How the market may change in the near future
Editor’s note: April’s Health Care 101 article focused on some of the things employers need to know in order to determine if they are required to provide health insurance to their full-time employees and offer health insurance to the dependents of their full-time employees under the employer mandate of the Patient Protection and Affordable Care Act (ACA). Since then, two questions have come up frequently: “How am I going to purchase health insurance in the future?” and “Does the ACA change the marketplace in any substantial way?” This month’s article will explore the changes in the market for health insurance and how small businesses and individuals will purchase insurance in the future.
Before Congress passed the Patient Protection and Affordable Care Act (ACA) in 2010, the American Rental Association (ARA) and other organizations representing small businesses broadly supported legislation that would allow associations to offer Association Health Plans (AHP). For many years, the ARA actively lobbied for this legislation which would have allowed associations like ARA to offer health insurance products to members across state lines. States have traditionally regulated all types of insurance products and state regulation on health insurance is especially tight. The reason ARA and others fought for the ability to pool members by selling different health insurance products is that by doing so, the associaton could pool the risks of all those who would be insured under ARA-sponsored health insurance products. Health insurance is all about pooling risk. That is why large companies and government entities pay less per person insured than small businesses or individuals.
ARA’s work to pass AHP legislation is a testament to the fact that the small employer community has long recognized the need for market reform in the individual and small group health insurance market.
“Frankly, we felt that health insurance providers were taking advantage of us and they wanted to continue to do so because they actively fought our attempts at market reform with AHPs and modifications of that basic concept. What we really wanted was access and choice; the ability for ARA members to be able to shop for health insurance and purchase coverage at a price similar to rates that were being paid by large companies,” says John McClelland, ARA’s vice president for government affairs.
Ultimately, the 2008 elections changed the entire atmosphere surrounding the health care debate. In 2008, President Obama won the election, House Democrats maintained a majority that kept Speaker Nancy Pelosi (D-12-Calif.) in the Speaker’s chair, and Democrats held 60 seats in the U.S. Senate. This 60-seat majority meant that Democrats could pass a health care reform bill without any Republican votes because they had the 60-vote supermajority to beat any filibuster mounted by Republicans. All that was needed was a health care reform bill that Democrats could agree on and President Obama was sure to sign it into law.
It took two years of debate and some last-minute maneuvering by Democrats, but the ACA was passed and signed into law in March 2010. Among the provisions of the law, the ACA established insurance exchanges that are supposed to act as the marketplaces for insurance that many in the small business community have been working to establish for more than a decade. The following is a brief overview of how exchanges are designed to work and what might be expected as the U.S. moves toward ACA implementation in 2014.
Health Care Exchanges
There are two types of exchanges that will be established under the ACA. First are the individual exchanges where individuals who do not have access to coverage through their employer will go to buy health insurance for themselves and their families. The second type of exchange is known as the SHOP (small business health options program) exchange. SHOP exchanges are designed to provide small businesses, initially with 100 or fewer employees, a competitive marketplace where they can buy insurance coverage for their employees.
Under the ACA, both individual and SHOP exchanges can be established by the state or federal government or through a federal/state partnership.
Preliminary information about both individual and SHOP exchanges should be available in the near future as both are supposed to be ready by Oct. 1, 2013, to accept applications from individuals and businesses for health insurance coverage that begins in 2014.
The basic idea is that the customer will visit the exchange online and view the different products that are available to individuals on the individual exchange or to business owners on the SHOP exchange. Plans offered on both exchanges will have to meet the coverage requirements that are set by the state or federal government regulations under which they operate.
While both types of exchanges sound similar, they are not identical. Some of the differences are due to the different risk profiles of the two groups they serve: small businesses and individuals. For example, only individuals who are eligible for a subsidy under the ACA can access that subsidy through the individual exchange. The basic rule is that any individual or family with an annual income less than 400 percent of the federal poverty line — $45,960 for one person or $94,200 for a family of four in 2013 — is eligible for an ACA subsidy.
One concern that has recently come to light is the acknowledgment by the U.S. Department of Health and Human Services (HHS) that the SHOP exchange will not be fully functional for 2014. The current understanding is that most SHOP exchanges that are either federally operated or a federal/state partnership will not allow customers to choose multiple plans for their workers in the first year of operation. Instead, small business owners will have limited choices of plans available to insure their employees in 2014. It is hard to know exactly how this will affect small business owners who choose to continue providing coverage to their employees.
As HHS continues to develop and publish rules implementing ACA, the sheer number of rules and the subtle changes they are making by adding delays in the case of the SHOP rule are difficult to predict and analyze. ARA will continue to provide information as it becomes available and encourages everyone to listen carefully to news coming from their state insurance commissioner about ACA exchange development and implementation.