Forbes Online Magazine – Pharma & Healthcare |12/18/2012 @ 1:32AM

Last week, Aetna, the third-largest private health insurer in the U.S., held its annual investor conference in New York, in which company executives laid out their detailed assessme

nt of the post-election environment for health insurance. Aetna’s comments, and those of its peers in similar settings, illustrate how Obamacare will dramatically drive up the cost of health insurance in the United States. “In some markets,” said Aetna CEO Mark Bertolini, increases in premiums could “go as high as 100 percent. And we’ve done all that math. We’ve shared it with all the regulators. We’ve shared it with all the people in Washington that need to see it. And I think it’s a big concern.”

Bertolini made his comments in response to a question from Scott Fidel, the managed-care analyst at Deutsche Bank. Fidel noted that Frank McCauley, Aetna’s executive vice president of commercial (non-government) business, had earlier noted that Aetna did not expect many small businesses to participate in the exchanges, because the cost of insurance on the exchanges would be quite high.

2014 non-group premiums to increase 20-50 percent on average

“Premium rate shock for 2014,” responded Bertolini, “absent subsidies and everything else, is going to be in the neighborhood of 20 percent to 50 percent. And we’re going to see some markets [and] in sub-segments in some markets go as high as 100 percent.”

As I’ve noted before, there are a number of ways in which Obamacare drives up the cost of insurance in the individual market—the market for people who buy insurance for themselves, instead of getting it through the government or their employer.

Most important of these are: (1) the “minimum actuarial value” requirement that forces insurers to provide more financially generous coverage with fewer co-pays and deductibles; (2) the “community rating” provision that forces younger beneficiaries to pay far more for insurance in order to partially subsidize older beneficiaries; (3) the “guaranteed issue” provision that forces insurers to take all comers, even if they are already sick; and (4) the “essential health benefits” mandate that forces insurers to cover health-care services that many customers wouldn’t otherwise want to pay for.

“Just one piece alone, more than half of the U.S. public [in the individual insurance market] is in a plan at 50 percent or lower actuarial benefit. If you go up to 60 percent, as required by law, you’ve got a huge bump already,” Bertolini noted. “And this is the reason why you’re seeing such pressure between the states and the federal government on exchanges. Whose exchange do you want pokies online to show that price increase on? And surely, the federal government doesn’t want to show that. So I think this is going to be a big debate. And as Frank mentioned earlier, we’re putting these things through into rate increases and we’re getting them through the regulators. So I think that is going to be the big story for 2014, as these rates start going to the market, probably the latter part of this year, 2013.”

Will Democrats water down Obamacare’s costly mandates? Unlikely

Bertolini expressed hope that the fiscal cliff negotiations in Washington would yield “some interesting ways to try and address that rate shock issue.” Good luck with that. Democrats have plenty of incentive to install Obamacare’s blizzard of mandates and regulations, and then try to blame greedy insurers for the resultant premium hikes, so as to increase the political viability of single-payer health care.

Congress could delay the rollout of the exchanges by a year or two, which would save some money within the ten-year budget window, but Democrats will not want to do that either, because it will make the law more vulnerable during the 2016 election. Remember that, under the projections of the Congressional Budget Office, 25 million Americans are to be enrolled in the exchanges by 2021.
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Without a delay, it’s quite possible that private insurers will choose not to participate in Obamacare’s exchanges in many parts of the country. Aetna said that it plans to participate in exchanges in “up to” 15 states in 2014, representing 65 to 70 percent of the exchange-eligible population, but that the company would “approach exchanges with caution” until it

is “confident they represent a rational and stable marketplace…After a transition period, if Aetna cannot earn its cost of capital on exchanges, we will exit market areas.”

The big concern for the insurers is whether or not the state and federal exchange bureaucracies will regulate the insurance markets in a competent manner. “What are the regulators going to allow for rates when you file them?” asked Bertolini. “How are the ‘three R’s’ [the risk adjustment, reinsurance, and risk corridor programs] actually going to work?”

Believe it or not, Aetna’s involvement in the exchanges is more aggressive than its peers. UnitedHealth Group stated that it would only get involved in a “few” states; Humana said that it would get involved in ten.

Obamacare’s exchanges may underpay doctors and hospitals

Bertolini also elaborated on the type of insurance that Aetna would provide on Obamacare’s exchanges. “It’s about having the right products at the right cost structure, [with] narrow networks, low-cost networks,” he said. That is to say, Aetna’s exchange products will aggressively steer patients to low-cost doctors and hospitals so as to keep premiums low. That’s, indeed, what insurers are rightly incentivized to do when individual consumers are shopping for their own insurance.

Within its exchange products, Aetna expects to reimburse hospitals and doctors at rates akin to government programs, rather than the much higher rates reserved for traditional commercial insurance. “We’re contracting…at a rate normally between Medicare and Medicaid for the exchange population,” said Frank McCauley.

McCauley’s counterparts at Humana don’t think that insurers will be able to get away with ultra-low Medicaid rates on the exchanges. “If you go down to Nashville and you ask [hospital chain] HCA about that, they’ll laugh you out of the room,” said Humana executive Bruce Perkins at Humana’s November analyst meeting. “This idea that it’s going to be Medicaid rates—that’s a joke.”

Obamacare’s exchanges need serious reforms in order to function

If exchange rates do end up in between Medicare and Medicaid, Americans who enroll in the exchanges will have the worst of both worlds: a costly insurance product that doesn’t grant them access to a wide range of doctors and hospitals, making it difficult to get access to needed care.

There’s plenty of evidence that Obamacare’s exchanges are set up for failure. The Obama administration will do itself a huge favor if it certifies Utah’s more market-oriented exchange as an alternative to the ACA exchanges. “I respectfully request that you instruct HHS to declare the Utah exchange model as the minimum federal standard,” wrote Utah Gov. Bob Herbert in a December 10 letter to the President. “I am confident that if you make this change, several other states will join Utah and request certification for ‘state-based exchanges’ based on our model.”

Ideology may blind the President to this more flexible approach. But if he wants his signature health law to succeed, it would behoove him to see if Utah’s health insurance clearinghouse could help him achieve it.

Employer clients filing 250 or more W-2 forms are required to report to employees the total cost of their employer-sponsored group

health plan coverage under the Patient Protection and Affordable Care Act. The W-2 reporting requirement begins with th

e 2012 W-2 forms furnished to employees in January 2013.
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At this time, employers filing fewer than 250 W-2 forms do not need to report cost of coverage on W-2 forms. This transition relief will continue until further guidance is issued.

Keep in mind that this requirement is informational only and does not mean that employer-sponsored coverage is subject to income tax.

Ultimately, it is the employer”s responsibility to accurately determine which employees should receive cost of coverage information. Your clients are encouraged to consult with their legal counsel or tax preparer for advice on what should be reported to meet the W-2 Reporting requirement.

Finding Cost of Coverage Data for Employees
Suggestions for your clients to find the data to calculate the cost of coverage include:

1. Review the 2012 bills from your carrier.
2. Talk to payroll vendor and request data for each employee.
3. Fully insured clients may log on to Employer eServices to view monthly invoices to find the premium costs per employee.
4. Self-funded clients should contact their COBRA vendor for a COBRA rate, if applicable.

What Not to Report
Health Insurance Portability and Accountability Act (HIPAA) “excepted benefits” plans (accident, disability income, supplemental liability, workers’ compensation insurance) are not subject to the W-2 reporting requirements.

Health flexible spending accounts (FSA) funded solely through employee salary reductions are not reportable. Employers are required to report the FSA value when it exceeds

the employee’s cafeteria plan election for all tax favored benefits. In addition, coverage under a health reimbursement account/arrangement (HRA) may be reported on the W-2 at the option of the employer.

W-2 Reporting Recap
The W-2 Reporting: IRS Recap of What to Report chart outlines what coverage should and should not be reported on the W-2 form.
For More Information visit the W-2 Reporting provision page on the IRS website.

With the re-election of President Obama, another hurdle to implementing the Affordable Care Act has been avoided. While some effects of the law on businesses are still being worked out, provisions of the Affordable Care Act would make it easier for c

onsumers to compare health plans and employers to promote and encourage employee wellness.

Recently, the Obama administration issued the following proposed rules:

• Beginning in 2014, health plans will be allowed to vary premiums based on only age, tobacco use, family size, and geography.

This also means that no person can be denied coverage based on a pre-existing condition or be charged higher premiums based on current or past health problems, gender, occupation, and small employer size or industry.

• Essential health benefits are being identified as the core set of benefits that will give consumers a consistent way to compare health plans in the

individual and small group markets.

• The implementation and expansion of employment-based wellness programs to promote and help control health care spending are a major part of the Affordable Care Act”s focus on prevention.
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We understand that navigating the changes in health care can be challenging. We will keep you appraised as the clarity of reform becomes available.

Employers wil be subject to new W-2 reporting requirements with their W-2 filings this year. Much of the responsibility will fall upon each client, because the amounts provided and cost sharing will be different than simply the gross costs of the cov

erage. Read the IRS publication here:

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee”s income, and

it is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). However, federally recognized Indian tribal governments are not subject to this requirement.

Transition Relief
For certain employers, types of coverage, and situations, there is transition relief from the requirement to report the value of coverage on the 2012 Forms W-2 (the forms for calendar year 2012 that employers generally are required to provide employees in January 2013). This relief will apply to future calendar years until the IRS publishes additional guidance. However, any guidance that expands the reporting requirements will apply only to calendar years that start at least six months after the guidance is issued. See the “Optional Reporting” column in the below chart for the employers, types of coverage, and situations

eligible for the transition relief.
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Reporting on the Form W-2
The value of the health care coverage will be reported in Box 12 of the Form W-2, with Code DD to identify the amount. There is no Video: Zoe Saldana, Sofia Vergara and Kerry Washington top the the list for celebs with the school-delays.com style. reporting on the Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by

the employer and the portion paid by the employee. See the chart, below, and the questions and answers for more information.

An employer is not required to issue a Form W-2 solely to report the value of the health care coverage

for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

(John Nelson, Jr, former NAHU President, sheres his thoughs)

Here are some random thoughts about the individual and small group markets, and what might happen to them during the next couple of years. They are predicated on the possibility that the

outcome of the national election yields roughly the same political dynamic in Washington DC with the House controlled by Republicans, a bare majority of one party

or another in the Senate and the President is reelected.

One of the primary concerns I have about the Affordable Care Act is its impact on the individual market. It will take a market that is fully underwritten with age bands of more than 5:1 to a new world where there is no more medical underwriting, insurers are required to take everyone, cover pre-existing conditions right away and limit age bands to a ratio of 3:1. All individuals will have to get coverage or pay a nominal tax (remember, it used to be called a penalty before the Supreme Court said it was a tax) if and when they change their minds. On top of all this, those carriers who sell individual health policies must do so while sustaining a minimum medical loss ratio of 80%.

So this is what the new world of individual health insurance is supposed to look like according to the ACA. No one will be out of insurance, insurance companies can’t overly profit from this block of business and older people won’t have to pay more than three times the premium a younger person pays. A guarantee issue marketplace where no one is turned down, insurers get tens of millions more people to insure and they can’t unduly profit from the overall system. Sounds like nirvana, huh?

Not quite.

The problem with this scheme is that millions more folks will be coming on board a system that is already overburdened with all kinds of pressures. Given that it has had similar reforms in place for years, Massachusetts is a precursor to what we all might be seeing past 2014; the uninsured population has gone down but lines have gotten longer in waiting rooms. And, the number of primary care doctors is struggling to meet the demand for services from the newly insured while insurance rates there continue to rise.

Some folks whom I respect on the carrier side have told me that we’re likely going to see individual rates increase by at least 50% in order to meet ACA-related provisions. It’s not hard to understand why. As mentioned above, medical underwriting will cease to exist and insurance companies will be limited in terms of how they rate folks. The only factors they can take into account when it comes to pricing are the geographic location and age of the insured. Yes, they can rate up for smoking but that’s it. Rates for 20 year-olds will definitely go up because insurers are not going to have an appetite to overly reduce rates on 50 and 60-year-old folks who typically have more claims.

How will the exchange factor into any of these dynamics? The people who are charged with creating and operating exchanges have a simple and noble mission; to reduce the population of uninsureds as much as they can. They can do this by facilitating the process for determining eligibility for subsidies, enrolling people through any appropriate means (including using agents) and by providing consumers an easy to understand means to help them navigate through the complexity of choosing and getting enrolled in the plan that online casino is right for them. But beyond all this, the exchange will be facing the same dynamics that we will all be facing with the individual market and its new world-related costs. The exchange can’t do anything about guarantee issue, the 3:1 age banding and the other insurance reforms. So the products offered via the exchange are going to be subject to the same economic pressures as those products outside of the exchange. The carriers know this. The exchange knows this.

Ah, but there’s the election! I don’t think the outcome of the election is going to affect much of this. For things to dramatically change with the individual reforms and, for that matter, the entire ACA, three things would need to happen; Romney would have to win AND the republicans would have to keep a majority in the House (this is a probability) AND the republicans would have to take a majority in the Senate (The polls point to 48 republicans and 52 democrats – so far). Regardless of the outcome of the election, no one I know in Washington thinks the Republicans have any appetite for bringing back medical underwriting.

So with all this said, here’s where I think things will go with the individual market. First of all, ever since the Supreme Court called the penalty a tax, my bet is that the administration immediately undertook action to make this whole thing moot. No one

who is in office and/or running for office wants to impose another healthcare-related tax – especially in this economy. So my bet is that this will be made moot by one simple action – the creation of a special open-enrollment period via regulations – not an act of Congress. The ACA is over 2,700 pages long. Regulators whose jobs are to interpret what congress “meant” and to turn their general wishes into actions have already added thousands of pages to the bill. Some of the many pages of regulations to come will undoubtedly include an open-enrollment provision which is very similar to Medicare D. It could be as simple as, if you’re eligible for coverage, you must sign up before January 1st, 2014. If you decide not to (maybe you’re healthy and are willing to pay the tax in case you change your mind down the road) and something happens that compels you change your mind, too bad. Insurance companies will not have to take you. Period. This legislation is being seriously contemplated in Sacramento and I have little doubt that federal regulators will turn this into reality. This will help keep the rates lower than they could be.

But we still have the 3:1 age banding issue and we also have the burden on the healthcare delivery system from the millions of people getting insurance for the first time who have unaddressed care needs. I predict that somehow, relief will be given on the 3:1 issue. It could come from future legislation or just regulators giving the insurance industry another year or two to adjust and transition. But I wouldn’t be surprised to see that happen sometime in 2013.

Speaking of 2013, that is going to

be an interesting year for our industry. 2013 is serious ramp-up time for the major provisions of the ACA, but it is also a window of opportunity for Congress to pass legislation addressing some of the more onerous provisions and unintended consequences of the ACA. Nothing much has happened in 2012 because this is an election year; one that is inherently full of political posturing. 2013, on the other hand is a post-election year. Lawmakers will be less afraid to take chances and good, make-sense legislation could happen.

So I expect to see an open-enrollment period mitigate the adverse selection issue and I wouldn’t be surprised to see relief given on the 3:1 rate band. Both of these moves will help with softening the rate blow to the consumer, but the rates will still go up pretty high. Other factors for increasing rates are the benefit ceilings imposed by the feds via the ACA and the benefit floor imposed by laws and regulations here in California. As an aside, carriers are finding it difficult to create a “bronze” level plan. You remember the metallic plans right? When 2014 rolls around, all plans must fit into one of four metallic levels of benefits; bronze (60% of actuarial value), silver (70%), gold (80%) and platinum (90%). So guess what? Because of the legislative floors and ceilings, carriers are finding it very difficult to create a bronze benefit plan. Again, 2013 should be very interesting and I have hopes that a number of troubling details like this and the issues above will be addressed.