2015 – An Employee Benefits Market Perspective and Predictions

Blog Post.Graphic.2.16.15By Michael Lujan, RHU, CHRS

Speculation about what may happen to the small group health insurance market is now shifting to real data. Worries about employers dumping employer-sponsored coverage in favor of public exchanges simply did not happen in the numbers projected. Back in June 2011, McKinsey released their controversial survey results which estimated “Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014… Among employers with a high awareness of reform, this proportion increases to more than 50 percent.”. This was a stark contrast to the Congressional Budget Office (CBO) which estimated only about 7% would switch.

So what actually happened? Most small employers simply continued to offer employer-sponsored coverage. Most because their employees value the employer contribution and employees did not qualify for a subsidy. Even some who may have qualified, preferred to offer a group product with full medical provider network, specialty coverage (dental, vision, life) and pre-tax savings (IRS Section 125). The largest carriers reported about a 15% decline in total small group membership in 2014 and expect about the same decline (12%) in 2015. In my past experience with managing small group member retention, about 4-5% of small group members are predictably lost each month due to filing for bankruptcy, get acquired or growing above 50 employees and becoming large groups – so the impact of dumping for the public exchange and subsidies has been minimal so far.
I predict employer dumping will remain modest (tiny groups).

The IRS also stopped or slowed dumping. Through multiple rulings, memos, interviews and webcasts, the IRS clarified employer’s cannot provide health insurance to their employees by reimbursing premiums for plans purchased on the public exchange (known as pre-tax employer payment plans).  Likewise, HRAs that are intended to reimburse premiums for the purchase of coverage on the individual market are prohibited. Still, there are some vendors touting workarounds and exceptions to this clear prohibition. I think most employers and agents are staying clear of these controversial solutions or at least demanding more proof of concept. I’m not convinced.
I predict more “really, you-can’t-do-it!” guidance from the IRS.

Pricing-  Small group pricing has been relatively stable. Relative to past medical trends which predictably stayed in the low double-digits before 2011, medical trend is now in the 4-5% range and closer to inflation. Individual plans were cancelled in 2014 but less than 10% of those cancelled remain uninsured. Most found a replacement plan, on or the off-exchange. The 2014 Kaiser Family Foundation survey found employer-sponsored health insurance premiums increased 69% over the past 10 years, but only increased by 3% from 2013 to 2014.  It is too early to say what will happen next year when the full effect of rating regulation is implemented.  Sen. Marco Rubio also introduced legislation to abolish the risk-corridor program, which provides financial protection to insurers participating in the marketplace.
No prediction on pricing as it varies by carrier, by state and we just don’t know enough.

Large Group – The new majority Republican Congress introduced a bill in the House that would change the act’s definition of full-time employees to those working an average of 40 hours per week. The Senate is also expected to introduce a companion bill too.  As expected, employer groups, chambers and industry group will try to influence the House leadership to pass the bill.  The “More Time For Full-Time Coalition” includes the U.S. Chamber of Commerce and the National Restaurant Association. On the other side are both Democrats and Republicans who recognize the bill will certainly be vetoed as it could shift another 1 million Americans from employer-sponsored coverage and increase the budget deficit by $18 billion over the next five years. (That’s a CBO estimate)
I predict a compromise of 35 hours may be offered but nothing changes.

In a letter sent to House Speaker John Boehner and House Minority Leader Nancy Pelosi, Washington-based American Benefits Council also requested an extension of the Treasury rules requiring employers to extend coverage to 95% of their full-time employees in order to avoid penalties. The current rules require employers with at least 100 employees must, starting in 2015, offer coverage to no less than 70% of their full-time employees, if they work an average of 30 or more hours a week. The penalty for non-compliance is $2,000 per-employee. Unless the current rule is extended, starting in 2016 the 95% employer mandate will apply to employers with at least 50 employees. The lobbying group is hoping for an extension which more gradually increases from 70% to 95% over a couple years, not all at once.
I predict no extension.

Private and public exchanges – The term private exchange remains a term of art, meaning some traditional health insurance carriers or brokers who offer a bundle of their small group products may be considered a private exchange. To some brokers, any online health plan offering using a defined contribution strategy is a private exchange. In California, we have a true private exchange for small business called California Choice with multiple carriers and a true defined contribution enrollment interface.
I predict private exchanges will continue to grow at faster pace as more employers understand and adopt defined contribution.

Brokers and consumers did not seem concerned by the Supreme Court’s decision to accept the King vs Burwell case, which aims to strike down the ACA subsidies. The Rand Corporation issued a report (The Effect of Eliminating the Affordable Care Act’s Tax Credits in Federally Facilitated Marketplaces) which estimates the individual market enrollment would decline by more than 70 percent, or 9.6 million.  The enrollment on public exchanges have been robust and relatively drama-free compared to the inaugural year. The websites worked better this year and some states moved to the federal-run marketplace. In Calfornia, agents played a bigger role and were promoted and supported with more resources; a reward or recognition of their huge contribution to the enrollment effort. In California and other states, agent accounted for 80 percent of the in-person enrollment, or 40 percent of the total enrollment. (No surprise… Well done!) Nationally, the uninsured rate was reduced from 20 percent in the late summer of 2013 to 15 percent in the late spring of 2014, according to the Commonwealth Fund and similar studies from Gallup, Rand Corporation, Urban Institute and Kaiser Family Foundation.  In California, the reduction in uninsured was more dramatic, about 22% to 11%.
I predict Jonathan Gruber will one-day explain what he really meant, the SCOTUS says ACA subsidies will continue and new tools for agents and consumers will make it easier.

UBS Evidence Lab released an interesting report of their interview of 150 health insurance brokers in 35 states. The survey cites access to doctors, costs and benefit design as their key criteria for selecting a plan.  Interestingly, the brand of insurance carrier was rated as a relatively low priority in the individual market, but ranked number four in the small group market. Cost-shifting to employees have continued for most small groups according to broker surveys. More than 61% of broker respondents report that small group employers have been more aggressive in shifting insurance costs to employees for 2015 compared with 2014, while only 8% of respondents indicate that small group employers were less aggressive. Roughly 69% of broker respondents noted that small group employers are putting strategies in place to increase employee plan costs (i.e., higher coinsurance and salary contributions).  https://neo.ubs.com/shared/d1AZqu4yduz3AL  As enrollment in high-deductible plans continue to grow in popularity, consumers will need help understanding how they work. The recent EBRI survey reported 15% of Americans are enrolled in a CDHP, while 74% have more traditional health care coverage. Eleven percent of Americans are enrolled in a high-deductible health plan, 57% have an HSA or HRA, and 43% are enrolled in an HSA-eligible plan but haven’t opened an account, the survey also found.
I predict more tools will emerge to help simplify HSA and HRA understanding… on your iPhone.

Provider access and network adequacy will continue to be a hot issue as more lawsuits have been filed against health plans.  One case alleges that the health plan failed to provide access to medically necessary specialty services because of inadequate provider networks. The filing details the alleged experience of a consumer who needed immediate surgery but the medical group practice (IPA) took seven weeks to find a qualified specialist to perform the procedure. The suit claims the delay in care caused irreparable damage to the consumer’s health.  The tension between network adequacy and savings will continue as network gaps are filled and savings from tiered or “skinny” networks increase to more meaningful savings. The national average savings for narrow or tiered network is about 5% compared to full provider networks. Employers may appreciate the savings while employees are complaining about difficulty accessing care. Telemedicine can help solve these issues but may erode the intended savings.
I predict narrow networks will stay and well have better mobile tools for consumers to find and set appointments with in-network doctors.

As a Silicon Valley-based tech startup, we may see the employee benefits market differently  The convergence of technology and health insurance can be exciting or scary, depending on your readiness or appetite for change. Agents have always competed with technology and service.  Now they will have a broader range of tools and services to differentiate by.  With more than $5 billion invested by venture capitalist in 2014 and funding expected to exceed $6.5 billion by the end of 2017, digital health will evolve and grow at a fast pace as big data, medical devices and consumer engagement will change an industry that desperately needed change. The role of the agent remains strong, especially in the employer-sponsored market.  Armed with new technology and connected with other services, like integrated payroll and compliance, modern benefit advisors will do well in 2015.
After a period of adjustment and some change management, I predict you may say our industry never looked more cool.