OUTLET: Inside Business
By Jared Council
jared.council@insidebiz.com
Several provisions of The Patient Protection and Affordable Care Act, also known as Obamacare, took effect Oct. 1. Consumers were allowed to shop for plans online last week, and coverage is set to begin Jan. 1. The law and its implications have been widely discussed since its passage in 2010, though much remains to be seen. Here’s a look at what some local experts feel are the good, bad and ugly parts about the law.
Richard Herzberg
President, TFA Benefits
Virginia Beach
Based on your experience, what are the biggest benefits of the law?
The most obvious benefits of the law are the subsidies and tax credits provided to eligible individuals and businesses to reduce the cost of health insurance. However, the biggest long-term benefit might well be the transparency required under the law. Knowing the cost and quality of care in advance will shed light and promote free market forces on what has been an opaque system. The ACA has many elements that will initially increase costs, such as the elimination of pre-existing conditions, extensive new preventive services and no dollar limit on essential health services, to name a few. However, transparency in both cost and quality will foster free market forces that will serve to promote competition and empower consumers to shop for value. As the veil of health care pricing is lifted, more market competition will be created, which will ultimately drive down the cost of care.
What are its biggest drawbacks?
The biggest drawback of the law is its complexity. The complexity is well documented; however the uneven treatment of individuals and families is rarely mentioned. How the law can treat people differently can be illustrated with an example of two families. Both families have a household size of four and incomes of $50,000. Family number one has a family member working at a business that offers affordable and minimum value coverage. Because of the employer’s offer of coverage, the entire family is precluded from obtaining a subsidy for any family member. Securing family health insurance from the employer could cost this family well over $12,000 per year. However, in family number two no family member works for an employer offering coverage, thus allowing the entire family to obtain marketplace coverage with a maximum total cost of $3,365, potentially saving this family as much as 250 percent over the employer-sponsored coverage for family number one.
Who are the winners and losers?
The winners are individuals who are subsidy-eligible, along with the older, less healthy populace. Conversely, the losers are those who do not qualify for a subsidy, especially the young and healthy. The elimination of medical underwriting and the compression of rate bands to 3 – 1 will dramatically increase the cost of health insurance for the young. This is especially true for the young working in a small business setting (2-49 employees). On an individual basis, many of the young will be low-wage earners and as such may be eligible for a subsidy, masking the increase in cost. However, in a business setting this increase cannot be offset by a government subsidy and they will face a very steep rate increase as their employer’s health insurance renews in 2014.
While the aforementioned are losers, the most adversely affected under ACA will be those with incomes below 100 percent of poverty and not eligible for Medicaid. As of today, Virginia has declined to expand Medicaid leaving this populace, approximately 400,000 individuals, without any assistance under the law. To make matters more complicated for this population, hospital emergency rooms will be receiving less as ACA reduces Medicaid’s Disproportionate Share Hospital payments by $17.1 billion between 2014 and 2020.
What feedback – praises or concerns – have you heard about the ACA from clients?
The praise consists mostly of the goal to provide affordable health insurance to low-wage earners and the elimination of the current punitive rating system for those who have the misfortune of being sick. The concerns focus on the complexity of the law and the overall cost of the program on our federal budget.
How has this law changed or will change your business?
As an employee benefits firm, our role consists of helping our clients understand and comply with all the health care laws and the benefits options that offer the best value to the employer and their employees.
With the advent of ACA, our relationship with our clients has not changed; it simply has become more acutely valued. Since its passage on March 23, 2010, we at TFA Benefits have dedicated ourselves to understanding the intricacies of the law. Because ACA places new and, in some cases, expensive fines for noncompliance, we have expanded our compliance department, conducted more than 50 seminars and webinars, and created countless newsletters and compliance alerts to keep our clients informed. In addition to our normal benefit services, we now provide compliance websites and other ACA tools. However, it is our professional staff that has provided the most value to our clients. At TFA Benefits we are committed to meeting personally with each of our clients so that all options can be explored and the best solution can be found.
John Peterson
Of Counsel, Employee Benefits Group, Kaufman & Canoles PC
Norfolk
Based on your experience, what are the biggest benefits of the law?
The “patient protection” provisions, particularly the availability of health insurance to everyone at the same price irrespective of medical condition/status, the availability of preventive care at no out-of-pocket cost and the elimination of annual and lifetime dollar limits on benefits.
What are the biggest drawbacks?
The cost of the “affordable care” provisions, in particular the new federal entitlement program of Health Insurance Marketplace subsidies. Although originally projected to be basically revenue neutral, PPACA will end up costing way more than anticipated and expected revenues will fall way short of projections.
Who are the winners and losers?
Winners:
* Lower income individuals and households who will benefit from the new marketplace subsidies.
* “Small” employers who will get out of the expense and aggravation of offering a heavily government-regulated group health insurance benefit plan and can get back to concentrating on running their business.
Losers:
* American taxpayers who will end up footing the bill.
* The 400,000 Virginia low-income childless adults who are left without health coverage because Virginia has not expanded Medicaid (and who fall below 100 percent of federal poverty level and therefore cannot get marketplace subsidies).
* The many hourly paid employees who will be cut back to 29 or fewer hours per week so that their employer can avoid the new penalty tax on “large” employers.
What feedback – praises or concerns – have you heard about the ACA from clients?
No praises. Concerns as indicated in “Losers” section above.
How has this law changed or will change your business?
Since Kaufman & Canoles was already in the business of advising clients on employment and employee benefit law matters, PPACA is just the latest addition to our arsenal of services.
W. Brandon Beavers
President, PeopleSurance.com
Virginia Beach
Based on your experience, what are the biggest benefits of the law?
If you’re within 400 percent of the poverty line, you’re going to get a tax break for your premiums and you’re going to get a tax break for your cost share when you have care rendered. So you’re going to get a break on both sides: What you pay monthly and when you receive care. If you’re within 400 percent of poverty, it’s a great program for folks who can’t afford coverage. I think the preventive mandate where things like routine check-ups are covered at 100 percent – we should have done that 20 years ago. Preventive medicine is the best medicine we can do. So if I can catch a disease before it becomes chronic, I can save everybody money.
What are the biggest drawbacks?
One of the drawbacks is “How the hell do we pay for it?” The problem in my mind is we pushed the employer penalty – the $2,000 to $3,000 penalty for large employers if they don’t offer coverage – back to 2015. And from an actuarial numbers standpoint, when I put that hat on, it doesn’t calculate because we were expecting to get all these penalties from large employers to pay for the subsidies that we were going to give out to the lower income. Now that we’ve pushed the penalties back to 2015 and yet we’re still giving the subsidies, where is the money coming from?
I think it’s a good thing and I think folks need help to pay for their premiums, but the scary part is how are we going to pay for it?
Who are the winners and losers?
Lower income individuals who haven’t been able to afford coverage will certainly benefit from the new law. People who are currently insured, either through group or individual coverage, will see a premium spike as a result.
What feedback – praises or concerns – have you heard about the ACA from clients?
I work with large and small businesses in 18 states, so I’m working with companies from two employees to 2,000 employees and we’re doing payroll, benefits and everything. I also work with a large number of individuals. The employers are scared because they’re seeing 20 to 30 percent price increases for the past two years and the carriers are saying it’s because of health care reform. Eight to 10 percent of their increases the past two years have been directly attributable to the health care reform laws. So the employers are paying more money and the employees are getting a lesser benefit because of that. In order for the employer to continue offering a program, they’ve got to keep the costs in line, so the only way we can do that is to lower the benefit down. That’s been one of the things that is bad, in my opinion, to the employer and the employee because they’re getting coverage, yes, but the deductible has gone from no deductible, maybe two years ago, up to $2,000 or $2,500 now in order to keep the cost in line. So I’m hearing concerns from employees from that perspective, as well as employers for the rising cost. And I’ve seen some employers, to be honest, completely pull out of the health arena altogether and they’re not offering anything to their employees. And that’s a shame.
That’s the group side. From the individual side, I had a woman come into my office the other day. She got a quote from her agent saying come Jan. 1 her individual policy for her and her child is going to go from $350 a month to $600 a month. So even from the individual standpoint, we’re seeing rising costs and we’re seeing plans that we thought would still be available once we put this health care law in place are not available anymore. So there’s some concern among folks who are already insured about their programs that they’ve had for decades.
How has this law changed or will change your business?
This is something I’ve been talking about with all of my partners. About a month ago I got certified by the National Association of Health Underwriters, a trade group for our industry, as a PPACA-certified expert. It’s an 18-hour training course that goes through the ins and outs of the law. I just did my federal facilitated health care marketplace training. So it’s been a lot of training getting ready for this so I can sell on the marketplaces.
I think the brokerage business is changing. We’ve already seen commissions go from a percentage-based commission structure to a flat amount. It used to be about 8 percent of premiums; now it’s about $25 per person per month. And that number is getting ratcheted down every single year. So at some point, I think the way we’ve done our business is going away, and in order to be ahead of the game I’m looking at technology.
I’m building a human resource information system and providing tools for employees to compare coverage and employers to look at the pros and cons of offering coverage as well as tracking and managing their employees and their benefits. I’m looking for technology to keep me in business over the next 10 to 15 years, because I don’t think commission is going to sustain the way it used to. The carriers simply can’t afford to pay us what they’ve been paying us because costs are going up on their end, and we have the medical-loss ratio requirement in which insurance companies have to spend 85 percent of premiums received on actual care… or else they’re going to have to rebate premiums back to individuals and employers.
Cher Wynkoop
Member, Employee Benefits Group, Willcox Savage PC,
Norfolk
Based on your experience, what are the biggest benefits of the law?
The “promise” that “affordable” health care will be available to all U.S. citizens who either don’t have access to employer health coverage and/or cannot currently afford private health insurance.
What are the biggest drawbacks?
Funding to support the “promise.” The historical construct of insurance is one of long-term participation and continual payment of premiums by many covered individuals and claim realization by just a few at any point in time. The long term premium payment of many participants funds the promise to cover catastrophic events of a few. Under this concept of insurance, there is no coverage for catastrophic events unless an individual is covered at the time the claim arises. It is the fear of unpredictable catastrophic events driving long-term participation and continual premium payment – that funds the historic promise of insurance coverage.
The ACA disrupts the economic foundation of the health insurance promise – by elimination of the pre-existing condition limitations. Although charitable in theory, individuals may now wait until they are very sick to apply for health insurance. The ACA’s individual penalties that might help to counterbalance the elimination of incentives to participate in health insurance as a long-term proposition, are not likely high enough to cause the economic pain needed to drive participation before the health insurance is really needed by the individual. There is a significant possibility that many sick individuals will utilize the ACA exchanges and very few healthy individuals will opt in. It is unclear how this economic dynamic will affect health care premium rates in the ACA exchanges and in the health care marketplace in general.
Another long-standing premise of insurance is that premium rates are driven by “experience,” that is individuals with high claim costs and insurance consumption pay more for insurance. Insurers rate both individuals and employers for health insurance purposes on their history of claims costs, experience, health risks, danger of job, etc. Under ACA, health insurers will become limited for the first time in history in how they can derive premiums. Under ACA, insurers may utilize only four factors to set premiums, namely, age, individual/family status, smoker/nonsmoker and geographic region. For example, to set premiums based on age, insurers can now only charge their oldest beneficiaries three times what they charge their youngest beneficiaries. With less flexibility in setting premiums based upon actual insurance consumption, insurers are likely to err on the side of higher premiums for both young and old. In fact, it has become clear that ACA exchange premium rates, without subsidization, will be very expensive. It is unclear how the much needed federal subsidies will be funded in the short or long term.
Who are the winners and losers?
Employers in the hospitality, restaurant and staffing business will be profoundly and negatively affected. As a result, consumers of hospitality, restaurant and staffing businesses (i.e., all of us) will be negatively affected when such businesses pass on the costs of health insurance now required to be provided to part-time, transient, high turnover and minimum wage workers.
The penalty imposed on “applicable large employers” for failure to offer health insurance to full-time employees is very high. Employers that did not previously offer health insurance to relatively large groups of their employees, will be driven to reduce hours of part-time workers to below 30 hours per week to avoid offering coverage at all and/or offer a very low quality health plan to meet but not exceed the ACA requirements and to charge very high rates to spouses and dependents.
Employer premium charges to employees are regulated under ACA, but employer charges to spouses and dependents are unregulated. However, where spouses and dependents have any type of health insurance offer from an employer, the spouse and dependent will be ineligible for subsidy assistance on the exchanges. This population of dependents and spouses for whom coverage is unaffordable everywhere will not fare well under the ACA. The ACA individual penalties for lack of coverage for them, will likely be much less expensive than obtaining expensive employer or unsubsidized exchange coverage.
Employers must begin to look at group health coverage as more of a highly regulated commodity than an employee benefit. We will begin to see a menu of coverage options with spousal surcharges and wellness program incentives embedded. Employers will reward employees with lower premiums whose spouses go elsewhere for coverage and who participate in healthy and non-smoking lifestyles. Employers will begin to move away from the current “Cadillac” coverage to more mediocre offerings where employees are charged up to 9.5 percent of W-2 wages.
What feedback – praises or concerns – have you heard from clients?
Most of my clients with more than 50 employees already offer affordable and valuable health insurance coverage to all or nearly all of their employees. The groups of employees that are not offered coverage are generally employees who are not interested in coverage for one reason or another, often driven by business arrangements. My clients are worried about making errors in the details of who they have to cover and being able to prove through significant information reporting requirements they did not have to cover others and unintentionally triggering the largest of the shared responsibility penalties.
How has this law changed or will change your business?
ACA has become an entirely new area of law that literally changes every hour of every day. The ACA is so politically charged, it has become very difficult to keep track of the law itself and to guide clients in a neutral way to comply with the law.
Brydon M. DeWitt
Partner, Employee Benefits Group, Williams Mullen PC,
Richmond
Based on your experience, what are the biggest benefits of the law?
A benefit of the Affordable Care Act is the creation of the “health insurance marketplaces” or “exchanges.” The marketplaces will provide an opportunity to purchase reasonably priced health insurance that is unrelated to employment. Individuals who purchase coverage through a marketplace will be able to keep their health insurance even if they change jobs. The self-employed and those in industries that do not typically offer health insurance will be able to find coverage through the marketplaces.
What are the biggest drawbacks?
One of the biggest drawbacks is the impact the Affordable Care Act is having on employment and the cost of health insurance. Many employers are planning to reduce employee hours and institute hiring freezes to avoid having to incur the expense of providing health coverage that complies with the ACA. Studies also show that the amount employees are required to pay for health insurance is steadily increasing.
Who are the winners and losers?
The winners include lower income individuals who will be able to purchase subsidized health insurance through the marketplaces. The losers also include lower income individuals who will have their hours of employment reduced.
What feedback – praises or concerns – have you heard about the ACA from clients?
I have been advising clients and speaking to groups about the ACA for three years and the almost universal responses I hear are (1) it’s too complicated; (2) the rules seem to change week to week; and (3) it will be costly and compel them to reduce employees’ hours of employment.
How has this law changed or will change your business?
As an employee benefits lawyer, helping clients with ACA compliance has become a significant part of what I do. I have been assisting small to mid-sized companies that are around the 50 full-time employee / full-time equivalent employee threshold for being subject to the employer mandate in 2015.
