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Obamacare/ACA: Implications for Consumers

Having jumped around just a bit in the last few weeks “topically”, this post may seem a bit disjointed.  It is meant as a continuation of a series I’ve compiled on the various implications providers, consumers, etc. can/will experience under the Affordable Care Act (a/k/a Obamacare).  Given the news cycle of late and the recent roll-out of the insurance exchanges under the ACA, many readers may think this post somewhat non-relevant.  Begging to differ, the implications for consumers under the ACA are expansive and the surface today is all that is visible.

Setting aside what we know of the exchange access problems and the individual enrollment glitches, the crux of the ACA implications for consumers is cost and ultimately access.  The ACA fundamentally resurfaces the consumer insurance landscape and changes the rules in terms of how individuals access insurance, how prices for insurance coverage are determined, and what coverage levels individuals can experience.  Promoted as simple, one-size premise approach to accessing coverage, the ACA for consumers doesn’t come anywhere close to its promised result.  In fact, consumers can expect a dizzying array of complex choices, cost levels and limited provider and carrier choices (depending on location) than ever before.

The biggest initial jolt for most consumers under the ACA is what will occur within employer sponsored health plans.  Employer plans represent the largest source of insurance for consumers, though the participation rate continues to decrease.  At present, 59% of individuals receive their health insurance coverage via employer sponsored plans. Given the provisions within the ACA that impact employer plans directly, the projected number of employers that will opt to drop health insurance as a benefit is actually minimal (less than 5%).  Where the ACA impact becomes onerous is cost pushed back to the individual.  Employer plans are subject to an ACA tax in 2014.  Additionally, with or without the employer mandate, fully insured plans via group insurance providers are expected to experience premium increases ranging from 10%  to 65%.  Why the big difference?  Regional differences account for some of the increase and the majority, plan design changes mandated by the ACA.  For example, plans formerly offered as high-deductible plans with Medical Savings Accounts can no longer qualify as compliant under the ACA.  The mandated plan changes such as full wellness coverage, affordability requirements, and eligibility expansion (must cover individuals working 30 hours or more) are the fundamental drivers to the added premium cost.

For most consumers covered today via an employer sponsored plan, their first reaction to premium levels in 2014 is akin to sticker shock.  Two things are certain to occur.  First, premiums paid by consumers via their employer plan will rise and in virtually all cases, by minimally 10%.  Second, their plans will change, some for the positive and some for the negative.  The positive will occur in a trade-off fashion: Richer benefits but at a higher premium.  The negative will occur as employers reduce plan benefits to the ACA minimum as a means of offsetting premium increases and where possible, increase employee cost share.  Across my client base, the vast majority of which fall in the large employer category under the ACA and presently offer health insurance to their employees, the projected premium increase in 2014 is 15% on average.  Eighty plus percent of this group plans on passing along, in the form of cost to the insured, 80 to 90% of the increase.

Certain for consumers, regardless of where they access insurance or how, save those who fit an expanded Medicaid eligibility definition and/or qualify for near full-subsidy in an exchange purchase, is that their health insurance will cost more and thus, their net expendable income will decrease.  It is this latter element that represents the biggest impact for consumers and the biggest impact for the economy current.  Wage inflation is negligible across virtually all industries.  Only certain regions and certain industries are clamoring for labor (oil and gas for example in North Dakota) and thus, scarcity produces rising wages to a modest extent.  Presuming a 10% increase in premium cost for an employee covered under an employer plan and an inflationary wage adjustment in 2014 of 2%, the net (simple) decrease to income is 8%.  Taking this just a step closer to reality, assume a 14% increase in premium and no wage adjustment or an adjustment of say, 1.5%.  The net (simple) decrease to income is 12.5% to 14%.  What occurs for a consumer when a change in incomes is so profound is behavioral change.  Consider the following as plausible;

  • Forestalled large-scale purchases such as homes, major appliances and automobiles.
  • Reduced savings and increased consumer debt.
  • A continued lag on employment (job) recovery.
  • A continued lag on GDP recovery and growth as consumer consumption accounts for approximately 65% of GDP.

For consumers not participating in employer sponsored plans, a similar sticker-shock will occur for all but those that achieve coverage via Medicaid expansion and/or full subsidy through an exchange.  What we are already seeing for this group is an evaporation of their current private options and/or premium increases routinely above 25%.  For those whose access to coverage is through an exchange, enrollment today is problematic.  More problematic is the cost, especially sans complete subsidy.  While premiums on their face seem somewhat reasonable, out-of-pocket costs plus premiums for the “bronze” or low-level options equate to 60% of total.  For example, a bronze premium for a 40-year-old in Illinois averages $180 per month or $2,160 per year.  A bronze plan leaves an out-of-pocket exposure of 40% of health costs save wellness benefits (an annual physical, certain wellness tests).  In North Dakota, the cost jumps to $215 per month.  This is for an individual only.

Breaking this down to include subsidies, here’s what a nationalized approach looks like using the Silver plan option (middle of the road, 70% of costs covered, average deductible of $2,500 and out-of-pocket maximums of $6,000) under the ACA.

  • At 200% of the Federal Poverty Limit, the cost of a Silver plan for an individual ($22,980 annual income) is $1,452 per year and for a family plan, the premium is $2,964 – rates include all subsidies.  This equals a total possible cost annually for an individual of $7,452 dollars (premium of $1,452 plus out-of-pocket maximum of $6,000).
  • At 300% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $3,276 (range is due to regional pricing differences among carrier options plus income levels and subsidies between 200% and 300%) and for a family, the premium is $6.078 – all subsidies included.  The 300% income threshold for an individual is $34,470. At this premium level, the cost exposure is approximately $9,000 per year (premium plus max out-of-pocket).
  • At 400% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $4,368 (regional differences and income plus subsidy levels between 300 and 400% of the FPL).  The premium for a family is $8,952 – rates include all subsidies.  The individual income limit is $45,960.

Per the Kaiser Family Foundation and separately, from a study completed by Deloitte, each of the above options is more expensive for an individual (total cost plus deductible including subsidized premiums) than a typical employer sponsored plan offering.  For example, one of my client companies with 300 employees, 225 participants presently offers a single premium, 80/20 plan for $85 per month. They are a very typical company (health care provider) in their industry (just to dispel any reader’s notion that the company is unique in demographics).  In comparison, a better plan costs a single employee $1,020 annually versus a subsidized plan for the lowest income group (200% of the FPL) at $1,452 per year.

The Consumer Conclusion?  My summary is more, unanticipated cost and fewer options than most expected.  The real implication for the consumer is the economic impact.  The U.S. labor trend is weak and wage inflation minimal.  In such an environment, insurance increases that can’t be offset by wage inflation, reduce consumer income.  Reductions in a consumer’s ability to consume via an increase in health insurance cost will create one of two reactions (three in some cases).  First, if the consumer stays insured or participating in an employer plan, a reduction in net income available will reduce consumption in all areas.  Second, the consumer opts to drop coverage or inclusion, instead paying the minimal penalty.  The third option for those presently privately insured, is that they either drop coverage or alter coverage to lower levels as a means of offsetting higher premium costs.  What is most disconcerting to me is that the exposure in terms of coverage gaps via out-of-pocket costs under all ACA scenarios is growing and this impact is undoubtedly, negative for economic growth and consumer economic health.

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October 18, 2013 - Posted by | Policy and Politics - Federal | , , , , , , ,

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