The House Subcommittee on Health, Employment, Labor, and Pensions held a hearing on Thursday to highlight some of the cost and regulatory issues affecting employer-provided health insurance in light of changes made by the Affordable Care Act. During the hearing – Barriers to Lower Health Care Costs for Workers and Employers – lawmakers and panelists debated how much and to what extent the new health care reform law contributes to rising costs. Meanwhile, a new study indicates that many individual insurance plans will need to alter their plan design in order to comply with future health insurance exchange standards required under the law.
Hearing on Health Care Costs
During the subcommittee hearing, both Chairman Phil Roe (R-TN) and panelist Roy Ramthun, President of HSA Consulting Services, criticized the law’s potential limitation on the use of account-based health plans (ABHPs). An ABHP is a plan with a deductible offered together with a personal account (i.e., health savings account (HSA) or health reimbursement arrangement) that can be used to pay a portion of the medical expense not paid by the health plan. According to one recent study conducted by Towers Watson, the popularity of ABHPs for employers of all sizes is rising. Specifically, the survey reports that ABHP enrollment has increased from 15% to 27% in the past two years. A total of 59% of surveyed employers have an ABHP in place, while 11% more intend to add one by the year 2013.
According to Roe, recent policy changes threaten these types of plans. Roe claimed that the Affordable Care Act places an “arbitrary cap” on HSAs, restricts the use of HSAs for over-the-counter (OTC) medical purchases, and limits an individual’s ability to contribute to a flexible spending account (FSA).
Witness Ramthun agreed with Roe’s concern about the Affordable Care Act’s regulatory impact on HSAs. According to Ramthun, HSAs and other ABHPs have helped stem the rising cost of providing health care. Moreover, if the high cost “Cadillac” plan excise tax goes into effect in 2018 as scheduled, employers will need to rely even more on ABHPs, he claimed. He testified: “I believe that companies have few other options as effective as account-based health plans to keep their costs below the thresholds where the excise tax will affect them ($10,200 for single coverage; $27,500 for family coverage).”
Ramthun stated, however, that it is hard for these plans to meet the stringent medical loss ratio (MLR) requirements, as well as the minimum actuarial value (percent of coverage the insurance plan pays for versus the portion paid by the plan participant through co-pays, cost-sharing, etc.) standards that must be in place by 2014.
Echoing Roe’s concern, Ramthun stated that employees with HSAs, HRAs, and FSAs “must obtain a prescription from their doctor to seek reimbursement for over-the-counter medicines” or “pay income tax plus a 20 percent penalty.”
Other panelists and congressmen attributed much of the rise in health care costs to various Affordable Care Act provisions, including several new notice and reporting requirements that employers and insurers must adhere to, the requirement that qualified health plans provide a set of essential health benefits, and provisions mandating that certain large employers automatically enroll their eligible full-time employees in insurance coverage. Ed Fensholt, Senior Vice President and Director of Compliance Services for Lockton Benefit Group, claimed that the essential health benefits mandate has increased health costs for many businesses by 2 to 3 percent. With respect to the automatic enrollment requirements, Fensholt testified that “across all industry segments other than retail and hospitality, our clients can expect to experience a 4.4 percent cost increase” attributable to this mandate. Moreover, he said that the health care reform law “has added more than a dozen additional notice and disclosure obligations to health plan administration” on top of the “more than 50 separate notices, disclosures and reports” that employers must provide to their enrollees and the government as it is. Fensholt concluded that “employers are burdened and frustrated by aspects of the health reform law that add costs and complexity to their health plans, and may lead some of them to eliminate group coverage and full-time jobs.”
Other hearing participants, however, praised the health care reform law, and called for an expansion of certain benefits it confers. Business owner Jody Hall, for example, spoke in favor of the future health insurance exchanges (“Exchanges”), which will begin operation in 2014. According to Hall, the Exchanges will benefit her business by pooling risk, increasing small business purchasing power, providing clout to smaller operations, and promoting efficiency and cost savings for the private sector. Hall also applauded the new MLR requirements for health insurers, to which she attributes a lower rate increase for this year. Under the MLR requirement, health insurers, depending on the size of the insurance market, must spend between 80 and 85% of premium revenue on reimbursement for clinical services or activities that improve health care quality, or provide a rebate to their enrollees. According to Hall, the MLR and rate review provisions provide “much needed transparency” for the insurance market. Hall did, however, believe that the small business tax credits created by the Affordable Care Act need to be expanded and made into a “more powerful incentive” for providing insurance benefits.
Ranking member Robert Andrews (D-NJ) similarly touted the new health care reform law, and said that it facilitates progress towards the goals of encouraging more people to take personal responsibility for their own healthcare; changing payments to health care delivery systems to reward success rate over volume; and making health care more affordable by encouraging competition. Andrews expressed disappointment, however, that more small businesses have not taken advantage of the available tax credits.
A full list of panelists and links to their testimony can be found here.
Study Indicates Many Insurers Will Need to Adjust Plan Design
Just days before the subcommittee hearing, the Commonwealth Fund released a study finding that most individual health plan insurers will need to alter their benefit designs in order to meet future health insurance exchange standards, while most employer-provided group insurance coverage exceeds exchange criteria. The health care reform law imposes a number of essential coverage and affordability requirements for plans offered through the Exchanges.
With respect to the health plan value, the law creates four tiers of health plans available for purchase through the Exchanges. Each tier is defined by its actuarial value, or percent of services paid for by the plan. The plan is considered a “platinum” plan if its value is 90 percent or greater; gold, 80–89 percent; silver, 70–79 percent; and bronze 60–69 percent. The study determined the following, among other key findings:
- The average actuarial value for a group health insurance plan in 2010 was 83 percent, while the average actuarial value for an individual plan was 60 percent.
- In 2010 more than 60 percent of people enrolled in group plans were in either the gold or the platinum tier.
- The majority of Americans with individual insurance coverage today are enrolled in a plan whose actuarial value is too low to qualify for a state-based exchange.
- Approximately two-thirds of today’s employees are enrolled in a gold or platinum plan. Therefore, families with coverage through the Exchanges are likely to have less financial protection than employees with employer-based coverage enjoy today. According to the study, “employers choosing to buy insurance coverage for their employees through the small-employer exchange, which could eventually include employers with more than a hundred workers, will probably obtain less extensive coverage if they opt to buy a plan in the silver tier than if they now offer a plan typical of those provided in the employer-based market today. “
A complete copy of this study can be found here.
Photo credit: Andriy Solovyov