Tag Archives: Affordability

Preexisting conditions and the effects on health insurance

Solving the preexisting conditions issue is a significant hurdle in healthcare reform. Making health insurance available to individuals with preexisting conditions—while also ensuring affordability in a system in which health insurance is optional—has proven to be very challenging so far.

In this article, Milliman’s Tom Snook discusses why the coverage of preexisting conditions is a key issue in health insurance, particularly with respect to affordability and sustainability, and outlines varying approaches to addressing it.

Employer-sponsored health insurance faces affordability challenge

How will the Patient Protection and Affordable Care Act (PPACA) affect employer-sponsored health insurance? Employers have to consider whether they want to preserve their existing coverage, self-insure, or pay fines for suspending coverage. That decision may hinge on an employer’s ability to maintain affordable costs while offering minimum coverage.

Paul Houchens recently discussed affordability and PPACA’s minimum benefits compliance with Healthcare Payer News. Here is an excerpt from the article:

Across industries, the main challenge will be having minimum coverage and keeping it as affordable as possible…

Wellness benefits across corporate and small firms vary from tobacco cessation programs to on-site fitness centers, free produce and commuting perks. For ACA minimum benefits compliance, though, it’s still not clear how exactly the affordability test will be measured against wellness incentives, said Paul Houchens, an Indianapolis-based consulting actuary with Milliman.

“Let’s say you have a plan that charges $2,000 for single coverage without wellness incentives, but $1,000 if you’re a non-smoker. Is that affordability going to be measured based on the $2,000 or that $1,000? Particularly for employers with large wellness incentives in their plans, it’s difficult to do a lot of planning without having that information.”

More broadly than wellness, Houchens sees employers probing the value of their current sponsored insurance and calculating the costs and benefits of different options, as federal agencies finalize rules for the individual and employer mandate, premium assistance and eligibility.

If all of an employer’s workers are above 400 percent of the federal poverty level (FPL), Houchens said, “None of them are going to qualify for premium subsidies and probably in a lot of cases are going to be paying a lot more for health insurance under exchanges than they would under (their) plan.” Or “if you have an employer with dominantly low-income employees, maybe some would actually be better off in the exchange versus your employer plan.”

While the level and relative affordability of coverage will probably vary by industry and income, Houchens and colleagues think that the cost of dropping coverage is likely to outweigh the savings.

“Even for some of the low-income employers, I think a key point to remember is that your health insurance is a tax-deductible expense, whereas the penalties are not,” Houchens said. “That’s a huge difference for the for-profit companies. And also, you’re being penalized on every full-time employee. You’re not just being penalized on the people that would participate on your plans.”

A company with 60 percent health plan participation is “really only paying for health insurance for 60 percent of employees,” he said. “But with the exception of the 30 employee exemption, you would be paying a penalty on 100 percent of the full-time employees; that’s non-tax deductible. We’ve run the calculations for a number of employers. The math of terminating coverage and trying to make them whole, it simply doesn’t add out. So employers are thinking prudently. They’re probably going to continue to offer coverage in 2014.”

Download Milliman’s Healthcare Reform Strategic Impact Study which helps answer important reform questions employers are dealing with.

Also, for more of Paul’s insights on healthcare reform, follow him on Twitter @PaulHouchens.

Final rule on affordability of family health coverage and health insurance premium tax credit

Employees’ family members who are eligible to enroll in the employees’ group health plan will be ineligible for federal subsidies under the exchanges if the employees are offered affordable self-only healthcare coverage, according to the final rule published on February 1 by the Internal Revenue Service (IRS). The final rule retains the provision in the IRS’s proposed rule basing the affordability test of the Patient Protection and Affordable Care Act (PPACA) on the cost of self-only coverage, rather than family coverage. Thus, an employee’s contribution toward the premium for family coverage is not taken into account when determining whether an employer is subject to penalties for not offering affordable coverage that satisfies PPACA’s minimum value standard. The IRS’s final rule may result in limiting federal healthcare premium subsidies for employees’ family members who purchase insurance from the exchanges beginning in 2014.

Under PPACA, employees eligible for an employer-sponsored health plan that is deemed “not affordable” can opt out of the coverage and receive a federal subsidy to help them purchase insurance in the exchanges. They are eligible for a federal health insurance premium tax credit, which is based on income as a percentage of the federal poverty level (FPL), if their employer-sponsored plan is deemed “not affordable,” i.e., if their share of the premium is more than 9.5% of household income. In addition, PPACA subjects employers to a $3,000 penalty for each full-time employee whose premium share exceeds the threshold of 9.5% of household income and who receives the subsidy to purchase exchange coverage.

In a related proposed rule also published February 1, the IRS said that family members of an employee who is offered affordable, self-only coverage will not be subject to the PPACA individual mandate penalty, which is applicable to individuals who do not obtain insurance if the employee’s premium share for family coverage exceeds 8% of household income and family members do not enroll in the coverage. This proposed rule cannot be relied upon at this time.

Employers should review their employee contribution and eligibility strategy for all employees to avoid unnecessarily limiting premium tax credit options under the exchanges for employees and their dependents.

For more information about the final rule or for assistance with implementing PPACA’s requirements, please contact your Milliman consultant.

Individual mandate poll results

Thanks to everyone who participated in our poll asking how best to manage adverse selection if the PPACA individual mandate is struck down. The top three answers were:

  • “Use limited enrollment windows to reduce the occurrence of people joining a plan only when they become sick”: 28%
  • “Enforce a penalty that escalates the longer people wait to buy coverage”: 23%
  • “Sever the high-risk population into a separate pool to keep costs for the general population down”: 18%

In upcoming posts we’ll take a look at each of these options in a bit more detail.

Changing Expectations: Affordability

The following is excerpted from the recent paper by Jon Shreve, “Changing Expectations in Healthcare.”

Increases in medical costs in the United States have steadily outpaced inflation, and now such costs comprise more than 16% of GDP. Left unchecked, they are projected to grow to 20% in 10 years. Uneven quality, lack of integrated care, outdated information systems, and the wrong financial incentives have all contributed to the rise.


The basis for paying for healthcare must shift to one that rewards healthy outcomes and that provides financial incentives for following evidence-based medical practices. Such a shift is difficult in a system dominated by fee-for-service pricing with little or no accountability for performance. Several past and recent innovations may be useful in future reforms.


  • During the 1990s, physicians were often paid for the number of patients they treated rather than the volume of services they generated. The capitation approaches used often were not refined or adequately supported, which in part led to the managed-care backlash. Still, medical cost trends were at a lower level than they have been before or since. This was a far from perfect but nevertheless elementary example of beginning to pay providers at a level consistent with our expectations for them.
  • Another solution, risk-adjusted episodic payment, envisions payers like insurance companies paying all hospitals or medical professionals fixed amounts per episode of care, depending on the condition being treated.
  • Recent movements toward pay for performance or medical home head in this direction, but without a change in the underlying compensation scheme, each additional service generates an additional fee.


Whatever form it takes, restructuring the payment system can motivate healthcare providers to perform—and payers and patients to pay for—only those procedures consistent with the best medical evidence and the needs of the patient. A system driven by results allows physicians more time to focus on the treatment they deliver rather than the quantity of services they provide.


For more, see earlier posts about access and quality.