global Institute estimates that U.S. has between 54 million and 68 million ‘independent workers’, with some working independently full-time and others using independent/freelance work to supplement their primary income. With the proposed changes under the AHCA, some individuals may try to seek traditional employment for the purpose of healthcare coverage, or they may just choose to go without coverage completely. While critics of ACA subsidies have said they discourage people from seeking employment or advancing their careers since an increase in income would result in a decrease in subsidies, this new plan could have the same discouraging impact on the next generation of entrepreneurs.
A campaign promise to repeal the ACA is one thing, while figuring out how to dismantle the massive law with its many far-reaching elements is quite another. This Washington Post article discusses the paths Trump and Congress could take to walk back various parts of the healthcare reform law. According to the article, the GOP majorities in both chambers are likely to use the reconciliation process to overturn key aspects of the ACA that involve federal spending, such as the subsidies granted to millions of working Americans to help them pay for health coverage. But reversing other parts of the law, such as its insurance marketplaces, or instituting various Republican-backed healthcare approaches, would require a political path that could be more arduous. The ACA rules that affect employer-sponsored health plans are not grabbing the headlines and don’t get much ink in this article, either. But the message for employers that’s emerging is that this Band-aid will be coming off slowly. It’s not too soon to start thinking about how to position your program for the changes ahead.
The reports of steep premium hikes in the public exchanges keep rolling in, raising concerns about their long-term viability. But should we really be worried? Two recent news items make the case for and against a pessimistic view.
Let’s start with the good news, which came in the form of an analysis conducted by the Urban Institute of the actual cost of coverage in public exchanges across the country. The headline? After adjusting for actuarial value and enrollee age, individual unsubsidized premiums on the public exchanges are about 10% lower than the average premium in an employer-sponsored plan. In head-to-head comparisons, the exchange plans cost less in 80% of the markets examined. While the study adjusted for actuarial value, it did not address such differences as network size or provider participation and we know that narrow networks are one of the ways exchange plans are keeping prices low. It does explode the myth that exchange premiums are sky high, because, of course it's all relative -- compared to employer plans, they're not. But compared to the deal that most people get in an employer plan – a 75% to 80% premium subsidy – unsubsidized coverage will seem extremely expensive to anyone who has been covered through an employer plan, or anyone buying coverage for the first time. (And the lack of any tax break for obtaining coverage – only the threat of a tax penalty for not doing so – is not going to help that perception.)
So maybe many exchange plans were priced too low to begin with and increases will stabilize once premiums reach a certain level, closer to that of group plans. The argument against this view was presented in a New York Times article that addressed the pent-up demand for services of many exchange enrollees, comparing it to a high-school football team at a buffet table. Whatever you might think about that metaphor – I can’t quite equate seeking diabetes treatment with seeking a third plate of baked ziti! – the exchange risk pools do present serious challenges. My colleague Tracy Watts had this to say about that: “Everyone knew that the people who really needed access to care would be the first to sign up and use healthcare services. The assumption was that over time, as the individual mandate penalty increased, more healthy people would join. Unfortunately, they have not. While employers experience turnover and changes in the workforce, the risk pools are much more stable than the public exchange.”
First, let’s put public exchange enrollment in perspective. It’s a relatively small piece of the pie, although you wouldn’t know it from the amount of attention it gets. In a Wall Street Journal article, Drew Altman reminds us “about 11 million people are enrolled in the marketplaces. More than 13 times that many, around 150 million, have coverage through employers, and there are 66 million people in Medicaid and 55 million in Medicare. The marketplaces are an important part of Obamacare. However, more uninsured people have been covered by Medicaid expansions than in the marketplaces, even though 19 states have not expanded Medicaid. Millions of young adults have been covered on their parents’ employer plans.” Another important point: 24 million Americans still do not have coverage, a number that would be smaller if all states had expanded Medicaid.
Here’s my take on what’s going on in the public exchanges -- and how it may affect employers.
- The Risk Pool is still risky. It was expected that the first people to enroll in the public plans would be those previously uninsured and in need of care -- and hence, more costly. Analysis done by CMS documents very little change in the per member per month medical cost from 2014 to 2015. While it may appear the risk pool is stable, the bad news is that it is not getting better. The expectation was that the risk pool would improve over the years as healthier people sign up. So far, that hasn’t been the case. The “young invincibles” are still not signing up, likely because the individual mandate penalty is still considerably lower than the cost of coverage
- Big-name carriers are losing money and leaving the market. To be sure, some regional players are entering the market, but overall it appears that fewer insurers will participate in the marketplaces in 2017. That means less competition among those that remain and thus less downward pressure on costs. As the WSJ article points out, affordability is very important in the individual market. Those not relying on a government subsidy may find more choices on the “off exchange” individual market. There are also implications for employers: cost shifting to group plans. When carriers lose money in one market segment, they try to make it up where they can.
- Estimates for premium cost increases for 2017 now range from 11% to 23%. A person enrolled in the exchange this year who is looking to minimize their cost increase in 2017 would need to switch to a lower cost plan -- and then would still likely see an 11% premium increase, according to a McKinsey analysis of 18 state exchanges and the District of Columbia. The situation could be even worse in the other states that have not yet filed their premiums for next year. Blue Cross Blue Shield has requested a 62 percent increase for next year in Tennessee and an average 65 percent increase in Arizona. See #1 above for why insurers are raising rates so sharply.
- Plans with limited provider networks have been popular. The reward for agreeing to a limited network of providers is a lower price tag for the plan. The downside is that members may have to change doctors, which is also the case when employers implement a narrow network plan. But if most plans on the exchange are narrow network plans, it becomes a less attractive option for early retirees, because the longer you have had a physician relationship -- and/or the greater your health care needs -- the more important those relationships are.
- Satisfaction is high among those previously uninsured; not so for those coming to the exchange from employer plans. Over time, exchange plans have begun to look very much like Medicaid plans, but with higher cost sharing. The impact of higher cost-sharing is mitigated by federal subsidies for much of the population with exchange coverage, which may be why they are generally satisfied with their coverage despite limited plan options and limited provider choices. But in most states, a relatively small number of individuals are willing to pay the full cost of the coverage that’s available on the exchange.
This last item -- on satisfaction -- is important. The exchanges are new and have real problems that need to be addressed through some policy changes and greater enrollment. (Policymakers might want to study how employers, through a lot of hard work, have stabilized cost increases at about 4% over the past five years.) As the satisfaction data shows, the exchanges are clearly filling a critical unmet need for Americans who previously lacked access to decent coverage. But so far, they are not delivering an acceptable alternative to employer-sponsored coverage. Unless that changes, they will always play a limited role in the U.S. healthcare system.
This New York Times article offers an interesting “compare and contrast” analysis of public exchange plans versus employer-sponsored plans. Whether you’re satisfied with benefits on the public exchange really comes down to your perspective. If you were among the millions who were previously uninsured, you’re likely to be happy with your exchange coverage. If you came to the exchange after having had employer-sponsored coverage, the story is very different. A more limited choice of providers in the health plan network and higher out-of-pocket requirements are among the chief differences noticed by those coming off employer plans. In the end, a typical plan on the public exchange “looks more like Medicaid, only with a high deductible.” So while the public exchange is helping to fill a gap in the U.S. health care system, it’s not proving to be a source of comparable coverage for early retirees or those who would like to quit a corporate job to freelance or start a business. And each year, as these plans get skinnier, we’re seeing fewer employers that would even consider dropping the company plan to send employees to the public exchange.
Public exchange notices are coming soon to a mailbox near…well, we’re not really sure where they will land, but they are coming soon.
The 38 federally run public health insurance exchanges are preparing to send employer notifications when their employees have enrolled in individual exchange coverage and claimed advance premium tax credits (APTCs) under the Affordable Care Act. To receive APTCs an individual completes an application for health coverage that asks for employment status, employer contact information, and details about employer-provided coverage and how much the employee must pay for the lowest-cost self-only coverage option with minimum value. Where the exchange mails the employer notice depends on the address the applicant puts on the form. If the employee provides an incomplete address, the employer may not receive a notice at all.
The good news is that employers are not required to respond to this notice, but there may be reasons to do so. Appeals may:
- Help employees avoid an accumulating repayment obligation to the IRS for a wrongfully claimed subsidy
- Lead to less interaction with the IRS over 1095-C filings and a smoother reporting process overall
It will be important to consider whether the time, effort, and cost to appeal outweigh these benefits. Unless an employee is enrolled in minimum essential coverage (MEC), it may not be worth it to appeal the notice since you won’t know whether the employee would be eligible for a subsidy. (Remember, employees enrolled in MEC are not eligible for APTCs, regardless of the coverage’s minimum value or affordability.)
If you want to help employees without the time and expense of appealing the notices, consider contacting those who appear to have claimed APTCs mistakenly. But do so with caution. Do not discourage anyone from obtaining an APTC or express a negative view about an employee claiming an APTC. And remember employers cannot retaliate against an employee who obtains an APTC.
Whether you plan to appeal the notices or not, you should prepare for their receipt. Expect employees to make errors in filing out the employer address section of the application, and instruct mailroom staff and other possible recipients to be on the lookout for notices and to forward them to the appropriate location. Recipients should consider exchange notices confidential and handle them appropriately. Having recipients forward them to a central location allows you to anticipate the amount of interaction you may have with the IRS over your 1095-C fillings.
The HMO is making a “comeback,” claims a recent article in The New York Times. HMOs, once “emblematic of everything wrong with health insurance” due to lack of provider and hospital choice, are now looking to re-brand themselves as high-performance care delivery vehicles for lower cost and better managed care. In an effort to escape the negative connotations, some insurers are going to great lengths to avoid the term “HMO” altogether: Health Care Service Corporation considered lobbying state lawmakers to change the acronym to H.I.O. for Health Improvement Organization. Although these emerging HMOs generally share the same philosophy of managed care as their predecessors, they are less likely to include the unpopular gatekeeper feature, in which access to specialist care is controlled by a primary care provider.
There are two things to keep in mind here. First, the uptick in these “new” HMOs is being seen primarily on the state exchanges. In employer-sponsored plans, national HMO enrollment peaked in 2001 at 33% of all covered employees and has been on a steady decline ever since, slipping to 16% in 2015, according to Mercer’s National Survey of Employer-Sponsored Health Plans. Second, the outlook on HMOs varies by region. In some parts of the country, HMOs aren’t making a “comeback” because they were never out of style to begin with. For instance, Kaiser Permanente in California is widely considered one of the most desirable health consortia in the country, though it’s important to note that Kaiser has its own doctors and hospitals, whereas most insurers offering HMOs contract with a network of providers.
Even if your organization was one of those that dropped HMO offerings due to cost and member dissatisfaction, it makes sense to keep your eye on new options appearing in the market to see if they’ve truly cracked the code of how to offer first-dollar coverage while still controlling cost.
2016 will see fewer PPO plans available on the public exchanges according to a recent analysis by the Robert Wood Johnson Foundation (RWJF). Not only will there be fewer PPOs available due to certain insurers dropping the plan(s) or, in some cases, leaving the marketplace altogether, more of the remaining PPOs will have no cap on out-of-network care. The RWJF analysis finds that 45% of silver level PPOs will not have a limit on out-of-network services. This may catch many consumers unaware, as their reason for choosing a PPO may be to utilize out-of-network care for certain services (or at least have the option). When a cap is in place, the average individual limit for a silver level PPO is $16,700, much higher than a typical PPO plan offered through an employer; according to Mercer’s National Survey of Employer-Sponsored Health Plans the median out-of-pocket limit placed on individual out-of-network care was $6,000 in 2015. Inside the article, find out which plan sponsors have dropped or reduced their offerings and how out-of-network costs can sneak up on even the informed consumer.
Robert Pear wrote a piece in The New York Times that has been widely carried by many news sources. He reported that insurance companies are seeking 20-40% rate increases in the public exchanges, saying the new customers are sicker than they expected. Of course, federal officials are pushing for lower increases. They could probably learn a lesson or two from employers who have become very skilled at negotiating with insurance companies over the years.
A few days before Pear’s article appeared, the Centers for Medicare and Medicaid Services disclosed a report on the revenue and pay outs from the first year of the Transitional Reinsurance Fee Program. Funding for this program comes from plan sponsors over a three-year period. In 2104, plan sponsors paid $63 per plan participant for an estimated $9.7 billion in first-year fees. That amount decreases to $44 per participant in 2015, and then to an estimated $27 in 2016. The program reimburses insurance companies participating in the public exchange for individual claims between a $45,000 attachment point up to a maximum of $250,000. The target reimbursement is 80% of the actual expense. However, the first-year claims experience is reported to have been better than expected and the program reimbursed 100% of the eligible claims in 2014, leaving a $1.7 billion surplus in the fund to be carried forward for the 2015 benefit year.
Hard to tell which players are making out the best here!
Following the recent Supreme Court decision in King v. Burwell that upheld premium subsidies for all public exchanges, Mercer polled employers on their reaction to the ruling and how the public exchanges may or may not factor into their health benefit strategies. Nearly 600 employers responded: 24% with fewer than 500 employees, 47% with 500-4,999 employees, and 29% with 5,000 or more employees.
Thinking about your organization’s best interests over the long-term, do you believe this decision will have a positive or negative effect? More employers believe the decision will have a positive effect than a negative effect — 29% compared to 17% — although a slight majority (54%) doesn’t believe this ruling affects them one way or the other. The larger the employer, the more likely they are to see the ruling as a positive for their organization (41% of those with 5,000 or more employees). Those favoring the ruling may see advantages to having part-time employees (those averaging less than 30 hours a week) or early retirees obtain their coverage from the public exchanges. Those that believe it will have a negative impact may have concerns about cost-shifting from health care providers in low-cost exchange plans that accept lower reimbursement, or about pressure on their employees’ access to health care providers as more Americans gain insurance.
Do you have now, or do you expect to have, a strategy to steer pre-Medicare-eligible retirees to the public exchange, with or without an employer subsidy? Just under half of all respondents that currently offer coverage to early retirees — 45% — say they are considering steering retirees to the public exchange or have already begun to do so. It’s easy to see why this would be an attractive option, given that coverage for early retirees costs more, on average, than coverage for active employees. In some cases, retirees could also benefit by obtaining coverage through the public exchange. Some might qualify for a subsidy (generally, if their household income is less than about $47,000 for a single person), and the subsidized coverage might cost less than what their employer charges for coverage in the retiree plan. But even some of these who don’t qualify for a subsidy might still do better on the exchange. About a third of all retiree plan sponsors currently don’t contribute to the cost of coverage. A retiree moving from an employer-sponsored plan to the exchange would almost certainly have more options on the exchange, and be able to consider cost and level of coverage in selecting a plan.
An employer considering terminating medical coverage for early retirees would need to evaluate whether their employees might have — or claim —a legal right to continued access to an employer-sponsored plan upon retirement. In addition, employers that currently provide money in a health reimbursement account (HRA) for retirees to use to purchase coverage would want to provide an option for the retiree to refuse or delay receipt of the HRA contribution in order to seek subsidized coverage on the exchange.
Do you have now, or do you expect to have, a strategy to steer part-time employees working fewer than 30 hours per week to the public exchange? Employers are much less likely to consider the public exchange as an alternative source of coverage for currently eligible part-time employees. Just under a fourth (24%) of respondents that provide coverage to employees working fewer than 30 hours per week say they are considering this strategy or already have it in place. The largest employers are even less likely to see the public exchange as a viable alternative source of coverage for their part-timers (16% of those with 5,000 or more employees). Unlike with retiree coverage, employers may use health care benefits for part-time employees as an attraction and retention strategy and a way to drive employee engagement. And because part-time employees are still working, it might be harder for them to qualify for a subsidy than an early retiree. Employers should also consider whether making part-time employees ineligible for employer coverage raises any legal concerns — for example, practitioners have wondered whether reducing a formerly eligible employee’s hours to below 30 to make them benefit-ineligible might violate either ERISA 510’s prohibition on taking adverse employment actions to avoid attainment of a benefit, or a provision in the ACA banning discrimination against an employee in retaliation for obtaining an exchange subsidy.
Do you believe the public exchanges have made it harder for your employees to obtain needed health services in a timely manner? Relatively few respondents — 16% — believe that the increase in the number of Americans with health insurance has affected their employees’ ability to access health care — so far. Still, it is enough of a concern that some employers have begun to address access with solutions like telemedicine or on-site medical clinics.
We also asked employers whether they had been waiting on this decision before taking further action to comply with the ACA’s reporting requirements or to prepare for the excise tax coming up in 2018. Fortunately, the great majority said no. That’s a good thing, because employers need to be collecting data now to provide the detailed reporting information required in early 2016. And, the last time we checked, about a third of employers were on track to hit the excise tax cost threshold in 2018 unless they take steps to avoid it.
This is an interesting piece on the potential for some retirees to take advantage of subsidies in the public exchange even after they turn 65. Most won’t qualify for subsidies after becoming eligible for Medicare, however, which could cause problems for a pre-Medicare-eligible retiree who has been receiving a subsidy and doesn’t realize their status changes at age 65. The government doesn’t provide much warning, so this might be a good topic to address in retiree medical communications.
Thousands of people were anxiously watching the SCOTUS blog this morning in anticipation of the King vs. Burwell decision. We are still waiting. With seven decisions still to deliver by the end of the month, the Court did add this Thursday, June 25 and Friday, June 26 to their calendar to issue rulings. After Friday, the next possible decision day is Monday, July 29. It is also possible the Court could add an extra decision day on Tuesday, June 30th. Typically the Court does not issue more than three or four decisions in one day. In a city notorious for leaks, timing for Supreme Court decisions are the best kept secret.