With time running out on an opportunity for Congress to repeal and replace the Affordable Care Act and open enrollment season approaching, thousands of small and mid-sized businesses are likely bracing for another round of premium increases. A growing number of employers, however, will choose to avoid the uncertainty plaguing traditional group insurance markets by moving to a self-funded health plan – an option that provides an opportunity for savings and far more plan design flexibility.
Healthcare benefits continue to be perhaps the biggest obstacle facing small and mid-sized businesses. The Self Insurance Institute of America reports that between 2011 and 2016, the average annual deductible for employer-sponsored plans increased by 49% and the percentage of firms with fewer than 200 employees still providing health benefits fell from 68% in 2010 to 55% in 2016.
Self-funding on the other hand, has proven to be a far more responsible alternative for employers, enabling thousands to not only use their health benefit plan to attract and retain high quality employees, but to do so at an affordable cost. While self-funding has long been a staple for the nation’s largest employers, nearly a third of companies with 200 or more employees now offer at least one self-funded option.
Everyone Benefits from Flexibility
There are many reasons for the growth of self-funding, with flexibility and access to valuable claims data high on the list. Since self-funded plans are governed by ERISA, they avoid many of the costly mandates governing fully insured plans. To manage risk, stop loss coverage is obtained to cover claims that exceed anticipated levels. If claims are below anticipated levels, the plan retains the savings that would have been paid to an insurance carrier in the form of non-refundable premiums. Benefits can be customized to meet the unique needs of the group. When an independent TPA is engaged to administer the plan, claims data can be analyzed to identify chronic conditions and other key cost drivers. Services such as telemedicine and mobile transparency tools can be added to make physician access more convenient and more affordable. From plan design to data analysis, everyone benefits from the flexibility that a self-funded plan can provide. It’s the biggest reason why more small and mid-sized companies continue to move to self-funding with help from an independent TPA.
In a previous newsletter, we discussed bundling introduced by Medicare which focuses on orthopedic and cardiac procedures. Through the mandatory initiative for comprehensive care for joint replacements (CJR), which became policy in 2016, some 800 hospitals are participating in the program.
While some sources report the results of bundling as mixed, Medicare reports that joint replacement payments increased by approximately 5% nationally, but decreased 8% for BPCI participants. One large health system achieved a 20.8% episode decrease and another reported a significantly shorter prolonged length of stay – a sign of fewer complications resulting from surgery.
Providers, both acute and post-acute, shared in the savings and indications are that post-acute savings were achieved because their care was bundled, placing these providers at risk. Even though efforts to repeal and replace or modify the Affordable Care Act are on hold, more healthcare providers and payers can be expected to embrace bundling going forward.
Press Release from Education and the Workforce Committee Chairwomen Virginia Foxx on April 5, 2017.
The House today passed the Self-Insurance Protection Act (H.R. 1304), legislation that would protect access to affordable health care options for workers and families. Introduced by Rep. Phil Roe (R-TN), the legislation would reaffirm long-standing policies to ensure workers can continue to receive flexible, affordable health care coverage through self-insured plans. The bill passed by a bipartisan vote of 400 to 16.
“By protecting access to self-insurance, we can help ensure employers have the tools they need to control health care costs for working families,” Rep. Roe said. “Millions of Americans rely on flexible self-insured plans and the benefits they provide. Federal bureaucrats should never have the opportunity to limit or threaten this popular health care option. This legislation prevents bureaucratic overreach and represents an important step toward promoting choice in health care.”
“This legislation provides certainty for working families who depend on self-insured health care plans,” Chairwoman Virginia Foxx (R-NC) said. “Workers and employers are already facing limited choices in health care, and the least we can do is preserve the choices they still have. I want to thank Representative Roe for championing this commonsense bill. While there’s more we can and should do to ensure access to high-quality, affordable health care coverage, this bill is a positive step for workers and their families.”
BACKGROUND: To ensure workers and employers continue to have access to affordable, flexible health plans through self-insurance, Rep. Phil Roe (R-TN) introduced the Self-Insurance Protection Act (H.R. 1304). The legislation would amend the Employee Retirement Income Security Act, the Public Health Service Act, and the Internal Revenue Code to clarify that federal regulators cannot redefine stop-loss insurance as traditional health insurance. H.R. 1304 would preserve self-insurance and:
- Reaffirm long-standing policies. Stop-loss insurance is not health insurance, and it has never been considered health insurance under federal law. H.R. 1304 would reaffirm this long-standing policy.
- Protect access to affordable health care coverage. By preserving self-insurance, workers and employers will continue to benefit from a health care plan model that has proven to lower costs and provide greater flexibility.
- Prevent bureaucratic overreach. Clarifying that regulators cannot redefine stop-loss insurance would prevent future administrations from limiting a popular health care option for workers and employers.
For a copy of the bill, click here.
For a fact sheet on the bill, click here.
According to a study by the Feinberg School of Medicine at Northwestern University shows that despite the Affordable Care Act taking effect, emergency room visits in Illinois increased by nearly 6% during 2014 and 2015. While the number of visits by uninsured people dropped after Obamacare took effect, the decrease was not sufficient to offset the increase in ER visits by those with Medicaid and private insurance. Some believe the increase is temporary and that it will drop as previously uninsured people learn how to use their health insurance.
The Affordable Care Act’s “individual mandate” provision requires every individual to have minimum essential health coverage for each month, qualify for an exemption, or make a penalty payment when filing his or her federal income tax return. Recently, the Internal Revenue Service (IRS) issued Revenue Procedure 2016-43, which provides information needed to determine the maximum penalty that may be due for 2016.
Calculating the Payment
For tax year 2016, individuals will generally pay whichever of the following penalty amounts is higher:
- 2.5% of the individual’s yearly household income above his or her applicable filing threshold; or
- $695 per person for the year ($347.50 per child under age 18).
The maximum penalty is capped at the cost of the national average premium for a bronze-level health plan available through a Health Insurance Marketplace in 2016. According to the IRS, the monthly national average premium for qualified health plans that have a bronze level of coverage and are offered through a Health Insurance Marketplace in 2016 is:
- $223 per individual; and
- $1,115 for a family with five or more members.
Our section on the Individual Mandate (Individual Shared Responsibility) provides information on the statutory exemptions from the individual mandate requirement.
If you’re in an industry with significant turnover and varied work schedules, a Minimum Value Plan may be an affordable way to meet the requirements of the Affordable Care Act.
A Minimum Value Plan is one that pays at least 60% of the total allowed cost of benefits expected under the plan. And while a traditional fully insured plan might cost $300 per month for employee-only coverage, a minimum value plan may cost just over $100 while still providing ACA-mandated care and coverage for inpatient hospitalization.
Determining Minimum Value
Businesses may need help determining that their plan reaches “minimum value” under the ACA. To meet this standard, the plan must pay at least 60% of the total allowed cost of benefits, which can be a moving target. Recent regulations also require that minimum value plans must offer substantial coverage for both inpatient hospitalization and physician services.
It should also be noted that minimum value plans must still offer “minimum essential coverage” and coverage that is considered “affordable” under the ACA. Offering such a plan, without meeting these requirements, may still expose your organization to liability under ACA employer shared responsibility rules.
Though minimum value plans can be an affordable solution, future growth may be a concern, since only organizations with fewer than 50 full-time employees and full-time equivalents are exempt from ACA coverage requirements.
Even though doctors currently have an ownership interest in just 5% of the 5,700 hospitals in the U.S., the ACA will not allow physicians to increase their ownership interest or pursue ownership in additional hospitals. The potential for conflict of interest and concerns about physician owners “cherry picking” the more profitable patients were the impetus behind Section 6001 of the Affordable Care Act that was passed in 2010.
Challenges to the law continue to come along, including a House bill sponsored by Representative Sam Johnson of Texas that would suspend the moratorium on expansion of physician-owned hospitals (POHs) for 3 years and grandfather in several POHs that were under development when the Affordable Care Act was passed. The legislation is based on a recent study that reviewed patient populations, quality of care, costs and payments in 2,186 hospitals, 219 of which were partly physician-owned. The study showed little difference in patient care between POHs and non-POHs, in fact 7 of the top 10 hospitals receiving quality bonuses in the new Hospital Value-Based Purchasing Program were physician-owned hospitals.
One study by the Centers for Medicare and Medicaid Services showed that a majority of physician owners have less than a 2% interest in their institution. As healthcare continues to evolve from fee-for-service to more value-based, there is no doubt that the debate over physician-owned hospitals will continue.