Regardless of your feelings about the Affordable Care Act (aka ACA or ObamaCare), we are undergoing a major shift in the health insurance industry.
Here's four ways the health care industry, specifically individual and small business health insurance, is positioned to change because of the Affordable Care Act.
1. Individual Health Insurance Will Be More Transparent
Currently, shopping for an individual health insurance plan can be a confusing and lengthy process. Varying prices, coverage benefits, and terms are hard to understand. Then, there is the infamous and tedious application form, requiring detailed past medical history. And after you’ve completed all of this work, the insurance company can deny coverage if they deem you too high of a risk. It's no wonder that consumers have described this process as scary... a nightmare even.
Starting October 1, 2013, consumers can now create an account on their state’s online health insurance exchange, supply basic personal information (no medical information required!), and then compare all qualified plans, from multiple insurance carriers, side-by-side. All plans will cover a set of essential health benefits, and as a result, the reason behind premium cost will be more transparent. Under the ACA, insurance companies can no longer change premium prices or deny coverage based on medical history, in fact, the only things they can base premium prices on are: age, family size, region, and tobacco use. And, these charge-up amounts are controlled.
How is this going to change things? For one, it will take a much shorter time to compare and enroll onto a health insurance plan. Additionally, because insurance carriers can no longer employ risk avoidance, they will need to focus on the delivery of benefits, and quality of care to attract consumers and drive down costs. This should not only decrease premium rates (in the long run), but should increase the quality of health care that are offered through plans.
2. Small Businesses Will Transition to "Pure" Defined Contribution Health Plans
In the past, small businesses turned to small group health plans to offer health insurance. But, the continual increase in group health insurance premiums have made small group health insurance unaffordable to many small employers. Additionally, small employers (<20 employees) are much less likely to have a small group plan with choice of plans available to employees. In other words, the current small group health insurance market is a very expensive, one-size-fits-all model where employees have little choice.
One trend is that many small employers are sending their employees to the individual health insurance exchanges, and providing them with a healthcare allowance to help with the individual health insurance premiums. This is a pure defined contribution health plan approach.
Individual policies are becoming guaranteed issue in 2014. This fact alone eliminates the non-economic (i.e. moral) factors from an employer’s decision to supply a group insurance plan. In other words, employers feel assured that sick employees will be able to get affordable individual health insurance coverage through individual health insurance plans. Additionally, due to the tax subsidies that most Americans will be eligible for, most employees will pay less for health insurance on the individual market.
As a side note, for small employers with fewer than 50 full time equivalent (FTE) employees, there is no employer mandate and no penalties (which go into effect in 2015). And for many businesses with 50+ FTE employees, the total cost of paying the employer penalty plus providing a defined contribution health benefit will be less expensive than group health insurance. The only way for employers to give employees access to the individual premium tax subsidies is by not offering group health insurance.
3. Options Will Eventually Drive Competition to the Exchanges
A third change is that exchange options will eventually drive competition. At first, it’s likely that large companies are going to back off from the exchanges and take a wait-and-see approach, afraid of the possibly higher costs of covering all consumers regardless of medical history. In fact, this has been seen from many of the large carriers. Not surprising, as many of the consumers expected to buy plans from the exchanges in the first year are the uninsured, unhealthy, and older consumers. However, as the exchanges begin to mature, larger companies may begin to see the advantages the exchanges provide in low transactional costs, more insurance options, and better premium stability. As more insurance carriers join the exchanges, the theory is competition increases even further, premiums will go down, quality of care goes up, and the risk pool stabilizes. This impacts individual health insurance and small business health insurance over the next few years.
4. Health Care Quality Will Improve, As Will Consumer Choices
Lastly, health care quality is likely to improve. Because insurance companies aren’t going to have risk adjustments to increase their profits, they will need to provide incentive for consumers to choose their plans over other insurance plans. And with the new transparency in health benefits through the exchanges, consumers are going to be able to clearly see which plans include the best providers at the lower prices. Over time, the companies that offer the best coverage, rather than cover the healthiest individuals, are going to have the most consumers signing onto their plan.
What other ACA changes to the health insurance industry, individual health insurance, and small business health insurance do you think are happening? Join the discussion below.