The Patient Protection and Affordability Care Act, known as Obamacare, is about to enter the next phase of implementation this year. Despite the fact that we are only months away from significant changes to how we access health insurance, millions of people, especially small-business owners, aren’t clear about what the ramifications will be when it comes time to renew or purchase health insurance policies in the fall of 2013 or early in 2014.
To get a sense of what changes we can really expect and when we can expect them, I spoke with three experts: Patti Goldfarb, principal at The Employee Benefits Advisor Group; Chris Davis, owner of Master Health Insurance Exchange Nextmedplan.com and moderator of the Health Insurance Agents Forum on LinkedIn; and Michael Battaglia, founder of InsureYouToo.
Premiums Are Going Up ...
Brace yourself, because health insurance premiums will increase significantly. While most insurance companies have not provided formal notification of what premiums will be, it would be prudent to expect a minimum 35 to 65 percent boost. In many cases the increase could be over 100 percent. In addition to these premium increases, many companies will no longer guarantee premiums for a minimum of 12 months. This means that further increases could come during 2014. These premium increases apply to policies that will be purchased on the health insurance exchanges as well as off of the exchanges.
Who Will Be Hit Hardest?
The worst premium increases will be experienced by people who fall into one of three categories: young, healthy and independent. This is happening for three reasons:
1. Obamacare premium ratios. ACA restricts insurance companies when it comes to setting premiums for different types of insurance buyers. They will no longer be able to charge higher premiums to individual patients based on their particular case. Instead, they can only vary premiums due to two factors: if the person is a smoker and how old a person is, meaning they can charge older people a higher premium. However, the difference between the lowest and the highest premium is limited to 300 percent. This means if the premium for a young person in perfect health for a given policy is $100 per month, the most they can charge someone else with a different health profile for the same plan is $300 per month.
The result is that pricing for young and healthy people will go up dramatically so insurance providers can offer higher premiums to more costly patients without violating the 3-to-1 ratio.
2. All plans will be guaranteed issue. Most people that work for large companies and receive health insurance benefits through their employers are part of a group plan. This means the employer negotiates with a health insurance company to provide coverage for employees and their families. Assuming the employee qualifies for the benefit, the insurance provider “guarantees” they will be covered regardless of particular health conditions. This is a big risk for insurance companies that have limited visibility to determine the costs associated with covering an unknown employee and their family. They take this risk for several reasons, but mainly because with one corporate client they are securing hundreds, thousands or even tens of thousands of new customers with premiums that will be paid on time.
When individuals and small-business owners, who aren't part of a group, buy a health insurance plan, it's a different story. Potential buyers can be rejected, benefits can be limited and premiums can be adjusted based on the individual’s particular medical profile. This is known as medically underwritten insurance, and it allows the insurance companies to price and manage risk on a case-by-case basis. The ability to do this will no longer be permitted under ACA. In addition to restricting pricing, all health insurance becomes guaranteed issue even if an individual is just buying a single policy after he or she becomes ill. Insurance companies will likely raise premiums for all individual policies to ensure they cover their costs under the worst-case scenarios.
3. Essential health benefits. ACA requires that all health insurance plans, regardless of whether they are sold within the Health Insurance Exchanges or directly to individuals outside of the exchanges, meet certain minimum requirements. Many of these required benefits are outside the scope of existing plans, which means the plans currently available, which don’t meet these requirements, will need to modify their offering resulting in an increase in price.
Start Planning Now
Many of the rules that will govern implementation of Obamacare have yet to be released, but that doesn’t mean you can’t plan. You should assume significant increases in premium payments and likely increases in out-of-pocket costs as the lower priced plans will have a significant coinsurance requirement from policyholders. You should also assume that premiums will no longer be guaranteed for 12 months.
Looking for more tips and advice on small-business finances? Check out these finance articles.