Move Over, Ghostbusters

If there’s something strange in your health benefits plan, who you gonna call?

Numberbusters (aka the American Academy Of Actuaries (AAA)).

For example, take a look at the just-introduced H.R. 3962, the Affordable Health Care for America Act, which is an amalgam of proposals already approved by three House Committees and which is scheduled to be debated on the House floor next week (see below for some details).

As in all other health reform proposals, a common element is reliance on actuarial estimates and by extension, the importance of the American Academy of Actuaries to employer compliance with health reform.

Here are three of more than a dozen instances in which H.R. 3962 looks to the actuarial profession for help:

1.  Sec. 213: “The Commissioner shall estimate the basic per enrollee, per month cost, determined on an average actuarial basis, for including coverage under a basic plan of the services.”

2. Sec. 222: “The cost-sharing under the essential benefits package shall be designed to provide a level of coverage that is designed to provide benefits that are actuarially equivalent to approximately 70 percent of the full actuarial value of the benefits provided under the reference benefits package.”

3. Sec. 303: “A basic plan shall offer the essential benefits package required under title II for a qualified health benefits plan with an actuarial value of 70 percent of the full actuarial value of the benefits provided under the reference benefits package.”

The importance of actuaries has been formalized for retirement plans ever since ERISA was enacted. In health care plans, however, actuarial estimates of costs, while common, often have been optional in legislation, as in the requirements for COBRA continuation of coverage.

Now, because all health reform proposals being considered include reliance on actuarial estimates, employer health plans will need to value their health care plans for compliance.

Existing rules for employers to qualify for the Medicare Part D retiree drug subsidy suggest how exactly health reform might specify “actuarial equivalence.” Under these Medicare rules, retiree pharmacy plans must be at least "actuarially equivalent" to the basic standard Medicare Part D plan. And it is a requirement that a “qualified” actuary or an actuary who is a member of the American Academy of Actuaries make a determination of actuarial equivalence.

The AAA agrees, in a May 2009 report on actuarial equivalence in health reform: “Requiring that actuarial equivalence attestation be performed by members of a U.S.-based actuarial organization can help ensure that appropriate methods and assumptions are used.” This report also provides an excellent analysis of how actuarial estimates can and should be used in health reform legislation.

Details In H.R. 3962

On October 29, Rep. John Dingell (Mich.) introduced H.R. 3962, the Affordable Health Care for America Act. According to House Speaker Nancy Pelosi (Cal.), the bill costs under $900 billion over a ten-year period, insures 36 million more Americans, and "does not add a dime to the debt."

Many of the provisions would have a direct effect on employer provided health care plans, some immediately, and some in future years:

Immediate Reforms

Reforms in H.R. 3962 that would take effect on Jan. 1, 2010, include these:

• Any health insurer in the small or large group market would have to issue rebates to enrollees if its medical loss ratio fell below 85%.
• Group health plans that offer dependent coverage would have to offer the coverage to dependents up to age 27.
• The look-back period allowed for group health plans to apply preexisting conditions exclusions is temporarily reduced to 30 days and the preexisting conditions exclusion period itself is reduced from 12 months to three months. Preexisting condition exclusions would be prohibited starting in 2013.
• Any individual covered by COBRA continuation of coverage on or after the date of enactment could continue the coverage until a national insurance exchange took effect in 2013.
• Postretirement reductions in health care benefits would be prohibited. In other words, plans would be prohibited from reducing the benefits provided to a retired participant if the reduction of benefits occurs after the date the participant retired.

Not-So-Immediate Reforms

In 2013 or later, the following employer plan reforms would take place under H.R. 3962:

• All plans would be prohibited from imposing preexisting conditions exclusions and would be required to provide guaranteed issue and guaranteed renewal.
• Qualified health benefit plans would have to provide coverage that had an actuarial equivalence of 70% of the "reference benefits package," which in general would be comprehensive health coverage with no cost sharing.
• Employers would have to offer employees a qualified health plan, would have to contribute at least 72.5% of the cost of individual coverage and 65% of the cost of family coverage.

H.R. 3962 also includes a public health insurance option beginning in 2013 that would negotiate rates with providers and a repeal of the health insurance antitrust exemption in the McCarron-Ferguson Act.

Employers that do not provide coverage to their employees would be required to contribute up to 8% of payroll into a Health Insurance Exchange Trust Fund.