Highlights for ACA Reinsurance Fix

Below is a process flow diagram of major components that impact ACA reinsurance. It contains three columns representing health claims process [1] before ACA, [2] the current ACA process, and [3] ACA with government Reinsurance.

Initially, the process is identical for all three, but it diverges when handling “excess” costs as shown by the three red bordered boxes. Shifting those excess costs to government as reinsurance dramatically drives down total costs for both insurers and users. The two boxes at top right add the effect of lower health care costs on government subsidies to arrive at the combined net savings from users and government.

This process diagram is a picture of an Excel spreadsheet in which one can change the assumptions in yellow highlighted cells.

Open Process Flow Diagram: ACA Flow Diagram

Download Interactive Spreadsheet: ACA Process Flow

The above diagram captures most of the effects of government reinsurance. An even more comprehensive analysis is provided in the Post titled:

Exchange Fix Stabilizes and Restores “Affordable” to Affordable Care Act

Both posts identify the multiple effects when government reinsurance is reinstated for ACA Exchanges. Both analyses show that government reinsurance when implemented:

  1. Can decrease health insurance costs by 40% or more for small businesses, key generators of jobs in the U.S.
  2. Is equivalent to a $25 Billion middle class tax break for Exchange members (difference between member savings and net new government spending)
  3. Clearly defines maximum risk for insurers, abolishing the costs of unlimited risk, leading to far lower premiums
  4. Increases competition and user choice as health insurers have positive incentives to participate in Exchanges
  5. Provides health insurers with a large built-in market to up-sell additional products and services
  6. Continues reliance on private health insurers to come up with creative solutions for cost containment and reduction

Exchange Fix Stabilizes and Restores “Affordable” to Affordable Care Act

Download PDF Report: Reinsure ACA

This analysis drew its data and conclusions from an Excel based simulator. Details of this simulator are described in:  APPENDIXEXCHANGE SIMULATOR and APPENDIX – METHODOLOGY. The downloadable simulator, permits users to change a variety of assumptions and to view the results in graph and table form. This Excel file contains no macros or VBA that may pay pose a security risk to users.

Download Exchange Simulator: ACA simulator

SUMMARY

Before the Affordable Care Act (ACA), people with chronic and costly illnesses, if not buried in debt, were sorely stressed from medical liabilities they incurred. ACA shifted excess costs to insurers when it prohibited any health exclusions and annual and lifetime limits. Government reinsurance could further shift these excess costs away from insurers. This last effect would draw Billions of dollars from the Exchanges and allow premiums and costs more in line with pre ACA days.

Lower costs happen despite retaining all the essential health benefits added by ACA. Of note is that while the government reinsurance costs would rise significantly, subsidies for lower-income users drop by billions. When one includes the lower premiums and deductibles for users, combined savings can significantly exceed any increase in government costs. . Users benefit while government pays out more. The difference is in fact identical to a direct tax cut for the middle class.

BACKGROUND

Few issues generate as much controversy as the Affordable Care Act (ACA). As U.S. health care constitutes nearly 20% of GDP, $3 plus Trillion and over $10,000 for every person, the issues are both economic and political. One cannot easily solve the political issues. However, one can add perspective.

First, the bulk of ACA changes have broad acceptance and help make improvements to many different aspects of health care. Most controversy centers on Exchanges and Medicaid Expansion. Alternatives to Medicaid Expansion have not been very helpful, other than to free up Billions of dollars for other uses. More valid ideas exist for amending Exchanges. This analysis focuses on just one ACA amendment.

ACA removed a financial burden from people by prohibiting medical exclusions and caps on insurer coverage. However, those costs did not just disappear. Now insurers are left “holding the bag” for these costs. Government has helped with subsidies. Nevertheless, the long-term answer would be to shift further all the highest user costs from insurers to the government. Note the difference between “highest user costs” and “highest cost users”, as in high-risk pools. Reinsurance keeps everyone in the main pool and offers the most efficient method to achieve affordability. Not only does reinsurance relieve insurers of a costly burden, it also draws billions of “duplicate” dollars from the entire health care system.

Obviously, any major change will affect stakeholders in different ways. The following section highlights a few.

Health Insurer Stakeholders

This would present a mixed bag for insurers. Reinsurance will drastically lower their costs that are coming from a very small minority. Medical loss ratio (MLR) minimums will force down premiums. Exchange Insurers employ a cost-plus scheme that directly affects profit opportunity. Falling costs lower insurers’ profit opportunity; higher costs raise them.

Favorable for insurers is retaining a customer base on which to market additional services. Solve ACA Exchanges’ cost issue and insurers can expect greater user enrollment as well.

Federal and State Government Stakeholders

Reinsurance proposed here assumes Federal government funding. Medicaid costs do involve state government, but their role regarding Exchanges is little changed.

Small Employer Stakeholders

Reinsurance should be a major boon to small employers. Both before ACA and with ACA, small employer health insurance has always been higher than for large employers, not just from economies of scale, but also from many large employers being self-insured. Self-insurance eliminates the “middle man”, namely, the insurers’ markup that adds major costs for smaller employers. Small employers are more likely than large to grow, which could prove to be a jobs boost.

Individual Stakeholders

Lower cost is an obvious benefit for individuals. Another major benefit for individuals is that reinsurance would bring back insurers leading to far more competition on Exchanges. Network “shrinking” should decline along with some of the frustration with the current Exchange market.

Those not eligible for subsidy, though not by any means rich, will gain from lower premiums, deductibles and co-pays.

Young and Healthy Stakeholders

Most people would accept paying a fair share for insurance. However, the extreme skewing of health costs and ACA restraints tilt this unfairly. This has led many to go without insurance, or to pay the penalty as less onerous options. A major reduction in costs would make coverage palatable. There are always a few to argue that about the need for some female benefits. Perhaps they slept through biology class. ACA assures that males and females are treated equally.

Elderly Stakeholders

With reinsurance drawing billions from Exchange health costs, elderly are likely to benefit as much proportionately as younger, healthier people. Older workers are more likely than younger to be laid off in a downturn, and reform would provide an affordable option until Medicare is available.

Those on Corporate/Government Health Care Plans

By removing dollars from health insurance, Exchange costs will be more comparable to corporate and government plans. This may lead some who have an option to switch to join an Exchange and be insurance independent of their employer. It may also be a precursor to transition health insurance from employer based to individual based, or even single payor.

ACA EXCHANGE INTERACTIVE SIMULATOR

The following analysis draws its data from an interactive simulator explained further in the Appendixes. Six cases compare differences from before ACA to two reinsurance cases that bring user costs down to pre ACA days but with far better coverage. For each case, there are two side-by-side graphs below which are the assumptions for those graphs.

ANALYSIS

CASE 1. Pre Affordable Care Act

The following graph shows Exchange member costs under “Pre-ACA”. ACA will change two key (yellow) assumptions that bear noting. One is the “User Annual Limit” that caps what insurers will pay, and second is the Medical Loss Ratio (MLR) that reflects a typical MLR for individuals and small groups prior to ACA. Prior to ACA, insurers paid only to the annual limit, forcing members to absorb any excess costs. Insurers also could raise premiums to increase their margins, as there were no MLR limits on insurers’ profits.

The first bar in the left graph (50% of members) had costs less than their deductible (no blue bar) where insurers paid no claims. The next two groups (40% combined) did co-share with insurers (green bars), but the three groups at right (top 10%) were also forced to absorb their excess health costs (red bars). As regards premiums (line graph), they were low for healthier members but were often 5 times (or more) higher for older, less healthy members. Premiums averaged nearly $440/ month, not exactly affordable to many.

The right graph shows an often-overlooked cost item. The copper (3rd) bar shows government reimbursements ($18B) to hospitals and providers. It covers medical service costs for uninsured people. Analyses have found that the uninsured incur about half the health costs of insured. Government has always been deeply involved in health cost support prior to ACA, just in a less visible way. The low amounts in first two bars are due to only 10% Exchange members being insured.

10.0 M Exchange Population $15K User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$2,000 User Deductible 68% Medical Loss Ratio
40% Co-pay / Co-share 90% % Users Uninsured
$10,000 Max Out-of-pocket $2,000 Provider Reimbursemnt

Finally, bottom right shows a significant Insurer “margin” of $97 per month that insurers received. This is the difference between premium received and costs paid out. Self-insured companies get by with far lower margins, while individuals and small business withstand the brunt of insurers’ profits.

CASE 2.1. ACA 2017 Bronze 60%

Like Case 1, the following graph shows Exchange member costs under “ACA mid 2017” conditions and assumptions.

10.0 M Exchange Population n/a User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$6,000 User Deductible 80% Medical Loss Ratio
40% Co-pay / Co-share 70% % Users Subsidized
$10,000 Max Out-of-pocket $3,000 Subsidized Payments

The key change, however, was a shift of some $35 B excess cost (red bars) from ALL 10 million now insured members to insurers. This led to large increases in insurers’ costs that insurers passed back to users as premiums and deductibles.

ACA had hoped that with mandatory enrollment, healther members with lower costs would balance those with higher costs. A 3:1 max premium spread also forced up premiums for younger members. With only mild penalties, enrollment ran below expectations, requiring insurers to increase both premiums ($698) and deductibles (to $6,000). Not visible is how many did not enroll due to the effect of these actions.

In the right graph, Gov’t reimbursements for the uninsured are replaced by ACA subsidies for the poorer insured. These costs exceeded reimbursement savings for a small increase. Meanwhile, the sum of all costs rises to over $200 Billion.

CASE 2.2. ACA 2017 Silver 70%

The following graph shows costs for ACA Silver plans. One would expect user costs to decrease when insurers pay more on claims. However, higher insurer payments lead to higher margins, that rise above $100/month.

Those claims payments and added margins actually exceed initial user claims payments. The net effect is that that users come out worse on average. All this assumes an exact 80% MLR effect on margins. Meanwhile, total costs (last bar at right) remain high at over $200 Billion.

10.0 M Exchange Population $15K User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$3,500 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$7,000 Max Out-of-pocket $3,000 Subsidized Payments

Case 2.3. ACA 2017 Gold 80%

The following graph shows costs for ACA Gold plans. This is a repeat of Silver plans addressed just above. The more insurers pay, the more margins rise. Together, that raises user costs. Moreover, government subsidies to poorer insured are dependent only on their income. As health care costs rise, this forces government to increase subsidies to keep these insured users whole. If all 10 million users had gold plans, total costs under current ACA conditions would rise above $220 Billion.

10.0 M Exchange Population n/a User Annual Limit
$8,000 Avg Health Costs n/a Reinsurance Premium
$1,000 User Deductible 80% Medical Loss Ratio
20% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

CASE 3.1. ACA -Base Reinsurance

With greater insurer payments inflating government subsidies and user costs even more, then one logical way to correct this is to lower what insurers pay. Just as ACA shifted user costs to insurers by increasing user protections, one can increase insurer protections by government reinsuring their highest costs. Reinsurance is not an insurer bailout but an efficient way to reduce their involvement in claims payments. MLR constraints will limit margins and any notion of bailout.

Like all Cases, the graph below shows Exchange member costs under “ACA with Government Reinsurance”. This shifts some $34 B of “excess” costs (red bars), but this time from insurers to government. With this shift in costs, the risk to insurers declines to less than what existed prior to ACA. The premium effects are dramatic. The highest Premiums (for older folks) drop almost in half compared to Pre ACA levels, while the lowest decline as well.

One can see the dramatic reduction of Total Exchange Costs by comparing the right graph above with any of the previous ACA cases. The axes on the right graph are fixed at $140 billion for Users, Insurers, and Government, and $280 Billion for all combined. In each of the ACA cases, the combined costs of all three parties were over $200 Billion.

10.0 M Exchange Population $15K Reinsurance Threshold
$8,000 Avg Health Costs 10% Reinsurance Premium
$3,500 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

Reinsurance greatly lowers user and insurer costs, though increasing costs to government. The total combined costs drop to $130 Billion, some $70 Billion below curent levels.

Every dollar for which an insurer is liable more than doubles the claims cost. This is because insurers add an overhead margin to claims paid. They then recoup via premiums and deductibles from users. If government is liable, there is that much less for insurers to pay. And if they don’t pay, they they also have to cut their margin to remain MLR compliant.

The government is currently paying some $42-45 Billion in subsidies to insurers. As premiums decline with reinsurance, so do subsidies. The net result is a modest $8 Billion increase to about $52 Billion in government costs. Contrast that with at least a $35 Billion reduction in user costs. That has the same effect as a $27 Billion ($35B-$8B) tax cut, and nearly all of that is for the middle class.

What should surprise nobody is that when risk shifts to government, there is no middle man (private insurer) to add overhead for marketing and profit. This is one reason why Medicare and Medicaid cost materially less per person than does private insurance. Government doesn’t charge extra for “risk.” Medicare also fixes prices, relying on doctors in private practice for input, but that is another story.

Less well known is that many of those same private insurers that ACA forced to reduce margins to “only” 15% to 20% perform nearly all the same administrative tasks for Medicare and Medicaid for less than 5%.

CASE 3.2. ACA -High Reinsurance

There is one more appeal to the reinsurance model. Lowering the threshold from $15K to $5K in graph below, transfers the bulk of insurer risk and related cost. Insurers are at risk only for lesser amounts. As claims bypass the middleman and his markup, Exchange premiums decline to near Medicare levels. All the while, insurers can remain in (or return to) Exchanges with an opportunity to sell additional benefits and find ways to lower costs even more. Reinsurance retains the creativity and inventiveness of private enterprise to reign in costs.

10.0 M Exchange Population $5K Reinsurance Threshold
$8,000 Avg Health Costs 5% Reinsurance Premium
$1,000 User Deductible 80% Medical Loss Ratio
30% Co-pay / Co-share 70% % Users Subsidized
$5,000 Max Out-of-pocket $3,000 Subsidized Payments

CONCLUSION

Without changing essential business processes in use today, one can greatly reduce Exchange costs by implementing ACA reinsurance. Shifting most risk from insurers would be like insuers being third party administers for self-insured companies. One major insurer benefit is they retain a built-in customer base where they can market features beyond ACA’s essential benefits. Like other countries with single payor systems, the U.S. can still have a vital albeit smaller private insurance market able to offer health features beyond basic government benefits. They are also free to adapt to special conditions of their markets.

Best of all, Congress could make the threshold adjustable to rebalance, as needed, consumer affordability and private insurer sustainability. That is a fiscally conservative idea with a major benefit both to the middle class and to the health of all Americans.

.

APPENDIX – METHODOLOGY

 STEP 1 – DEFINE THE HEALTH COST “CURVE”

To find a solution, one needs to understand the problem. Health care insurance is not like most insurance policies about which many are familiar. With most insurance, there is a fairly symmetrical form to their costs: some low, some high, most near the middle. Acceptance occurs when those with lower costs feel the “premium” is worth the protection.

However, health costs are extremely skewed, with a huge majority of low cost members expected to cover extremely high costs of a tiny minority. Adding a mandate to buy health insurance simply adds to the discontent.

The first step was to develop an exponential math equation that would roughly mirror the actual health cost distribution where the top 1 % consumes 20% of all costs, the top 5 % – 50%, and the top 10% – 60% of all costs. Then build a table with 100 cells of equal population sorted by cost. The graph below does this and highlights how skewed health costs are. With an average cost for the U.S. of about $10,000/year, it was necessary to limit the right axis values in order to view any of the lower costs for 90% of the population.

ACA further limits insurers to a maximum ratio between highest and lowest premiums of 3:1. Insurers responded by increasing deductibles in order to maintain reasonable premiums. The result was deductibles rising to the $4,000 to $6,000 range. Even with high deductibles, premiums are still uncomfortably high. Deductibles are often far above 80% of the members. These lower cost members never collect any of the insurer’s co- payments. Even at $2,000, few members exhausted their deductible (red line) in the next graph.

STEP 2 – HIGH-RISK POOLS VS. REINSURANCE

Nearly all agree of the need to shift costs from insurers to government. This analysis considers two ways. In an effort to bring down costs, some favor funding (state run) high-risk pools that remove high cost members from the main pool.

Applying this to the highest 4% cost members yields the graph above. With High-risk Pools, Health Insurers have total protection only from those in the pool. They still retain the risk that one or more of those in the main pool will incur exceedingly high costs. With over 95% of members still at risk for substantial claims, insurers will cover this risk by raising premiums, deductibles, or both. As pools often have stricter conditions, users face obstacles for even small claims.

Another way to shift risks and costs to government is with reinsurance, a form of which ACA included until Congress blocked its funding as a “bailout of insurers.” A permanent form of reinsurance is needed like shown in the next graph.

Several kinds of reinsurance are available. “Treaty” transfers risk when overall costs exceed a threshold. “Facultative” is the recommended form for health reinsurance. It covers only an individual’s excess costs. Insurers already have systems in place, as the logic is identical to annual limits of yesterday. Only now, costs are forwarded to government, not returned to the user. An important conclusion is that reinsurance protects health Insurers from high costs over the entire pool. They can more readily define risk and do not need to add more risk for potentially large claims from any member.

Another advantage is for those with chronic illnesses. If they incur common injuries or sicknesses having nothing to do with their chronic illness, they still have pool coverage common to all. Unlike high-risk pools, reinsurance offers ALL members equal treatment for any illness or injury.

Finally, one can compare the costs of high-risk pools versus reinsurance. In the graphs above, assigning the top 4% to high-risk pools is equivalent in cost (but with greater risk) to setting a $22,000 average reinsurance threshold.

STEP 3 – COMBINE MEMBERS WITH LIKE COSTS

At this point, there are 100 cells (members) each representing 1% of the population. Now consolidate the100 cells into six groups or “buckets”, where the total cost of each is higher and the population is smaller than the preceding group.

This led to population groups (in ascending cost order) of 50, 30, 10, 5, 3, 2 = 100. The result is having the cost for each group and total. The actual total cost is not important. What is important is knowing the percent of total costs are in each group. Applying these percents to any cost total determines the costs for each group. Total cost is simply a product of Exchange members and their average costs.

STEP 4 – BUILD EXACT PROCESS FOR CLAIMS

With costs by group defined, the next step was to build the precise and detailed logic or rules of how insurers process all health claims. All insurers must abide by the same rules in the table below, but not necessarily using the same values.

Step Description Paid by…
1 Deductible Member
2 Co-pay/Co-share % by Member, balance by Insurer
3 Out-of-pocket Maximum Limit on what member pays. With ACA, Insurer liable for excess
4 Reinsurance Threshold Limit on what insurer pays. (Gov’t) Reinsurer liable for excess
5 Who Pays Excess Costs – 3 Cases 1. Pre-ACA – Members paid
2. ACA mid 2017 – Insurers pay
3. ACA Reinsurance – Gov’t pays
6 Derivation of Premiums using cost + accounting All health costs paid by insurer + a Margin to cover overhead – max set by Medical Loss Ratio limits
7 ACA Subsidies /

Reimbursements

% eligible & Avg Gov’t Subsidy or

Pre ACA Provider reimbursements

APPENDIX – EXCHANGE SIMULATOR

All the graphs above drew their data from an interactive simulator that covers 3 Cases or phases of ACA health care.

  • Phase / Case 1: Pre ACA using earlier business processes
  • Phase / Case 2: ACA in 2017 using current processes
  • Phase / Case 3: Amended ACA adding a new process for government reinsurance

In addition to three basic cases, one can change 14 values that determine payment of costs and derivation of premiums:

  1. Exchange Population (+/- 10 million)
  2. Average Health Care Costs (now about $10,000)
  3. Insured member Deductible $
  4. Insured / Insurer Co-payment %
  5. Insured Maximum Out-of-pocket $
  6. Annual Limits for users (now outlawed by ACA)
  7. Government Reinsurance Threshold $
  8. Reinsurance Co-payment % (in lieu of premium)
  9. Medical Loss Ratio (70%+/- pre-ACA, 80% ACA)
  10. Uninsured pre ACA whose costs Gov’t reimbursed
  11. The reimbursement amount paid to providers
  12. Number of subsidized Exchange members
  13. Cost of Gov’t Payments for subsidized members
  14. Finally, toggle between 5:1 or 3:1 premium ratios

All the graphs in this document, plus the table below are available for download and experimentation in an Excel spreadsheet. This Excel file contains NO macros that can interfere with network security. It does contain over 2,400 “formulas”. This interactive ACA simulator is available at “insr.us/reinsureaca”

APPENDIX 2 – EXCHANGE SIMULATOR RESULTS

The table below shows assumptions and results for six cases. One is before ACA, three are cases representing Bronze, Silver, and Gold ACA, and finally two showing ACA with Reinsurance. Identical logic applies to all cases. Focus on the top three rows and their sum, “Total Cost All Sources” row, in yellow. While Government costs go up, User and insurance go down.

Today those combined total costs are running over $200 Billion. Note in the last two columns with reinsurance, total costs drop significantly to about $130 Billion. The $8-10 Billion increase in government is more than offset by member decreases of $40 Billion, and by insurer decreases of $50 billion. Reinsurance literally “drains” billions of dollars from Exchanges.

APPENDIX 3 – EXCHANGE SIMULATOR DETAIL COMPUTATIONS

The table below shows the detailed calculations for the final case, “ACA with High Reinsurance”. The assumptions are in yellow in column D. The eight blue shaded rows describe the computations immediately below each. Section D, “Reassigned Excess Costs” shows who bears excess costs (user, insurer, or this in case, government) and how much are those costs.

Download PDF Report: Reinsure ACA

Download Exchange Simulator: ACA simulator

Will Reducing Part-Time Hours Avoid the Large Employer Mandate?

Download PDF Report >>> ACA Large Employer Mandate

SUMMARY

There has been much discussion about employers reducing hours for part-time workers to less than 30 hours per week.  The argument is this will exempt employers from penalties under the ACA because penalties apply only to “full-time” workers not offered health insurance.

However, a careful reading of the Act suggests that only for purposes of assessable employer penalties, that “full-time” definition is overridden. What does apply is an aggregate 40 hour week. For instance, two part-time employees working 20 hours would equate to one full time employee.

Depending on the aggregate number of hours of part-time “non-seasonal” employees, and on whether or not a company offers health insurance to any of its employees, a company can be penalized between $2,000 to $3,000 per year per un-insured employee if the number of full-time workers PLUS full-time equivalent workers is 50 or more.  In conclusion, switching from full-time to part-time workers of equal total hours worked may not avoid the ACA employer mandate.

REFERENCE

The discussion includes line references in [bold brackets]. These refer to excerpts from the Affordable Care Act regarding employer shared responsibility. The full path to this excerpt is “TITLE I, Subtitle F, Part II, Section 1513”. For reference, each line in the excerpt is numbered, and key discussion points refer to the Act by those line numbers in [bold brackets].

Website formats do not show these line numbers so a PDF file needs to be downloaded which does show these line numbers in the ACA excerpt. The download link appears both at the beginning and at the end of this analysis.

DISCUSSION

The Affordable Care Act has been shrouded in controversy since well before it even was signed into law in March, 2010. Since then, little has improved. The House of Representatives has passed 38 (and counting) laws to repeal the Act. With the Supreme Court having ruled, a continuing emphasis has been made to circumvent provisions considered onerous.

One of the ways getting media attention is companies cutting back on the hours of part-time employees to insure that they work less than 30 hours per week. 30 hours is the point at which an employee is defined as full-time [lines 78-79] and counts toward the large employer mandate.

Small employers remain exempt from penalties as regards offering health insurance. Large employers, though they have a one year penalty delay, must offer health insurance. An important definition in ACA is that of “large employer.” The ACA does not simply define any large employer, but rather defines an “applicable large employer” [lines 41-44] for which the ACA mandate provisions specifically apply.

For instance, an employer would NOT be considered large if its workforce was [a] less than 50 full- time employees for at least 8 months, and [b] not more than 4 months per year in which [c] seasonal employees cause employment to rise above 50 [lines 44-50]. Agricultural workers bringing in the harvest and extra retail clerks during Christmas are examples of seasonal workers that would not trigger employer liability.

The issue is over smaller companies that have just over 50 full-time employees.  Should they reduce hours of some employees to have less than 50 workers? Apparently, some companies are doing so to avoid the ACA mandate. But that may not work if they employ many part-time workers.

Two examples serve to test this issue. Call these companies “ACME1” and “ACME2”. Each has 35 full-time workers (30+ hours per week) and 60 part-time workers at 20 hours per week each. They differ only in that ACME1 does not offer health benefits for anyone [lines 9-11] while ACME2 offers benefits to its full-time workers [lines 22-24].

Under ordinary worker definition, neither ACME is a “large employer”.  But ACA uses a different definition to determine “applicable large employers” that are subject to the liabilities and penalties of ACA. For “applicable large employers”, the definition of full-time employees INCLUDES the aggregate number of hours of part time employees per month divided by 120, [lines 63-68] which average is 30 hours per week, the minimum for full time employee..

For each ACME, the aggregate hours/month of 60 part-time workers is 4,800 (60 workers x 20 hours/week x 4 weeks) or 40 (4,800 total hours/120 ACA aggregate) full-time equivalents each. Adding 40 full-time equivalents to each ACME workforce results in 75 “full-time” workers. That is above ACA’s 50 worker cutoff and each would be defined as an “applicable large employer”.

Each of these employers is then liable for an assessment under the ACA, but their penalties are different. Both the penalty rate and the employee penalty count are different.

The liability rate for ACME1 that did not offer health insurance [lines 8-11] is $2,000/year [lines 38-39] applied to ALL its employees [lines 16-18]. The liability rate for ACME2 that did offer insurance to full-time workers [lines 19-24] is $3,000/year [lines 29-31] but applicable only to the full-time equivalents of its part-time employees.

The ACA does allow an exemption of 30 employees when determining the assessment liability [lines 56-61]. ACME1’s employee count would be 45 “full-time” employees (35 actual plus 40 full-time equivalents less 30 exemptions). Applied for a full year, the penalty is $90,000 (45 * $2,000).

The 30 employee exemption applicable to ACME2 has a different effect. The 35 full-time employees are excluded. That seems to leave the 30 count exemption to apply to the full-time “equivalents”.  Just like ACME1, the aggregate count of these full-time equivalents is 40. With an exempting 30 of these employees leaves 10 liable to penalty. Applied for a full year, the penalty is $30,000 (10 * $3,000).

In conclusion, switching from full-time to part-time workers of equal total hours worked may not avoid the employer’s responsibility for offering its workers health insurance.

Download PDF Report >>> ACA Large Employer Mandate

 

Senate Gridlock – the Filibuster Factor 2012

Download PDF Report >>> Filibuster Trends 2012

SUMMARY

For decades, filibusters served Congress well as a method for the minority to put some checks on the majority. But the nation’s founders never envisioned this turn of events. The constitution requires the VP to break Senate vote ties clearly indicating that 51 % is a majority. Republicans recent reliance on the filibuster has effectively raised the votes needed to pass to 60%, a super majority. Using the filibuster to wrestle power back is not a recipe to reduce people’s frustration with gridlock.

ANALYSIS

This is a mid 2012 post updating earlier posts that record actual data through summer 2012. Americans of all political persuasions are more and more frustrated with the gridlock that has almost brought Washington to a standstill. This analysis focuses only on the Senate and the filibuster.

The Senate posts filibuster data back to 1919. Records track three items.

  • First, cloture motions to end debate which occur when a minority of senators threaten or actually filibuster. That sometimes ends the filibuster.
  • Second, once a motion has passed, there is a cloture vote.
  • Third is recording the cloture vote. If the vote succeeds, cloture is invoked and the filibuster is overridden.

When a filibuster is overridden, then the Senate still has to vote on the actual bill. But then, only a simple majority or 51% is required for the legislation to pass.

cloture motions

Republicans’ use of filibuster has reached unprecedented levels with no signs of abating. But it was not always so. In the graph above, only 56 cloture motions were filed over 52 years from 1919 through 1970. At just over one per year, filibusters were rarely used. 420 cloture motions were filed over the next 22 years, from 1971 to 1992, a sharp increase to 19 per year.

1993-1994 saw Republicans’ “Contract with America” that escalated partisanship to higher levels. From 1993-2006, motions nearly doubled to 36 per year. Cloture motions took an even more dramatic upturn in 2007 when Republicans lost control of the Senate. Cloture motions again jumped sharply through mid 2012 to average nearly 70 per year. Clearly, filibuster has become the weapon of choice for Senate Republicans.

Republicans accuse Democrats of filibustering, and there is some truth to that. But as the graphs show, Republicans (red bars) initiated each spike and have now taken filibustering to an absurd new level. Virtually every major piece of legislation now runs the filibuster gamut. Motions to end filibusters is only the first part. The senate then needs to vote and this occurs about 75% of the time. Of those times when no vote is taken, either a compromise is reached or the bill is withdrawn.  The graph below shows the trend in cloture votes taken.

cloture votes

Americans hold Congress in low esteem because of gridlock. Americans want achievement, but that requires both parties to compromise. Neither party is blameless but neither is the blame 50/50. The frequency of filibuster and threats of it does not reflect well on Republicans’ acting in good faith.

Credit Republicans with discipline. They threaten any of their own party who don’t tow the party line and vote out of office those who compromise, not in the general election but in the Republican primaries. While that increases the effect of their filibuster threats, it is essentially a negative strategy. They’re short on their own ideas. They’re adamant about their own ideas while they just say “NO” to all Democratic ideas.

cloture invoked

As the above graph shows, those filibustering do not always get their way. Since 1960, filibusters have been overridden less than 45% of the time. However, in the past 5 ½ years with Republicans filibustering, overriding those filibusters has succeeded almost 60% of the time.

For decades, filibusters served Congress well as a method for the minority to put some checks on the majority. But the nation’s founders never envisioned this turn of events. The constitution requires the VP to break Senate vote ties clearly indicating that 51 % is a majority. Republicans lost majority through the ballot. Their reliance on filibuster has effectively raised the votes needed to pass to 60%, a super majority. It’s ironic that Republicans should blame Senate Democrats for not passing legislation, even though Democrats are in a majority. Using the filibuster to wrestle power back is not a recipe to reduce people’s frustration with gridlock.

Download PDF Report >>> Filibuster Trends 2012

Source Document shown below: http://www.senate.gov/pagelayout/reference/cloture_motions/clotureCounts.htm

filibuster history

Individual Mandate not necessary – But will you like the alternative?

Download PDF Report >>>Individual Mandate Alternative

SUMMARY

Of all the issues in the Patient Protection and Affordable Care Act (ACA or PPACA), one that has drawn an extraordinary amount of attention is the Individual mandate. Looked at in isolation, it may seem like an overreach. However, a broader view indicates why this provision or similar was included at all.

It is included because another section of ACA prohibits Health Insurers from rejecting people with pre-existing conditions as they do now. Some medical conditions may be avoidable, but the vast majority of pre-existing conditions occur through no fault of the individual. Insurance of all types is to spread risk, and the more skewed the risk the greater the need for insurance. Health costs are extremely skewed making health insurance vital to a modern economy.

ACA mandated that everyone buy insurance and that makes sense. However, the objection is forcing people to buy from a private company. There are several options to resolve that. One is to create a government-run insurer. That would eliminate forcing people to buy from a private insurer. A second is to make payment for any service obtained by an uninsured person a loan similar to student loans that could not be discharged for any reason. They would carry interest and be payable in full no matter the circumstances.

DISCUSSION

The percent of people with pre-existing conditions is small and to the majority of folks without such a condition, it may seem like a trivial matter. However, the number of people with pre-existing conditions is in the millions, and the cost to them has been and can be horrific. Medical expenses for these people have led to thousands of bankruptcies as health care costs sapped all their savings and more.

Insurers soon will be required to insure ALL persons regardless of medical condition. There is the very real risk of some people will avoid buying insurance, and then when they have an injury, or find they have a chronic condition like asthma or diabetes, they would only buy health insurance AFTER they know they have a medical condition.

One would think that any notion of personal responsibility would have all persons get insurance in order to spread health costs risks over the greatest population. The more people that buy insurance, the lower the cost per person. However, experience has shown that some people will NOT buy insurance if they feel they will not get sick or injured.

Fortunately, many employers offer health insurance for their employees, and by law, health insurers covering insurance through work (group insurance) MAY NOT exclude people with pre-existing conditions after some limited period of time, usually less than a year. However, the same did not apply to individuals until health care reform.

Note that employed individuals usually have access to health insurance.  Full time employees, that is. With rising costs, what have many employers done including some of the largest?  They have reverted to greater use of part time employees who do not enjoy the same privilege and access to health insurance as do full time employees. This is putting more pressure on reforming individual insurance plans.

People do not just dream up laws in a vacuum. Most fall into two categories. One is responses to maintain clean food, air and water, or help disadvantaged people, often the result of some abuse (social laws). The second are financial laws, like taxes or efforts to reduce taxes via special treatment for some (loopholes). ACA addresses the former by adding a financial provision, the individual mandate.

Everyone who works pays into social security and Medicare. Since Medicare is health insurance, there already is a mandate for working individuals to buy health insurance from the government. The only distinction is that Medicare is government-run insurance, while the ACA mandate applies to buying insurance from private companies.

ALTERNATIVE ONE

In the state run insurance exchanges to which any health insurer can join, add a government-run health insurer. Then the individual mandate does not require buying from a private insurer. However, if an individual decided against all private insurers they would have to buy the government-run insurance plan, just like Medicare and clearly legal.

However, politics intervened. Draft legislation DID INCLUDE a government-run insurer. They called it the “Public option”. It would operate on the same level field as private insurers and not be subsidized in any way. Private and government insurers would compete for business. Still, critics objected, and politicians stripped this provision from the final bill.

Why the objections?  Perhaps it was fear of competition.  To understand the public option, all one has to do is look at Medicare. Different in that it would cover people under 65 years old. In addition, women over 65 do not get pregnant, so there would be some differences in coverage.

What few know is government manages Medicare entirely through private health insurers. Insurers use a term Medical Loss Ratio (MLR) do describe how much of a premium dollar goes to pay health care costs. For Medicare, the MLR is over 95% meaning over 95 cents per premium dollar goes for health benefits. For private insurers, not so much. Their average MLR is in the low 80% range, and for individual insurance, which Medicare is, the MLR is even lower. How can private insurers compete with someone whose costs are less than one quarter of their own?

The honest answer is they cannot, at least not as currently structured. However, where does the constitution guarantee private enterprise continued profitability or even existence? “Destructive renewal” is a term used by business to explain competition that virtually by definition requires companies to fail as other more efficient companies market their goods and services for less; or whose new goods and services make prior ones obsolete (think cassette tapes).

It is worth noting that private health insurers used to have MLR’s in the mid 90%, but that was 30 years ago when nearly all insurers were non-profit.  Over time, for-profit insurers became more prevalent, and as they did, they had to show a profit for their investors. Some admin efforts were devoted to marketing. Some to reducing costs. Some to profits. The net effect, however, is that far fewer dollars went for health care costs and more went for overhead and profits. Yet some of these same companies administer Medicare contracts for less than 5 cents on the dollar. What is apparent is that insurers could cut back on what it now costs them to weed out people with pre-existing conditions, but more efficiency are needed to compete.

ALTERNATIVE TWO

Set the ground rules for individual insurance similar to that of group insurance obtained through work. If a person elects not to purchase insurance, and gets sick or injured, a person could still buy insurance but the law would allow pre-existing exclusions to extend for one year. Also like group insurance, if a person previously had health coverage, and not more than 60 days elapsed without coverage, then the person could buy health insurance with no waiting period.

This alternative needs to have a bit more teeth to be effective. This is because there is a law that hospitals have to treat EVERYONE, regardless of ability to pay, and a healthy person could delay for years purchase of health insurance. They would only buy insurance when they get sick.

The current Medicare drug program provides a template for solving this issue. If a senior fails to purchase drug insurance, the premium continues to rise for as long as one remained uninsured. One can apply a similar index to health insurance. But how does one provide assurance of payment? Since the person required services, it should be legal to require the person to purchase insurance to pay for those services, and if the person is unable or unwilling to pay, the government could advance a loan similar to student loans.

That loan would bear interest, need to be paid over time (though shorter than for student loans), and could not be discharged by bankruptcy. If not paid by retirement, payments would be deducted from that person’s social security, just like student loans.  Gone is the mandatory requirement. Replacing it is an automatic loan that the individual must repay in full with no exits.

Since the government would initially pay the hospital, it also could determine the ability to pay of the person getting treatment. If that person was indigent, they could be put on Medicaid, and no medical loan would be created.  If the person’s income were within the subsidized amount, they would have been eligible for had they carried insurance, the loan would be reduced by the amount of the subsidy. Since the hospital is paid in full, there would be no cost shifting to those who bought insurance.

ALTERNATIVE THREE

As noted above, a law requires hospitals to treat EVERYONE, regardless of ability to pay. One could rescind that law and force everyone to either have insurance, pay for service, or be denied service. But few would be willing to take that backward step. From a practical standpoint, this is not a viable option.

Download PDF Report >>> Individual Mandate Alternative

Words Have Consequences

Download PDF Report >>>  Words Have Consequences

Download ACA PDF file >>> Affordable Care Act

Download HIPAA PDF file >>> Public Health Service Act

Illinois appears to follow guidelines for enrolling individuals into the state’s Affordable Care Act’s (ACA) pre-existing condition insurance plan, but Illinois’ interpretation of  the  ACA’s wording may be questioned. In its interpretation, Illinois does not allow enrollment if a person has insurance coverage even though it excludes pre-existing conditions.

A virtually contradictory interpretation can be found on the federal government’s website HealthCare.gov.  The federal government sets conditions of who is eligible to apply to the government for pre-existing condition insurance plans in states that opted out of participation. To apply, you will need to provide a copy of one the following documents:

  • A denial letter from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months.  Or, you may provide a letter dated in the past 6 months from an insurance agent or broker licensed in your state that shows you aren’t eligible for individual insurance coverage from one or more insurance companies because of your medical condition.
  • An offer of coverage from an insurance company licensed in your state for individual insurance coverage (not health insurance offered through a job) that is dated within the past 6 months. This offer of coverage has a rider that says your medical condition won’t be covered.
govt pre-existing condition insurance apply

It is not logical that if a state runs the program, it can exclude people, while if the federal government runs the program, those same people could be included in the plan.

This analysis explores in more detail how Illinois and by extension, other states may have come to the conclusion they did and why that may not be the correct interpretation.

Illinois Pre-existing Condition Insurance Plan (IPXP)

To qualify for insurance in IPXP, a person must meet three conditions that seem to mirror the text of the Affordable Care Act. The Affordable Care Act (ACA) established eligibility criteria for federally funded high risk pools like the IPXP.  The pertinent wording of the Affordable Care Act that states in section 1101 (d).  An individual shall be deemed to be eligible … if such individual:

  1. Is a citizen or national of the United States or is lawfully present in the United States
  2. has not been covered under creditable coverage (as defined in section 2701(c)(1) of the Public Health Service Act as in effect on the date of enactment of this Act) during the 6-month period prior to the date on which such individual is applying for coverage through the high risk pool; and
  3. Has a pre-existing condition

These same provisions in IPXP require that
To enroll, a person must:

  1. Be a U.S. citizen, national, or legal resident;
  2. Be uninsured for 6 months; and
  3. Have a preexisting condition.”

The IPXP application specifically notes regarding item 2, “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”.

This raises the question of how Illinois adopted their meaning of ACA’s wording. Words have consequences and so it is important to determine what the Public Health Service Act (HIPAA) actually said and meant by its use of the phrase “creditable coverage” and did Illinois misinterpret it?

Public Health Service Act (HIPAA)

HIPAA’s opening paragraph sets forth its purpose: “… to improve portability and continuity of health insurance coverage in the group and individual markets, to combat waste, fraud, and abuse in health insurance and health care delivery …”

HIPAA contains five main components or “Titles”, the first of which is “HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY”.  That title is divided again into two subtitles, “Group Market” and “Individual Market”.

In general, under Individual Market Section 2741(a)(1) health insurers may not decline coverage to or impose any pre-existing condition exclusion on “eligible individuals”.  However, Section 2741(a)(2) allows states to implement an “acceptable alternative mechanism”.  One acceptable alternative is a state managed high risk pool which Illinois has, so private health insurers in Illinois may deny coverage or include pre-existing exclusions in their policies since an alternative is available.

However, the act does not change the definition an “eligible individual” which is one who (a) has 18 or more months of “creditable coverage” and (b) whose most recent prior “creditable coverage” was under a group health plan.

CREDITABLE COVERAGE DEFINED

HIPAA defines “creditable coverage” in Section 2701(c)(1) to mean with respect to an individual, coverage of the individual under any of the following:  a group health plan; health insurance coverage; or… any of 8 other government health insurance plans.  “Such term does not include coverage consisting solely of coverage of excepted benefits (as defined in section 2791(c))”.

GROUP HEALTH PLAN DEFINED

Creditable coverage refers to coverage in a “group health plan” that also needs definition. A group health plan Sec. 701(a)(1) means an employee benefit plan that provides payment for medical care directly through insurance, reimbursement, or otherwise.  In short, what most people think of as basic group health insurance.

EXCEPTED BENEFITS DEFINED

Creditable coverage also introduces another concept – “excepted benefits”. Including this definition allows a contrast to group health plans that provide creditable coverage.  Given the number of excepted benefits, of which only a sample is shown below, it is clear that HIPAA intended only a few basic types of basic health benefits to be considered creditable coverage.

Excepted benefits as defined in Section 2791(c) includes but is not limited to:

  • Coverage only for accident, or disability income insurance, or any combination thereof.
  • Coverage issued as a supplement to liability insurance.
  • Liability insurance, including general liability insurance and automobile liability insurance.
  • Workers’ compensation or similar insurance.
  • Limited scope dental or vision benefits.
  • Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof.
  • Coverage only for a specified disease or illness.
  • Medicare supplemental Insurance.

Combining references and definitions from HIPAA, to be eligible for ACA’s pre-existing condition insurance plan, prerequisite #2 requires an individual to:

  • have 18 or more months of a group health plan that provides payment for medical care, AND
  • have not been covered for 6 months under either a group health plan or a health insurance coverage

Now if an adult person is unemployed, has recently graduated or lost a job, that individual is not likely to be covered by a group health plan. Such individual, however, may be insured under individual health insurance coverage of which there are several types, of which one of the more common is “short-term limited duration insurance.”

INDIVIDUAL HEALTH INSURANCE COVERAGE

Section 2791 (b) (5) states: The term ‘individual health insurance coverage’ means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance. Oops.  This means that HIPAA considers one of the more common forms of individual health insurance not to be insurance at all.

PULLING IT ALL TOGETHER IN ILLINOIS

Recall from the beginning of this essay, the IPXP application form specifically states “that if you currently have insurance coverage that doesn’t cover your medical condition, you are not eligible for IPXP”. This requirement is NOT one of the ACA requirements.  And ACA in turn, references HIPAA that pointedly declares “short-term limited duration insurance” does NOT constitute insurance coverage at all. Conclusion: Illinois may have incorrectly defined short-term limited duration insurance as health insurance which definition specifically contradicts HIPAA definition.

CONCLUSION

It is clear that both the intention as well as the wording of the ACA  and HIPAA acts allow persons who once had but were later denied health coverage or who have coverage but with pre-existing exclusions, to apply for and receive coverage under the ACA pre-existing condition insurance plans.

Allegedly, enrollment in state ACA pre-existing condition insurance plans has been running behind projections. Is it possible states are restricting enrollment in a manner similar to Illinois?  It is something worth investigating further.

Disclaimer: While having extensive years of legal experience demonstrated in this analysis, the author is not a licensed attorney. What has not been verified is whether later amendments to the HIPAA changed any of the provisions mentioned above.

 Download PDF Report >>>  Words Have Consequences

Download ACA PDF file >>> Affordable Care Act

Download HIPAA PDF file >>> Public Health Service Act

Attacks Can’t Obscure Health Law’s Valuable Benefits

Download PDF version Report>> Attacks cant obscure benefits-Huff Post

Huffington Post Posted: September 23, 2010 09:04 AM
http://www.huffingtonpost.com/andrew-kurz/attacks-cant-obscure-heal_b_735873.html

Attacks Can’t Obscure Health Law’s Valuable Benefits

After decades of trying, health care reform is finally a reality. The Affordable Care Act (ACA) is sweeping in scope (it has more than 300 sections) and takes four years to implement. Critics say Americans don’t want it, but if that’s true, it’s only because of false claims by those who do not know what its provisions are or who are being spun by people who have an economic or political interest in blocking the law.

Health reform provides coverage to millions of people while correcting many current and serious defects. It isn’t perfect, but it has countless positive elements being ignored by critics. One key example is Section 2718, “Bringing down the cost of health care coverage,” which takes effect today (September 23). It brings sorely needed cost-control mechanisms while retaining health insurers’ ability to innovate. The provisions of section 2718 are eminently reasonable, and if the atmosphere were not so politically charged, they would receive strong bipartisan support.

Insurance accounting used to be straightforward. The hospital sent a bill. The insurer paid most of it, and forwarded the balance to you or your employer. With the advent of for-profit insurers, which now dominate the industry, accounting and classification of costs have become creative enterprises. Continue reading