2015 Health Care Plan Premium Outlook: A Mixed Forecast

As the Affordable Care Act (ACA) was being debated in Congress in early 2010, the then Speaker of the House, Rep. Nancy Pelosi, famously commented, “We have to pass the [ACA] so that you can find out what is in it.” A present day corollary is, “We won’t know the impact of the ACA until it’s been in effect for several years.”

This certainly holds true for the ACA’s effect on health care plan premiums. The forecast is mixed. But employers are well advised to take a look at the projections in their geographic areas anyway to at least get some idea of what they could be in for.

Regional conditions

Reflecting this year’s initial experience with plans sold through public exchanges (now called “Health Insurance Marketplaces”), plan premiums for 2015 have been the subject of great speculation. Soon, hard numbers will be coming in. The early projections are all over the map — and vary greatly by where you are on the map.

For example, rates for plans sold through Marketplaces may be flat next year in Maine. But they’re expected to jump by double digits in Arizona, despite a strong competitive market there.

Health care plans sold directly to employers are subject to many of the same forces driving the pricing of plans sold through Marketplaces. And though these two broad plan types have varying purposes and regulatory requirements, they do compete with each other to some degree.

Shelter from the storm

The Obama administration is trying to build shelters against extreme 2015 premiums by making it easier for insurers to be compensated by other insurers if they inadvertently underprice their plans. A set of final regulations issued by the Department of Health and Human Services (HHS) in May outlined that opportunity under the ACA’s “premium stabilization” provisions.

The regulations came under immediate attack from critics; one even characterized them as an “illegal … insurance bailout” and “another end run around Congress.” The regulations pertain to an ACA component called the Temporary Risk Corridors Program. Its duration is from 2014 to 2016, and its purpose is to alleviate insurers’ worries about winding up with a disproportionate amount of older and sicker people in their plans. The program sets limits on the amounts insurers can both profit and lose on plans sold through Marketplaces this year through 2016. (A similar program, still on the books, was established for insurers that provided drug coverage to Medicare beneficiaries when Medicare’s Part D took effect in 2006.)

Essentially a stop-loss plan for insurers, the program is primarily funded by the insurance companies themselves through a reinsurance pool. But the federal government will act as the ultimate high ground, the new regulations made clear. “In the unlikely event of a shortfall for the 2015 program year,” the HHS has stated, “[we] recognize that the Affordable Care Act requires [us] to make full payments to issuers” that have been soaked by high costs. If needed, these supplemental funds will be taken from other HHS programs.

The final regulations also give insurers an added buffer. Specifically, they raise by 2% both the ceiling on allowable administrative costs and the floor on profits. This adjustment will “help with unexpected administrative costs and pricing uncertainties,” says the HHS.

Other ACA issues

In addition to reassuring insurers that any losses on health care plans sold via Marketplaces will be limited, the final regulations issued by the HHS in May addressed several other ACA issues. Among them:

Clarification of Small Business Health Options Program (SHOP) plans in 2015. According to the HHS, this provision “aligns the start of annual employer election periods in federally-facilitated SHOPs for plan years beginning in 2015 with the start of open enrollment in the individual market Exchange for the 2015 benefit year to minimize confusion and maximize efficiency.” The regulations also spell out the conditions under which small employers could limit their employees’ health care plan choices in the SHOP Marketplace.

Implementation of quality standards. The regulations “take the next step in making quality information available to consumers while they shop for plans in the Marketplace,” per an HHS summary of this provision. The agency is requiring insurers “to submit data to support the calculation of the quality ratings.”

Standardization of consumer notification rules. This provision “requires insurers to use standardized notices when renewing coverage or discontinuing products [to] help to ensure that consumers understand the changes and choices in the individual and small group market.”

More climate data

Going even further back to April, the bipartisan Congressional Budget Office (CBO) published a report mapping out some of the anticipated climate changes for plan premiums. Some notable predictions for the next decade include the following:

• The number of employees covered by employer-based health care plans will remain level, at around 166 million, but shrink as a percentage of the total working population as the working population itself grows.
• The number of employees covered by employer plans will drop between seven and eight million annually, beginning in 2016.
• The number of people securing health care coverage via Marketplaces because their employer coverage is unaffordable to them won’t exceed 500,000 before 2025.
• The number of people who buy coverage on Marketplaces who don’t earn enough to be eligible for tax subsidies will rise from about one million this year to six million in 2017, and remain at that level through 2024.

Ultimately, the report predicted that the average silver tier plan will go up by only 2.6% in 2015, to $3,900 for single coverage. But the CBO also predicted that the trend rate would rise to 6% from 2016 through the end of the decade — a surprisingly low prediction for a nonpartisan agency.

Cloudy skies clearing soon

Will the federal government, and the HHS regulations in particular, sufficiently incentivize insurers to abstain from raising premiums too aggressively in 2015? The skies remain cloudy — but will likely soon clear. As an employer, you should keep in close touch with your benefits provider and advisors to get, as early as possible, an idea of how to dress for the weather. For more information on the ACA and its impact on your business, please contact one of our tax partners.

Copyright © 2014 Thomson Reuters / BizActions.