“Up,” being the operative word. But the news and prognostications are never simple. The early numbers are daunting, but the rates will not be finalized for some months. Certain provisions of the Affordable Care Act have yet to take effect. Insurance providers are continuing to respond in creative ways to cost pressures and there are always unknown factors. Small and middle-sized enterprises need to watch the nuances.
On July 3, the New York Times reported that “Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.”
The rate requests are significant because they are the first to reflect a full year of experience with the new insurance exchanges and federal standards that require insurers to accept all applicants, without charging higher prices because of a person’s illness or disability.
They are not the last word because request for increases of 10 percent or more are subject to review. The numbers also tend to muddle the difference between individual and group health insurance premiums. They do not necessarily account for plan design changes. They also gloss over more profound changes in the rules that will apply to businesses with between 51 and 100 employees in 2016.
The best guess at this point seems to be that small and middle-sized employers will see an increase in group health premiums, but more likely in the 5 to 8 percent range.
Why Rates Continue to Rise
In the individual market, where much of the news coverage is focused, insurers often cite three factors in their requests for premium increases:
- New consumers are older and sicker than anticipated and may have pent-up needs for medical care, especially if they were previously uninsured;
- Specialty drugs, especially those used in the treatment of cancer, cystic fibrosis and hepatitis C, are extremely expensive; and
- Healthier individuals may be keeping insurance that does not meet new federal standards, as permitted under a policy adopted by the Obama administration in late 2013.
In the small group market, increases are almost entirely due to the cost of specialty drugs, although the cost to insurers of preventing and remediating cybersecurity breaches is also mentioned.
The Review Process
Under the Affordable Care Act, the Department of Health and Human Services works in partnership with states to review all proposed rate increases of 10 percent or more in the individual and small group markets.
The states’ effective rate review programs consider factors such as medical cost trend changes by major service categories, changes in utilization of services and changes in benefits. These are generally concluded by November, so the anxiety to date is arising from a process that is not yet complete.
The Obama administration predicts that rates will ultimately come in significantly lower than the 20 to 40 percent requested. It’s still enough to cause employers plenty of pain, though.
The rate requests and review process are only one piece of the puzzle, however. More fundamental changes are afoot for employers with between 51 and 100 employees in 2016.
Rolling Rule Changes
Before 2016, groups with up to 50 employees were considered small, requiring them to follow a certain set of rules and regulations, including those related to essential health benefits, actuarial value and premium rating restrictions.
For 2016, the maximum number of employees for a small group will increase to 100. Premiums for businesses with 51-100 employees will likely increase since health insurance carriers underwrite small group employer plans differently. Somewhat counterintuitively, premiums for groups that are younger and healthier will probably increase while they decrease for groups that are older and sicker.
Companies with 51-100 employees will also be subject to the shared responsibility provisions.. Under these rules, employers will face penalties if they have employees who obtain subsidized coverage in an exchange or if they do not offer coverage that meets certain value and affordability requirements.
Additionally in 2016, the ACA’s shared responsibility provisions will begin applying to companies in the 51-100 range. Specifically, this means:
- Employers must offer essential health benefits, such as pediatric dental and vision, preventive care and diagnostic coverage, and
- They will face penalties if they do not offer affordable coverage that meets minimum value, or if their employees obtain subsidized coverage in an exchange.
How to Keep the Rates Down
Two changes in the way health care is provided may hold promise:
- Virtual care to make health care visits more efficient and convenient. Hospitals have long used remote monitoring to improve outcomes and bring down treatment costs.
- Advisory services provided through insurers or third-party vendors to offer information and tools to assist employees with making good choices about seeking health treatment
Insurance providers are also increasingly looking toward design changes as a way of keeping premiums down. Among the changes being investigated are:
- Tiered or narrower networks in which an individual's out of pocket cost differs depending on the "tier" to which the provider is assigned. This creates a financial incentive for individuals to select among providers based on the price, maximizing choice for individuals while still promoting cost savings
- Private exchange options, which do not offer premium tax subsidies, but may offer wider product selection including the standard health, dental, vision, life, disability, long-term care and critical illness policy options
- Defined contribution models, where a company gives each employee a fixed dollar amount that the employee chooses how to spend. Typically, employees are allowed to use their defined contribution to reimburse themselves for individual health insurance costs or other medical expenses such as doctor visits, prescription drugs, dental coverage, vision coverage some pre-tax and some post-tax.
- Health savings options, through which employees may save pre-tax money for future health costs’
- Cadillac tax avoidance. Although the ACA’s 40 percent excise tax on high-value plans (premiums of $10,200 for individual coverage and $27,500 for self and spouse or family coverage) is not set to begin until 2018, many employers are already beginning to ask employees to pay more for their coverage.
- Self-insurance. Self-insured health plans are not subject to ACA health insurance fees or state premium taxes and are exempt from rating rules and benefit requirements, and may be more flexible regarding coverage and design. Costs can more also more directly reflect actual claims. Typically, self-insurance has been more common with larger businesses, but the availability of new plans with level premiums and “stop-loss” may be attractive to smaller employers.
Two big unknowns could change the healthcare cost equation in major ways. One is the impact of possible mergers of the nation's biggest health insurers. A merger involving any of the major insurers, like Aetna, Cigna, Humana, or UnitedHealthcare would change their negotiating position with regard to rates. It would also decrease employers’ choices with respect to coverage.
It is also not clear whether the decrease in the number of the uninsured will result in hospitals lowering their charges to reflect the reduction in uncompensated costs they now pick up.
In 2014, group health plan costs rose an average of 3.9 percent per employee, according to a Mercer L.L.C. survey of nearly 3,000 employers. That was slightly greater than the 2.1 percent average increase in 2013. A premium increase of 5 to 8 percent in 2016, however unwelcome, would still be below the 15 year average, and far better than the 20 to 40 percent nightmare numbers.
Five years into the ACA, most employers have probably found all the efficiencies they can to hold down rates. The time seems right for those in the small group market to work with their insurance providers to explore structural changes.