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A ‘Perfect’ Storm Brewing

David P. Lind BenchmarkAs mentioned in my July 18 blog, our annual Iowa Employer Benefit Studies© have revealed that if health insurance trends continue in Iowa (based on the average five year history of rate adjustments), employers could be paying an average annual single and family premium of $13,295 and $35,000, respectively, by the year 2021. We all know this is clearly unsustainable.

Based on these numbers, the “Perfect Storm” is brewing during the next five years in Iowa – and beyond.

Here’s why. The Affordable Care Act (ACA) has an ominous provision surfacing in 2018 that will greatly impact the cost of health insurance offered by employers in Iowa and around the country. Known as the “Cadillac” tax, employer health plans that reach a pre-determined threshold of annual premiums in 2018 and beyond ($10,200 for single and $27,500 for family) will be charged an excise tax of 40 percent for any premium over these amounts. From our survey of Iowa employers in 2011, most employers don’t think they will be affected by this provision (see below). 

David P. Lind Benchmark

So is it possible for Iowa employers to have premiums this high in about five years?

Absolutely!

As illustrated below, the average Iowa employer family premium in 2018/2019 could be hovering around the threshold amount of $27,500. This means about half of Iowa employers will be averaging premiums above this amount and paying the excise tax, while the other half are below the threshold amounts. (Although not illustrated here, the projected single premium in Iowa will also average around the single threshold of $10,200).

David P. Lind Benchmark

Clearly, Iowa employers must make strategic decisions today and in the next few years to prevent their plans from being subjected to this “Cadillac” tax. The excise tax will only accelerate the unsustainability of employer-based premiums.

Medicaid Crunch

David P. Lind BenchmarkUnder the Affordable Care Act (ACA), Iowa (and all other states) will be making key decisions on whether to expand Medicaid to those who fall within the 100 percent to 133 percent of the federal poverty level (FPL). Currently, Iowa covers about 104,000 Iowans (aged 18-64) under the Medicaid program who qualify up to 100 percent of FPL.

Prior to the Supreme Court decision in June, each state would need to expand Medicaid from 100 percent FPL to 133 FPL, with the federal government paying the entire cost of this expansion from 2014 through 2016 (federal funding will then eventually drop to 90%). The assumption made in the law was that those who were included in the Medicaid expansion would not receive federal tax credits for health insurance because they would be eligible for Medicaid. Only those who fall between 133 – 400 FPL would receive some form of federal subsidy to help pay for health insurance coverage if purchased through a qualified state-based exchange.

However, after the Supreme Court decision, each state can now decide whether to expand Medicaid coverage to those who qualify up to 133 percent FPL. Should Iowa elect to not expand Medicaid coverage, there could be approximately 134,000 residents who are caught between the 100 and 133 percent FPL – who would not be eligible for Medicaid coverage, but presumably receive federal subidies to purchase health insurance through an approved state-based exchange. These numbers are very fluid, by the way, requiring additional analysis:

 David P. Lind Benchmark

By not expanding Medicaid, Iowa health care providers could have more uncompensated care than anticipated, resulting in cost-shifting to those who have private coverage (employer provided plans).  The Supreme Court ruling has caused a hiccup for those residents who fall within the 100 – 133 percent FPL – especially if Iowa elects to not expand Medicaid coverage. This hiccup may affect employers too. Here’s how:

Under the health care law, employers with over 50 employees would pay a $3,000 penalty for flunking the 9.5% affordability test – but only if affected employees are eligible for federal premium subsidies to buy health coverage in a state-based health exchange. The health law indicates if the employee is eligible for Medicaid, the employee is not eligible to receive the federal subsidy to buy health coverage through the exchange. The employer in this case would not be liable to pay the $3,000 penalty. However, should the state not expand Medicaid, the employer would need to make sure the employee in the 100 – 133 percent FPL does not pay a premium above 9.5% of their income to qualify for a subsidy. Somewhat confusing, but this is a potential unintended consequence of the state refusing to expand Medicaid eligibility.

Even though we now have the ACA, two age old questions remain:  1) Who pays?, and 2) How much?

 

Scary 13 Year Trend

Iowa Employer Benefits StudyI’ll admit it. I’m somewhat of a self-described GEEK! I love numbers, statistics, trends…I love stories!

That is why I enjoy research. Trends that germinate from research can ultimately tell stories. Iowa has a story…unfortunately, a very common (and scary) story.

One comparison slide that I put together provides a very interesting ‘story’ about what is happening to health insurance rates both in Iowa and nationally. This slide (see below) demonstrates that Iowa is not immune from the disturbing trend that the Kaiser/HRET Survey has revealed for the past thirteen years (1999 through 2011) in the U.S. When I superimpose our Iowa study results with the Kaiser results, the trends are eerily similar. OK, downright scary!

David P. Lind Benchmark

The Kaiser single coverage annual premium (light green bar), has increased by 147 percent from 1999 to 2011. By comparison, the Iowa single coverage annual premium (DPLB Single) increased by 145 percent during that same period. In 2011, the national single premium is about 7.5 percent higher than Iowa’s average single premium. By contrast, the average national family premium is 13.4 percent higher than Iowa’s family premium. If anything, Iowa is fortunate to have lower than average insurance premiums when compared to the rest of the country.

But the trend we see in Iowa employer premiums is alarming. We may have lower premiums than many other states, but our premium growth rate appears to be very comparable to the national average – which is not a flattering compliment to Iowa. It is important for Iowa employers to compete both nationally and globally by having quality health care at affordable costs. Clearly, the trends we see on this particular slide are devastating to employers within and outside of Iowa.

I look forward to continuing this ‘story’ to see how health reform will affect these trends. What is your guess?