In Sickness and in Healthcare

Questions regarding health insurance continue to weigh heavily on the minds of independent business owners as November, and the Presidential election, grows nearer. For those who run a business, there has been much confusion over whether healthcare insurance rates will increase or decrease, whether or not all employees will be able to get coverage, whether or not a certain policy will be required and where to go for information and rate quotes. The National Federation of Independent Business (NFIB) offers a number of items to consider which can help independent retailers wade through the muddy waters of healthcare reform and the Affordable Care Act (ACA).

The Clauses and Effects

One of the first clauses raising questions is the Individual Mandate Clause, which specifies that all individuals will be required to purchase health insurance or face a penalty fine. This concept coincides with the idea that health insurance can be presented as a “guaranteed” offering because no one can be turned down for coverage. The Individual Mandate Clause is meant to prevent the yo-yo pattern followed by some who sign up for coverage only when they need it and cancel it when they don’t. Many still question whether or not the clause is constitutional, despite it being upheld by the Supreme Court at the end of June. Some states, including Massachusetts, have had similar mandates in place for several years and it is likely that such states will serve as models for this Clause going forward.

The second clause to keep in mind is the Guaranteed Issue Clause, which means that insurance companies cannot probe for information about pre-existing health conditions when considering a new client. While the assurance of coverage regardless of pre-existing conditions is valuable, those without such conditions are concerned about whether or not the Guaranteed Issue will cause a widespread increase in premiums. In 2014, if the law remains the same everyone will be guaranteed coverage and all premiums will be the same. The answer remains unclear as to how the Guaranteed Issue will be resolved, but the general consensus is that insurance carriers will need to generate rates that subsidize costs incurred by individuals with pre-existing conditions, most likely at the expense of healthy individuals.

The Minimum Essential Coverage Clause (MEC) outlines what counts as credible insurance coverage and sets the bar for what requirements must be met in order to avoid a penalty fine. “It is believed today that in 2014 the highest deductible medical plan you can purchase for an individual may be $2,000,” the NFIB explains. “And for a family, that number may be $4,000. This means that if you currently have a $5,000 or $10,000 deductible medical plan, it may not qualify as credible coverage and you could face a fine. In addition, you may see significant increases in premiums if you are required to switch from a $10,000 deductible medical plan to a $4,000 deductible plan.”

Concern over health insurance exchanges has also been expressed, because beginning in 2014 each state is required to have a health insurance exchange available so individuals can shop for medical insurance from multiple insurance companies. This answers the question of how business owners and their employees will go about shopping for insurance coverage, but it does not yet clarify what level of subsidies individuals will qualify for. Each insurance company, under the ACA, will be required to provide premium subsidies based on the client’s income. It’s a good idea for those who can’t currently afford health insurance, but those who earn more income will be less likely to qualify for this benefit.

Finally, the Minimum Loss Ratio (MLR) Clause will also affect rates. In 2014, insurance carriers will be told to pay out 80 to 85 percent of premiums paid in claims. If the carriers don’t pay out at least that amount, they will be forced to refund money. The thought behind this is to reduce and control premiums, however, this merely shifts the boon. Health care costs, not insurance company profits, will be the deciding force behind how premiums look in the future. Each state has been given Federal subsidies to police the insurance carriers and ensure compliance.

Recently, some small businesses received checks totaling $321 million from their health insurance providers as a result of portions of the ACA that went into effect in 2010. The checks are rebates from insurers that did not spend at least 80 percent of the premiums collected from small group plans in accordance with the MLR. There was some debate as to how to allocate the rebated funds, but businesses have the option to hold these checks until next year in order to offset some of the contribution to employee premiums. The majority of business owners’ focus still rests on the big decision in November rather than on what to do with the first tangible effects of the ACA.