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North Bay Business Journal

Monday, December 10, 2012, 5:30 am

Affordable Care Act and the law of unintended consequences

Hugely complex law raises many questions for employers

By Jordan Shields and Keith McNeil

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    The Supreme Court put it back in our court.  The election did not cause its rejection.  We have been replete with information about the health insurance reformation, what it will deplete and the promises it should complete.  And complete it is, but the Affordable Care Act is ultimately not about affordability, which we are spending considerable time and money to discover.  So should we hope, change, hope to change or change our hopes?  Or at least our expectations.

    Like “ClintonCare” before it, the Affordable Care Act supports laudable social goals, and should really be titled the “Accessible Care Act,” as it seeks to enfranchise many who could not previously obtain coverage, inject competition, streamline efficiency and allow the creation of new and more  standardized formats for all of us to see and follow.  This, of course, makes sense from a global viewpoint, and what other view can the federal government harbor?

    The problem, of course, is not with the law itself, or its intentions, but the fact that it is national in nature, and by its very nature cannot account for the fact that we all don’t fit so well in a federal framework, but in a federalist framework.  Put more simply, all politics, and markets, are local.  What we need in California, or in the North Bay, will be dictated less by Washington and more by our own unique situation and what can naturally rise as a result.  At the same time, what is imposed, while composed with the best of intentions, will create as much harm as good, as there is the law — and the law of unintended consequences.  Here are a few to consider:

    – Health Insurance Costs:  there are taxes on the medical device, pharmacy and health insurance industry (which will all be passed on to the consumer), funding for the exchanges, the elimination of pre-existing condition limitations, expanded allowances for dependents and guaranteed individual coverage. This all falls on top of what is still an exceptional medical system that  meets our many needs … at considerable and continued expense. 

    In addition, small group rating will change in 2014.  Age categories will compress (which will cause rates to increase for younger employees) and risk factors are eliminated (which raises rates for healthy groups while it reduces them for the less healthy).

    – Supply and Demand:   Roemer’s law says that as the supply (of health care) increases, so does demand, which sets cost efficiency on its head.  More and better drugs and systems combine with a large influx of newly insured patients along with greater cost pressure on doctors through the expansion of Medi-Cal (with its notoriously low reimbursement levels) and Medicare cuts (which now nearly rival Medi-Cal rates and are coming closer).  If you build it, they will come, but what if the structure can’t support the game with its new rules?

    – The Exchanges:  In some states it is true that competition may breed cost compression.  In California, with seven major viable carriers and several strong regionals, that argument does not hold.  Enter the California Exchange (“Cover California”) which takes the same carriers, with a slightly expanded eligible population, and, with $190 million of federal money, attempts to justify its existence. To be sure they succeed, however, California may change the rules on self-funding medical plans in December, the exchange will have some power to direct how carriers may “play” in and outside it, and the federal government will provide subsidies to those who meet income qualification — which may only be claimed when the subscriber enrolls in the exchange.  Also, since some states have opted not to create an exchange, the federal government will create one for them, while at the same time setting up two national plans, which will also be offered under Covered California.

    – Administration:  As if they didn’t have enough to do already, employers must contend with how to properly distribute medical loss ratio proceeds, provide plan reporting to the exchange, increase communication with employees (using new SBC designs and alerting employees to the availability of the exchange), report to governmental entities who has which plans, reporting on income for subsidy qualifications, possible penalty and tax collection, W-2 reporting (for larger employers), determining the value of “pay or play” (entities with over 50 employees).  This while sorting out continually increasing costs, a variety of new options — and, you know, running the organization.

    Along with new taxes, new maxes and a lack of possible axes to the ACA agenda with the president’s return to his residence and a super Democrat majority in Sacramento, you may fill in your own words for ACA (Absolutely Confused Already?), but one thing we know for sure: the only constant here is it is Always Changing Accountability.

    Jordan Shields has over 30 years’ experience in employee benefits and is president of The SSM Group in Novato. He has also served as finance chair, vice chair, chairman and past board member California Association of Health Underwriters, State PAC Chair, past president of Golden Gate Association of Health Underwriters. He’s authored manuals on COBRA, Family Medical Leave Act, HIPAA, Health Security Act and the Affordable Care Act. He can be reached at Jordan@jordanshields.com Keith McNeil is vice president of the SSM Group and manager of the California Region of United Benefit Advisors Partner firms. He is an instructor in COBRA administration for an HR accreditation course at Santa Rosa Junior College and a past president of Marin Society of Chartered Life Underwriters and Charted Financial Consultants. He can be reached at Keith@mcneilbenefits.com.

     

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