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Upcoming Health Care Changes Have Far-Reaching Impact

09.14.2018

Understanding the ramifications of insurance coverage changes will allow individuals and employers to judge their risk and plan for real consequences.

The Individual Mandate May Be Eliminated—and So May Health Care Coverage for People with Preexisting Conditions

The Individual Mandate required by the Affordable Care Act (ACA), known more commonly as Obamacare, requires every person to have health insurance or face a financial penalty. However, recent changes eliminated the penalty portion of the Individual Mandate requirement starting in 2019. Although millions of Americans will continue to buy health insurance because they want coverage, the adjustment to the requirement removes consequences for individuals opting out of having health insurance.

The impact of this change will be far reaching. With the penalty eliminated, 20 states’ attorneys general and their governors have filed suit and are challenging the constitutionality of the Individual Mandate. According to the filing, “Once the heart of the ACA—the individual mandate—is declared unconstitutional, the remainder of the ACA must also fall.”

However, there are several components to ACA that Americans support and want to keep. According to the Kaiser Family Foundation, in September 2016, of all adults surveyed, 47 percent were not in favor of ACA as a whole, while 44 percent were in favor. The survey also showed that in August of 2018, 50 percent were favorable and 40 percent were unfavorable.

An additional study as reported by CNBC on September 5, 2018 indicated 75 percent of Americans want to keep certain ACA components, including the provision of coverage for pre-existing conditions. The study conducted August 23 through August 28, 2018 included the opinions of 1,200 adults. That group was further identified by political party which showed that 86 percent of Democrats and 58 percent of Republicans want to keep the protection.

Potential Impact of Eliminating Pre-Existing Conditions Coverage

  • Larger employers may pay less for insurance.
    • They potentially could eliminate or modify individual coverage for employees with known pre-existing conditions.
    • They may also be able to charge more to those employees with pre-existing conditions, which still creates a lower cost structure for the employer.
  • Insurance companies will profit even more.
    • Insurance companies would be able to deny coverage for people who have a pre-existing condition and/or be able to limit coverage which reduces their financial risk.
    • They may also be able to charge additional premiums for those individuals who are identified as potentially having increased health care costs.
  • Smaller companies and individuals will continue to pay more.
    • Individuals and smaller companies would still have the option to go to the health insurance marketplace. The marketplace plans depend upon spreading the insurance risk of all beneficiaries. If the healthier and therefore less costly individuals do not buy coverage, those that are still buying coverage will pay more.
    • Because of the 3:1 ratio rule which is still in effect—the unhealthiest person’s premiums cannot be more than three times what the healthiest person is charged—the exchanges would potentially create a higher cost baseline to ensure they can cover their risk.
  • People may not have coverage, which can lead to other financial problems.
    • When people do not have coverage, they may be unable to pay emergency room bills, which could lead to bankruptcies and other difficult financial situations. According to a statistic often quoted by then President Obama, “The cost of health care now causes a bankruptcy in America every 30 seconds.”
  • People may have to stay with an employer to have coverage.
    • Individuals with preexisting conditions may not be able to leave their current employer if they want to keep coverage.
    • An employer may not be able to offer the necessary benefits, or the benefits may be more expensive for new employees with pre-existing conditions.

Associations More Able to Provide Health Insurance

To pool together their risk and reduce costs, small businesses may turn to associations for their health care needs. Changes in health care coverage regulations have made it more expensive for many employers to provide health insurance. According to the Department of Labor (DOL), “many small business owners cannot afford to provide health insurance to their employees” because premiums more than doubled between 2013 and 2017 with ever increasing deductibles.

President Trump signed Executive Order (EO) 13813 to help promote health care choice and increase competition across the country by offering more flexibility through Associated Health Plans (AHP). The resulting new rule from the Department of Labor makes it easier for associations to provide health insurance to its members. AHPs can serve employers regardless of geographic coverage if there is some common relationship among their members.  Sole proprietors as well as their families will be permitted to join such plans.

The outlook for the public seems good. The Congressional Budget Office (CBO) predicts “millions of people will switch their coverage to more affordable and more flexible AHPs and save thousands of dollars in premiums.” The CBO further estimates that 400,000 previously uninsured people will gain coverage under AHPs.

Buyer and Seller Beware: What Are the Potential Implications for This Coverage Expansion?

  • Associations would be able to create a new revenue stream.
    • Offering insurance coverage would be a way to increase revenue to the association. Additionally, the additional services to their members may mean they can increase membership fees.
  • Associations may be creating a financial liability.
    • Depending on the financial stability of the association and the risk vs reward infrastructure, associations may be creating a financial liability that may be hard to resolve.
  • A different narrow provider network may result.
    • The health insurance offered may have a limited provider pool to keep premium costs lower.
  • Competing associations may lose members to those that offer the benefit.
    • Members may determine this is a requirement for joining and not an option.
    • Associations that do not offer coverage may find their numbers dwindling as members may move their loyalty.

If you are an employer or an association, contact Ron Present, Partner and Health Care Industry Group Leader at rpresent@bswllc.com to learn more about how these changes may affect you and how you can plan for the future.

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