Author's note: This post is not intended to defend nor criticize the merits of the Affordable Care Act (a political lightening rod if ever there was one). Rather, this post is merely intended to dispel a few myths as it relates to the ACA's spill-over impact on the group insurance market.
While its effects on the individual insurance market can be debated (though most agree the ACA did very little to contain healthcare costs but did a terrific job of making healthcare more accessible), it’s a common misconception that the Affordable Care Act (also known as the ACA, or Obamacare) is causing group health insurance rates to dramatically increase. This myth, along with others that play into it, have been perpetuated frequently since the law’s passage in 2010 — especially since the individual and small business health insurance marketplaces opened in 2014.
The truth is health insurance rates were increasing long before Barack Obama ever got close to the White House. According to data from the Kaiser Family Foundation, the average cost of premiums for individual coverage increased about 32.5 percent between 2010 and 2017. But compared to the 8-year period prior (when premiums increased about 56 percent) that amount seems low. For family coverage, the numbers are even worse, showing a 36 percent increase since 2010, compared to 67 percent in the 8 years prior.
In addition, it would appear the ACA is actually helping to slow our national health expenditures (NHE) as a percentage of GDP. The Centers for Medicare and Medicaid Services (CMS) has been tracking this data since 1960. CMS defines NHE as “health care goods and services, public health activities, government administration, the net cost of health insurance, and investment related to health care.” In other words, NHE is what we collectively spend on healthcare each year between health insurance rates, out-of-pocket expenses, and any health programs we take part in.
Between 2010 and 2016 (the latest year for which data is available), NHE increased from 17.4 percent to 17.9 — a mere half a percent (although one could also argue this could be due in part to effects of the recession). By contrast, in the 7-year period beforehand, NHE increased nearly two percent, going from 15.4 percent of GDP to 17.3.
In order to figure out how we could actually fix this system, we have to understand the differences between what’s really broken about it and the myths out there. Here are three myths we can easily bust.
Myth #1: Obamacare Increased Small Business Health Insurance Premiums
One of the most widespread myths about the ACA is that it has specifically increased the cost of small business health insurance. This seems to be a common belief among both supporters and critics of the law. Again, the law is extraordinarily complex and there are many external factors that contribute to its effectiveness, but many experts say its effect on the small group health insurance market is quite minimal.
People in this camp typically cite that the increases are caused by the specific coverage requirements the ACA set forth. For example, the ACA requires that compliant insurance plans must cover essential health benefits (including preventive care) and pre-existing conditions. In addition, insurers aren’t allowed to impose annual or lifetime claim caps, which used to limit the amount of collective claims a person could submit, both in a given year and in a person’s lifetime coverage with a company.
In theory, these reasons seem legitimate, but in practice, they’re not really true.
This myth is based on the assumption that small group health insurance rates didn’t already include things like essential health benefits — but the majority of them did. In addition, the Health Insurance Portability and Accountability Act (HIPAA) already imposed restrictions on pre-existing condition discrimination, which meant that many people (though, not all) were able to enroll in employer-sponsored healthcare without fear of being denied coverage.
In fact, according to Gary Claxton, director of the Kaiser Family Foundation's Health Care Marketplace Project, there are a couple main reasons the ACA hasn’t increased small business health insurance rates.
First, the ACA’s “essential health benefits are modeled after the most popular small group plans,” which means these benefits aren’t new to small group health insurance — at all. Claxton verifies that the small business health insurance market didn’t actually see much of an effect because of these new ACA requirements. Chances are, their health plans already included them.
Second, he says that the switch from health status rating to community rating didn’t move the average cost of premiums very much. While some small groups (older and less healthy) experienced increases, others (younger and healthier) actually saw their health insurance rates decrease, which meant the average held relatively steady.
In addition, many employers were shifting more out-of-pocket costs to employees even before the law was signed in the form of higher deductibles. The ACA doesn’t restrict this practice, which would allow small businesses to either maintain their costs or maybe even decrease them.
And then you must consider the “grandmothered” plans (which are different from “grandfathered” plans, in that they were purchased after the ACA was signed into law, but before the marketplaces opened). In November 2013, ahead of the first ACA open enrollment period (and when all small business health insurance plans would have to be ACA-compliant), “the Obama administration allowed individual states to permit policy holders to renew their existing plans early, and put off buying compliant health insurance for nearly a year.”
But when 2014 open enrollment rolled around, the Obama administration gave an extension — a long one, in fact — all the way through 2016. Then in 2016, they issued another extension through 2017. And when the Trump administration took over, they issued yet another extension through 2018. So at this point in time, many small businesses (in at least 32 states) have been able to keep their grandmothered plans that don’t have to follow the law and are therefore, not seeing any changes in their health insurances rates as a result of the ACA.
Myth #2: Small Businesses are Buckling Under an Administrative Burden
Again, administrative burden is another thing many critics say are crippling businesses — especially small firms, who don’t have the same staffing resources as large firms. In theory, the administrative burden would cause small businesses to hire another person to handle all this paperwork people are always complaining about. (Although, that wouldn’t actually affect their group health insurance rates.)
Forbes contributor Robb Mandelbaum interviewed small business owner Tom Secor from Norwalk, Ohio about his frustrations on the administrative burdens of the ACA. Secor lamented the “litany of regulations that I have to deal with, and which could cost me thousands of dollars if I didn't file this particular piece of paperwork. It is incumbent on the company to provide all the notifications in their proper form. For instance, I have to provide a summary of benefits, and you have to not only provide it, you have to prove you provided it."
Linda Mendel, a benefits tax attorney in Columbus, Ohio, told Mandelbaum in a separate interview that such a requirement, “should not be a big deal” and that a business owner would only need to “prove” they’d distributed the summary of benefits if they were audited by the Department of Labor (DOL). She also said that the added administrative burdens imposed by the ACA didn’t amount to much at all.
Any human resources person knows that health insurance companies actually provide you (or your employee benefits broker) with a summary of benefits — you don’t need to write it up yourself. They can even directly distribute it to your employees, although many provide a copy for the employer, who can photocopy it as many times as necessary and hand it out to employees during open enrollment.
Secor’s chief complaint about the ACA was its complexity, saying that small business owners can’t possibly be expected to figure all of it out, nor do they have the time to. And that’s a fair concern — many small business owners are also the accountant, the HR director, marketing director, and social media manager for their company. They don’t have time to read through page after page of healthcare laws and regulations.
But it appears as though there are a lot of resources out there to help small business owners — like employee benefits brokers or insurance companies — who can help them get through the perceived administrative burden easier. It’s a matter of asking the right questions.
Myth #3: The Insurance Companies are Losing Money on ACA-Compliant Plans
This myth is extraordinarily common because insurance companies have frequently lamented the restraints the ACA puts on their profit margins. However, the majority of consistent loss comes from the individual market — not from the group health insurance market.
In 2017, the individual market saw a dramatic jump in health insurance rates, which was due to many factors (including losses), but arguably, two of the most influential were the misjudgment of just how sick people were (leading to health insurance rates that wouldn’t cover the cost of the care needed) and the withdrawal of big insurance companies (like Aetna and UnitedHealth) from the ACA marketplace (a matter of simple economics — decreasing the supply will increase the price).
Remember that the ACA’s success was partially contingent upon enough healthy people enrolling in order to offset the number of sick people. The theory was that this would help stabilize (and lower) health insurance rates. So when insurers set their ACA marketplace health insurance rates in 2013 ahead of the first open enrollment season, they did so with this assumption in mind.
But when open enrollment closed and 2014 got underway, they realized they had far more sick people (who previously, either couldn’t afford insurance or couldn’t get access to it because of pre-existing conditions) enrolling in health plans than healthy people. In other words, their ratios were completely wrong.
This led to price increases for the 2015 enrollment year to make up for the hits to their revenue, but as 2017 approached, insurers announced they had still greatly underestimated how sick people were, leading to a substantial increase in health insurance rates, once again — in part to adjust for losses in previous years, but also to attempt to stay ahead for the upcoming plan year.
In 2018, insurers also raised rates considerably in response to the uncertainty emanating from Washington over the future of the repeal effort. In fact, the benchmark premium plan rose 37%, an 85% increase since 2014.
For 2019, quite a different picture is beginning to emerge - those shopping on the exchanges are going to find more insurers, more choice, and on average (thought it varies by state), better prices. Carriers like Anthem and smaller start-ups like Bright Health and Oscar are returning to the exchanges, because they see an opportunity to once again turn a profit. It remains unclear how two significant Trump administration-led changes will impact consumer behavior this year - the elimination of the individual mandate penalty and the introduction of alternative health-care options, such as short-term plans.
Regardless, none of these things happened in the group health insurance market. And remember that, unless they’re grandfathered in (meaning they were purchased prior to 2010, when the ACA was signed into law) or grandmothered in (meaning they were purchased between 2010 and 2013), group health insurance plans must also be ACA-compliant. So the majority of health plans being purchased (with the exception of individual off-market plans) are in compliance with the ACA.
Anthem, who in 2018, pulled out of ACA exchanges in 10 states, still managed to bring in massive profits. The healthcare giant announced net income (meaning, income after expenses and taxes are accounted for) of $3.84 billion in 2017, while they were still participating in 14 state exchanges. This number was up from $2.47 billion in 2016 — a 55 percent increase in just one year.
If insurers are losing money on ACA marketplace plans, but still managing to clear profits in the billions, they’re making money somewhere — likely from their group health insurance market, which, again, is still ACA-compliant. While there are certainly other factors in play, one could argue that ACA-compliance in their group health insurance market isn’t part of the problem.
Health Insurance Rates In the Obamacare Era
It’s fair to be frustrated that your group health insurance rates have increased — everyone is feeling the financial pain of increased premiums. However, it’s important to investigate the difference between the rumors and the facts.
The cold, hard truth of the matter is that health insurance rates have been increasing for decades and the ACA is just one small piece of the puzzle. The history of our healthcare system is a messy one and every new solution has essentially been a band-aid for a patchwork system that’s been in crisis-mode since the 1970’s.
What will actually fix the healthcare system in America is a discussion for a different day, but we can start by looking at the effects current laws are having on it. Until then (and probably even afterward), we can expect everyone’s health insurance rates to continue to trend upward, unless you are (and you should be) aggressively pursuing cost-containment strategies within your workforce population to truly bend the cost curve.
Are you concerned about your group health insurance rates? Get in touch with us today and learn how you can contain costs while still providing your employees with quality healthcare. We’d love to help you find a solution that works for everyone!