The Affordable Care Act & Alabama:
Impact on coverage premiums and plan availability
Robin Lewis, November 2012
On October 31st, Blue Cross Blue Shield of Alabama issued a statement announcing that 4% of Blue Cross’ 2.1 million customers in Alabama would not be able to keep their individual insurance plan. Approximately 84,000 Alabamians are expected to receive notices that their current coverage will be terminated on December 31st of this year.
The announcement also indicates that the majority of the Blue Cross’ Alabama members have been informed that their premiums will be higher under their new coverage. The announcement cited new health care coverage requirements pursuant to the Affordable Care Act as justification for the increase.[1]
Though Blue Cross did not respond to a request for further information concerning specific premium increases, Kaiser Health News reviewed nine cancellation letters sent to consumers from ages 22 to 63 across Alabama who buy health insurance directly from Alabama Blue Cross. The study found that price increases in the new plans ranged from 38 to 100% (note that price increases were determined before government subsidies were factored into the cost of coverage).
While Blue Cross cites the ACA’s broader and more comprehensive coverage as justification for the cost increases (a list of specific factors may be found in the Blue Cross announcement), the lack of competition between insurance providers in Alabama may also play a role in the premium increases. An analysis provided by Kaiser Health News of the three dozen states relying on the federal marketplace shows that, on average, the least expensive “silver” health insurance plan costs 34% more in regions with one or two insurers selling through the marketplace than in regions with at least eight insurers. Alabama effectively has one insurer, as coverage through Blue Cross’ competitor Humana is only available in three of Alabama’s 67 counties. An American Medical Association study last year found Alabama to be the least competitive commercial health insurance market in the country with Blue Cross accounting for 88 percent of that market.
A recent Alabama Policy Institute article addressing the Blue Cross’ announcement also refers to an NBC article estimating that 50 to 75% of the approximately 14 million consumers who buy their insurance individually nationwide can expect to receive a cancellation letter over the next year. The article indicates failure to meet the standards of the ACA is the reason for the individual plan cancellations.
While 14 million is not an insignificant number, the overall percentage of individuals who purchase individual plans, rather than employer or Medicare/Medicaid insurance, is minor (approximately 5% of Americans). Moreover, most health insurance plans that existed prior to the ACA’s signage into law on March 3, 2010 are eligible for “grandfathered” status, which means that plans do not have to meet all the requirements of the Affordable Care Act.[2]
The conditions of grandfathered plans vary depending on the nature of the plan. Job-based grandfathered plans can enroll consumers after March 23, 2010 and not lose grandfathered status if changes to the plans are minimal; however, individual plans will lose grandfathered status if they enroll new customers after March 23, 2010. If any insurer or employer makes significant changes to a plan’s benefits or the amount members must pay through premiums, copays, or deductibles, then the plan loses its grandfathered status.
It is important to note that large employers’ plans are not required to meet the same benefit levels as individual policies, which are required to cover the ten “essential health benefits” denoted by the Affordable Care Act. [3] The rationale is that employer coverage tends to be more comprehensive than individual plans.
Smaller companies do have to comply with the ten “essential health benefits” of the ACA if their plans are not grandfathered; however, smaller companies are not mandated to provide coverage to their workers under the Affordable Care Act.
Ultimately, because individual grandfathered plans cannot enroll new customers, and none of the grandfathered plans may alter cost-sharing benefits significantly, many companies find it more cost-effective to cancel the plans. However, as Blue Cross recognizes, health insurance companies are legally obligated to provide alternative plans to consumers should the company decide to terminate a specific plan.
In terms of overall cost increases, studies by Forbes and Milliman have found that premiums for individual plans under the Affordable Care Act have generally increased across the board, with young males experiencing the highest rate of increase in their premiums (see Figure 2). However, the White House argues that the more comprehensive coverage under the ACA is less expensive than comparable pre-ACA plans.
Overall, most individuals will be unaffected by the ACA—the 5% of Americans who purchase individual plans (particularly the young) will likely see increases in their premiums, but it is also important to note that pre-ACA plans were often so minimal that they could not fully protect consumers in the event of illness or accident. Figure 3 provides a valuable snapshot of who will be most affected by the ACA, including the 14% of Americans who will now have access to health insurance. In terms of plan cancellations, analysts note that changes to insurance plans are hardly novel: companies have routinely cancelled plans in the past, and the vast majority of Americans have traditionally had to accept whatever policy their employer offers. In conclusion, the majority of Alabama’s residents should be relatively unaffected by the implementation of the ACA, while those who are required to purchase new plans may see increases for more comprehensive coverage.
Appendix A
Figure 1
Coverage for “Grandfathered” Plans (GPs)**Required / Not required / Not required for individual GPs
· End lifetime limits on coverage
· End arbitrary cancellations of health coverage
· Cover adult children up to age 26
· Provide a Summary of Benefits and Coverage
· Keep insurance companies accountable to limiting administrative costs and bonuses / · Cover preventative care for free
· Guarantee patient right of appeal
· Protect choice of doctor and access to emergency treatment
· Be held accountable through rate review for excessive premium increases / · End yearly limits on coverage
· Cover those with pre-existing health conditions
**Source: Data for table derived from https://www.healthcare.gov/what-if-i-have-a-grandfathered-health-plan/
Figure 2
Source: http://www.forbes.com/sites/theapothecary/2013/11/04/49-state-analysis-obamacare-to-increase-individual-market-premiums-by-avg-of-41-subsidies-flow-to-elderly/
Figure 3
Appendix B
Excerpt from “Requirements of the Affordable Care Act Impact Health Plans for Individuals”:
“To remain compliant with the Affordable Care Act, beginning in 2014, all health insurance companies must offer plans that meet certain requirements.
As part of our commitment to communicating with our customers about ongoing changes in the healthcare industry as a result of the Affordable Care Act (ACA), Blue Cross and Blue Shield of Alabama recently mailed letters to 4% of our members in Alabama affected by these ACA requirements. These members were notified that their health plans will no longer be available after December 31, 2013, because the plans did not meet the new ACA benefit requirements for 2014.
To provide a smooth transition, members were automatically enrolled in a new ACA-compliant plan comparable with their current coverage. Members can stay in the assigned plan or choose from any of our new individual health plans. The majority of these members were also informed that their premiums would increase due to the ACA requirements. Blue Cross is encouraging members to review all their options and to let us help them find a health plan that best meets their healthcare and financial needs.
Along with these new health plans are new premiums due to the Law’s requirements. The Law expands health insurance coverage to more Alabamians and broadens health insurance benefits which may result in additional costs.
The Affordable Care Act’s impact on premiums varies based on several factors:
· Health underwriting and waiting periods for pre-existing medical conditions have been eliminated by the Law. Individuals now have access to healthcare coverage regardless of their health condition, and premiums cannot vary based on an individual’s health status.
· As required by the ACA, premiums are determined by the health plan you choose — bronze, silver, gold or platinum; county where you live; the number of members in your family; their ages and whether they use tobacco.
· Member-level rating is new and required by the ACA. In the past, we had one single premium and one family premium — no matter how many people were in the family. The ACA requires that each member on a policy be rated based on age, address and tobacco use. Then all of these individual rates are added together to determine the family premium. As a result, larger families may experience higher premiums.
· The ACA limits how much insurers can vary premiums based on an individual’s age. Today the Law requires a 3:1 maximum ratio for age rating for adults. This means that premium rates for older adults are not allowed to exceed more than three times the rate of a younger person.
· The Act also contains a number of ACA fees and taxes that have been added to premiums.
On the federally facilitated exchange in Alabama, many individuals and families may qualify for advanced premium tax credits that may lower the amount of premium they pay for coverage […].”
References
“Comprehensive Assessment of ACA Factors That Will Affect Individual Market Premiums in 2014.” 25 April 2013 <http://www.ahip.org/MillimanReportACA2013>
“Requirements of the Affordable Care Act Impact Health Plans for Individuals.” 30 October 2013. Media response received in email communication from Koko Mackin. Accessed 5 November 2013.
“Study: ACA provides 97% of Americans with equal or more affordable coverage.” 31 October 2013 <http://www.dailykos.com/story/2013/10/31/1252127/-Study-ACA-provides-97-of-Americans-with-equal-or-more-affordable-coverage>
“What if I have a grandfathered health plan?” <https://www.healthcare.gov/what-if-i-have-a-grandfathered-health-plan/>
Barr, Sarah and Kaiser Health News. “Will Your Health Plan Be Exempt from Obamacare?” 22 September 2013 <http://www.pbs.org/newshour/rundown/2013/09/will-your-health-plan-be-exempt-from-obamacare.html
Barr, Sarah. “FAQ: Grandfathered Health Plans.” 28 August 2013 <http://www.kaiserhealthnews.org/stories/2012/december/17/grandfathered-plans-faq.aspx
Cason, Mike. “Blue Cross notifies 87,000 Alabama policy holders that plans don't meet Obamacare standards, won't be available next year.” 29 October 2013 <http://blog.al.com/wire/2013/10/obamacare_effect_blue_cross_an.html#incart_2box
Demyan, Brandon. “Obamacare Hits Home.” 31 October 2013 <www.alabamapolicy.org/obamacare-hits-home/
Hancock, Jay. “In Alabama, lack of competition may be behind insurance premium costs.” 1 November 2013 <http://www.webmd.com/health-insurance/al/20131101/in-alabama-lack-of-competition-may-be-behind-insurance-premium-costs>
Kliff, Sarah. “This is why Obamacare is canceling some people’s insurance plans.” 29 October 2013 <http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/29/this-is-why-obamacare-is-cancelling-some-peoples-insurance-plans/
Lorenzen, Richard. “Is the Affordable Care Act Really Bad for Business?” 22 April 2013 <http://www.forbes.com/sites/theyec/2013/04/22/is-the-affordable-care-act-really-bad-for-business/>
Moseley, Brandon. “Blue Cross Blue Shield Early Winner in Affordable Care Act.” 7 October 2013 <http://www.alreporter.com/in-case-you-missed-it-2/5204-blue-cross-blue-shield-of-alabama-early-winner-in-affordable-care-act.html
Mukherjee, Sy. “No, Obamacare won’t cause millions to lose their employer sponsored health plans.” 1 November 2013 <http://thinkprogress.org/health/2013/11/01/2873941/obamacare-workers-cancel-health>
Myers, Lisa and Hannah Rappleye. “Obama knew millions could not keep their health insurance.” 28 October 2013 <http://investigations.nbcnews.com/_news/2013/10/28/21213547-obama-admin-knew-millions-could-not-keep-their-health-insurance?lite
Oliver, Mark. “Who is watching out for excessive health insurance rate hikes under Obamacare?” 4 November 2011 <http://blog.al.com/spotnews/2013/11/who_is_watching_out_for_excess.html>
Pickert, Kate. “The Bright Side of Obamacare’s Broken Promise.” 28 October 2013 <http://nation.time.com/2013/10/28/the-bright-side-of-obamacares-broken-promise/
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[1] An excerpt from the Blue Cross Blue Shield announcement is included in Appendix B.
[2] A chart summarizing the provisions required of grandfathered policies versus non-grandfathered policies is provided in Appendix A.
[3] Large companies are defined as companies with 50 or more full-time employees. Plans offered by companies are required to be “affordable” (any employee must pay less than 9.5% of income for their employer’s coverage) and “adequate” (an employer’s health care coverage must pay for at least 60% of covered health care expenses). Only 4% of companies in the US are considered “large” companies, and only 0.2% of large companies do not already provide health care insurance to full-time employees.