Many of us in the health insurance industry attended an industry seminar in Sacramento on May 20-21 to get the latest on the ACA and how it will impact individuals and employees in 2014 and beyond. Here’s my latest assessment from the front lines of our industry.
Covered California’s Executive Director, Peter Lee, stated that buying insurance in 2014 would be “like buying a book on Amazon or a plane ticket on Orbitz.” While Covered California didn’t deliver on this promise, its administrative performance has improved a great deal since the 2014 open enrollment terminated on March 31, 2014. Wait times were very long earlier in 2014. Now, they are down to about five business days.
Enrollment in Covered California (California’s Health Care Exchange) thus far stands at approximately 1.4 Million. Of this total, it’s estimated that about 85% of applicants have paid their premium, which means about 1.2 Million paid individuals. Also, seven of every eight individuals who enrolled in Covered California (87.5%) were subsidized, while one in every eight individuals (12.5% ) were unsubsidized. The details behind these statistics can be found by clicking on the Covered California link here:
We also don’t know yet how many individuals previously had health insurance vs. those individuals who are new to the health insurance delivery system. This information should become available later this year.
An additional 1.9 Million individuals enrolled in Medi-Cal, which is California’s medical program for the poor. A percentage of these new Medi-Cal enrollees were previously eligible for Medi-Cal but never enrolled in the Medi-Cal program. As a result, Covered California proved to be an effective way to enroll both new and currently eligible individuals into the Medi-Cal program.
While California’s health care exchange performed about as well as any other state, there were concerns in many states about lower enrollment numbers than expected ( particularly among the young and healthy), which could lead to higher than average rate increases in 2015.
Results from Covered California regarding the much sought after 18-34 year old age group were somewhat disappointing. While Covered California projected 40% of all enrollees would come from this age category, they only received 29% of 18-34 year olds. Conversely, about half of all individuals who enrolled in Covered California were 45 years old or greater.
To protect health insurers against the effects of this somewhat adverse risk pool in 2015, the ACA has already provided additional funding to health insurers over the next few years to protect the carriers against additional losses.
In addition to the highly publicized problems with HealthCare.gov, it was reported earlier this year that seven states remain dysfunctional, disabled or are severely underperforming – despite having received a total of about $1.2 Billion in federal grants for support. The seven states are Oregon, Maryland, Massachusetts, Minnesota, Vermont, Nevada, and Hawaii. Many of these state exchanges failed or underperformed due to the poor execution of the IT contractors who were retained by the federal government to oversee its implementation.
The federal exchange, HealthCare.gov, experienced its own implementation problems. As a result, HHS Secretary Kathleen Sebelius resigned from her position. At this time, Sylvia Burwell is in the process of being confirmed as her successor.
Covered California is allowing a special two month “Special Enrollment” from May 15-July 15 of 2014 for those who are enrolled in a Cobra plan (i.e. offered coverage by their employer at the termination of their employment with the company). This two month window will allow those enrolled in a Cobra plan to enroll in a Covered California plan. Otherwise, individuals will generally not be able to enroll in an individual health plan through Covered California or direct with an insurance company until the fall of 2014.
Some of the key factors with the ACA implementation thus far are as follows:
1. “Skinny Networks/Formularies”- In order to comply with the ACA and still keep premiums reasonable, many health insurers restricted their provider networks to the most cost-effective providers. As one health insurance company executive stated “You can’t expect to have a competitive rate and include all your doctors in the network.” Thus, the network size of many insurers became smaller. However, many consumers just assumed that the new ACA plans offered the same networks as the old plans. This was simply not the case. Also, Skinny Prescription Drug Formularies were also implemented by many health insurers to help control prescription drug costs.
2. Higher Out-of-Pocket Maximums- In order to offer cost-effective plans, the insurance companies increased their Out-of-Pocket Maximums on most of their plans. The Out-of-Pocket Maximum is generally the maximum amount that an insured (and his/her family, if applicable) will pay in a calendar year before the insurance company reimburses the insured for 100% of any remaining expenses in that year.
3. Cliff Eligibility for Subsidies- Unlike the graduated income tax system, the subsidies for health insurance are structured so that ( in certain instances) if an individual earns one additional dollar of income, he/she will lose most or all of his/her subsidy. And, if an individual understates his/her income, he/she may be subject to a significant penalty next April during tax season. For this reason, there may be an inherent disincentive by employees to receive a pay raise during the calendar year which could then result in the disqualification of their ACA subsidy.
4. Medi-Cal Enrollment – One of the biggest winners in 2014 was Medi-Cal ( Medicaid for California consumers). Consumers found out that if their income was low enough (i.e. 138% of the Federal Poverty Level or less), they were automatically enrolled into Medi-Cal. Many were surprised that they (or their children) were automatically assigned to this health care system for the poor. However, it was reported that once an individual meets Medi-Cal eligibility guidelines, the federal government will no longer provide a health care subsidy. For this reason, the individual is automatically assigned to Medi-Cal.
5. Individuals with Pre-Existing Conditions- These individuals were perhaps the biggest beneficiaries of the new ACA law. And, to the extent an individual earned less income, he/she may have also benefited from a subsidy. In addition, some individuals with low incomes also received an added bonus by qualifying for a “Cost Sharing Reduction,” which provides individuals with enhanced health insurance coverage in the form of a lower Deductible and Out-of-Pocket Maximum.
6. Young Adults Subsidize Older Adults- Due to a change in rating methodology, there can no longer be as big a disparity between the youngest age-rated rates and the oldest age-rated rates. For example, prior to 2014, let’s say a 62 year old had a $600 per month premium and a 28 year old paid a $100 per month premium (a 6:1 ratio existed between these two rates). After 1/1/14, the largest ratio could only be 3:1. So, in this example, the 28 year old would have to pay $200/month (double the old rate) and the 62 year old would retain the same $600 per month rate.
What To Look For – 2nd Half of 2014 and Beyond
Here are some of the key things to watch for the remainder of 2014 and into 2015:
1. The Exchanges Must Be Self-Sustaining- In 2014, the state-based exchanges received millions in grant funding to get their exchanges off the ground. In 2015, this funding source will be gone. How much more will Covered California need to charge per policy to cover its ongoing expenses?
2. How will Insurance Carrier Pricing Look in 2015?- Because of the pressure to be competitive during the first year of full implementation in 2014, all carriers priced their plans as aggressively as possible (and many offered Skinny Networks to keep pricing low). However, if a carrier receives an adverse risk pool with their 2014 enrollment and needs to apply a larger-than-average rate increase to cover their health care claims, how much of a rate increase will they ask for?
3. Pending Legislation- There are a number of bills being considered in the California legislature. In the view of many in the health insurance industry, some of these bills will not benefit health insurance consumers in the long term. For example, one bill will give the Insurance Commissioner the authority to review all health plan rate increases that equal 5% or greater. While this sounds like an attractive protection for the consumer, this type of regulation has sometimes led to insurers leaving the state in which it was implemented. Another bill proposes to allow consumers to use a non-network provider (at no additional charge to the consumer) if the consumer is not seen by a network provider in a timely manner. Once again, while this sounds great to the consumer, many insurance professionals believe that network adequacy would be the best way to address this issue.
4. Will the Employer Mandate for Large Groups be implemented? The Obama Administration postponed this provision for one year, so it’s supposed to apply for groups renewing on 1/1/15 or later. But, will the government postpone it again? Or, will it never be implemented? Nobody really knows. Rest assured that if it is implemented, it will have an adverse effect on industries that don’t historically offer group benefits (such as the Hospitality, Restaurant and Construction Industries).
5. The Individual Mandate penalty will double in 2015- While this individual penalty is still relatively small, it will increase to the greater of 2% of income or $325 per Individual, with a maximum cap of $1,185 per year. In 2016, the individual mandate penalty increases to the greater of 2.5% of income or $695 per Individual, with a maximum cap of $2,085 per year.
6. Expect more employer sponsored Wellness Programs- Prior to the ACA, an employer could provide employees a maximum permissible reward of 20% of the cost of health coverage. Under the ACA, this maximum reward is increased to 30% of the cost of health coverage. In addition, employers can provide an even greater reward ( 50%) for programs designed to prevent or reduce tobacco use. Because employees are the “human assets” of the employer, this trend is likely to continue. Further, small businesses will have access to grant funding for wellness programs from 2011 until 2016. And, it’s been reported that Obamacare set up pilot wellness programs this year in ten states to encourage employer sponsored wellness programs. In 2017, this pilot program will be reviewed. If it proves to be successful, wellness programs may grow in popularity.
7. Taxes and Fees- There are a number of taxes and fees starting in 2014 that apply to insurance companies, medical device companies, pharmaceutical companies, individuals and seniors. For example, above certain income thresholds, individuals will pay the Medicare Hospital Insurance Tax (+.9%). Also, some individuals will be subject to a 3.8% Medicare tax on “unearned income,” which means gains from stocks, bonds, dividends, rents, vacation homes and, under limited circumstances, the sale of your primary residence. Also, in an effort to stabilize the individual health insurance marketplace, Obamacare applies a tax on all health insurers based on the number of premiums they collect. This tax will ultimately be passed on to small business owners. The Congressional Budget Office projects that this provision will cost the average family an additional $300 to $400 a year in added premium costs.
In summary, the latter part of 2014 and 2015 continue to represent an era of major change in the health insurance delivery system. Individuals and employers should be aware of these changes and do their best to capitalize on any benefits in the law while minimizing the adverse aspects of the law.