With the enactment of the Patient Protection and Affordable Care Act (ACA), health insurers have had to comply with several requirements. The insurer experience in 2013 reflects the third year insurers have been required to comply with federal minimum loss ratio requirements. This Healthcare Reform Briefing Paper by Milliman’s Paul Houchens, Jason Clarkson, and Colin Gray provides an overview of health insurer financial results in 2013.
Here is an excerpt from the report:
How have financial results changed since 2010?
With four years of insurer financials available, assessments of the ACA’s impact on insurer expense structure and profitability prior to the 2014 rating reforms can be made. Figure 2 provides the incremental change in costs from 2010 to 2013 for insurers reporting financial results during all years between 2010 and 2013. For example, in the individual market, earned premium PMPM has increased approximately $27 from 2010 to 2013.
Figure 2 indicates that premium increases in the group insurance markets tracked very closely with claims expense increases. However, in the individual health insurance market, growth in claims expenses outpaced premium growth by nearly $10 PMPM. This is the primary reason why the medical loss ratio percentage increased by 5.5% in the individual insurance market from 2010 to 2013, despite an increase in administrative expenses on a PMPM basis.
Figure 3 provides a visual representation of changes in each market’s financial structure from 2010 through 2013. Total administrative and claims expense are represented by the red shaded bars, while carrier earned premium is represented by the green outline surrounding the bars. As illustrated by this figure, the gap between earned premium and the sum of administrative and claims expenses has remained consistent in the group markets from 2010 through 2013, yet has been eliminated over the four-year period in the individual market.
Sponsors of group health plans under a cafeteria plan (under tax code section 125) may amend the plan to permit participants to make mid-year election changes in two new instances, under recently issued Internal Revenue Service (IRS) guidance. In Notice 2014-55, the IRS expands the situations under which participants may revoke a group health coverage election mid-year, but does not permit such changes for healthcare flexible spending arrangements (health FSAs).
Notice 2014-55 allows the group health plan sponsor to accommodate participants who want to prospectively revoke an election during a plan year in two situations:
1. The participant’s hours have been reduced to the point where they are expected to work fewer than the 30-hour threshold for “full time” work of the Patient Protection and Affordable Care Act (ACA). The change in election is permitted even if the reduction in expected hours worked does not result in the employee ceasing to be eligible under the group health plan.
2. The participant voluntarily chooses to drop employment-based coverage to purchase exchange coverage without having a period of dual or no coverage.
In the first situation, participants must represent to the employer that they will be enrolled in “minimum essential coverage” by the first day of the second month following the revocation date. In the second situation, they must represent that they will be enrolled in exchange coverage by the date immediately following the loss of employment-based coverage. A plan sponsor may rely on participants’ “reasonable” representations of their enrollment statements.
An election to revoke coverage on a retroactive basis is prohibited.
In general, section 125 cafeteria plan sponsors must amend the plan by the last day of the plan year for which the change is effective and operate the plan in accordance with the guidance. For 2014, however, Notice 2014-55 permits plan sponsors to adopt the amendment applicable to the start of the 2014 plan year by the end of the 2015 plan year. Notification to plan participants about the amendment is required.
For additional information about the IRS’s guidance permitting these cafeteria plan changes, please contact your Milliman consultant.
Employment-based orientation periods for group health plan eligibility under the 90-day waiting period limitation of the Patient Protection and Affordable Care Act (ACA) must not extend beyond one month before counting the 90-day period, according to a final rule released by the U.S. Departments of Labor, Treasury, and Health and Human Services. The final rule applies to group health plans and health insurance issuers offering group health insurance coverage for plan years beginning on or after January 1, 2015. Plan sponsors will be deemed in compliance through the end of this year by satisfying the provisions of the proposed rule that was published February 20, 2014—read this Client Action Bulletin for more perspective.
Under the 90-day waiting period requirement, group health plans and health insurance issuers offering group health insurance coverage may not impose a waiting period longer than 90 days for employees and their dependents. A waiting period is the time that must elapse before an individual who is otherwise eligible to enroll can become covered under the group health plan. Being “otherwise eligible” requires the employee to have satisfied plan-specified conditions, such as being in a certain job classification or obtaining a job-required certification.
The newly released final rule allows plan sponsors to apply a one-month orientation period for an employee to be eligible to enroll in a plan before counting the 90-day waiting period. The orientation period is measured by adding one calendar month and subtracting one calendar day, beginning with the eligible employee’s starting date. During this orientation period, the agencies “envision that an employer and employee will evaluate whether the employment situation is satisfactory for each party, and standard orientation and training processes will begin,” according to the final rule’s preamble.
The agencies also caution that compliance with the final rule will not be determinative of an employer’s compliance with the ACA’s shared responsibility provisions that require large employers (with 50 or more full-time-equivalent workers) to offer affordable, minimum value coverage.
For additional information about the newly issued final rule on the ACA’s orientation period, please contact your Milliman consultant.
Group health plans and group health insurance must not impose a waiting period longer than 90 days for employees and their dependents, under a final rule issued by the Internal Revenue Service (IRS), and the U.S. Departments of Labor and Health and Human Services. The final rule’s waiting-period limitation, which is part of the Patient Protection and Affordable Care Act (ACA), applies to plan years beginning on or after January 1, 2015. Other provisions of the final rule apply to plan years beginning on or after April 25, 2014, with plan sponsors and insurance issuers deemed in compliance during 2014 if they satisfy the requirements of the March 2013 proposed rule.
The agencies also separately issued a proposed rule on “employment-based orientation periods” to address concerns raised by some employers about the effect of the waiting-period requirement and bona fide orientation periods. Under the proposed rule, an employer’s orientation period may be no longer than one month, determined by adding one calendar month and subtracting one day to the waiting period. Employers may rely on the proposed rule for 2014, and a final rule will not be effective prior to 2015.
For Milliman’s perspective read this Client Action Bulletin.
With the Patient Protection and Affordable Care Act (ACA) enactment in March 2010, health insurers have had to comply with minimum loss ratio requirements, more stringent rate review, removal of annual benefit limits, first-dollar coverage of preventive care, and other requirements. While the largest reforms enacted by the ACA do not begin until January 1, 2014, for the individual and small group health insurance markets, there are now multiple years of insurer financial experience to evaluate how the ACA is impacting insurer’s profitability and expense structure.
This report uses data reported by health insurers in their Medical Loss Ratio Reporting Forms (MLR forms) submitted to the Center for Consumer Information and Insurance Oversight (CCIIO) in 2011 and 2012, along with 2010 Supplemental Health Exhibit (SHE) data, to summarize financial results in the commercial health insurance markets. The report provides an overview of health insurer financial results in 2012 and evaluates changes in the health insurance industry’s expense structure and profitability from 2010 to 2012, including changes in the medical loss ratio percentage.
The federal agencies with regulatory authority under the Patient Protection and Affordable Care Act (ACA) have published numerous regulations and related guidance since April to help employers that sponsor group health plans navigate implementation of the healthcare reform law. This Client Action Bulletin briefly describes key guidance from the U.S. Departments of Treasury (IRS), Labor (DOL), and Health and Human Services (HHS) released April 1 to September 30, 2013, and applicable to group health plans and insurance in plan/policy years that begin in 2014.