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Plan for the worst, health insurance brokers warnBusinesses could face hefty increases

Talking about upcoming health insurance renewals, local brokers have started using terms like “tsunami,” “scary math” and “significant increases.”

But the numbers carry the most weight. Across Central Pennsylvania, brokers are advising clients wanting to maintain their current coverage to plan for increases of 30 percent — or more — that may continue rising in subsequent years.

"I'm hoping that some of our assumptions are wrong," said Matt K. Pfeiffenberger, vice president of benefits communications and employee benefit solutions at Lancaster-based Murray Securus.

There are still a lot of unanswered questions, he said, and the impact will vary widely depending on the attributes of particular companies.

"But we think it's vitally important that businesses know the possibilities and start planning strategically," he said.

Since the passage of the Patient Protection and Affordable Care Act in 2010, the employer mandate has gotten 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 that's only part of what brokers are currently warning businesses to prepare for. New insurance taxes, elimination of underwriting and restriction of rating criteria emerged more slowly and haven't gotten as much press, but brokers expect them to reshape the market in ways that will affect businesses of all sizes.

Pfeiffenberger recently concluded a series of five informational presentations; the one in Lancaster drew about 165 people. Although there's still a lot of confusion, businesses become proactive pretty quickly once they realize the magnitude of what they might be facing.

"Typically for a Jan. 1 fully insured renewal, we'd have a prerenewal meeting in September and then one in November," Pfeiffenberger said. "Those meetings are now happening in May and June."


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 — like 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, senior vice president of Pittsburgh-based HDH Group's Lemoyne office, said it's also important to note that many of the taxes and fees aren't fixed.

"They increase over time," Scott said.

He recently used a modeling tool to see how much those 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.

The second reason to expect changes is that the foundations of the insurance marketplace are being removed. With medical underwriting barred and differentiation allowed only on strictly defined terms of age, location, family composition and smoking, insurers face the end of their meticulously crafted risk pools and the beginning of the threat of adverse selection. They must also build preventive care and essential health benefits into their policies.

"People who are not currently in the existing marketplace because they have pre-existing conditions will have access," Pfeiffenberger said. "While that's a good thing, we believe that's going to throw a price spike into the equation."

Matthew Kirk, president of The Benecon Group Inc. in Manheim Township, also expects premiums to go up dramatically, particularly for smaller employers and for employers whose workforce is younger than the national average.

"There were promises from the administration that this was going to lower costs. It's actually going to increase costs," Kirk said of PPACA. "The impact is going to be felt for a long time."

Antoinette Kraus, project director of the Pennsylvania Health Access Network, sees the opposite side of that equation.

"Insurance companies will not be able to underwrite plans to charge more for women, older or sicker employees," Kraus said. "This will help bring down the cost for many business owners."

Looking good now

One thing brokers said many business owners don't realize is how rich their current insurance offerings are compared to what PPACA requires. Actuarial value is broadly defined as the average percentage of medical costs that a plan covers. In the federal insurance marketplaces, these will be classified as metal tiers: Bronze at 60 percent AV, silver at 70, gold at 80 and platinum at 90.

To avoid penalties, businesses with at least 50 full-time-equivalent employees will have to provide insurance with at least 60 percent AV. Currently, Pfeiffenberger said, the benchmark AV for employer-provided health insurance in Central Pennsylvania is at about 88 percent AV.

The other half of the employer mandate for employers with 50-plus FTE 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 — will likely 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.

But senior account executive Patrick Rita of Kelly Benefit Strategies said those decisions call for caution.

"A lot of that represents cost-shifting to the employee," Rita said. "If you just start pulling all of them down, you end up with a plan that everyone hates. You won't be able to attract and maintain the employees you want."

However, according to Eric N. Athey, attorney and co-chair of labor and employment at McNees Wallace & Nurick LLC, bare-bones policies are among options that employers are considering when strategizing on how to handle the fact that PPACA defines full-time as 30 hours a week.

"The biggest challenges right now are for employers that have a large contingent of their workforce works over 30 hours but under 40 and historically have not had coverage, particularly in lower profit margins — hotels, restaurants," Athey said. School districts are also grappling with that issue, as many bus drivers and cafeteria workers currently log 31 or 32 hours per week.

Right now, Athey said, there's no clear prohibition on offering employees with fewer hours a less-attractive plan and keeping coverage at its current level for employees who are at 37 or 40 hours a week. But, he said, "That's something I suspect we'll see more guidance on in the future."

Change of perspective

The 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. But with these changes hitting, "It's more important now to take a long-term strategy."

Rita noted that in addition to increased attention to long-term strategy, he's also telling businesses to be more careful about compliance.

"Compliance is no longer optional, it's mandatory," Rita said. "Now the Department of Labor is looking at everything."

Reasons to plan

  • New insurance taxes and fees. Estimated annual impact: $180/individual, $640/family.
  • Ban on underwriting and removal of all ratings except age, location, smoking and family structure. Estimated impact: Potentially significant premium increases, some already reported at 30 percent or more.

The latest on federal marketplaces

It is not yet clear what costs will be in the federal marketplaces here; only Vermont has announced its nongroup rates, which at the average bronze level have monthly premiums of $365.76 per individual and $1,027.78 per family, not counting significant subsidies for those under 400 percent of the federal poverty level.

What is known here is that the initial individual mandate penalty for failure to obtain coverage is not large: $95 or 1 percent of income, whichever is greater, in 2014.

Both individual and small-business marketplaces were supposed to open Oct. 1, but it was recently announced that in states where the federal government is running the marketplaces, the small-business option will be delayed until 2015. Pennsylvania falls in this group.

When it opens here, the small-business exchange will be available to companies with fewer than 50 employees and will be the means by which qualifying small companies can take advantage of small-business health insurance tax credits of up to 50 percent on premium costs.

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