Home > Employee Benefits > Reform will lead to growth in health insurance costs for businesses

Reform will lead to growth in health insurance costs for businesses

National Health Care Reform, as signed into law this week, will lead to steeper growth in health insurance costs for businesses. The federal government had an opportunity to finally address the unsustainable costs in healthcare and the burden placed on US businesses, and chose instead to develop a trillion dollar program which does little to address costs; and instead layering further pressures on a private system in crisis. By developing a political strategy of vilifying the insurance industry, low hanging fruit no doubt, the administration lost sight of the real problem in our system, the eighty five to ninety cents of every premium dollar that are attributable to the cost of services. One need only look to the Massachusetts model to realize Obamacare will not work.

As a result of this new law, insurance companies face new taxes and market restrictions; and a fresh round of Medicare cuts will add to the $90 billion a year cost shift hospitals charge to private insurers when the Medicare and Medicaid under reimburse. Even the medical device companies, who provide materials used in healthcare services, have been levied a 2.3% tax. This oddly placed tax will simply become another pass through costs into our health insurance premiums.

In addition to the insurance taxes and fees that will find their way in to health premiums, significant underwriting and plan restrictions have been added to the mix. Carriers will be banned from writing plans with lifetime maximums, preexisting condition exclusions and excessive waiting periods. Many of these provisions, designed to reduce adverse risk across a risk pool, were wrong and the changes needed to be made to protect those that would be unfairly denied care. These plan changes however, will also have a negative impact on premium rates. Medical insurers, who should be viewed as a financial pass through vehicle, will simply pass these new taxes and claim costs directly into their premiums and continue to escalate the cost of health insurance to employer groups of all sizes, but particularly those with over fifty employees.

The implications of the various components of health reform and the impact on costs can be seen in the rates charged for healthcare plans in Massachusetts. Plan reform in Mass actually goes back to 2006 when the state passed a comprehensive small group reform bill which elimanted pre-existing clauses and pooled all companies under 50 employees. Plan rates became more stable and individuals changing jobs faced fewer restrictions in receiving coverage. But these changes were certainly a contributing factor to Massachusetts having the most expensive premiums in the country.

The more recent Mass reform plan, which mirrors the Obamacare program in many respects, includes only mild individual incentives/penalties to non-participants and because of many people “gaming” the system, has resulted in losses to local carriers and medical group renewals that are far exceeding trend. Small businesses in Massachusetts are receiving rate increases in excess of 30% while all of the non-profit health plans in Massachusetts lost money in 2009, with Blue Cross’ losses exceeding $110 million dollars. The state touts a 97% coverage rate but Mass reform is not working to control costs and the Obama administration should have learned from our mistakes.

So, as rates accelerate for private businesses even more so than in the past, what is the solution? It is clear that this reform was intentionally designed to subsidize expanded coverage on the backs of private industry. Further, this plan will fail to attract the healthy to the risk pool as penalties for non compliance are far too low. This may all be intentional on the part of the Democratic writers of the legislation. Balancing the social need to have insurance and access for more people on the backs of businesses should not be a total surprise. But, we can expect some of the Democrats to carp the loudest should employers continue their slide away from providing health insurance as the years pass under Health Care Reform.

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