You and Health Care Reform—The Emerging Short-Term Landscape & Issues
This is the first of a series of Corner Office Gazette E-Notes to provide perspective and information about the impacts of the recently passed heath-care reform legislation (Patient Protection and Affordability Care Act—the Act), on you, your company and bottom line.
As summer 2010 begins, we have identified three emerging issues or trends that will require your vigilance or action this year: [This information is gathered from information available at the time of writing. As this legislation is now being implemented, changes and revisions are possible.]
- A key date emerges for employers—on the six-month anniversary of the passage of the Act or September 23rd, 2010—when several new requirements for those offering health-care benefits will go into effect. Some of these are:
- Lifetime coverage limits are abolished;
- Annual limits will be restricted to federally-defined amounts until 2014, then prohibited;
- Pre-existing conditions for children under 19 are prohibited;
- Dependents may remain on the parents plan until age 26;
- Specified preventive-care services are required without cost sharing; and
- For emergency services, network restrictions and prior-authorization practices will disappear.
- As an employer, your current health-insurance plan may be “grandfathered.” If you have a group health plan in place on March 23rd, 2010, your plan is grandfathered and you are generally exemptfrom some of the requirements outlined in #1 (above), such as those related to preventative care, choice of providers or outside review of claims. However, if you make certain plan changes prior to September 23rd, 2010, you may jeopardize this “grandfather” status. Changes that can lose your exemption status include:
- A change in insurance carrier;
- Cost sharing changes;
- Changes in coverage relating to specific conditions;
- Changes in deductibles; and
- Some co-payment terms.
- Insurance company medical loss ratios [MLR] will be tightly limited or monitored beginning September 23rd, 2010. Medical loss ratios represent the amount of premium income used to pay medical claims. For example an 88% MLR means the insurance company is paying 88% of premiums for medical claims and using the remaining 12% for plan administration or profit. MLRs will be limited to 80% for individual plans and small groups and 85% for larger groups. Reporting begins September 23rd, and we assume compliance will soon be required. This requirement will put pressure on your insurance carrier to rapidly cut their internal and claims-processing costs.
And you thought nothing was going to happen until 2014!
What do the requirements and features of the Act mean to the typical US company voluntarily providing health care benefits to its employees? There are three ramifications or market shifts we believe you can soon expect.
- You can expect that your insurance company will begin to raise your premiums (in excess of normal medical-cost changes) to cover the new requirements, the uncertainty of the expanding and uncontrolled risk pool and MLR restrictions. Also remember, you are not going to be able to change carriers without losing your grandfather status. Early group plan-renewal increases are now reported to be over 15%. How do you plan to cover these new costs?
- You must proceed with caution when making any changes to your current health insurance plan. We suggest that you do not revise your plan (other than allowing normal enrollment), to avoid the risk of losing your current grandfather status. Expect your insurance company to make compliance changes for you before September. As the smoke clears regarding what is possible and not possible, your ability to change your current plan and the value of grandfathering should become more apparent.
- Expect that your current brokerage relationship may change in the next year or two as insurance companies try to manage their MLR through reduced marketing costs (read commissions). In the past, some of those savings may have found their way to you, but not in the future. If your broker is your current primary health-care insurance advisor, you might need to find a different way to get such counsel & services in the future. Much may rapidly change in this time-honored sales channel.
In some ways this whole process reminds us of the Y2K event of 1997-2000 where companies needed to rapidly meet new technical standards to avoid an enterprise risk of technology failure. To do so, they needed to find and retain very specialized expertise during a 3-5-year window to assure that the company would survive and prosper. There are some similarities here.
Wilkening & Company is committed to help its clients navigate the new and uncharted waters of health-care reform. Call us if you need additional information, have any questions or would like to sit down to chat about the challenges of the coming months & years. [(847) 823-5090 or firstname.lastname@example.org]