Talking about upcoming health insurance renewals under "Obamacare," some brokers in Pennsylvania are using terms such as "tsunami," "scary math" and "significant increases."
But the numbers carry the most weight.
In Pennsylvania, some brokers are advising clients wanting to maintain their current coverage for employees to plan for increases of 30 percent – or more – for renewals that begin or carry over into the 2014 calendar year. And they're also advising that rates under the Patient Protection and Affordable Care Act may continue to rise in subsequent years.
To complicate matters, the rules are constantly changing, according to Todd C. Linn, group benefits manager for HMK Insurance in Bethlehem, with more than 400 customers in the Greater Lehigh Valley.
"The initial regulation was about 2,572 pages," said Linn, describing the onslaught of other changes and additions coming out once or twice a week.
"The obstacle we run into is they've all been over 200 pages long," said Linn, adding that applications alone can range from 20 to 60 pages long.
Opinions on the impact to Greater Lehigh Valley businesses vary from significant cost increases to a stable price structure, some noting that regardless of Obamacare, rates already are hiked every year.
"The insurers are going to have increased taxes, but also limits on profits and commissions," said Mike Horton, a chartered health care consultant and principal with IHM Advisors in Allentown.
Horton believes the checks and balances will reach a financial equilibrium, but not everyone agrees.
"For small businesses in Eastern Pennsylvania, most likely you're going to see some sort of rate increase," Linn said.
Since the passage of the PPACA in 2010, the employer mandate has received a lot of attention for its requirement that businesses with 50 or more full-time-equivalent employees provide affordable and adequate health insurance or pay a penalty.
But the rest of the story is that new insurance taxes, elimination of underwriting and restriction of rating criteria haven't gotten as much press, and brokers expect the market to resize in ways affecting businesses of all sizes.
Matt K. Pfeiffenberger, vice president of benefits communications and employee benefit solutions at Murray Securus in Lancaster, recently concluded a series of five informational presentations aimed at reaching business owners – and he has their attention.
The first reason to expect changes is direct: PPACA includes 20 new or increased taxes, according to Pfeiffenberger, and the ones on insurance companies are expected to be passed directly to consumers. Most of those – such as the patient-centered outcomes research institute fees, starting at $2 per covered life per year in 2014, and the transitional reinsurance program fee at $63 per covered member per year – apply to both fully insured and self-insured plans.
However, there also is a special tax for large health insurance companies that will be based on a percentage of their revenues. Pfeiffenberger said that alone is estimated to add 2.8 to 3.7 percent to the cost of annual renewals over the next several years.
Matthew Scott of Pittsburgh-based HDH Group said it's also important to note that many of the taxes and fees increase over time.
He recently used a modeling tool to see how much those additional costs would total over four years for a fully insured 200-employee company that had been paying $2 million annually in premiums. The answer: $250,000 – and that does not include any projected market changes which brokers expect to increase premiums.
The second reason to expect changes is that the foundations of the insurance marketplace are being removed. Medical underwriting will be barred and differentiation allowed only on strictly defined terms of age, location, family composition and smoking.
BLENDING OF COSTS
According to Linn, carriers no longer will be allowed to ask many health questions. That creates a climate in which high-risk customers will pay less but low-risk customers will pay more, he said.
"Healthy groups are no longer going to be able to get competitive rates, and the unhealthy groups are no longer going to get the really high unaffordable rates," Linn said. "So the majority of the groups are going to see a rate increase."
Insurance carriers currently have between 12 to 15 age bands with different rates, but that will change to three groups with a blending of costs based on the average age at the company, Linn said.
"So, what will happen is the younger employees will see a big increase, where the older, more seasoned employees will get a break," said Linn, adding that other health care fees will simply be passed on to the customer.
"Just like the excise tax on the phone industry and the cable industry, there will be a pass-through to the consumer," Linn said. "This will be no different."
Antoinette Kraus, project director of the Pennsylvania Health Access Network, says the cost of many business owners might drop.
"Insurance companies will not be able to underwrite plans to charge more for women, older or sicker employees," she said. "This will help bring down the cost for many business owners."
Horton points to an early model in Vermont that uses government-paid navigators to help customers find the right health care plan, thus eliminating many of the commissions from insurance agents and brokers.
"They're actually creating their exchange," said Horton, adding that he has every reason to believe the same numbers will continue in eastern Pennsylvania. "I don't believe it'll have a major impact."
According to Linn, regulations released just this month say that navigators can't work for an agent or broker, can't have an insurance license and can't recommend an insurance plan or carrier.
That leaves some to wonder how well the navigators will be trained if they are not already involved in the health care industry.
"There are many questions that nobody can answer," Linn said.
EMPLOYEE SHARE OF PREMIUMS
One part of the employer mandate for employers with 50-plus full-time-equivalent employees is that the employee's share of premiums cannot exceed 9.5 percent of household adjusted gross income. But there, too, employers currently are way above the requirement; the affordability test is only for employee-only coverage.
To top out above that limit, Pfeiffenberger said, an employee earning $30,000 whose total monthly premium is $375 would have to be charged more than $237 a month – or nearly 63 percent of the carrier premiums, a level he said is rare in today's market.
The large gap between what employers are currently providing and what will be required has several implications. One is that the "pay" option – dropping coverage, dumping employees into the federal marketplaces and paying the penalties, possibly with salary increases – likely will be viewed by employees as not an equivalent but a big step down.
Another is that employers have room to cut benefit levels without being in danger of incurring penalties. This, brokers said, is where they expect to see the most action: in reducing or restructuring benefits.
Some brokers don't expect businesses to stop offering insurance. Instead, they expect to see constriction of benefits and increasing consideration of self-insurance, which is now offered for much smaller groups than it has been in the past: consortium plans and defined-contribution arrangements. Particularly with self-insurance, they said, there also comes increased value in keeping your population healthy.
"For years now, employers have been trained to manage health care year to year," said Scott of HDH Group. But with these changes hitting, "It's more important now to take a long-term strategy."