The Impact of Healthcare Reform: How Will It Change Self Insurance?
– By Aileen Connors
On March 23, 2010, the healthcare industry in the United States changed forever when Congress passed a highly debated insurance reform bill. What does this mean for the self insurance industry? Will the industry grow or shrink as a result of this reform? These questions remain unanswered in many respects, as employers are struggling to understand what reform means for them.
Reform, Reform, Reform
It’s the talk of the day, and understandably so. Since the law passed a year ago, insurers and employers have been scrambling to understand what the law means for them and their businesses. Thus far, self insured entities have been spared from any sweeping changes, but no promises have been made by the Obama administration that would suggest this trend will continue. But what changes do we know will take place?
Changes with MLR
Medical Loss Ratio (MLR). These three letters that have found themselves at the forefront of the healthcare reform discussion. With the law putting strict restrictions on MLR, insurance companies are scrambling to balance their premiums and spending to stay within the allotted limits.
Insurance carriers are now required to have their medical loss ratios at no less than 85% with employers of over 100 employees, and a ratio of 80% with employers who have fewer than 100 employees. While this limitation has not (yet) been put on self funded entities, it can, and likely will, affect the industry in different ways.
Pre-Existing Conditions, Dependent Coverage, and Other Implications
While MLR restrictions were not placed on self funded plans, other aspects of healthcare reform apply to fully insured and self insured plans equally. Several market-changing items on the list for reform items do affect self insurance significantly. Changes to pre-existing condition clauses, dependent coverage and other benefit limitations may put additional financial burdens on self insured plans. The ability to control the plan has been the primary selling point of going self insured over fully insured, but with the governmental restrictions moving into place, plans may find themselves bound more than in the past.
Rising Healthcare Costs?
The implications of MLR could either grow or shrink the self funded industry. One of the biggest unintended consequences of the MLR restrictions is that it could potentially cause insurance premiums to continue to increase at a faster rate. The conversation in the insurance and consumer industries have shown that the biggest concern of the MLR restrictions is the rise of premiums and healthcare costs across the board. The healthcare reform in Massachusetts, which many have compared to Obama’s reform, has seemingly caused medical costs in the state to climb even higher. Many do not have high hopes for the national reform policy, since its predecessor hasn’t shown much promise at managing costs.
Self Insurance Explosion…
If the worst case scenario fears are realized and healthcare costs rise even more due to MLR restrictions, it is possible that many employers who currently access a fully insured product may consider other options. One of these options could be the switch over to self insurance. If this is the case, the self insurance industry could see a significant increase as employers are faced with rising insurance premiums. Some may simply decide to abandon the fully insured route and opt for taking on the medical costs directly, perhaps with a stop loss solution on the back end in the case of catastrophic claims. Self insurance offers flexibility to the employer that is not available with a fully insured product. Even with the changes put in place by reform on self insured plans, they still offer an element of control that is not seen in a fully insured product.
Most predict an explosion in the self insurance industry, mainly because of the fears that insurance premiums will skyrocket. It is difficult to tell how costs will be affected this early in the game, but many employers are bracing for a significant increase.
…Or a Shrinking Market?
What is being talked about less is the possibility that the number of self insured employers may actually shrink. With the changes healthcare reform is placing on self insured groups, smaller employers may not be able to continue affording to self insure their group. Consequently, if insurance premiums rise as many are expecting, fully insured products will not be a viable option for many employers. The only other option? Pay the fine.
Starting in 2014, employers with more than 50 employees will be required to offer health insurance or face a fine. $2,000 per employee, with some exceptions, would be charged to employers for failing to offer health coverage. However, with a smaller group, this may be more financially viable than offering health insurance in the first place. Legislators assumed that many employers will pay the fine over paying for health coverage, even while debating the reform bill in Congress.
What’s Next?
At the end of the day, costs are going to be what drives employers’ decisions. It is nearly impossible to predict the twists and turns of the industry over the next few years, but one thing is guaranteed: It will change. How and in what direction, we shall see as the reform measure play out between now and the next 10 years.
About the Author
Aileen Connors is a 20-year veteran in the healthcare industry. At Devon Health Services, Inc., she focuses her efforts on containing costs for clients, through Devon Health’s Consilium product, which offers a smarter approach to cost containment. Aileen holds a Bachelor of Science in Business Administration from University of Toledo and a Master of Business Administration in Finance from Rochville University. She is also a Certified Employee Benefit Specialist and is certified through Health Insurance Association of America. For more information on Consilium and how it can save your business on healthcare costs, please visit asmarterapproach.com. Aileen can be reached at aconnors@asmarterapproach.com or 610.310.6099.
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