As 2015 health plan rates start to trickle in for the public insurance exchanges mandated under the Affordable Care Act (ACA), we’re seeing a mixed bag of rate hikes and rate cuts. Through discussions with several insurers, we are hearing that many plans have underpriced their 2014 rates, often by a wide margin – actual claims data was worse than anticipated.
Accordingly, many insurers are revising their 2015 rate filings upwards and some rather significantly. For example, a few insurers in the Maryland exchange are raising rates 20% to 30% in 2015. Adding to the uncertainty, other carriers in the Maryland exchange are expected to cut rates between 5% and 10%. Many other states are seeing similar, conflicting rate actions from insurers. While it is difficult to make sense of all this conflicting data without a much more in-depth study, HHS and other federal agencies are working in the background to bring stability to a market undergoing significant changes.
HHS and IRS Work to Improve Exchange Experience and Keep Private Insurance Viable
- HHS: In a rather public signal to the insurers regarding their 2015 rate setting, HHS extended the back-stop mechanism for losses insurance carriers might need if it turns out they have underpriced their exchange products. Clearly the administration wants prices moving downward and the exchanges seen as viable entering the 2016 election season.
- HHS: A lot of political capital rides on the success of the public exchanges, and the politicians who backed them understand that the affordability and user experience issues of last fall need to be history. To that end, just last week HHS announced it is revising Healthcare.gov’s web portal to improve the shopping experience for the 36 states that rely on the federal exchange.
- IRS: In another related announcement last week, the IRS re-enforced its position of discouraging employers from dumping employees out of group insurance and into the public exchanges. The specific follow-up guidance reaffirms that employer contributions designed to help employees pay for insurance premiums on products obtained through a public exchange will not be tax deductible. Further, such cash contributions would not free an employer from possible coverage mandates stipulated in the ACA, where certain employers would be fined on a per-employee basis for not providing qualified health insurance.
While the IRS statement made headlines, the clarification was not a policy departure. Clearly the administration wants the public exchanges to be successful and have very high participation rates. However, if employers dumped employee coverage en masse, that action would not only destroy the commercial insurance market, but would bankrupt the government by creating massive subsidy needs far exceeding the cost estimates for the ACA. No doubt some policy makers want everyone to buy insurance though a state/federal exchange mechanism, but that strategy is not financially viable. Instead the IRS is working to maintain the stability of the current marketplace by ensuring that the ACA exchanges don’t become a dumping ground for high cost individuals.
Employers continue to face tough choices regarding employee health benefits. Dumping employees is an increasingly less attractive option since the public exchanges offers a very uncertain rate environment and a user experience that only an administrator for the VA could love. The IRS is keeping ever vigilant that employers do not face hurdles in offloading their members to public exchanges, yet as my colleague Jason Grais opined last week, group insurance premiums keep rising.
Will new benefits models be the answer to employee and employer coverage and cost woes? While all the exchange activity and coverage mandates are new, it appears that private insurance exchanges could be an answer. Private exchanges are sponsored by employers and provide a mechanism to provide an employee coverage subsidy compliant with IRS rulings.
In a private exchange environment, employers set up an exchange-like shopping experience where employees can access a range of benefit options and receive an employer contribution towards the purchase of that benefit. Employees might find a better ability to match a plan with their own preferences and an ability to purchase-up with additional out-of-pocket expenses. Employers still can provide a resource and financial benefit with more flexibility (and perhaps more cost) to their employees and not run afoul of IRS taxes and penalties. Employer-sponsored private exchange environments are considered group insurance and therefore the contribution an employer makes towards a private exchange benefit is usually tax deductible.
Private exchanges are still a relatively new concept and while there have been some high-profile announcements (for example Darden Restaurants turning for help to Aon), it is still very early to predict success for private exchange models.
It’s a certainty that the private exchange opportunity is tremendous. According to CBO estimates, nearly 160 million lives are covered under commercial group insurance today – a market opportunity 5x to 6x larger than the public exchange individual market for 2016. This opportunity is why every insurer, many employers, and dozens of benefit consultants, brokers, and technology vendors have turned their attention to private exchanges.
This week at AHIP, private exchanges will no doubt be one of the topics dominating our discussions. If you will be at AHIP and have interest in talking about private exchanges, we’d like to meet with you. Until then, let us know what you think.