Fact or Fiction? Health Care Reform Eliminates the Need for Dependent Eligibility Verification

Last week, I was on the phone with one of our broker partners from the Midwest and he made a comment along the lines of “with health care reform, a lot of the appeal of dependent eligibility verification projects was taken away.” Well, at the risk of being argumentative, I shared with him the results of our post health care reform study* that showed, rather convincingly, that dependent verification projects are more valuable than ever.

Since that study was produced, our total number of audits conducted has grown to over 1,100. We have completed twice as many audits this year as last and the number of clients signing up for our Ongoing Dependent Eligibility Verification Services has risen above 70%. Moreover, we are now executing projects where the client has already conducted an internal audit (or used another firm) and are seeing significant savings. Dependent eligibility audits remain one of the only ways to take 3-5% out of health care expenses without any changes to the plan or contribution strategy. Brokers across the country are using this “weapon” as a way to win new business.

I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation. Read on to review a reprise of our article on how the rate of ineligible dependents has increased from 6.5% to 7.99% with the passage of healthcare reform. 

*Report originally published on the Employee Benefit Advisor blog and November’s print issue of Employee Benefit Advisor magazine.

Rate of Ineligible Dependents Increases to 7.99% with health care reform

One of the first changes brought on by health care reform was the mandatory extension of health plan eligibility to adult children up to age 26 without regard to student status or other dependency upon the employee. Many experts predicted that the rate of ineligible dependents would decrease after this provision took effect and lower the effectiveness of Dependent Verification Projects.

Based upon a study my firm did in the fall comparing similar populations before and after the implementation of this provision, we can now conclusively state that the experts were wrong. The rate of ineligible dependents in the health plans analyzed in this study post health care reform has actually increased by approximately 1.5 percentage points.

Expectations prior to health care reform

When health care reform passed, many experts analyzed the data coming from dependent eligibility verification projects in order to predict the effect of health care reform on the efficacy of these projects. Using our data as an example, prior to health care reform in a sample set of over 113,000 dependents verified, 48% of the ineligible dependents were under age 20, 23% of the ineligible dependents were between the ages of 20 and 26 (the typical ages of full-time students), and 29% of the ineligible dependents were over age 26. Further investigation showed that half (11.5%) of ineligible dependents in the 20-26 age range were ineligible because they failed the “relationship” test. These wouldn’t be eligible for coverage regardless of their age.

It seemed reasonable to assume that with the dependent age limit increased to 26, about half of those who had been previously identified as ineligible dependents would now pass eligibility verification. The other half would still fail the relationship test and remain ineligible. Our own data led me to agree with the experts’ expectation of health care reform—that the average rate of ineligible dependents post health care reform would drop from 6.5% to 5.75% (a reduction of 11.5%).

That reduction, while significant, would have only partially mitigated the strong business case for an employer to conduct a dependent eligibility audit. There would be some employers, though, who anticipated falling at the lower end of the 5-12% average range of ineligible dependents. This 11.5% reduction may have been enough to discourage them from the project.

The real effects of health care reform

The fact is, our research since the passage of PPACA has proven that the opposite is true.  Using a statistically significant sample of recent audits conducted by ContinuousHealth, we’ve found that the average percentage of ineligible dependents has actually increased to 7.99% after implementation of the Affordable Care Act. 

A 19% increase!

Additionally, we’ve seen a shift in the ages of ineligible dependents. Our sample set had 10% fewer ineligibles under the age of 20 and about the same number of ineligibles between the age of 20 and 26. Ineligible dependents over the age of 26 grew by 11%.

What conclusions can we draw from increased ineligible numbers?

Certainly there were other factors in place during the time period studied.

Part of this shift could be a result of the continued softness in the employment environment. This affects the percentage of dual-earner households and contributes to the rate at which employees might attempt to have non-spouses or other adults added to their plan who lack access to coverage due to unemployment.

The publicity surrounding eligibility changes has been less than precise, even two years later. There is more potential that employees will attempt to enroll dependents that do not meet eligibility criteria. A person the employee calls “family” needs coverage (perhaps due to the softness of the market), and the employee therefore thinks he can cover them on “family” coverage.

With all of that, verification methods have been eradicated for most companies. For 70% or more of employers prior to health care reform, the only dependent verification procedure was full-time student status checks conducted annually or biannually by the health care plan administrator. PPACA’s changes eliminated the only stopgap against ineligible dependents.

A necessary response

Regardless of the root causes for this increase in ineligible dependent rate, I think the call to action is clear.

For years, we’ve seen that unless employers are making arrangements to verify dependent eligibility with a thorough process that includes both eligibility education and document verification, there are going to be ineligible dependents on every group plan, gratuitously driving up the cost of health care.

In fact, I’d say that the need is greater than ever to make sure ineligible dependents aren’t covered. The changes brought on by health care reform allow even more dependents to be eligible, so covering an ineligible dependent has a more significant exposure risk than ever.  With the prohibition on rescissions in PPACA, the financial exposure lands on the employer for ineligible dependents, since employers must prove employee fraud before exposure for high claims could be passed on.

I want your clients to be protected from the financial and compliance exposure of ineligible dependents, especially since that rate increased by 1.5% since implementing the provision. On top of all that, I’ll remind you again that dependent verification is a cost saving solution that regularly reduce plan expenses by 3-5% with no change in carriers or plan design. Our return on investment guarantee makes it a no-lose situation.  I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation.

As you face a mid-market renewal season, propose a Dependent Verification Project with ContinuousHealth. It’ll be worth it.

If you’d like a copy of the original article or the case studies detailing report specifics, email directions@continuoushealth.com.

This article was first featured in the May 29th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services

Who can say if PPACA changed benefits for the better?

Employer-sponsored health insurance market has been eroding subtly and gradually over the past decade. Most employers have noticed the downward spiral in their plans, but they’ve been unable to effectively identify or counteract the issues. Changes to the health insurance market have been (and will continue to be) inevitable, regardless of the decision on health care reform. But many of your clients are now modeling one to three year strategies for their plans, using predictive modeling tools like our CHROME Compass.  These tools that were created as a response to health care reform, but they are also revolutionizing the way that employers see compensation.

Health care reform has changed the way everyone thinks about benefits programs… regardless of the decision.  Hear us out, and let us know if you agree.

While many in the employee benefits business are taking a “wait and see” attitude toward the Supreme Court deliberations and inevitable announcement in late June, others are taking a fresh look at their benefits program in light of the new opportunities and incentives created by health care reform. Is this a waste of time or are they gaining valuable insights leading to strategies that may increase their competitive advantages in their total employee rewards program? Won’t the game change entirely if health care reform is overturned?

Employer-sponsored health insurance was eroding long before health care reform

The rising cost of health insurance over the last ten years has significantly changed where people receive their coverage, how much they pay for it, and how much protection the benefit provides. Let’s start with a brief look at where people are receiving their coverage and how this has changed over the past decade. 

From 1999 to 2010, according to information from the U.S. Census, the number of people in the U.S. grew 10.6%. Surprisingly, the number of individuals who accessed health insurance at their employer dropped by 4.7%. Now, before you jump to a conclusion about changing demographics and the aging population, consider that when we look at the same data for the non-elderly (<65) population, we see an overall growth rate of 10.8% but a reduction in employer-sponsored health insurance of 5.7%. While the overall growth rate is within .2%, the reduction in the number of non-elderly individuals who accessed health insurance at their employer is greater by 1%.

Older people are staying on their employer plans longer. This is surprising, especially in light of the significant migration in benefits away from retiree health programs during this same time period.  Unfortunately, the corollary is that younger employees must be leaving their employers’ plans at a disproportionately high rate, accelerating the impact of rising health care costs on employer plans.

The second conclusion you might want to explore is whether the most recent recession and the reduction in employment is a major contributor to this erosion. Here again, the data says otherwise. Using the same period from 1999 to 2010, the Bureau of Labor Statistics reports the number of employed Americans actually grew from 133.5 million to 138.9 million (4.1%). While this obviously did not keep pace with population growth, it was still positive growth and does not explain the sharp reduction in employer-sponsored coverage over this time period.   

So, if people are leaving employer-based coverage, where are they going?

The answer, in terms of percentage growth from highest to lowest, is Medicaid (+78%), military (+51%), uninsured (+32%) and Medicare (+20%).

And remember, this is without health care reform. 

The erosion of the employer sponsored health insurance market has been both subtle and gradual. For this reason, most employers have been unable to effectively identify or counteract this downward spiral in their plans. Changes to the health insurance market have been (and will continue to be) inevitable as long as the growth in cost outpaces overall growth rates.

Enter health care reform.

In the words of Doug Elmendorf from the Congressional Budget Office, “Many of the effects of the legislation may not be felt for several years, because it will take time for workers and employers to recognize and to adapt to the new incentives.” Employers who were drawn to model the impact of the dramatic reform changes are not only better prepared for health care reform, but they have also gained insights into the erosion they have been experiencing over the past ten years. 

Health care reform changes the mandated eligibility requirements in three of the five health insurance markets (Medicare, employer and individual) while at the same time significantly changing the tax structure in all three of these markets. Among other things, health care reform attempts to reduce the number of uninsured people in this country by offering new opportunities and incentives which affect three existing markets. Health care reform mandates expanded eligibility for both Medicaid and the employer markets. The individual market, too, is significantly reformed with the elimination of medical underwriting and, for the first time ever, significant tax subsidies for individual premiums are equal to or greater than those available in the employer market. 

By analyzing the potential impacts of these accelerated market shifts brought on by health care reform, employers are gaining valuable insights into what has been happening to their plans for the past 10 years. Whether health care reform is overturned or not, these employers are leveraging these insights to plot new strategies that are more proactive and intentional – transforming them from victims of health care inflation to strategic players in the allocation of employee compensation.

The light switch

Over 600 employers are now using our proprietary CHROME Compass planning platform to conduct the detailed analysis required to truly understand the intricate interdependencies of alternative insurance markets and tax policy changed by health care reform. In light of the upcoming Supreme Court decision, we asked many of these customers what insights they are gaining from the detailed modeling around health care reform and what value they see in it if heath care reform is overturned by the high court.

The most common responses we received across our diverse group of clients were:

We had never really looked at where all the dollars were going, especially in the area of favorable tax treatment.

We had been feeling the erosion of our benefit plan over the years, but, with this, it was like someone flicked on the light switch and we saw where we are in an entirely new light.

We now know how to ask ourselves, “Is this where we want to be? If not, how do we begin to work ourselves into a new place?”

These employers were only moved to review their benefits program because of the legislation. Once these tools made them aware of the possibilities in overall compensation strategy, though, their benefits programs will never be the same. The light switch is on.

This article was first featured in the May 22nd edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

A Quiet Revolution

The New York Times published an article Sunday about the slowing of health care inflation over the past two years. Health care costs are down 4% (adjusted for inflation: 3.1%), over the past two years. The reporter interviewed a handful of experts, from Harvard economists to the president of the Commonwealth Fund to the former head of Medicare and Medicaid. All of them said the same thing, best summed up by one expert in particular: ““The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and, three, you’d be foolhardy to say that we can understand it.”

Well, you can call us foolhardy, because our extensive work with a large number of clients has resulted in a confidence that we understand why health care inflation has slowed over the past few years. Let’s talk this through.

The preamble

Not to be picky, but before going any further, we have to make a comment about the routine (and incorrect) use of the term “health care inflation.” While we are not economists, most of us took a few econ classes in undergrad, and we learned enough to know that “inflation” is a general increase in prices as a result of too much money chasing too few goods. What passes for inflation as it relates to health care is actually increased consumption – in both quantity and through the consumption of higher priced treatments. In fact, many health care prices are actually moderating on a unit cost basis, owing to competitive pressures and patent expirations. People can’t fix what they don’t understand, and using incorrect terminology doesn’t help. We expect better from The New York Times, and we bet you do, too. OK, now that we’ve cleared that up…

After years of health care costs increasing as a percentage of the gross domestic product, 2009 and 2010 showed a significant slowing down of the health care cost curve. In fact, the total national health care spending growth of less than 4% per year is the slowest annual pace in more than fifty years. If it continues to hold steady at 17.9% of the GDP, there is hope for long term fiscal health for both national and household income, but in order to capture that slowing and replicate it year over year, we have to know why it’s happening.

And, according to the New York Times article, experts have no idea why this is happening.

Is it the recession?

Keeping with the zeitgeist of the time, the article first points the blame at the recession. The slowdown did occur during the same time as employer-based insurance options dipped for many Americans due to job loss. The recession may have made Americans more aware of health costs, who cut back on non-urgent care while money was tight. Gail Wilensky, speaker of our “foolhardy” quote, headed Medicare and Medicaid under President George Bush and believes the dip was caused by decreased income and decreased wealth during the recession. She fails to mention, however, that the COBRA subsidy program under ARRA artificially suppressed the number of “uninsured” you would typically expect when jobs are cut. And the fact these people stayed insured should have resulted in less of a drop in consumption than typically found in recessions.

The experts in the article all agreed that mitigation caused by recession would not be surprising or unexpected.

No, it’s not the recession (at least not entirely)

But a lot of the data points to a cause beyond the recession. States that weren’t hit too badly by the recession had some of the most rapid abatement in health care inflation. And some of the slowed spending occurred in market segments that shouldn’t have been recession-sensitive, like those on Medicaid and Medicare.

“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on. If you asked me, ‘How confident are you that this is not just the recession?’ I’d say 75 percent.”

Well, then, is it health care reform?

The president of the Commonwealth Fund, Karen Davis, makes the case that health care reform is the cause: “A lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”

No, it’s not health care reform (at least not entirely)

While a reduction in those big price-tag claims would account for the decreased spending, it’s unlikely that health reform has drastically reduced hospital and emergency room visits at this stage.

As we discussed last week, the high risk pool, PPACA’s interim solution to improve access to health coverage, has low engagement rates, and the uninsured rate has remained steady through 2010. Even for the 18-25 year old age range, the uninsured rate has declined from 28% to about 24% and has now leveled off over 2011.

Additionally, many economists believe costs may go up as tax incentives and new programs come into effect.

Is it… consumerism?

The Times article starts to hint at this option, but it fails to establish a conclusion. The author discusses the growth of high-deductible plans, cited as growth from 3% in 2006 to 13% in 2011, and how those plans impact the way that people think about health care. The author notes, “A broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.”

But we believe there’s no need to wonder. This behavioral change is well documented, from a recent Reuters article about the growth of consumer-direction coverage to the RAND study that shows high deductible plans may reduce spending by as much as 14%.

Our foolhardy proposition

Consumerism, we believe, is the key to the mitigation of health care inflation. As we pointed out earlier, in all other aspects of economics, inflation is a rise in cost of goods, but as it pertains to health care, inflation is a rise in use and engagement. Therefore, increased health care costs are increased use of the goods. Consumerism has everything to do with slowing health care spending.

In all segments, people are becoming more aware of the cost of health care. Insurance plans are becoming less rich, and people are more price-sensitive. That applies even in the Medicare world, as retiree health plans start to disappear.

As patients become consumers, they pay more attention to the market and to the costs of services. A September RAND study shows that patients with consumer-directed health plans not only reduce their costs through initiating health care less frequently, but also by reducing costs after they’ve begun care, sometimes through electing less expensive treatments or medications.

The past few years have seen a dramatic growth in the consumer-directed plans and the awareness of health care costs. With that, people are becoming more aware of their own consumption. Reduced consumption equals mitigated health care inflation.

We like the way Dr. Drew Altman, the president and CEO of the Kaiser Family Foundation, sums up the rise in consumer-directed plans: “Well you know, I think we've been so focused on health reform in Washington, what we have missed is there is a quiet revolution happening in health insurance out in the country.”

So how are you engaging in the quiet revolution? Are you helping your clients implement high deductible plans? And if so, have your clients seen a decline in health care spending? Is it just a coincidence that the “minimum” level of an acceptable employer-provided plan mirrors a high deductible health plan (without HSA contribution)?

This article was first featured in the May 7th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services

Verifying Working Spouse Policies

Recently, we’ve gotten several questions from consultant partners about the best ways to implement and verify their clients’ spousal exclusions and surcharges. Disallowing or charging extra for spouses who have access elsewhere is a good way to make sure employers can continue to offer compensation by way of rich benefits right now.

The questions we’ve been asked are good ones. How do you best implement a working spouse policy?  What about those spouses who have access, but there are no employer dollars going toward the premium? Or those with some employer dollars, but a plan that is still so much more expensive as to be unaffordable? How do you care for potentially key employees while still identifying the savings on the plan?

You’ve also asked questions about how to best verify spouses. Once the basic requirements are outlined, how do you verify spousal access to other coverage? Will that become an undue burden on the HR team?

Over our four year history of verifying dependent eligibility for employers, we have dozens of working spouse verifications under our belt—we may have even verified a plan for one of your clients. Here, you’ll find three client case studies outlining some best practices and significant learnings. Let’s review.

Client A: Spousal Surcharge

Operational Goal:

To implement new spousal surcharge as cost saving option in the wake of health care reform.

Business Challenge:

As a brand new auto-manufacturing plant, Client A had a benefit program that was appropriately rich for its industry but significantly better than the majority of other employers in the region. Client A wanted to set the stage as a caring and responsible company in the way it treats its employees without becoming the default insurer for the area.

Implementation:

Client A determined that it would offer coverage to working spouses with a spousal surcharge. Spouses with access elsewhere who enroll in Client A’s coverage must pay $46 per pay period, which served to push spouses toward their own coverage while still offering the option to be on the client’s plan if the spouse’s employer plan was more expensive.

Spouses can have coverage without a surcharge if...

• they are not employed.
• they are also employed by Client A
• they don’t have access to medical benefits at their employer.

Verification:

ContinuousHealth’s DA² dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software.

A spousal affidavit included in each audit packet required sign off from the employee, the spouse and the spouse’s employer. That reduces the likelihood of confusion or fraud, since the spouse’s employer is answering questions about current coverage rather than the spouse. ContinuousHealth also suggested requiring the second page of the tax return to generate more accurate representation of spouse unemployment/employment status.

Results:

As a fully-insured plan, cost savings are greatest when ineligible dependents resulted in tier changes.

• 21.8% of those who were in EE+Spouse tier changed to EE Only
• 14% of those in EE+Children changed to EE Only
• 5.3% of those in Family  moved to EE Only

With those tier changes, Client A saw extended savings of $635,000, in addition to any increased plan dollars from the spousal surcharge. After the success of the project, the client decided to integrate the ContinuousHealth software to verify both dependent eligibility and spousal exclusion in-house. This ensured HIPAA-compliance and streamlined the enrollment process.

Client B: Spousal Exclusion with Monetary Limit

Operational Goal:

To implement a spousal exclusion in order to continue to offer an affordable and rich benefits plan.

Business Challenge

As a well-respected leader in the grain industry, Client B is very focused on providing just business practices, including having a compliant plan, and on treating employees well.

Implementation:

Client B’s consultant walked the client through best options and they decided to offer coverage for working spouses if the employer’s coverage was more expensive than being on Client B’s plan. This would apply only to traditional major medical coverage, which also serves to encourage adoption of the new consumer plan.

Spouses can have coverage if...

• they don’t have access to major medical at their employer.
• they have access, but the least expensive single plan offered costs the spouse more than $190 per month.
• they are also employed by Client B.
• they are unemployed.
• they are on secondary coverage and are enrolled in their own employer’s coverage with no contributions to an HSA.

Verification:

ContinuousHealth’s DA2 dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s signature and proprietary technology notes all results.

Results:

The audit identified 9.2% of dependents on group plan as ineligible for coverage, a first year savings of $658, 000. That represents 3.8% of Client B’s total annual budget for health care. Spousal verification identified that 11.3% of spouses are only eligible for secondary coverage and about 8% are only eligible for dental and vision, based on the response of the spouses’ employers.

Rather than burdening Human Resources with the project after the initial verification ended, Client B decided to continue using ContinuousHealth to verify dependent eligibility and spousal exclusion. Ongoing costs are minimal compared to an initial project, and the transition to ongoing was seamless.

Client C: Spousal Exclusion with Employer Premium Percentage Limit

Operational Goal:

To find a third party solution for current spousal exclusion practices.

Business Challenge:

The Architecture and Planning company had tried to do a dependent verification last year with a well-known audit company, but Client C had been displeased

Implementation:

Client C had a policy in place that offered coverage for working spouses only if the employer portion of spouse’s premium was low.

Spouses can have coverage if...

• they are not employed.
• they don’t have access to group coverage at their employer.
• they have access, but the spouse’s employer’s group plan requires that the spouse contribute more than 50% of total annual premium.

Verification:

ContinuousHealth’s DA2 dependent verification. Client C was interested in feedback about ContinuousHealth’s responsiveness and educate/assist approach, something it had not found in the last firm. The process would identify ineligible dependents while streamlining the current working spouse verification. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s sign off.

Results:

The audit identified 7.70% of dependents on the group plan as ineligible for coverage. Despite the recent verification with the other audit company, 4.4% of the dependents were self-identified as ineligible once the plan requirements were outlined to them with the offer of amnesty. Employees opted out 8.4% of the spouses on the plan after reviewing the spousal carve out requirement, even though these were known requirements that had been in effect for over one year.

After the success of the project, Client C decided to continue using ContinuousHealth to verify both dependent eligibility and spousal exclusion on an ongoing basis.

If you’re working to implement a working spouse policy for one of your clients, let us know if we can help. We would love to talk through the options with you and help you serve your client through that transition.

This article was first featured in the May 15th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Why do 45% of those who turn to the individual market not buy?

In April, the Commonwealth Fund released the details of their survey which found 25% of working-age adults experienced a gap in coverage in 2011.  The report detailed that 45% of those who go to the individual market during a gap fail to engage a plan. On top of all that, the report concluded that the Affordable Care Act will be the answer to these issues in their entirety.  But how realistic is that conclusion, and what do these numbers really mean? 

According to the Commonwealth Fund survey report, “Gaps in Health Insurance:  Why So Many Americans Experience Breaks in Coverage and How the Affordable Care Act Will Help,” nearly half of working-age adults who experience a gap in coverage and turn to the individual market don’t end up purchasing coverage on that market. In the past, much has been made about the difficulty most individuals have in getting coverage in the individual market. People are denied access because of pre-existing health conditions. This survey points to a different cause. What is it?

The short answer?  PRICE.  People have no idea how much health care (or health insurance) really costs.  In the individual market, the true cost is no longer obscured by employer-subsidies… and when people are exposed to the real cost, sticker shock abounds.

The two main issues

So what will happen when health care reform comes into full effect in 2014? Currently, there are two main problems that cause people to refrain from purchasing in the individual market.

For some, it is access.  They are denied coverage because of a preexisting condition, or their condition is excluded from coverage when the plan is written on the individual market. That group makes up, according to this survey, about 19%. 

PPACA promises to solve the problem for the first 19%.  In 2014, no one will be denied coverage because of a preexisting condition or have a plan written for them that excludes their condition. But those measures will require everyone’s cost of health insurance to go up: someone has to pay for those benefits, after all.

For the majority of the rest, it’s affordability.  Of the remaining 81% who do not engage coverage on the individual market, 73% didn’t buy because of price.  Cost is the most often cited reason for not purchasing coverage.

So solving the problem for the 19% will drive up the costs for the other 73%, a group who is already price-sensitive. The United States Court of Appeals for the Eleventh Circuit has noted that guaranteed-issue provisions may result in a 27–30% increase for the individual market. It’s also guaranteed that at least some of the access-averted 19% would then become price-conscious and remain uninsured.  What is the greatest good for the greatest number of people? By fixing the minority issue, we may make the majority issue even worse.

The high risk pool

Before the prohibition on medical underwriting goes into effect in 2014, PPACA created an interim solution to improve access in the individual market. The preexisting condition insurance plans (PCIPs) provision went into effect immediately (it actually started in July 2010, after the legislation passed March 2010), and they offer transitional coverage for high risk participants who have chronic health problems. Initial estimates predicted that total enrollment in the federal high-risk pool program would grow from roughly 400,000 in 2011 to about 600,000 or 700,000 in 2013.

It was clear early on that the program had lower participation than expected. Despite the offering that basically allowed anyone coverage, provided they had a preexisting condition and had been without coverage for six months or more, to date there are only around 50,000 covered by PCIPs. That’s 0.1% of the total uninsured, and only about 10% of the initial engagement estimates.

The Affordable Care Act initially mandated that the PCIPs offer premiums on par with state market rates, and they’re allowed to offer rates based on age by up to a 4:1 ratio. Even so, the most likely culprit deterring people from the high risk pool were the high cost of premiums and expensive out-of-pocket costs. The funding for the pools is low, as well, funded with numbers that would only cover about 9% of the estimated high risk individuals. Even after dropping coverage costs and increasing the marketing efforts to make sure people are aware of this option, engagement remains low.  The Commonwealth Fund report sums it up well: “While awareness of the PCIP program is widespread, enrollment is low.”

The game changer

The health care reform legislation does have one ingredient that changes everything.  The Affordable Care Act has a solution for both the issue of access and that of affordability.

The biggest advantage that employer-provided group insurance has that the individual market lacks right now is tax credits. PPACA creates tax credits for individuals in the form of subsidies.  Once this new system of tax credits comes into play in 2014, it has the potential to solve both problems, since all will have access, and the individual tax credits could make individual health care more affordable for those price-sensitive seventy-three percenters.

What else?

There are other fine points associated with the failure to buy on the individual market.

Current tax incentives for group coverage make employers want to offer more insurance coverage than is sometimes necessary, so people are often over-insured. As they come to the individual market, they’re looking for options that they’re accustomed to but unable to find.

People are also not well educated about their benefits, so as they enter the individual market, the options are overwhelming. “The individual market for most Americans is neither affordable nor easy to navigate” (Commonwealth Fund Report). In the study, 60% of those attempting to navigate the individual market found it difficult to compare benefits between plans. Individuals who buy less insurance consume less health care, but people need education about which options are important for them.

The future of the individual market

It remains to be seen how all of these factors will play out for the uninsured, once 2014 arrives. Forty-six states have engaged federal grant money for research and creation of state-based exchanges (click the link for an interesting map about it). All major carriers have begun mapping out a plan for their private exchanges. Over the past 10 years, the number of individuals on employer-sponsored plans has dropped by 5.3% while the overall non-elderly population has grown by 10.8%.

Without healthcare reform, the individual market has already been growing as a result of the shifting marketplace. PPACA will only accelerate this shift. What role will the individual market play over the next few years, and how will this influence the decisions you help your clients make about their benefits plans?

This article was first featured in the May 1st edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Will Spousal Surcharges and Exclusions stick around after 2014?

You probably have clients who have researched implementing a spousal surcharge or exclusion. You may have some who have already done so for the 2011 or 2012 plan year. Spousal carve outs have grown exponentially over the past few years as an important way to offset rising health care costs. It’s likely that we’ll see them continue to grow in popularity… unless PPACA is interpreted as making them illegal. 

A debate arose in our office recently. Because we care about our partners, we have strong opinions about health care topics and how the PPACA legislation will play out for your clients. This time, the debate was about spousal exclusions and surcharges, and whether or not they’ll last after 2014. Our dependent audit team has seen a sharp escalation in the number of verifications for spousal exclusions and surcharges, which piqued the interest of our CHROME Compass consultants.

Spousal “carve out” is one way that employers are addressing the rising costs of health care coverage, and the trend is well documented, both in trade publications and the general media. In the fall, the Society for Human Resource Management featured an article on the renewed interest in the “working spouse” provision. The CNN Money blog had a post about it this time last year as provision on 2012 plans that employees should get used to seeing. Entrepreneur magazine outlined spousal exclusion as a good option to keep the rest of the benefits plan robust.

Most commentators note that excluding or mandating a surcharge for working spouses with other access is not going to be good for every company. As you know from working with your clients, each employer is different, and plan specifications must be carefully crafted to best serve the company’s needs. Companies need to have a plan for verifying working spouses before implementing the provision. Articles rightly advise that employers need to question if savings will counter additional administrative burden or business disruption.

So, while many are discussing the rising popularity and what types of companies could benefit from it, few people seem to be talking about the potential legality of spousal carve out or how long the provision will be permitted to last after 2014. That was the subject of our office debate this week.

Some members of our team believe that an explicit interpretation of PPACA disallows spousal exclusion. PPACA requires that coverage is offered to employees and their dependents… regardless of access elsewhere. The intent of the law appears to end spousal exclusion entirely, and when the health care reform law comes into full effect in 2014, spousal exclusions may be penalized or eliminated. Additionally, while working spouse provisions are ERISA-compliant and legal under most federal laws, they may not be compliant with state marital discrimination laws.

Another faction in our office points out that legislative intent does not necessary mandate how the final law is interpreted and how it will play out in reality. Legal contests don’t always make provisions like this go away, and, even if the legislative intent is clear, loopholes are guaranteed. To date, the mechanism for penalty if an employer excludes spouses with access to other coverage is yet undetermined. We first assumed that there may be a $2000 or $3000 penalty for exclusion, following the tradition of the other penalties built into PPACA. That is not yet outlined, so, if anything, it’s becoming more possible that this provision would fall under nondiscrimination testing.

Surcharges, as opposed to exclusions, seem to have a stronger argument under PPACA, although there still is not enough guidance to confidently answer either one. Studies show that $600-$1,200 in annual charges for spouses with access elsewhere, on top of premium costs, may incentivize spouses to engage their own employers’ plans. As a bonus, those who remain on the plan contribute increased premium revenue.

Our debate wasn’t officially resolved, but these are the questions we’re bringing to our partners and our clients. Where do you stand on these cost reduction strategies for your clients’ next plan year? If you’re recommending a spousal exclusion or surcharge, how are you verifying them?

This article was first featured in the April 24th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Increasing the Adoption Rate of an HDHP

High deductible health plans can lower health risks, reduce total medical costs and increase employee engagement in benefits. Why, then, are they sometimes so hard to implement? Let’s take a look at one company’s successful conversion to a high deductible plan and see what tools they employed to facilitate the change.

Recent reports show that health care costs will “only” rise by 9.9% this year. After running our CHROME Compass analysis, a recent client realized that maintaining their same plan for the 2011 renewal would result in health care costs increases by 21%. Changing their carrier and keeping the same plan options would still cause the national food production company to see an 11% increase in health care costs. A high deductible health plan could offer significant savings, but this food production company had offered a high deductible health plan in 2010 and had achieved low conversion. Leadership knew that this plan could be better for both the company and their employees, but they were having a hard time making employees see the benefit.

After walking through the options with their consultant and one of our CHROME Navigator counselors, the company’s leadership team decided to modify their contribution strategy, changing carriers and offering three main plans for the 2011 year:

The first plan had a $250 deductible, the most expensive coverage option for the food production company. This was a plan they’d offered previously and, in 2010, it had the highest enrollment. For 2011, the company increased the employee contribution.

The second plan was a more middle-ground option, with a $500 deductible. Only about twenty percent of employees with coverage chose this plan in 2010, but the plan still had higher enrollment than the high deductible health plan at that time. Leadership increased employee premium costs slightly in 2011.

These changes facilitated employee movement toward the final plan, a high deductible health plan that that allowed the company to optimize their investments in employee benefits. In order to make the high deductible health plan a good value for employees, as well as the employer, the food production company reduced the deductible for the plan. They also increased the employer contribution to the high deductible plan for 2011, and introduced two new employer-paid benefits for employees who enrolled in the high deductible plan:  an accident plan and the ContinuousHealth Complete Card. 

The cornerstone benefit of the CH Complete Card is unlimited telemedicine access for employees (and their entire families) through a unique discount medical plan without a co-pay or consulting fee. With this inexpensive card, employees get faster access to critical assistance and increase their productivity, while the company was able to provide a much-needed benefit at a cost significantly less than traditional office visits. The card also offers a fitness discount and either travel assistance or pet health discounts, benefits that show high satisfaction levels for employees with minimal cost to the employer.

Because the CH Complete Card plan isn’t insurance, the card was a supplement to the high deductible plan that controlled costs and encouraged employee migration to the consumer option. This allowed the food production company to continue offering valuable benefits despite health care inflation.

By the end of enrollment, it was clear that the incentives made it hard for employees to want any other plan: enrollment for the $250 deductible plan decreased by 54%, and the $500 deductible went down by 16%. The high deductible health plan tripled its enrollment for 2011, and, even with the new employer-paid benefits, the strategy reduced overall health care costs by one percent.

The key for this employer’s conversion to the high deductible plan was making the plan as attractive as possible to their employees. The employees, most of whom had minimal understanding of their benefits, were interested in the tangible CH Complete Card offered with the high deductible plan, and since the CH Complete Card is a fairly new product, we wanted you to see one way that a consultant partner used it to benefit her client.

Let us know if you’re interested in more information or the statistics of this conversion.

This article was first featured in the April 17th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.