Mr. Speaker, my colleagues, this week the House will consider several measures to stop government abuse, especially when it threatens freedom and limits opportunity. The American people expect accountability, and every day the House is…
Mr. Speaker, my colleagues, this week the House will consider several measures to stop government abuse, especially when it threatens freedom and limits opportunity.
The American people expect accountability, and every day the House is focused on carrying out responsible oversight.
As an example, late on Friday, the Obama administration released a report that we demanded detailing the impact of the health care law and what it will do to employer-sponsored health plans.
You may not have seen the report. It was released rather quietly on Friday afternoon, so I am going to enter it into the Record today. I urge every Member to read it and share it with your constituents.
As you do, keep in mind that the White House promised that this law would bring down health insurance premiums by some $2,000 per family. Instead, according to the administration's own bookkeepers, premiums will go up for two out of three small businesses in our country.
This amounts to about 11 million employees who are going to see more money coming out of their paycheck for their health insurance every month, and remember, these premiums will be felt not just by workers, but the small business owners themselves, making it even harder to create jobs.
Another sucker punch to our economy. Another broken promise to hardworking Americans--and the only reason we even know about it is that the House demanded this transparency from the administration.
That is why the House continues to focus on stopping government abuse and promoting better solutions for middle class families and small businesses.
[From Centers for Medicare & Medicaid Services, Feb. 21, 2014]
Report to Congress on the Impact on Premiums for Individuals and Families With Employer-Sponsored Health Insurance From the Guaranteed
Issue, Guaranteed Renewal, and Fair Health Insurance Premiums
Provisions of the Affordable Care Act
Introduction
The ``Department of Defense and Full-Year Continuing
Appropriations Act, 2011'' required this report to Congress
on the impact of sections 2701 through 2703 of the Public
Health Service (PHS) Act, as amended by the Affordable Care
Act (ACA) on the premiums paid by individuals and families
with employer-sponsored health insurance. Specifically, the
Chief Actuary of the Centers for Medicare & Medicaid Services
(CMS) is to provide an estimate of the number of individuals
and families who will experience a premium increase and the
number who will see a decrease as a result of these three
provisions.
Section 2701 of PHS Act is titled ``Fair Health Insurance
Premiums'' and requires adjusted community rating for plan
years beginning on or after January 1, 2014. Specifically,
premium rates in the individual and small group market
charged for non-grandfathered health insurance coverage may
only be varied on the basis of the following four
characteristics:
Individual or family enrollment.
Geographic area--premium rates can vary by the area of the
country.
Age--premium rates can be higher for an older applicant
than that for a younger applicant, but the ratio of premiums
cannot exceed 3:1 for adults.
Tobacco use--premium rates can be higher for smokers, but
the ratio cannot exceed 1.5:1.
Section 2702 of the PHS Act requires the guaranteed
issuance of health insurance coverage in the individual and
group market subject to specified exceptions. This means that
insurers that offer coverage in the individual or group
market generally must accept all applicants for that coverage
in that market. Under section 2703 of the PHS Act, group and
individual health insurance coverage must be guaranteed
renewable at the option of the plan sponsor or individual,
subject to specified exceptions. These three sections do not
apply to grandfathered health insurance coverage.
Background
Prior to the passage of the ACA, the insurance products in
the small group market were already required to be guaranteed
issue and renewable under the Health Insurance Portability
and Accountability Act of 1996 (HIPAA). In addition, large
group policies are not subject to section 2701 of the PHS
Act. Self-funded plans are also not subject to the provisions
analyzed in this report. As a result, large group and self-
funded plans will be unaffected by the new rating
requirements. Since these three specific ACA provisions will
not have any significant effect on the premium rates paid by
individuals working for large sized employers, the remainder
of this report will focus on health insurance policies in the
small group market.
To help individuals with pre-existing conditions gain
affordable insurance coverage, Sections 2702 and 2703 of PHS
Act generally require guaranteed issuance and renewability of
policies to any employer that applies for coverage offered in
the applicable market within enrollment periods, regardless
of the health histories of its employees or other prohibited
factors. These requirements apply to all small group health
insurance plans other than grandfathered plans (as defined by
federal regulations at 45 CFR 147) beginning on or after
January 1, 2014. Some analysts expect that these
grandfathered plans will experience reduced enrollment as
individuals leave for new plans that are not only cheaper due
to lower administrative costs, but also offer more generous
coverage, or leave for individual market coverage for which
individuals may qualify for premium tax credits. Under HIPAA,
all states currently have adopted guaranteed issue and
renewal requirements for small group policies.
The Chief Actuary was required to estimate the impact of
these three specific ACA provisions--fair health insurance
premiums, guaranteed issue and renewability--on the premiums
for individuals and families with employer sponsored health
insurance. Since fully insured small group policies are
already guaranteed issue and renewal in all states, we expect
there is no material net impact of these two ACA provisions
on premium rates. As a result, the premium rate impact in the
small group market is expected to result from only the new
adjusted community rating provision in section 2701 of the
PHS Act.
Adjusted Community Rating for Small Employers
This new adjusted community rating criteria is a change
from the current small group market industry practice that
existed prior to when these criteria take effect. Previously,
issuers in most states could vary premiums by factors such
as: health status of the group, group size, and industry code
or classification. Smaller firms, and those performing high-
risk work, or firms with sick employees, received
significantly higher premiums than those with a lower risk
group. In addition, they could be subject to large premium
increases based on a new diagnosis for a single employee.
The ACA created a new health insurance Exchange for small
businesses called the SHOP (Small Business Health Options
Program), to offer plans tailored for small employers with
100 or fewer employees. All health plans (other than those
offered through the SHOP) will be subject to the premium
rating requirements of section 2701 of the PHS Act. Beginning
2014, most individuals must obtain a form of minimum
essential coverage or face a penalty. Individuals with income
between 100 and 400 percent of federal poverty level (FPL)
may be eligible for premium tax credits and cost sharing
reductions on a sliding scale to help reduce the cost if the
coverage is obtained through the Exchanges.
There is considerable uncertainty as to whether small
employers will decide to terminate their existing offer of
health insurance coverage and send their employees to
individual market Exchanges. Many factors may be relevant to
their decisions. For example, the decision could depend
heavily on the extent to which employees are eligible for a
premium tax credit on the individual market Exchanges. Some
expect that it would be cheaper for employees with income
below 250 percent of FPL to buy coverage from the individual
market Exchanges given the premium tax credits and cost-
sharing reductions available at these income levels. Small
employers with predominantly low-wage, part-time and seasonal
employees may find it to their financial advantage to
terminate existing coverage. Small businesses with 50 or
fewer workers may find terminating existing coverage
particularly attractive since they are not required by the
ACA to offer affordable minimum essential health insurance
coverage, and their workers have access to health insurance
in the new Exchanges. Alternatively, it may be financially
attractive for small employers with relatively healthy
employees to continue to provide coverage but convert to a
self-insured arrangement with stop-loss coverage. If such
coverage becomes widely available, some analysts expect a
substantial increase in self-insured small employers.
However, small group employers will also have to consider
employee resistance and administrative complexity to
substitute alternative types of compensation for employer's
health benefits contributions, which may encourage small
employers to continue to offer insurance coverage on a tax-
favored basis.
Prior to 2014, insurers could set lower premiums for small
employers with younger and healthier employees due to their
low expected health care needs, and significantly higher
rates for small employers with older and sicker employees
with greater expected health care needs. The ratio of
premiums charged between old and young ages was typically 5:1
or more, and could translate into much higher premiums for
firms with older employees. In addition, gender could also be
used as a rating factor. Before 2014, employers with more
women of childbearing age were commonly charged higher
premiums.
The adjusted community rating under ACA prohibits the use
of gender, health status and claims history as rating
factors, and restricts the premium rating ratio for adults to
between young and old ages. These changes are expected to
further relieve the financial burdens for older and sicker
individuals as coverage could become more affordable for
them. However, for younger and healthier individuals,
premiums could increase since health status is no longer
permitted as a rating factor and the new age rating band is
limited to 3:1 for adults, less than what insurers typically
have used.
Some analysts are concerned with the possibility of adverse
selection, which prompts small employers with younger and
healthier individuals to drop coverage or switch to other
forms of coverage such as self-insurance, leaving the
remaining risk pool with only the sickest individuals thereby
raising premiums significantly. The propensity for adverse
selection is mitigated by other ACA provisions that encourage
small employers to offer coverage and premium stabilization
programs in the fully insured market such as risk adjustment.
For example, small employers with 25 or fewer employees whose
average annual salary is less than $50,000 may be eligible
for small business tax credit on a sliding scale if they
contribute at least 50 percent of the total premium. Many
analysts believe that these and other factors will help
attract a broad and stable group of employers to reduce the
negative impact on premiums and avoid the adverse selection
problem.
Estimates by Independent Modelers
A number of independent modelers developed estimates of
post-ACA premium rates and enrollment of small group coverage
for a number of states and the country as a whole. For
example, some of their findings are summarized below.
Wisconsin--A study by Gorman Actuarial and Dr. Jonathan
Gruber predicted that the small group market is expected to
see relatively small premium rate increase--1.3 percent.
Fifty-three percent of small group plans, or 63 percent of
the small group employees, will experience a premium rate
increase of 15 percent, while 47 percent of small groups or
37 percent of the employees will experience a 16 percent
decrease. Most of the impact is due to elimination of health
status as a rating factor.
Maine--A study by Gorman Actuarial and Dr. Jonathan Gruber
estimated that a large majority (89 percent) of small
employers are expected to experience a premium rate increase
of 12 percent on average, while the remaining 11 percent will
experience an average premium rate decline of 17 percent. The
impact is largely due to the elimination of group size as a
rating factor.
Ohio--A study from Milliman estimates that, before the
application of tax subsidies, the small group premium rates
are going to increase by 5 to 15 percent.
National--Actuaries at Oliver Wyman examined the national
impact on premium rates of adjusted community rating,
guaranteed issue and renewal using a database of actual
claims covering over 6 million people. They predict that the
small group premium rates will increase by 20 percent.
OACT Estimates
This analysis focuses on the number of people with health
insurance coverage through their employer whose premium rates
are expected to increase or decrease as a result of the
guaranteed issue, guaranteed renewability, and premium rating
provisions of the ACA only. Other factors affecting rates
such as changes in product design, provider networks, or
competition are not considered. In addition, other provisions
of the ACA, including the coverage expansions, the extension
of dependent coverage to age 26, the individual mandate, and
the employer mandate will impact the availability of
coverage, the take-up of that coverage, and the premium rates
charged to those who currently have employer-sponsored
insurance, but those impacts are not included in this
estimate. We prepared a more complete report on the financial
effects of the ACA in 2010. As mentioned previously, the
effect on large employers is expected to be negligible,
therefore our evaluation examines the impact on employees of
fully-insured small firms.
In 2012, about 18 million people were enrolled in the small
group health insurance market through employers with 50 fewer
employees. About 8 percent of small firms offered a self-
insured health plan, therefore about 17 million people
received coverage in the fully-insured small group health
market. These 17 million people will be affected by the new
premium rating requirements contained in the ACA. Before the
premium rating provision of the ACA took effect, firms with
employees who had better than average health risks would
typically pay lower premiums, and therefore, they were more
likely to be the firms that offer health insurance. As a
result, most of people with coverage in the small group
market have premium rates that are below average. Based on
our review of the available research and discussions with
several actuarial experts, we have estimated that roughly 65
percent of small employers offering health insurance coverage
have premium rates that are below average.
Once the new premium rating requirements go into effect, it
is anticipated that the small employers that offer health
insurance coverage to their employees and their families
would have average premium rates. Therefore, we are
estimating that 65 percent of the small firms are expected to
experience increases in their premium rates while the
remaining 35 percent are anticipated to have rate reductions.
The individuals and families
that receive health insurance coverage from their small
employer generally contribute a portion of the premium. For
this analysis, if the employer premium increases, it is
assumed that the employee contribution will rise as well.
Similarly, if the employer premium is reduced, the employee
contribution is assumed to decrease. This results in roughly
11 million individuals whose premiums are estimated to be
higher as a result of the ACA and about 6 million individuals
who are estimated to have lower premiums.
There is a rather large degree of uncertainty associated
with this estimate. The impact could vary significantly
depending on the mix of firms that decide to offer health
insurance coverage. In reality, the employer's decisions to
offer coverage will be based on far more factors than the
three that are focused on in this report so understanding the
effects of just these provisions will always be challenging.
Using their Compare model, RAND analyzed the impact of the
entire ACA on small group premiums and determined that the
effect would be minimal. Further, note that the number of
affected individuals will be smaller in 2014 because (i) a
number of small group plans were renewed early, and (ii)
about half of the states have allowed extensions to their
pre-ACA rating rules under the transitional policy announced
by CMS on November 14, 2013.
Summary
The Affordable Care Act requires all non-grandfathered
health insurance coverage in the individual and group markets
to be guaranteed issue and guaranteed renewable. In addition,
all non-grandfathered insurance plans and policies in the
individual and group markets can vary premium rates based
only on age, family status, geography, and tobacco use, and
the variation in the age and tobacco use factors is limited.
This new premium rating requirement will impact the premiums
paid by individuals and families working for small employers
who offer health insurance. Specifically, we have estimated
that the premium rates for roughly 11 million people will
increase and about 6 million people are expected to
experience a premium rate reduction due to sections 2701
through 2703 of the PHS Act.