The Affordable Care Act: is this the calm before the storm?
By Pat O’Connor, Kent & O’Connor, Washington, D.C.
There is a lull of sorts in Obamacare angst these days. No momentous Supreme Court decisions in the offing. No serious repeal efforts in Congress. It even seems to have faded on the campaign trail.
And, so far, businesses have weathered the initial stages of The Affordable Care Act (ACA) fairly well. Six years after passage, the predicted exodus from employer-provided coverage has not materialized. In fact, according to the RAND Corporation, of the 16.9 million newly-insured people between September 2013 and February 2015, the largest source of new coverage was employer-sponsored plans! (1) And, among companies with 50 to 499 employees, some surveys show 99% offer health insurance to employees. (2) Even the smallest employers (those with fewer than 50 employees) reported an increase in the number of companies offering health insurance (from 51% in 2013 to 61% in 2015). (3)
Does this mean the fear and loathing of the ACA/Obamacare were overblown?
No, probably not. These numbers may simply reflect the fact that health insurance continues to be a valued benefit to attract and retain talented employees. Companies still want to maintain coverage despite the costs and complexities added by the ACA.
These numbers also do not look at the extent to which the ACA has skewed business decision-making. Some companies have refrained from hiring additional people to stay below the 50-employee threshold or cut worker hours to lower the number of full-time employees. Keeping the headcount low through outsourcing is a prevalent and often necessary small business strategy that can be expected to continue. The impact on individual companies or the economy as a whole is difficult to measure, but unquestionably this has added to the anxiety over Obamacare among small businesses.
Yet, on the whole, has the business community simply adapted? Are we now on a smooth path after a bumpy start?
Not likely. For one thing, the government has not actually assessed employer penalties, but they will begin doing so very soon. Even though the vast majority of subject companies do provide health coverage, we have yet to see how the penalty process will play out for companies with insufficient or unaffordable coverage. For implementation of the penalties, we are relying on the IRS to reconcile the millions of reporting forms that were only recently submitted by employers, insurers and exchanges. No doubt, more rough patches can be expected when penalty notices hit the streets.
Nor are the ACA marketplaces anywhere close to being stable. Conversations about sizeable increases in 2017 insurance premiums are already starting. Many small businesses rely on the individual exchanges as a means for ensuring their employees have access to affordable coverage. Other small businesses would like to see the SHOP (Small Business Health Options Program) exchanges live up to their intended promise as a source for affordable employee coverage for small companies. This is unlikely, however, without greater stability in the individual ACA exchanges.
Last year, we saw half of the non-profit health co-ops on the individual health exchanges fail. This spring, the nation’s largest health insurer, United Healthcare, announced they will leave all but a handful of the nation’s exchanges in 2017 due to expected losses of more than $650 million on its 2016 ACA plans.
The United Healthcare announcement is revealing. Unlike the failed nonprofit co-ops last year, many of whom charged unrealistically low premiums and failed to apply prudent business practices, United Healthcare approached the exchanges with great caution. The for-profit insurer mostly sat out the first year to gain a better understanding of the risk profile of exchange enrollees so they could more accurately price their policies. With shareholders to answer to, United took careful measure to avoid any losses.
What they discovered, however, was lower-than-hoped-for-enrollees and sicker-than-expected customers. Plus, loopholes in the exchanges allowed people to enter and leave the system only when they needed healthcare. United attributed their massive losses to the smaller overall market size and the “shorter-term, higher-risk profile” of enrollees. In a conference call last November, United’s CEO told shareholders: “We cannot sustain these losses. We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
Some see the United Healthcare departure as the canary in the coal mine, a harbinger of more troubles ahead for Obamacare. Others downplay the significance. At the very least, we know competition will be severely limited in about 10 states, mostly in the South and the Midwest. Most notably, unless a new entrant appears, Oklahoma and Kansas will have only one insurer selling plans on their exchanges.
Other factors will impact premium costs on the ACA exchanges in 2017. The ACA established temporary risk-sharing and risk corridors to assist insurers offering ACA-compliant plans so the insurance companies could charge lower premiums and attract more enrollees. These subsidies to the insurance companies will end January 1, 2017, placing even more upward pressure on premiums.
All of this has some pundits warning that 2017 may be the year of reckoning for the Obamacare exchanges – the year when high premiums push the healthiest participants out, leaving insurers with the costliest enrollees, causing still higher premiums in the following year, the so-called “death spiral.” While that may be an overly dire prediction, Larry Levitt of the nonpartisan Kaiser Family Foundation says there will likely be “a significant market correction over the next year.”
Fortunately, employer-provided insurance markets experience much greater stability than the ACA marketplace. Nevertheless, upheaval in the ACA markets can spill over to the broader marketplace, causing uncertainty and higher costs.
We will know soon enough whether 2017 is indeed the cliff that sends Obamacare tumbling or just another painful step in the evolving drama of health care reform.
(1) Trends in Health Insurance Enrollment, 2013-2015, published in Health Affairs, v. 34, no. 6, June 2015, p. 1044-1048.
(2) Transamerica Center for Health Studies, Survey: Companies Navigate the Health Coverage Mandate, December 2015, www.transamerica centerforhealthstudies.org.
Pat O’Connor is a principal in Kent & O’Connor, Incorporated, a Washington, D.C.-based government affairs firm. A veteran of Capitol Hill with particular expertise in health, transportation and the environment, O’Connor works with trade associations and companies to find workable solutions to the most pressing regulatory and legislative issues. For more information, visit www.kentoconnor.com or call 202-223-6222.