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Indiana State University Associate Professor, Insurance and Risk Management, John Liu moderated a panel of industry experts. Following are excerpts and observations from each panelist’s comments:
John Boss, Executive Vice President, Employee Benefits Consulting Group, AON Risk Solutions
Addressing the forum, Boss noted that over the past 25 years, employers have been inundated with new benefit laws including COBRA, HIPPA and Medicare Part D, among many others. As such, the ACA and its corresponding requirements did not come out of a legal or regulatory vacuum. Several changes to health insurance coverage have been leading up to the opening of the exchanges and the 2014 ACA enactment date.
Addressing reaction to some changes preceding implementation of the ACA, Boss noted the general public seems to like the removal of lifetime maximums on benefits provided. Other components that have been well received by the public include the provision that children cannot be denied coverage due to health conditions, higher drug discounts, coverage for children on parental policies until they reach age 26, and the elimination of out-of-pocket fees for preventative care. Yet each of these "benefits" has added to employer costs.
Looking at the ACA in 2013, employers must inform employees of their option to secure coverage in the exchange. Additionally, health care flexible spending account programs have been limited to $2,500 and deductions for expenses for retiree drug subsidies have been eliminated. A Medicare tax has been applied to high income individuals.
As 2014 approaches, the market will offer new choices for consumers, but most will fall into one of four categories:
Boss cited several concerns employers have expressed regarding the ACA and how it may impact their organization. Many concerns focus on financial factors. Cost increases between three and six percent will continue. Small employers with fewer than 50 employees are likely to see costs increase between 40 and 110 percent, with the costs directly attributable to rising underwriting costs. Employers dislike the ACAs requirement that they pay a fee of $63 per covered person over a three-year period to subsidize the exchanges. Employer costs for this component of the ACA are projected to reach $25B over the next three years. All in all, employers will see $125B in cost increases over the next seven years, according to Boss.
In addition to rising costs, Boss noted that employers are concerned that the ACA was not based on facts and did not address real problems. He questioned the mandate and its implied stance that 55 million people desire health coverage but cannot access it. Boss also said that the widespread belief that individuals could not secure health insurance if they experienced a health setback was made mute by the enactment of HIPPA which allowed for continuity of coverage. He was skeptical of ACA assertions that preventative care benefits included in the ACA will reduce health care costs by $2,500 per person. The Congressional Budget Office has indicated the ACA will not be a panacea for "universal coverage", estimating that 30 million Americans will still be uninsured in 2023. An aging Baby Boomer population will result in 37 more Americans being enrolled in government programs by 2023.
The emergence of ACOs may help reduce costs and stabilize the upward trend in costs, although the next three years will be critical and initial economic data is not encouraging. "This law will accelerate drastic changes to the health care delivery system," Boss said. Of particular concern are the employment consequences that may arise from enactment of the ACA. Boss pointed to recent Indiana hospital systems that made significant job cuts in 2013. While part-time positions may increase, household income is not likely to follow. Consumers have expressed little faith that the federal government can manage a sector that represents one-sixth of the entire economy; a belief underscored by the status of the federal government as fiscally "broke".
Despite many challenges, Boss said he is optimistic that employers will adjust and even overcome another law, but it will require more engagement between employers and employees to make employees more responsible health care consumers. Such engagement should focus on health improvement and pursue use of non-traditional health care providers. Consumers must demand more transparency. Network providers must deliver high quality performance and be compensated on quality, not on the value of the service provided. Finally, he noted there is a need to move away from a defined benefit toward a defined contribution as the ACA transforms health care.
Dan Grelecki, Director, Patient Protection and Affordable Care Act, Old National Insurance
The individual mandate of $95 or one percent of income per person not covered by health insurance is difficult to properly calculate. For example, children count as a half-fee and individuals who receive a tax refund on their 2014 tax return in 2015 will have the fee directly deducted from their return. As such, they may never realize the fee for failing to secure coverage was incurred.
The mandate that all individuals share in the cost of coverage will naturally present "rate shock" to the young and healthy that may elect to pay the fee rather than face the premium. As the penalty for not securing coverage increases to 2.5 percent or $695 per person in 2016, there may be some shift in participation behavior.
Employer experiments with the community rating model have yielded mixed results. According to Grelecki, the best reduction in costs was 42 percent; however, the worst increase in group costs represented a 414 percent increase. "Employers will look for a way out of the community rating model," Grelecki noted.
Within the individual market, the community-rating model may result in an average cost increase of 67 percent, although it will be much smaller for large groups, who can expect an increase of about eight percent.
The expansion of Medicaid into the states has created a major donut hole. The program is now available to adults who earn 50 percent of the federal poverty level. However, federal policy thresholds for Medicaid participation stand at 100 percent. Grelecki noted that many Hoosiers do not earn enough to qualify for the state funding.
The mandate requiring employers to provide coverage – particularly the details in the mandate regarding size of workforce, full-versus-part-time and seasonality considerations – are an administrative nightmare for employers. A penalty of $2,000 per full-time employee (minus the first 30) for failing to offer health insurance could be devastating to a small business that miscalculated hours incurred by its workforce. Industries such as hospitality which raise and lower their workforces based on seasonality could be particularly hard hit. Some aspects of the ACA are particularly challenging for employers of low-to-moderate wage workers. For example, employers must offer insurance that is deemed affordable - defined as no more than 9.5 percent of household income. Yet employers usually do not know an employee’s household income, nor are they permitted to ask.
Finally, Grelecki noted that the exchanges are not proving easy or productive in the early days of their existence. For example, Anthem had sold a miniscule number of policies between October 1 and the October 18 forum. Exchanges and the consumers they are intended to serve are struggling with the practical and technology issues more than the theoretical aspects of the exchanges.
Wes Mantooth, Principal and Employee Benefits Practice Leader, Gibson Insurance
As noted earlier, a key goal of the ACA is to increase access and affordability for small employers; those with fewer than 50 employees. Yet providing this access does not come without challenges. A key concern is the narrow networks that are available as mass consolidation continues. In order to maintain their margins, hospital systems have cut back on their employment numbers. Moving forward, we will see these forces creating an environment where the narrowing of networks results in health care costs that exceed discounts.
The changes afoot appear to be contributing to a decline in the physician pool. For example, a database search indicates 1,500 open physician positions in Indiana. This decline may result in delayed access to care. As such, the ACA is prompting more interest in community-based clinics. For employers, the establishment of such clinics is a way to secure health care for their employees.
The community rating is wreaking havoc on employers and creating intense compression as healthy and unhealthy, old and young, employees are pooled together. Additionally, employer rates are ever changing as employees enter and leave the workforce, and age during their career. Rates will automatically be changing each year. There is also concern that employers will demonstrate a preference toward hiring younger workers, thus penalizing older job seekers.
Finally, an increasing shift toward government-based care is occurring. In 2014, 66 percent of the American population will be eligible for Medicaid or other government subsidies. Adding Medicare recipients into the analysis raises the total percentage of Americans receiving some type of government subsidy to 75 percent.
Summarizing the panel, Boss concluded, "For employers, it (the ACA) is a mess. It will add time, cost, energy and complexity."