Long-Term Disability Insurance Gets Little Attention But Can Pay Off Big Time
Is disability coverage worth it? At Saxon, we love to keep you updated on the latest news in the retirement world, and today, we want to dive into disability coverage. Check out this engaging and helpful article we pulled from KHN.
“It won’t happen to me.” Maybe that sentiment explains consumers’ attitude toward long-term disability insurance, which pays a portion of your income if you are unable to work.
Sixty-five percent of respondents surveyed this year by LIMRA, an association of financial services and insurance companies, said that most people need disability insurance. But the figure shrank to 48 percent when people were asked if they believe they personally need it. The proportion shriveled to 20 percent when people were asked if they actually have disability insurance.
As the annual benefits enrollment season gets underway at many companies, disability coverage may be one option worth your attention.
Some employers may be asking you to pay a bigger share or even the full cost. That can have a hidden advantage later, if you use the policy. Or you may find that your employer has automatically enrolled you — or plans to — unless you opt out. A growing number of employers are going that route to boost coverage that they feel is in their employees’ best interests, not to mention their own, since insurers usually require a minimum level of employee participation in order to offer a plan.
Benefits consultants agree that although long-term disability coverage lacks the novelty appeal of some other benefits that companies are offering these days — hello, pet insurance — it can prove much more valuable in the long run.
“This is a really critical safety-net benefit,” said Rich Fuerstenberg, a senior partner at human resources consultant Mercer.
If you become disabled because of accident, injury or illness, long-term disability insurance typically pays 50 to 60 percent of your income, while you’re unable to work. The length of time the policy pays varies; some policies pay until you reach age 65.
Long-term disability generally has a waiting period of three or six months before benefits kick in. That period would be covered by short-term disability insurance, if you have it.
Many long-term disability claims are for chronic problems such as cancer and musculoskeletal conditions. According to the Council for Disability Awareness, the average duration of a claim is nearly three years — 34.6 months.
Not everyone has savings to support them through that time. When the Federal Reserve Board surveyed adults about household economics in 2015, 53 percent said they don’t have a rainy day fund that could cover them even for three months. More troubling, nearly half of respondents — 46 percent — said that faced with a hypothetical $400 emergency expense, they didn’t have the cash to cover it.
According to the Social Security Administration, 1 in 4 people who are 20 years old now will be disabled before they reach age 67.
Overall, 41 percent of employers offer long-term disability insurance, according to LIMRA, though the proportion of larger employers who offer it is generally much higher. Compared with health insurance, premiums cost a pittance — $256 annually in 2016 on average for group plans, LIMRA says. Many employers pick up the whole tab or charge workers a small amount.
However, as employers continue to shift benefit costs onto employee shoulders, long-term disability is no exception. Increasingly, they’re offering the coverage as a “voluntary” benefit, meaning employees pay the entire premium.
The upside is that if employees pay for the coverage themselves with after-tax dollars and they ever become disabled and need to use the coverage, the benefits will be tax-free.
“If an employee can choose to pay for coverage on a post-tax basis, or is paying on a voluntary basis, it’s better for them,” said Jackie Reinberg, national practice leader for absence, disability management and life at benefits consultant Willis Towers Watson.
Some employers may pay for a core basic benefit that replaces 40 or 50 percent of income and offer workers the opportunity to “buy up” to more generous income replacement of 60 or 70 percent.
Although voluntary coverage has a tax advantage, disability consultants are concerned that leaving it up to employees, especially if they’re choosing among several other voluntary coverage options like cancer insurance, critical illness coverage and yes, pet insurance, increases the odds they’ll skip buying long-term disability coverage.
“These coverages all feel the same, and if you’re going to choose one at all you tend to go with the one that’s cheapest and the one that you think you might use,” said Carol Harnett, president of the Council for Disability Awareness, a membership group of disability insurers that does education and outreach about disability issues.
Auto-enrollment can make a big difference. Employers that auto-enroll employees in voluntary long-term disability plans may get 75 percent of employees to participate, compared with 30 percent for employers that leave it completely up to workers, said Mike Simonds, CEO of disability insurer Unum US.
If you were offered long-term disability coverage when you were hired and didn’t sign up, it may be tougher to do so during the open enrollment period, said Fuerstenberg. A growing number of health plans require employees to show “evidence of insurability,” meaning they must answer a series of health-related questions before they’re approved. Some long-term disability policies may also have preexisting condition provisions that won’t pay benefits for a condition for up to a year, for example.
You can read the original article here.
Source:
Andrews M. (10 October 2017). "Long-Term Disability Insurance Gets Little Attention But Can Pay Off Big Time" [web blog post]. Retrieved from address https://khn.org/news/long-term-disability-insurance-gets-little-attention-but-can-pay-off-big-time/
The Effects of Ending the Affordable Care Act’s Cost-Sharing Reduction Payments
Controversy has emerged recently over federal payments to insurers under the Affordable Care Act (ACA) related to cost-sharing reductions for low-income enrollees in the ACA’s marketplaces.
The ACA requires insurers to offer plans with reduced patient cost-sharing (e.g., deductibles and copays) to marketplace enrollees with incomes 100-250% of the poverty level. The reduced cost-sharing is only available in silver-level plans, and the premiums are the same as standard silver plans.
To compensate for the added cost to insurers of the reduced cost-sharing, the federal governments makes payments directly to insurance companies. The Congressional Budget Office (CBO) estimates the cost of these payments at $7 billion in fiscal year 2017, rising to $10 billion in 2018 and $16 billion by 2027.
The U.S. House of Representatives sued the Secretary of the U.S. Department of Health and Human Services under the Obama Administration, challenging the legality of making the cost-sharing reduction (CSR) payments without an explicit appropriation. A district court judge has ruled in favor of the House, but the ruling was appealed by the Secretary and the payments were permitted to continue pending the appeal. The case is currently in abeyance, with status reports required every three months, starting May 22, 2017.
If the CSR payments end – either through a court order or through a unilateral decision by the Trump Administration, assuming the payments are not explicitly authorized in an appropriation by Congress – insurers would face significant revenue shortfalls this year and next.
Many insurers might react to the end of subsidy payments by exiting the ACA marketplaces. If insurers choose to remain in the marketplaces, they would need to raise premiums to offset the loss of the payments.
We have previously estimated that insurers would need to raise silver premiums by about 19% on average to compensate for the loss of CSR payments. Our assumption is that insurers would only increase silver premiums (if allowed to do so by regulators), since those are the only plans where cost-sharing reductions are available. The premium increases would be higher in states that have not expanded Medicaid (and lower in states that have), since there are a large number of marketplace enrollees in those states with incomes 100-138% of poverty who qualify for the largest cost-sharing reductions.
There would be a significant amount of uncertainty for insurers in setting premiums to offset the cost of cost-sharing reductions. For example, they would need to anticipate what share of enrollees in silver plans would be receiving reduced cost-sharing and at what level. Under a worst case scenario – where only people eligible for sharing reductions enrolled in silver plans – the required premium increase would be higher than 19%, and many insurers might request bigger rate hikes.
Figure 1: How much silver premiums would have to rise to compensate for loss of cost-sharing reduction payments
While the federal government would save money by not making CSR payments, it would face increased costs for tax credits that subsidize premiums for marketplace enrollees with incomes 100-400% of the poverty level.
The ACA’s premium tax credits are based on the premium for a benchmark plan in each area: the second-lowest-cost silver plan in the marketplace. The tax credit is calculated as the difference between the premium for that benchmark plan and a premium cap calculated as a percent of the enrollee’s household income (ranging from 2.04% at 100% of the poverty level to 9.69% at 400% of the poverty in 2017).
Any systematic increase in premiums for silver marketplace plans (including the benchmark plan) would increase the size of premium tax credits. The increased tax credits would completely cover the increased premium for subsidized enrollees covered through the benchmark plan and cushion the effect for enrollees signed up for more expensive silver plans. Enrollees who apply their tax credits to other tiers of plans (i.e., bronze, gold, and platinum) would also receive increased premium tax credits even though they do not qualify for reduced cost-sharing and the underlying premiums in their plans might not increase at all.
We estimate that the increased cost to the federal government of higher premium tax credits would actually be 23% more than the savings from eliminating cost-sharing reduction payments. For fiscal year 2018, that would result in a net increase in federal costs of $2.3 billion. Extrapolating to the 10-year budget window (2018-2027) using CBO’s projection of CSR payments, the federal government would end up spending $31 billion more if the payments end.
This assumes that insurers would be willing to stay in the market if CSR payments are eliminated.
Figure 2: How eliminating ACA cost-sharing reduction payments increases federal costs (2018)
Methods
We previously estimated that the increase in silver premiums necessary to offset the elimination of CSR payments would be 19%.
To estimate the average increase in premium tax credits per enrollee, we applied that premium increase to the average premium for the second-lowest-cost silver plan in 2017. The Department of Health and Human Services reports that the average monthly premium for the lowest-cost silver plan in 2017 is $433. Our analysis of premium data shows that the second-lowest-cost silver plan has a premium 4% higher than average than the lowest-cost silver plan.
We applied our estimate of the average premium tax credit increase to the estimated total number of people receiving tax credits in 2017. This is based on the 10.1 million people who selected a plan during open enrollment and qualified for a tax credit, reduced by about 17% to reflect the difference between reported plan selections in 2016 and effectuated enrollment in June of 2016.
We believe the resulting 23% increase in federal costs is an underestimate. To the extent some people not receiving cost-sharing reductions migrate out of silver plans, the required premium increase to offset the loss of CSR payments would be higher. Selective exits by insurers (e.g., among those offering lower cost plans) could also drive benchmark premiums higher. In addition, higher silver premiums would somewhat increase the number of people receiving tax credits because currently some younger/higher-income people with incomes under 400% of the poverty level receive a tax credit of zero because their premium cap is lower than the premium for the second-lowest-cost silver plan. We have not accounted for any of these factors.
Our analysis produces results similar to recent estimates for California by Covered California and a January 2016 analysis from the Urban Institute.
Medicare Advantage: How Robust Are Plans’ Physician Networks?
You can read the original article here.
Source:
Jacobson G. (5 October 2017). "Medicare Advantage: How Robust Are Plans’ Physician Networks?" [Web Blog Post]. Retrieved from address https://www.kff.org/medicare/report/medicare-advantage-how-robust-are-plans-physician-networks/
One of the biggest trade-offs between Medicare Advantage and traditional Medicare is that Medicare Advantage plans have a more limited network of doctors and other providers. The size and breadth of provider networks can be an important factor for beneficiaries when choosing between traditional Medicare and Medicare Advantage, and among Medicare Advantage plans. As of 2017, 19 million of the 58 million people on Medicare (33%) are enrolled in a Medicare Advantage plan, yet little is known about their provider networks.
This report is the first known study to examine the size and composition of Medicare Advantage plans’ physician networks. This analysis draws upon data from 391 plans, offered by 55 insurers in 20 counties, and accounted for 14% of all Medicare Advantage enrollees nationwide in 2015. Key findings include:
Figure ES-1: One in three Medicare Advantage enrollees were in plans with narrow physician networks
- More than three in ten (35%) Medicare Advantage enrollees were in narrow-network plans while about two in ten (22%) were in broad-network plans. To some degree, the relative narrowness of plan networks masks the total number of physicians that enrollees could access, particularly in larger counties.
- Medicare Advantage networks included less than half (46%) of all physicians in a county, on average.
- Network size varied greatly among Medicare Advantage plans offered in a given county. For example, while enrollees in Erie County, NY had access to 60% of physicians in their county, on average, 16% of the plans in Erie had less than 10% of the physicians in the county while 36% of the plans had more than 80% of the physicians in the county.
- Access to psychiatrists was typically more restricted than for any other specialty. Medicare Advantage plans had 23% of the psychiatrists in a county, on average; 36% of plans included less than 10% of psychiatrists in their county. Some plans provided relatively little choice for other specialties as well; 20% of plans included less than 5 cardiothoracic surgeons, 18% of plans included less than 5 neurosurgeons, 16% of plans included less than 5 plastic surgeons, and 16% of plans included less than 5 radiation oncologists.
- Broad-network plans tended to have higher average premiums than narrow-network plans, and this was true for both HMOs ($54 versus $4 per month) and PPOs ($100 versus $28 per month).
Insurers may create narrow networks for a variety of reasons, such as to have greater control over the costs and quality of care provided to enrollees in the plan. The size and composition of Medicare Advantage provider networks is likely to be particularly important to enrollees when they have an unforeseen medical event or serious illness. However, accessing the information may not be easy for users, and comparing networks could be especially challenging. Beneficiaries could unwittingly face significant costs if they accidentally go out-of-network. Differences across plans, including provider networks, pose challenges for Medicare beneficiaries in choosing among plans and in seeking care, and raise questions for policymakers about the potential for wide variations in the healthcare experience of Medicare Advantage enrollees across the country.
You can read the original article here.
Source:
Jacobson G. (5 October 2017). "Medicare Advantage: How Robust Are Plans’ Physician Networks?" [Web Blog Post]. Retrieved from address https://www.kff.org/medicare/report/medicare-advantage-how-robust-are-plans-physician-networks/
An Early Look at 2018 Premium Changes and Insurer Participation on ACA Exchanges
Each year insurers submit filings to state regulators detailing their plans to participate on the Affordable Care Act marketplaces (also called exchanges). These filings include information on the premiums insurers plan to charge in the coming year and which areas they plan to serve. Each state or the federal government reviews premiums to ensure they are accurate and justifiable before the rate goes into effect, though regulators have varying types of authority and states make varying amounts of information public.
In this analysis, we look at preliminary premiums and insurer participation in the 20 states and the District of Columbia where publicly available rate filings include enough detail to be able to show the premium for a specific enrollee. As in previous years, we focus on the second-lowest cost silver plan in the major city in each state. This plan serves as the benchmark for premium tax credits. Enrollees must also enroll in a silver plan to obtain reduced cost sharing tied to their incomes. About 71% of marketplace enrollees are in silver plans this year.
States are still reviewing premiums and participation, so the data in this report are preliminary and could very well change. Rates and participation are not locked in until late summer or early fall (insurers must sign an annual contract by September 27 in states using Healthcare.gov).
Insurers in this market face new uncertainty in the current political environment and in some cases have factored this into their premium increases for the coming year. Specifically, insurers have been unsure whether the individual mandate (which brings down premiums by compelling healthy people to buy coverage) will be repealed by Congress or to what degree it will be enforced by the Trump Administration. Additionally, insurers in this market do not know whether the Trump Administration will continue to make payments to compensate insurers for cost-sharing reductions (CSRs), which are the subject of a lawsuit, or whether Congress will appropriate these funds. (More on these subsidies can be found here).
The vast majority of insurers included in this analysis cite uncertainty surrounding the individual mandate and/or cost sharing subsidies as a factor in their 2018 rates filings. Some insurers explicitly factor this uncertainty into their initial premium requests, while other companies say if they do not receive more clarity or if cost-sharing payments stop, they plan to either refile with higher premiums or withdraw from the market. We include a table in this analysis highlighting examples of companies that have factored this uncertainty into their initial premium increases and specified the amount by which the uncertainty is increasing rates.
Changes in the Second-Lowest Cost Silver Premium
The second-lowest silver plan is one of the most popular plan choices on the marketplace and is also the benchmark that is used to determine the amount of financial assistance individuals and families receive. The table below shows these premiums for a major city in each state with available data. (Our analyses from 2017, 2016, 2015, and 2014 examined changes in premiums and participation in these states and major cities since the exchange markets opened nearly four years ago.)
Across these 21 major cities, based on preliminary 2018 rate filings, the second-lowest silver premium for a 40-year-old non-smoker will range from $244 in Detroit, MI to $631 in Wilmington, DE, before accounting for the tax credit that most enrollees in this market receive.
Of these major cities, the steepest proposed increases in the unsubsidized second-lowest silver plan are in Wilmington, DE (up 49% from $423 to $631 per month for a 40-year-old non-smoker), Albuquerque, NM (up 34% from $258 to $346), and Richmond, VA (up 33% from $296 to $394). Meanwhile, unsubsidized premiums for the second-lowest silver premiums will decrease in Providence, RI (down -5% from $261 to $248 for a 40-year-old non-smoker) and remain essentially unchanged in Burlington, VT ($492 to $491).
As discussed in more detail below, this year’s preliminary rate requests are subject to much more uncertainty than in past years. An additional factor driving rates this year is the return of the ACA’s health insurance tax, which adds an estimated 2 to 3 percentage points to premiums.
Most enrollees in the marketplaces (84%) receive a tax credit to lower their premium and these enrollees will be protected from premium increases, though they may need to switch plans in order to take full advantage of the tax credit. The premium tax credit caps how much a person or family must spend on the benchmark plan in their area at a certain percentage of their income. For this reason, in 2017, a single adult making $30,000 per year would pay about $207 per month for the second-lowest-silver plan, regardless of the sticker price (unless their unsubsidized premium was less than $207 per month). If this person enrolls in the second lowest-cost silver plan is in 2018 as well, he or she will pay slightly less (the after-tax credit payment for a similar person in 2018 will be $201 per month, or a decrease of 2.9%). Enrollees can use their tax credits in any marketplace plan. So, because tax credits rise with the increase in benchmark premiums, enrollees are cushioned from the effect of premium hikes.
| Table 1: Monthly Silver Premiums and Financial Assistance for a 40 Year Old Non-Smoker Making $30,000 / Year | ||||||||||
| State | Major City | 2nd Lowest Cost Silver Before Tax Credit |
2nd Lowest Cost Silver After Tax Credit |
Amount of Premium Tax Credit | ||||||
| 2017 | 2018 | % Change from 2017 |
2017 | 2018 | % Change from 2017 |
2017 | 2018 | % Change from 2017 |
||
| California* | Los Angeles | $258 | $289 | 12% | $207 | $201 | -3% | $51 | $88 | 71% |
| Colorado | Denver | $313 | $352 | 12% | $207 | $201 | -3% | $106 | $150 | 42% |
| Connecticut | Hartford | $369 | $417 | 13% | $207 | $201 | -3% | $162 | $216 | 33% |
| DC | Washington | $298 | $324 | 9% | $207 | $201 | -3% | $91 | $122 | 35% |
| Delaware | Wilmington | $423 | $631 | 49% | $207 | $201 | -3% | $216 | $430 | 99% |
| Georgia | Atlanta | $286 | $308 | 7% | $207 | $201 | -3% | $79 | $106 | 34% |
| Idaho | Boise | $348 | $442 | 27% | $207 | $201 | -3% | $141 | $241 | 70% |
| Indiana | Indianapolis | $286 | $337 | 18% | $207 | $201 | -3% | $79 | $135 | 72% |
| Maine | Portland | $341 | $397 | 17% | $207 | $201 | -3% | $134 | $196 | 46% |
| Maryland | Baltimore | $313 | $392 | 25% | $207 | $201 | -3% | $106 | $191 | 81% |
| Michigan* | Detroit | $237 | $244 | 3% | $207 | $201 | -3% | $29 | $42 | 44% |
| Minnesota** | Minneapolis | $366 | $383 | 5% | $207 | $201 | -3% | $159 | $181 | 14% |
| New Mexico | Albuquerque | $258 | $346 | 34% | $207 | $201 | -3% | $51 | $144 | 183% |
| New York*** | New York City | $456 | $504 | 10% | $207 | $201 | -3% | $249 | $303 | 21% |
| Oregon | Portland | $312 | $350 | 12% | $207 | $201 | -3% | $105 | $149 | 42% |
| Pennsylvania | Philadelphia | $418 | $515 | 23% | $207 | $201 | -3% | $211 | $313 | 49% |
| Rhode Island | Providence | $261 | $248 | -5% | $207 | $201 | -3% | $54 | $47 | -13% |
| Tennessee | Nashville | $419 | $507 | 21% | $207 | $201 | -3% | $212 | $306 | 44% |
| Vermont | Burlington | $492 | $491 | 0% | $207 | $201 | -3% | $285 | $289 | 2% |
| Virginia | Richmond | $296 | $394 | 33% | $207 | $201 | -3% | $89 | $193 | 117% |
| Washington | Seattle | $238 | $306 | 29% | $207 | $201 | -3% | $31 | $105 | 239% |
| NOTES: *The 2018 premiums for MI and CA reflect the assumption that CSR payments will continue. **The 2018 premium for MN assumes no reinsurance. ***Empire has filed to offer on the individual market in New York in 2018 but has not made its rates public. SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. |
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Looking back to 2014, when changes to the individual insurance market under the ACA first took effect, reveals a wide range of premium changes. In many of these cities, average annual premium growth over the 2014-2018 period has been modest, and in two cites (Indianapolis and Providence), benchmark premiums have actually decreased. In other cities, premiums have risen rapidly over the period, though in some cases this rapid growth was because premiums were initially quite low (e.g., in Nashville and Minneapolis).
| Table 2: Monthly Benchmark Silver Premiums for a 40 Year Old Non-Smoker, 2014-2018 |
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| State | Major City | 2014 | 2015 | 2016 | 2017 | 2018 | Average Annual % Change from 2014 to 2018 | Average Annual % Change After Tax Credit, $30K Income |
| California | Los Angeles | $255 | $257 | $245 | $258 | $289 | 3% | -1% |
| Colorado | Denver | $250 | $211 | $278 | $313 | $352 | 9% | -1% |
| Connecticut | Hartford | $328 | $312 | $318 | $369 | $417 | 6% | -1% |
| DC | Washington | $242 | $242 | $244 | $298 | $324 | 8% | -1% |
| Delaware | Wilmington | $289 | $301 | $356 | $423 | $631 | 22% | -1% |
| Georgia | Atlanta | $250 | $255 | $254 | $286 | $308 | 5% | -1% |
| Idaho | Boise | $231 | $210 | $273 | $348 | $442 | 18% | -1% |
| Indiana | Indianapolis | $341 | $329 | $298 | $286 | $337 | 0% | -1% |
| Maine | Portland | $295 | $282 | $288 | $341 | $397 | 8% | -1% |
| Maryland | Baltimore | $228 | $235 | $249 | $313 | $392 | 15% | -1% |
| Michigan* | Detroit | $224 | $230 | $226 | $237 | $244 | 2% | -1% |
| Minnesota** | Minneapolis | $162 | $183 | $235 | $366 | $383 | 24% | 6% |
| New Mexico | Albuquerque | $194 | $171 | $186 | $258 | $346 | 16% | 1% |
| New York*** | New York City | $365 | $372 | $369 | $456 | $504 | 8% | -1% |
| Oregon | Portland | $213 | $213 | $261 | $312 | $350 | 13% | -1% |
| Pennsylvania | Philadelphia | $300 | $268 | $276 | $418 | $515 | 14% | -1% |
| Rhode Island | Providence | $293 | $260 | $263 | $261 | $248 | -4% | -1% |
| Tennessee | Nashville | $188 | $203 | $281 | $419 | $507 | 28% | 2% |
| Vermont | Burlington | $413 | $436 | $468 | $492 | $491 | 4% | -1% |
| Virginia | Richmond | $253 | $260 | $276 | $296 | $394 | 12% | -1% |
| Washington | Seattle | $281 | $254 | $227 | $238 | $306 | 2% | -1% |
| NOTES: *The 2018 premiums for MI and CA reflect the assumption that CSR payments will continue. **The 2018 premium for MN assumes no reinsurance. ***Empire has filed to offer on the individual market in New York in 2018 but has not made its rates public. SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. |
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Changes in Insurer Participation
Across these 20 states and DC, an average of 4.6 insurers have indicated they intend to participate in 2018, compared to an average of 5.1 insurers per state in 2017, 6.2 in 2016, 6.7 in 2015, and 5.7 in 2014. In states using Healthcare.gov, insurers have until September 27 to sign final contracts to participate in 2018. Insurers often do not serve an entire state, so the number of choices available to consumers in a particular area will typically be less than these figures.
| Table 3: Total Number of Insurers by State, 2014 – 2018 | |||||
| State | Total Number of Issuers in the Marketplace | ||||
| 2014 | 2015 | 2016 | 2017 | 2018 (Preliminary) | |
| California | 11 | 10 | 12 | 11 | 11 |
| Colorado | 10 | 10 | 8 | 7 | 7 |
| Connecticut | 3 | 4 | 4 | 2 | 2 |
| DC | 3 | 3 | 2 | 2 | 2 |
| Delaware | 2 | 2 | 2 | 2 | 1 (Aetna exiting) |
| Georgia | 5 | 9 | 8 | 5 | 4 (Humana exiting) |
| Idaho | 4 | 5 | 5 | 5 | 4 (Cambia exiting) |
| Indiana | 4 | 8 | 7 | 4 | 2 (Anthem and MDwise exiting) |
| Maine | 2 | 3 | 3 | 3 | 3 |
| Maryland | 4 | 5 | 5 | 3 | 3 (Cigna exiting, Evergreen1 filed to reenter) |
| Michigan | 9 | 13 | 11 | 9 | 8 (Humana exiting) |
| Minnesota | 5 | 4 | 4 | 4 | 4 |
| New Mexico | 4 | 5 | 4 | 4 | 4 |
| New York | 16 | 16 | 15 | 14 | 14 |
| Oregon | 11 | 10 | 10 | 6 | 5 (Atrio exiting) |
| Pennsylvania | 7 | 8 | 7 | 5 | 5 |
| Rhode Island | 2 | 3 | 3 | 2 | 2 |
| Tennessee | 4 | 5 | 4 | 3 | 3 (Humana exiting, Oscar entering) |
| Vermont | 2 | 2 | 2 | 2 | 2 |
| Virginia | 5 | 6 | 7 | 8 | 6 (UnitedHealthcare and Aetna exiting) |
| Washington | 7 | 9 | 8 | 6 | 5 (Community Health Plan of WA exiting) |
| Average (20 states + DC) | 5.7 | 6.7 | 6.2 | 5.1 | 4.6 |
| NOTES: Insurers are grouped by parent company or group affiliation, which we obtained from HHS Medical Loss Ratio public use files and supplemented with additional research. 1The number of preliminary 2018 insurers in Maryland includes Evergreen, which submitted a filing but has been placed in receivership. SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. |
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Uncertainty Surrounding ACA Provisions
Insurers in the individual market must submit filings with their premiums and service areas to states and/or the federal government for review well in advance of these rates going into effect. States vary in their deadlines and processes, but generally, insurers were required to submit their initial rate requests in May or June of 2017 for products that go into effect in January 2018. Once insurers set their premiums for 2018 and sign final contacts at the end of September, those premiums are locked in for the entire calendar year and insurers do not have an opportunity to revise their rates or service areas until the following year.
Meanwhile, over the course of this summer, the debate in Congress over repealing and replacing the Affordable Care Act has carried on as insurers set their rates for next year. Both the House and Senate bills included provisions that would have made significant changes to the law effective in 2018 or even retroactively, including repeal of the individual mandate penalty. Additionally, the Trump administration has sent mixed signals over whether it would continue to enforce the individual mandate or make payments to insurers to reimburse them for the cost of providing legally required cost-sharing assistance to low-income enrollees.
Because this policy uncertainty is far outside the norm, insurers are making varying assumptions about how this uncertainty will play out and affect premiums. Some states have attempted to standardize the process by requesting rate submissions under multiple scenarios, while other states appear to have left the decision up to each individual company. There is no standard place in the filings where insurers across all states can explain this type of assumption, and some states do not post complete filings to allow the public to examine which assumptions insurers are making.
In the 20 states and DC with detailed rate filings included in the previous sections of this analysis, the vast majority of insurers cite policy uncertainty in their rate filings. Some insurers make an explicit assumption about the individual mandate not being enforced or cost-sharing subsidies not being paid and specify how much each assumption contributes to the overall rate increase. Other insurers state that if they do not get clarity by the time final rates must be submitted – which has now been delayed to September 5 for the federal marketplace – they may either increase their premiums further or withdraw from the market.
Table 4 highlights examples of insurers that have explicitly factored into their premiums an assumption that either the individual mandate will not be enforced or cost-sharing subsidy payments will not be made and have specified the degree to which that assumption is influencing their initial rate request. As mentioned above, the vast majority of companies in states with detailed rate filings have included some language around the uncertainty, so it is likely that more companies will revise their premiums to reflect uncertainty in the absence of clear answers from Congress or the Administration.
Insurers assuming the individual mandate will not be enforced have factored in to their rate increases an additional 1.2% to 20%. Those assuming cost-sharing subsidy payments will not continue and factoring this into their initial rate requests have applied an additional rate increase ranging from 2% to 23%. Because cost-sharing reductions are only available in silver plans, insurers may seek to raise premiums just in those plans if the payments end. We estimate that silver premiums would have to increase by 19% on average to compensate for the loss of CSR payments, with the amount varying substantially by state.
Several insurers assumed in their initial rate filing that payment of the cost-sharing subsidies would continue, but indicated the degree to which rates would increase if they are discontinued. These insurers are not included in the Table 4. If CSR payments end or there is continued uncertainty, these insurers say they would raise their rates an additional 3% to 10% beyond their initial request – or ranging from 9% to 38% in cases when the rate increases would only apply to silver plans. Some states have instructed insurers to submit two sets of rates to account for the possibility of discontinued cost-sharing subsidies. In California, for example, a surcharge would be added to silver plans on the exchange, increasing proposed rates an additional 12.4% on average across all 11 carriers, ranging from 8% to 27%.
| Table 4: Examples of Preliminary Insurer Assumptions Regarding Individual Mandate Enforcement and Cost-Sharing Reduction (CSR) Payments |
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| State | Insurer | Average Rate Increase Requested | Individual Mandate Assumption | CSR Payments Assumption | Requested Rate Increase Due to Mandate or CSR Uncertainty |
| CT | ConnectiCare | 17.5% | Weakly enforced1 | Not specified | Mandate: 2.4% |
| DE | Highmark BCBSD | 33.6% | Not enforced | Not paid | Mandate and CSR: 12.8% combined impact |
| GA | Alliant Health Plans | 34.5% | Not enforced | Not paid | Mandate: 5.0% CSR: Unspecified |
| ID | Mountain Health CO-OP | 25.0% | Not specified | Not paid | CSR: 17.0% |
| ID | PacificSource Health Plans | 45.6% | Not specified | Not paid | CSR: 23.2% |
| ID | SelectHealth | 45.0% | Not specified | Not paid | CSR: 20.0% |
| MD | CareFirst BlueChoice | 45.6% | Not enforced | Potentially not paid | Mandate: 20.0% |
| ME | Harvard PilgrimHealth Care | 39.7% | Weakly enforced | Potentially not paid | Mandate: 15.9% |
| MI | BCBS of MI | 26.9% | Weakly enforced | Potentially not paid (two rate submissions) | Mandate: 5.0% |
| MI | Blue Care Network of MI | 13.8% | Weakly enforced | Potentially not paid (two rate submissions) | Mandate: 5.0% |
| MI | Molina Healthcare of MI | 19.3% | Weakly enforced | Potentially not paid (two rate submissions) | Mandate: 9.5% |
| NM | CHRISTUS Health Plan | 49.2% | Not enforced | Potentially not paid | Mandate: 9.0%, combined impact of individual mandate non-enforcement and reduced advertising and outreach |
| NM | Molina Healthcare of NM | 21.2% | Weakly enforced | Paid | Mandate: 11.0% |
| NM | New Mexico Health Connections | 32.8% | Not enforced | Potentially not paid | Mandate: 20.0% |
| OR* | BridgeSpan | 17.2% | Weakly enforced | Potentially not paid | Mandate: 11.0% |
| OR* | Moda Health | 13.1% | Not enforced | Potentially not paid | Mandate: 1.2% |
| OR* | Providence Health Plan | 20.7% | Not enforced | Potentially not paid | Mandate: 9.7%, largely due to individual mandate non-enforcement |
| TN | BCBS of TN | 21.4% | Not enforced | Not paid | Mandate: 7.0% CSR: 14.0% |
| TN | Cigna | 42.1% | Weakly enforced | Not paid | CSR: 14.1% |
| TN | Oscar Insurance | NA (New to state) | Not enforced | Not paid | Mandate: 0%, despite non-enforcement CSR: 17.0%, applied only to silver plans |
| VA | CareFirst BlueChoice | 21.5% | Not enforced | Potentially not paid | Mandate: 20.0% |
| VA | CareFirst GHMSI | 54.3% | Not enforced | Potentially not paid | Mandate: 20.0% |
| WA | LifeWise Health Plan of Washington | 21.6% | Weakly enforced | Not paid | Mandate: 5.2% CSR: 2.3% |
| WA | Premera Blue Cross | 27.7% | Weakly enforced | Not paid | Mandate: 4.0% CSR: 3.1% |
| WA | Molina Healthcare of WA | 38.5% | Weakly enforced | Paid | Mandate: 5.4% |
| NOTES: The CSR assumption “Potentially not paid” refers to insurers that filed initial rates assuming CSR payments are made and indicated that uncertainty over CSR funding would change their initial rate requests. In Michigan, insurers were instructed to submit a second set of filings showing rate increases without CSR payments; the rates shown above assume continued CSR payments. *The Oregon Division of Financial Regulation reviewed insurer filings and advised adjustment of the impact of individual mandate uncertainty to between 2.4% and 5.1%. Although rates have since been finalized, the increases shown here are based on initial insurer requests. 1Connecticare assumes a public perception that the mandate will not be enforced. SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. |
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Discussion
A number of insurers have requested double-digit premium increases for 2018. Based on initial filings, the change in benchmark silver premiums will likely range from -5% to 49% across these 21 major cities. These rates are still being reviewed by regulators and may change.
In the past, requested premiums have been similar, if not equal to, the rates insurers ultimately charge. This year, because of the uncertainty insurers face over whether the individual mandate will be enforced or cost-sharing subsidy payments will be made, some companies have included an additional rate increase in their initial rate requests, while other companies have said they may revise their premiums late in the process. It is therefore quite possible that the requested rates in this analysis will change between now and open enrollment.
Insurers attempting to price their plans and determine which states and counties they will service next year face a great deal of uncertainty. They must soon sign contracts locking in their premiums for the entire year of 2018, yet Congress or the Administration could make significant changes in the coming months to the law – or its implementation – that could lead to significant losses if companies have not appropriately priced for these changes. Insurers vary in the assumptions they make regarding the individual mandate and cost-sharing subsidies and the degree to which they are factoring this uncertainty into their rate requests.
Because most enrollees on the exchange receive subsidies, they will generally be protected from premium increases. Ultimately, most of the burden of higher premiums on exchanges falls on taxpayers. Middle and upper-middle income people purchasing their own coverage off-exchange, however, are not protected by subsidies and will pay the full premium increase, switch to a lower level plan, or drop their coverage. Although the individual market on average has been stabilizing, the concern remains that another year of steep premium increases could cause healthy people (particularly those buying off-exchange) to drop their coverage, potentially leading to further rate hikes or insurer exits.
Methods
Data were collected from health insurer rate filing submitted to state regulators. These submissions are publicly available for the states we analyzed. Most rate information is available in the form of a SERFF filing (System for Electronic Rate and Form Filing) that includes a base rate and other factors that build up to an individual rate. In states where filings were unavailable, we gathered data from tables released by state insurance departments. Premium data are current as of August 7, 2017; however, filings in most states are still preliminary and will likely change before open enrollment. All premiums in this analysis are at the rating area level, and some plans may not be available in all cities or counties within the rating area. Rating areas are typically groups of neighboring counties, so a major city in the area was chosen for identification purposes.
What's the Dish? A Family Recipe for Salsa Lovers
In this month's Dish, we bring you the delicious "Dine In" and "Dine Out" choices from our very own, Abby Graham!
Abby Graham is a Wellness Director Saxon Financial Services. She has been in the insurance, health and wellness industry for over 12 years. Prior to joining Saxon Financial, she spent the last 7 years working for Humana/HumanaVitality. She is passionate about making sure members understand their medical and wellness benefits as well as how to maximize their potential.
Abby holds a degree in Human Resource Development from the University of Tennessee. She has also received her Group Benefits Disability Specialist (GBDS) certification.
She is an active member and board member of the Cincinnati Modern Quilt Guild. Abby also enjoys sewing, quilting, and spending time with her husband, Jon and her son, Carter.
Stay In:
Abby's favorite family recipe is Corn Avocado Salsa. She and her husband make it together. It’s best in the summer when the tomatoes are ripe and the corn is sweet!
1 ripe tomato
1 avocado
1 ear of corn
½ cup chopped cilantro
1 sweet onion
1 jalapeno
2-3 garlic cloves
1 ripe lime
Salt to taste
Grill the tomato until the skin is cracked and peeling off. Cut the avocado and grill it face down for about 5 minutes. Grill the corn until it is cooked all the way. In the meantime, finely chop the onion, jalapeno, cilantro and garlic cloves. Squeeze ½ of the lime over onion, jalapeno, cilantro and garlic combination.
Once tomato, avocado, and corn are finished grilling, cut corn off of the cob, and peel skin off of tomato. Dice tomato and avocado and add to chopped mix. Add salt to taste and serve warm with tortilla chips!
Dine Out:
Her favorite place to Dine Out is Dilly Café. Want driving directions? Get them here.
Our favorite restaurant is the Dilly Café in Mariemont. The outside seating is perfect on a nice night and/or when we have our little one with us. They generally have a band playing, the food is excellent, and the beer and wine list are great! Their crab cakes, wings and burgers are my favorites!
YUM! We hope you enjoy Abby's recipe and dining suggestions. We know we will!
CenterStage...Open Season for Open Enrollment
In this month’s CenterStage, we interviewed Rich Arnold for some in-depth information on Medicare plans and health coverage. Read the full article below.
Open Season for Open Enrollment: What does it mean for you?
There are 10,000 people turning 65 every single day. Medicare has a lot of options, causing the process to be extremely confusing. Rich – a Senior Solutions Advisor – works hard to provide you with the various options available to seniors in Ohio, Kentucky and Indiana and reduce them to an ideal, simple, and easy-to-follow plan.
“For me, this is all about helping people.”
– Rich Arnold, Senior Solutions Advisor
What does this call for?
To provide clients with top-notch Medicare guidance, Rich must analyze their current doctors and drugs for the best plan option and properly educate them to choose the best program for their situation and health. It’s a simple, free process of evaluation, education, and enrollment.
For this month’s CenterStage article, we asked Rich to break down Medicare for the senior population who are in desperate need of a break from the confusion.
Medicare Break Down
Part A. Hospitalization, Skilled Nursing, etc.
If you’ve worked for 40 quarters, you automatically obtain Part A coverage.
Part B. Medical Services: Doctors, Surgeries, Outpatient visits, etc.…
You must enroll and pay a monthly premium.
Part C. Medicare Advantage Plans:
Provides most of your hospital and medical expenses.
Part D.
Prescription drug plans available with Medicare.
Under Parts A & B there are two types of plans…
Supplement Plan or Medigap Plan
A Medicare Supplement Insurance (Medigap) policy can help pay some of the health care costs that Original Medicare doesn’t cover, like copayments, coinsurance, and deductibles, coverage anywhere in the US as well as travel outside of the country, pay a monthly amount, and usually coupled with a prescription drug plan.
Advantage Plan
A type of Medicare health plan that contracts with Medicare to provide you with all your Part A and Part B benefits generally through a HMO or PPO, pay a monthly amount from $0 and up, covers emergency services, and offers prescription drug plans.
How does this effect you?
Medicare starts at 65 years of age, but Rich advises anyone turning 63 or 64 years of age to reach out to an advisor, such as himself, for zero cost, to be put onto their calendar to follow up at the proper time to investigate the Medicare options. Some confusion exists about Medicare and Social Security which are separate entities. Social Security does not pay for the Supplement or Advantage plans.
Medicare Open Enrollment: Open Enrollment occurs between October 15th and December 7 – yes, right around the corner! However, don’t panic, Rich and his services can help you if you are turning 65 or if you haven’t reviewed your current plan in over a year – you should seek his guidance.
Your plan needs to be reviewed every year to best fit your needs. If you’re on the verge of 65, turning 65 in the next few months, or over 65, you should consult your Medicare advisor as soon as possible. For a no cost analysis of your needs contact Rich, Saxon Senior Solutions Advisor, rarnold@gosaxon.com, 513-808-4879.
4 Main Impacts of Yesterday's Executive Order
Yesterday, President Trump used his pen to set his sights on healthcare having completed the signing of an executive order after Congress failed to repeal ObamaCare.
Here’s a quick dig into some of what this order means and who might be impacted from yesterday's signing.
A Focus On Small Businesses
The executive order eases rules on small businesses banding together to buy health insurance, through what are known as association health plans, and lifts limits on short-term health insurance plans, according to an administration source. This includes directing the Department of Labor to "modernize" rules to allow small employers to create association health plans, the source said. Small businesses will be able to band together if they are within the same state, in the same "line of business," or are in the same trade association.
Skinny Plans
The executive order expands the availability of short-term insurance policies, which offer limited benefits meant as a bridge for people between jobs or young adults no longer eligible for their parents’ health plans. This extends the limited three-month rule under the Obama administration to now nearly a year.
Pretax Dollars
This executive order also targets widening employers’ ability to use pretax dollars in “health reimbursement arrangements”, such as HSAs and HRAs, to help workers pay for any medical expenses, not just for health policies that meet ACA rules. This is a complete reversal of the original provisions of the Obama policy.
Research and Get Creative
The executive order additionally seeks to lead a federal study on ways to limit consolidation within the insurance and hospital industries, looking for new and creative ways to increase competition and choice in health care to improve quality and lower cost.
Health Care Sector Earnings: Major Companies Open The Books On Q3 Results In Weeks Ahead
Photo Credit: Shutterstock
The health care sector has been one of the better-performing sectors in 2017, bouncing back after being the only sector in the S&P 500 to finish last year in the red. So far this year, the S&P Health Care Select Sector Index is outperforming the S&P 500 by 5.75% as of October 6.
The sector got a bump recently when Republicans’ released an initial framework for tax reform, with CNBC pointing out that some of the largest companies in the health care sector could be primary beneficiaries of the proposed repatriation tax break. For the sector’s upcoming earnings, analyst estimates are calling for low to mid-single-digit growth for both earnings and revenue.
Within the S&P 500, the health care sector is expected to report year-over-year revenue growth of 4.8% and earnings growth of 2.5%, according to FactSet, with profit margins estimated to decline from 10.3% to 10.1% across the sector. Those estimates are slightly below the sector’s estimated revenue and earnings growth rates expected for the full year.
Beyond the proposed tax reform, below we’ll take a look at what’s been happening in the sector as companies prepare to report earnings in the upcoming weeks.
thinkorswimAfter underperforming by a large margin in 2016, the health care sector has been recovering in 2017. The S&P Health Care Select Sector Index, charted above, is up 18.49% year-to-date, compared to a 12.74% increase in the S&P 500, the teal line. The Nasdaq Biotechnology Index, the purple line, has outperformed both and climbed 25.6% year-to-date. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Biotech Industry Outperforming
So far this year, the biotechnology industry has outpaced the broader health care sector, with the Nasdaq Biotechnology Index up 25.6% versus a 18.49% increase in the S&P Health Care Select Sector Index. However, looking at 2016, the Nasdaq Biotechnology Index fared far worse than the S&P Health Care Select Sector Index, declining 22.01% when the latter only declined 4.37%.
Stocks in the biotech industry are notoriously volatile and it can take many years, even decades, for a company to undergo research and development, and the clinical trial process. A 2014 study by Tufts University’s Center for the Study of Drug Development found that only 11.8% of drugs that enter clinical trials end up being approved by the FDA.
Washington on Health Care
Drug pricing scrutiny has been an ongoing focus in Congress, but there’s yet to be concrete legislation pushed forward to address the issue. Dr. Scott Gottlieb, the head of the Food and Drug Administration (FDA), recently said high drug prices are a “public health concern” and in a post on the FDA’s official blog, outlined several steps the agency is taking to make the generic approval process for complex drugs easier.
On October 17, the Senate Health Committee is scheduled to hold a second hearing as part of its investigation into high drug prices. Representatives from drug company and pharmacy benefit managers—essentially middle men between pharmacies and drug companies—have been invited to speak before the panel. Depending on how that hearing goes, there could be heightened volatility in healthcare stocks.
Due to the costly process of developing drugs, companies often go to great lengths to protect patents. Those practices have also started to come into scrutiny in Congress as well. Allergan announced last month it had transferred the patent rights for its drug Restasis to the St. Regis Mohawk Indian Nation, which would license them back to Allergan in exchange for ongoing payments to the tribe.
The tribe’s sovereign immunity would potentially shield the drug from certain patent reviews. “Allergan has argued that the legal maneuver is aimed at removing administrative patent challenges through inter partes review by the U.S. Patent Trial and Appeal Board, and not challenges in federal court”, according to Reuters.Shortly after Allergan transferred the patent rights, U.S. Senator Claire McCaskill quickly announced she had drafted a bill to prevent tribal sovereign immunity from being used to block U.S. Patent and Trademark Office review of a patent in response to the move.
Aging Demographics and More Disease as Population Grows
There are some trends that analysts anticipate to be tailwinds for the sector for years to come. One of them is aging demographics and the other is growth of certain diseases. Approximately 10,000 baby boomers turn 65 every day, according to Pew Research, and that trend is expected to continue until 2030, when the last of the boomers reach retirement age and roughly 18% of the U.S. population is projected to be 65 and older.
As world populations grow and age, certain diseases are expected to have a greater prevalence than others and a large portion of health care spending is likely to go towards them. By 2020, Deloitte projects that 50% of global health care expenditures, about $4 trillion, will be spent on cardiovascular diseases, cancer and respiratory diseases.
These trends could be a tailwind for healthcare companies, but at the same time a lot could change in the regulatory environment as well as with the treatments available in the years ahead.
Looking Ahead to Earnings
The first major company in the sector to report earnings is Johnson & Johnson, which will release results before market open on Tuesday, October 17. The following companies report later in the month: Eli Lilly & Co. before market open on Tuesday, October 24, Gilead Sciences after market close on Thursday, October 26, Merck before market open on Friday, October 27 and Pfizer before market open on Tuesday, October 31.
You can read the original article here.
Source:
Kinahan J. (10 October 2017). "Health Care Sector Earnings: Major Companies Open The Books On Q3 Results In Weeks Ahead" [Web Blog Post]. Retrieved from address https://www.forbes.com/sites/jjkinahan/2017/10/10/health-care-sector-earnings-major-companies-open-the-books-on-q3-results-in-weeks-ahead/#417bef6a44bb
Saxon Welcomes a New Senior Solutions Specialist
Saxon is excited and proud to announce a new employee added to our team, Leigh Rathje!
Leigh’s background in group health insurance has led her to a new path with Saxon as a Senior Advisor. She helps her clients in the day to day needs when it comes to Medicare questions, enrollments, claims issues, and billing concerns.
Self funded health care – a big business advantage
Check out this article from Business Insurance by one of their staff writers. In this article, Business Insurance dives into the awesome advantages of self-funding for big businesses.
You can read the original article here.
Health insurance benefits are expensive. The rising costs of health care has driven up insurance premiums to levels where many businesses have been forced to reduce these benefits or drop them altogether. There is, however another option that is less regulated, taxed less and typically results in cost savings: self funded health insurance. The problem is, it's not always the best option for all employers, particularly the smaller ones. And there's a number of reasons for this:
What is self funded health care a.k.a. self-insurance?
Self-insurance is a method of providing health care to employees by taking on the financial liabilities of the care instead of paying premiums to an insurance agency to do the same. In other words: when a person covered under a self-funded plan needs medical care, the company is financially responsible for paying the medical bill (minus deductibles). It's an alternative risk transfer strategy that assumes the risk and liability of medical bills for those covered instead of outsourcing it to a third party. It's a surprisingly common practice:
In 2008, 55% of workers with health benefits were covered by a self-insured plan….and 89% of workers in firms of 5,000 or more employees.
Most (but not all) self-insurance plans are administered by a third party, usually a health insurance company, in order to process claims. The bills are simply paid for by the employer. Health insurance companies act as a third party administrators in what are called ASO contracts (Administrative Services Only)
Another common component of self insurance plans is stop-loss insurance. This is a separate insurance plan that the employer can purchase to reduce the overall liability of claims. With this type of insurance, if claims exceed a certain dollar amount, stop-loss kicks in paying the rest. There are two kinds of stop-loss insurance:
Specific – covers the excess costs from larger claims made by individuals in the group
Aggregate – kicks in when total claims by the group exceed a set amount
For example, a company who self-insures their $1000 employees projects $100,000 in medical care claims for the year. If they purchase aggregate stop-loss insurance for claims that exceed 120% of the expected amount or $120,000, the insurance will pick up the bill for the remaining claims. If the company purchases specific stop-loss insurance at 200%, if any single claim exceeds $2,000, the stop-loss pays the remainder.
Typically, self-funded insurance providers will purchase both specific and aggregate stop-loss insurance unless the conditions are such that specific stop-loss provides enough financial protection.
Benefits of self-insurance
There are a number of financial and administrative advantages to using self-funded health insurance plans for employers. According to the Self-Insurance Institute of America (SIIA) these include:
- The employer can customize the plan to meet the specific health care needs of its workforce, as opposed to purchasing a 'one-size-fits-all' insurance policy.
- The employer maintains control over the health plan reserves, enabling maximization of interest income – income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
- The employer does not have to pre-pay for coverage, thereby providing for improved cash flow.
- The employer is not subject to conflicting state health insurance regulations/benefit mandates, as self-insured health plans are regulated under federal law (ERISA).
- The employer is not subject to state health insurance premium taxes, which are generally 2-3 percent of the premium's dollar value.
- The employer is free to contract with the providers or provider network best suited to meet the health care needs of its employees.
There are, however, some drawbacks to self-insurance policies:
Health care can be costly, so heavy claims years can be extremely expensive
Self insurance isn't tax deductible the same way the costs of providing health insurance is.
Financial benefits are long-term, particularly with an investment component.
Small businesses at a disadvantage
Self insurance is much more prevalent for larger companies mostly because it is easier to predict health care costs from a larger group. The more people in the group, the less potentially damaging a single expensive claim will be to the plan overall. That's why less than 10% of companies with less than 50 employees use self-insurance.
Because risk is more difficult to predict with smaller groups, stop-loss insurance is also more expensive for smaller businesses. The practice of “lasering”, or increasing deductibles for specific higher risk employees can also be much tougher on small firms. As a result, self-insurance tends to be a less cost effective option than it is for larger companies.
Another roadblock for small businesses is a lack of cash-flow that is necessary to finance self-insurance. This doesn't mean, however, that small businesses can't benefit from a self-insurance plan. In fact, an increasing number of small businesses still are. But fully understanding the risks and rewards for doing so can sometimes be difficult.
Regulations
Because the only 3rd party administration of insurance (stop-loss) is between the employer and the insurance company directly, it is not subject to state level regulation the way traditional insurance policies are. Instead, they're regulated by the department of labor under the Employee Retirement Income Security Act – ERISA. Benefit administrators must still comply with federal standards despite the lack of state regulation.
California SB 1431
California is considering a proposed legislation to regulate the sale of stop-loss policies to smaller businesses. On the surface, the regulation looks as though it is an attempt to prevent small businesses from taking on too much risk. But the true intentions of the legislation may be to prevent cherry-picking of generally healthier small businesses (effectively removing them from the health insurance pool). This cherry-picking would theoretically cause traditional insurance premiums to become more expensive.
According to the SIIA, SB 1431 would prohibit the sale of stop-loss policies to employers with fewer than 50 employees that does any of the following:
- Contains a specific attachment point that is lower than $95,000;
- Contains an aggregate attachment point that is lower than the greater of one of the following:
- $19,000 times the total number of covered employees and dependents;
- 120% of expected claims;
- $95,000
This legislation would effectively limit the options of small businesses as it would force them to purchase a more expensive low deductible stop-loss policies. And according to the SIIA, with this legislation, almost no small business under 50 employees would (nor should they) consider self-insurance as an option.
If the legislation is passed in California, it has been suggested that it is only time before other states follow suit and/or enact even stricter regulations on small businesses. The SIIA even has a facebook page dedicated to defeating the bill they say is:
“…unnecessary and will only exasperate the problem that small employers in California face in being able to afford the rising cost of providing quality health benefits to their employees.”
So while self insurance can be a relatively risky option for small businesses, with legislation like this, it could no longer be a realistic option at all… And, in effect: another competitive advantage big businesses will have over their smaller counterparts.
You can read the original article here.
Source:
Staff Writer. (Date Unlisted). "Self funded health care – a big business advantage" [Web Blog Post]. Retrieved from address https://www.businessinsurance.org/self-funded-health-care-a-big-business-advantage/