Jim Settles is senior vice president and partner and the North Bay Benefits Practice Leader for Woodruff Sawyer & Co., an independent brokerage headquartered in San Francisco with a Novato division.
Q: Now that the Affordable Care Act is here to stay, what should companies be planning for and what can they expect, in terms of health care costs and overall impact on their workforces?
Mr. Settles: Small groups with one to 100 employees can expect to see rates rise 10 percent to 15 percent plus annual trend based on legislative triggers. Large employers can expect to see rates increase 6 percent to 10 percent plus annual trend.
In addition, auto enrollment will apply for groups with more than 250 employees, benefit plans must meet the minimum benefit requirements, employee definition for benefit eligibility status has been defined as 30 hours per week after 90 days of employment and discrimination testing will apply.
Many states have been mum on their plans for a state exchange. Only 17 states, including California, will have met the Nov. 15 federal deadline in terms of establishing an exchange. The Health and Human Services Department will likely lean on brokers and consulting to support and work with the exchange process.
Q: Much has been made of the notion that companies will be incentivized drop employer-sponsored health coverage with the health insurance exchanges coming on line. Is this still a possibility or is it hype? What might incentivize employers to keep health benefits in place, particularly small to mid-sized business?
Mr. Settles: Incentives matter and it is going to make employers pause and evaluate their situation and options. We see the individuals moving into the state exchange, as the incentive is there. There have been several broad analysis of the marketplace that have noted that employers will be looking closely at the exchanges and a massive rush is possible, but not probable. We do expect certain industries where employee benefits are not a priority in retaining employees will likely move to state exchanges.
For mid-sized employers, it is hard to tell this soon, but the state exchange will be competing in the market place and will have risk and premiums similar to commercial markets. If the consumer experience is positive and strong in the smaller employer group size, then larger groups might move into the exchange. It is likely that employers of choice will choose to retain their benefit plans outside of the exchange. With the expansion of Medicaid, we could see dependents dropping off of group coverage and into the exchange under Medi-Cal as the incentives will be there.
For small groups, it is clear the exchange will play a large part in the market. This will be more so in the one-to-five live groups. We see them tailing off into the exchange under the individual side as the incentives will be there. Less than 12 percent of small group employers are eligible for a tax credit, which will likely limit their appetite for the exchange. For the small group employer it remains to be seen how the exchange will evolve with the selection dynamics in and out of the exchange.
For individual coverage, because of the financial incentives we will see migration into the individual side of the exchange. Lower wage employers in the one- to-six- size groups will be incentivized to purchase through the exchange. Sixty-seven percent of Californians will be eligible for some portion of subsidy and share of costs inside the exchange. If members receive an incentive in the exchange they will take it compared to outside for similar plans.
Q: If employers do drop their plans, will the exchanges and other elements of health care reform be enough to provide comprehensive health coverage for individuals?
Mr. Settles: The exchange is missing the breadth of providers and will most likely see narrower networks compared to outside the exchange. We think the Affordable Care Act with its plans is limiting, not the fault of the exchange, but rather the Affordable Care Act. Trying to balance product innovation with affordability will be challenging.
Q: The federal government recently said it would roll out two nationwide health insurance plans in every state, as a means to keep costs down and expand access. Will that plan be effective in containing costs?
Mr. Settles: In states where there is very limited carrier choice, the federal plans could help create a competitive environment and reduce premiums. In states like California that have lots of carrier choice, the federal plan will likely have less impact.
Q: Does California’s exchange contain adequate, too much or not enough “essential health benefits” in order to be a successful augmentation — or perhaps replacement if companies drop coverage — to the current mix of employer-sponsored coverage and public health programs?
Mr. Settles: We don’t see the exchange being all that big a player in the group market for the sure fact that incentives are not there to drive employers there. Again, we do see the tail end of the small groups canceling coverage and moving into the individual side of the exchange because of the incentives. The federal plans will have good benefits but will be limited by narrow networks.
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