Report Gauges Impact Of Health Reform On Small Group Plans

The impact of the Patient Protection and Affordable Care Act on small group and individually purchased health insurance will depend upon many important factors, according to a recent paper issued by the Urban Institute.

According to the paper’s author, Linda J. Blumberg, some of the factors are the characteristics of the health insurance markets prior to reform, whether plans are grandfathered or are newly created under reform, the health status and claims experience of the covered group or individual, individual coverage decisions, policy decisions that will be made at the state level, and success of cost containment efforts.

Changes to Be Implemented in 2010

While the most significant changes to private health insurance markets under the Affordable Care Act will not occur until January 1, 2014, there are a number of provisions that take effect in 2010. These changes affect both group and non-group plans and include prohibitions on lifetime benefit limits and unreasonable annual limits, extension of dependent coverage to adult children up to age 26, prohibitions on rescissions, elimination of pre-existing condition exclusions for children, and elimination of waiting periods of more than 90 days.

The impact of these provisions on the premiums of current policy holders is a function of the type of coverage currently held, according to Ms. Blumberg.

Those policies that did not include lifetime or annual limits prior to reform should see no premium impact of these provisions. For plans with lifetime maximums of $2 million or higher, removing the limits entirely will tend to increase premiums by less than 1% (with the small group impact being smaller than non-group). And according to America’s Health Insurance Plans, the vast majority of individual market plans have limits of $5 million and above, making it highly unlikely that this change will cause a noticeable impact on non-group premiums. Because small group plans tend to be more comprehensive than non-group plans, a measurable impact in that sector of the market is even less likely, according to Ms. Blumberg.

Federal agencies estimate that the provisions related to annual and lifetime limits will increase group premiums by about 1/2 of 1 percent and will increase non-group premiums by less than 1%. While premiums could increase modestly in such a way, out-of-pocket costs for those using care will fall as a result, potentially leading to very significant savings for those with serious health care needs, according to Ms. Blumberg.

The prohibitions against pre-existing condition exclusion periods for children, including denials of coverage due to such conditions, should have little to no impact in the small group market, which already is required to guarantee issue policies. The federal agencies estimate the effect to be negligible in the group market. Again, the provision will decrease out-of-pocket costs for those who would have had care excluded from reimbursement without the reform.

Ms. Blumberg notes in the paper that if the insurer charges a significantly higher premium for the family newly enrolling in coverage with a sick child, then the premium impact will fall on those families specifically and will not affect the premiums of others. This is the most likely scenario, as it is typical of rating practices in most non-group markets today. Federal  agencies estimate the average effect of the prohibition on pre-existing condition exclusions for children will be 1% or less in the non-group market.

As a percentage of policies sold, the number of rescissions is actually very small. Consequently, the prohibition under the Affordable Care Act should not have a significant effect on premiums in either market, according to Ms. Blumberg. Some insurers are concerned that the language of the law will increase the number of applicants misrepresenting their health status, which, if true, could have larger effects. The federal agencies estimate the rescission provisions will increase premiums by no more than a few tenths of 1 percent, while acknowledging that this is the roughest of the estimates provided.

Estimates of the group premium effect of extending coverage for young adults on parents’ policies are provided in May 13 interim final rules. The effect of this provision can be expected to be small in the group market as well, with estimates ranging from .5 to 1.2% of premiums, depending upon the participation assumptions made, according to Ms. Blumberg. With regard to non-group coverage, similar issues arise as detailed for the pre-existing condition exclusion period for children. Carriers are expected to charge the specific families enrolling high-cost young adults in non-group plans significantly higher premiums than similar families with healthier adult children, then there will be little to no impact on the general population of insureds.

The full report, How Will the PPACA Impact Individual and Small Group Premiums in the Short and Long Term?, is available at http://www.urban.org/publications/412128.html.