Dear Cheasty,
I am the owner of a small business that employs 75 people. Our company provides access to health, dental, vision, life, LTD, ADD, and optional insurance. The company pays the first $300 of the full premium, which represents up to an 80% contribution rate on the employer side.
During a recent talk I heard you give, you said that insurance companies are barred from increasing rates more than 9.9%. Yet this year,our particular group rates increased 20%. In order to keep the premiums low, we opted for “poorer” plans that have higher deductibles, higher co-pays, higher out of pocket minimums, but our employees still have to pay more in premiums. Under the plans that we chose, the lowest cost plan for a family with a $6000 deductible, 70% co-insurance, $10,000 maximum out of pocket, and $45 doctor visit co-pay, is $955 per month. That is about 35% of our average non-management take-home salary. That is too much! As a result, many of our employees do not cover their children or spouses. So, although they have access to health insurance, it is prohibitively expensive. “A dream deferred is a dream denied.”
If the maximum rate increase is 9.9%, how can they charge us so much more than that? Should I contact the Texas Department of Insurance, or the Office of Public Insurance Counsel?
I really support a “government takeover” of healthcare – I wish that making these hard decisions were out of the hands of employers. I think it would give us a level playing field as we compete for qualified employees with larger businesses. (I lost a computer programmer last month in a bidding war with BP — I can’t offer the deep discounts on health insurance benefits that they have the luxury of).
Sincerely,
Frustrated Business Owner
Dear Frustrated,
I am so sorry to hear that you are having so much trouble finding accessible and affordable health insurance for your employees. Sadly, yours is a story I hear far too frequently. You’ve asked some really good questions, and the answers break down into two categories: good news and bad news. I’m going to give you the bad news first, and then end on a couple of high notes.
OK, first for the 9.9% cap on yearly insurance rate hikes. Insurers are not, as you thought I said, banned from raising them more than 9.9% (I’m sorry if I was unclear). What the Affordable Care Act does is guarantee that if the rate hike is 10% or higher, then it triggers an automatic review process. That is, the Texas Department of Insurance (TDI) must conduct a review to figure out whether that rate hike was fair and justified or not. (For Texas, the sad news here is that, unlike in some other states, TDI can’t tell a company not to raise the rate that high, they can only recommend that it not be raised that high. We’ll be fighting to give the TDI enforcement power this coming legislative session, so stay tuned!)
One more important thing to understand is that the 9.9% cap is not a cap on the policy offered to one person or business. Rather, it is a limit on the company’s average increase across a group. So if your policies went up 20%, they have to balance out their average by not raising somebody else’s rates.
What are the reasons an insurance company may “justifiably” raise rates? There are six categories: health, gender, age, geography, type of work, and size of group. Therefore, if somebody on your plan recently battled cancer, the “health” category would raise a red flag for your insurer. If you lost seven male employees and hired seven female employees in their place, your “gender” category would light up, because insurance companies charge more to cover women than men. If a few of your employees aged into a higher age category, your rates would go up because they charge higher rates for older folks. As you can see, there are lots of reasons why RIGHT NOW, insurance companies can raise rates like they just did to you.
So that was the depressing reality. Now for some good news. When the ACA goes into full effect on January 1, 2014, insurance companies will lose some of those six categories that they use to “adjust” rates for their clients. They won’t be able to charge women more than men. They won’t be able to charge a company more based on the type of work that they do. And most importantly, they won’t be able to raise rates or deny coverage based on health history or condition. So no more rate hikes based on an employee getting sick. Depending on the reasons for which your insurer raised your rates, these provisions may stop your group policy from rising so quickly or so high.
But best of all, Frustrated, if you still can’t afford the health plans for your employees, you can simply stop providing insurance without being a “bad employer.” Here’s how it could work. As a “large business” owner (i.e. larger than 50 employees) you will have to pay a fee of approximately $2000 a year for every employee that you don’t insure (there are caveats, of course, too much detail for a blog post, but you can click here to read all about the ACA provisions for large businesses). You’ll get the first 30 employees free, so if you have 75 employees, you’ll have to pay the fee for 45 employees. That’s a total of $90,000 a year in fees [$2,000 x 45 = $90,000]. Right now, if my math is correct, you pay $270,000 a year for insurance [12 months x $300/month x 75 employees = $270,000].
In short, Frustrated, you could cancel your insurance, pay the fees and pay your employees several hundred a month toward buying their own insurance, which they’ll be able to do – with government subsidies! – on the Health Insurance Exchange, which will begin operating in 2014.
I know there are so many questions still left unanswered, Frustrated, and I hope this answer goes a long way toward helping you understand what is going on with your insurance rates. If you still have questions for me, feel free to email me at anderson@cppp.org and I’ll be happy to answer in more depth!
To a well and healthy Texas,
Cheasty Anderson
Health Insurance lingo has always been somewhat complicated and confusing, but with the passage of the Affordable Care Act it is increasingly important for the average Joe six-pack American (borrowing from a famous Alaskan governor) to understand this terminology. As the Affordable Care Act continues to be implemented, these terms will be used to define certain components of the bill. Here’s a break-down of some of the most commonly used terms:
Premium: The monthly cost of your health insurance plan.
Co-payment: The set amount you pay each time you visit the doctor, pick up a prescription or visit the emergency room.
Deductible: The amount you have to pay before your insurance “kicks in”. Let’s say you have a $1,000 deductible. That means you must pay $1,000 before your insurance will begin to pick up any of the tab. If you have a higher deductible, your monthly premium will typically be lower.
Co-insurance: The percentage of the bill your insurer will pay after your deductible has been met. A typical co-insurance is 80-20. The insurer will pay 80% and you will be responsible for the remaining 20%.
Maximum Out of Pocket: The maximum amount you will personally pay for rendered health services during a year. This amount figures in your deductible and your portion of the bill.
Lifetime Benefit: The total amount of coverage you are eligible to receive over the course of your lifetime.
*Prior to the Affordable Care Act, insurers could place a lifetime limit on your coverage. Luckily that is no longer the case. An estimated 105 million Americans have benefited from this new provision according to the U.S. Department of Health and Human Services.
Stay tuned for an upcoming segment on tackling the concepts behind various health insurance plans.
Contributed by Stephen Duckett, Health Policy Intern, Children’s Defense Fund and graduate student at the University of Texas Health Science Center at Houston, School of Public Health.
Dear Cheasty,
Hello. I work for a small company and one of my co-workers just told me that this year our insurance premiums are being reduced. I asked some more questions and he told me that our entire office might even get a refund check in the mail from the insurance company this year. I was delighted to hear that of course! I was wondering, though, what’s going on? Is this true? And if it is true, is this change because of health reform?
Thank you,
Laura from Houston
Dear LFH,
I know where you’re coming from. Reduced premiums? Getting a refund check from your insurance company? That’s NOT how the world as we know it works – surely we simply failed to notice the rabbit hole we must have fallen into! Well hang on to your shorts, LFH, because have I got some great news for you.
First of all, yes.
Health reform – also known as “Obamacare,” “the Affordable Care Act,” and “the ACA,” is responsible for some reductions in premiums and refund checks from insurance companies coming this year. While I wish I could guarantee you that your personal premium would indeed be reduced, I can’t speak to your individual case. I can say, however, that some small businesses in Texas have indeed seen reductions in their premiums in the last few months. This is great news, but not a guarantee that premiums will drop for everybody. In fact, rather than reducing premiums across the board, it is more accurate to say that Obamacare is slowing the ludicrous speed at which premiums rise over time. It is doing this in two ways – through “rate review” and the “80-20 rule”.
Let’s discuss them one at a time to fully explain.
Believe it or not, prior to this law, insurance companies could raise premiums as much as they wanted to, and with no explanation for why they were going up. I received a letter from a guy who’d seen a 700% increase in his policy over 6 years even though he had never gotten sick during that whole time. Outrageous!
Now, because of a provision called “rate review” insurance companies can still raise premiums, but they must justify rate increases over 10%. Those justifications are posted publicly – so you can see why rates are going up – and the justifications are reviewed by the Texas Department of Insurance to determine if the increase is based on reasonable assumptions and solid evidence. For insurance companies, this will be an unprecedented level of scrutiny and transparency, and will do two things: (1) it will help keep you the consumer informed, and (2) it will help hold down premium increases over time. Nice.
Now for the fun stuff: REFUND CHECKS!!
This is pretty exciting, and it’s all thanks to a provision in Obamacare called “the 80-20 rule”. You may have heard of this. Until recently some people were (and some still are) calling it “medical loss ratio” or “MLR” for short, but that name doesn’t make a lot of sense. What it really means is this:
Insurance companies now have to spend at least 80% of all the money they collect in premium payments on actual medical care, and they can spend no more than 20% of that money on administration and profits.
For some insurance companies, this isn’t a problem – they already hit that mark – but others that offer less value to their customers are going to have to make some big changes to how they do business. And here’s the kicker! Those companies that don’t hit the 80-20 mark will have to issue refunds to their customers, starting August 1st of this year. In fact, some companies are reducing premiums now to avoid sending refunds out later.
This is probably what happened with your company’s insurance, LFH. That’s great news for Texans, especially in these tough economic times!
So, Laura from Houston, I hope these short paragraphs have helped explain exactly what might be going on with your insurance premiums this year. I wish I could promise that all of my readers would get reductions in premiums and a big check in the mail, but at least we know that many Texans will. And most importantly, I hope you feel better knowing that Obamacare is taking some really important steps toward improving the way health care works in this country. We’ve already seen some really great benefits so far, and more are coming in 2014.
So, keep your eyes peeled for a great health care future!
To a well and healthy Texas,
Cheasty
