Small Group Coverage Predicted to Increase Due to Health Care Reform

Whether health care reform will result in a move from group coverage to individual health insurance plans is a critical question. For brokers, carriers and employers wanting to prepare for the future, the answer will determine where and how they spend their time, money and resources to negotiate a changing world.

By a wide margin, readers of this blog who responded to an unscientific survey expressed the belief that health care reform is far more likely to result in consumers moving from small group to individual medical coverage than the other way around (70% versus 13% with 17% stating reform would have no effect on whether people obtain individual or group health insurance). They majority may be right. but a new study indicates it’s too soon to bet too much of the farm on this prediction.

Using sophisticated modeling techniques, researchers at the RAND Corporation are predicting that the Patient Protection and Affordable Care Act will “result in a large net increase in employer-sponsored insurance offers.” The findings, published in the New England Journal of Medicine, are based on modeling using “RAND’s Comprehensive Assessment of Reform Efforts (COMPARE) microsimulation model.” Which is a fancy way of saying the researchers used a nifty tool that predicts the future by making informed assumptions on the probable impact of things like the establishment of exchanges, individual subsidies, employer penalties for failing to offer coverage, expansion of Medicaid, availability of spouse’s coverage, existing incentives for employers to offer coverage and other factors in a really sophisticated way. (The folks at Medpage Today offer a useful description of the RAND study predictions).

The researchers (Christine Eibner, Ph.D., Peter S. Hussey, Ph.D., and Federico Girosi, Ph.D.) project the number of Americans obtaining coverage through their employers will increase from 115.1 million to nearly 129 million. Significantly, they predict that “the probability of being offered coverage increases proportionately more for workers at small firms than for large firms” – a surprising result given that small firms are not subject to the PPACA’s penalties imposed on employers failing to offer health insurance to their workers. Of the 13.6 million additional workers who they project will be offered coverage as a result of the new health care reform law, 10.4 are expected to be employed by small businesses (less than 100 employees).

Driving this influx of small business employees into the group market are are “increased demand for coverage by workers due to individual penalties for being uninsured and the availability of new, often lower-cost insurance options.” These lower cost plans are expected to be offered through the exchange and result from administrative savings these new arrangements are expected to provide.

Assuming exchanges will be able to provide coverage at a lower price point than equivalent plans sold in the open market is a big assumption. Based on the experience of purchasing pools in California and other states during the 1990s, this may be an unrealistic expectation. But the outcome of the model used by the RAND researchers is still worth considering.

The truth is we won’t know whether consumers move from group to individual coverage or migrate in the other direction until the reforms are more fully implemented and consumers, employers, lawmakers, carriers and others make meaningful decisions. Predictions are nice, but it’s reality that pays the bills.

In the meantime, however, all we can do is guess. And the RAND Corporation study offers projections that, while they should not be taken as a certainty, are certainly educated guesses.

9 thoughts on “Small Group Coverage Predicted to Increase Due to Health Care Reform

  1. Interesting conversation Alan. I must agree with the Rand Corporation. My feeling is that individual California Health Insurance plans that are currently less expensive to small group plans, will flip and become more expensive. The rationale is that individual plans are currently medically underwritten, therefore they may decline individuals who will be costly. Now children under age 19 are guaranteed issue, therefore individual health insurance will experience adverse selection and will result in larger rate increases. If Health Reform is not repealed, effective 2014 adults will be guaranteed issue bringing more uninsurables to the individual market.

    We all know that many uninsurables currently go to the extra trouble to form a small business so they can obtain guaranteed issue coverage. This increases adverse selection in a small group pool. With guaranteed issue individual coverage, why would uninsurables want to go to the extra work to form a california business when they can get their expenses paid for via easy individual plans. Their exodus from the small group pool should cause small group rates more favorable.

  2. I think its safe to say that nobody knows what is going to happen. Respectfully, The Rand Corporation, Nancy Pelosi, President Obama, Alan Katz, myself…nobody knows what is going to change as a result of this constitutionally challenged and flawed legislation. So called sophisticated models are limited by the sophistication and unconscious personal slants of the folks that create them.

  3. Speaking from a small business owner/broker with 5 employees, here’s what we know we don’t know: Will the broker’s services thus commissions be axed or just decimated?

    Since everyone and his brother brokers health insurance, now we have another gorilla to compete with, the US government: http://www.healthcare.gov.

    Samurai Saying: Expect nothing; be prepared for anything.

  4. RAND’s study has fascinating but unpredictable predictions. I guess we’d better keep one foot planted in the group market and one in the individual market. A third foot would help at this time! 🙂

    Predictions are fragile, aren’t they? I remember when TV’s talking heads and Economists were predicting that the housing market would NOT burst like a bubble. Or, when they predicted that millions of underwater homeowners could modify their mortgages with the bailout & stimulus programs.

    Recently, the under-enrollment in the national high risk pool is failing the predictions and bursting hopes. It has enrolled 2400 people in the 22 states that have the Federal program, and approved 1200 in the other 28 states.

    Alan’s post said about the prediction of lower price points in the exchange, “Based on the experience of purchasing pools in California and other states during the 1990s, this may be an unrealistic expectation.” Thanks, Alan. Studying history helps make better predictions. So does a test model. Perhaps the government should use the national high risk pool as a study. If there are millions of uninsured who want to purchase coverage, then why are people not enrolling? Is it poorly marketed? Perhaps they should hire marketing execs or (ahem!) use brokers. Is it the 6-month-bare rule? Perhaps they should include those who are currently insured, but inadequately insured. Is it unaffordable premiums? Then let’s test “subsidies for those under 400% of the poverty level”. Is low enrollment because millions of uninsured people won’t buy insurance? Then, we should test the $700 IRS penalty and see if that solves the problem.

    Let’s test fragile predictions before submerging the entire nation under water!

  5. This study is interesting and brings up even more questions like what will group coverage look like? Will group coverage be watered-down to the point it is more of a “token” than benefit? Hopefully more options and more affordability will be the end results. Thx for the post!

    • You ask some good questions. What we do know is that the plans will cover “essential benefits” (as defined by the law, and the leanest plan will have an actuarial benefit of at least 60% (which roughly means it will cover 60% of typical costs). Within those requirements there’s plenty of room for innovation, so hopefully consumers and employers will have plenty of options to choose from.

    • The PPACA requires HHS to develop criteria for essential benefits. In addition, the new health care reform law sets actuarial categories for plans (from 60%-to-90%) of expected claims. So it is unlikely coverage will be “watered-down.” What worries many experts is that the benefit requirements will be so high that coverage becomes unaffordable for many.

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