American Rescue Plan Will Change Insurance Market

The initial purpose of this column which began July of 2013 was to provide information and assistance in understanding health insurance issues and the impact of the Affordable Care Act (ACA). This legislation created the biggest change to our health care financing and insurance system since Medicare was enacted in 1965. It is also known as PPACA (Patient Protection & Affordable Care Act) and Obamacare.

The bill was passed on March 23, 2010 and provisions had effective dates from then through 2018. It is lengthy and complex, but I hoped to provide insight into how it will affect our readers, directly and indirectly. This is not designed to be a political forum on the merits or faults of the legislation. My goal is to point out areas that may have a positive or detrimental effect on our readers.

Recently passed, the American Rescue Plan (ARP), provides changes that will affect both the employer sponsored and individual health insurance markets. The greatest effect appears to be on the individual market. Historically this represents about 7% of the insured population. While much of this is technically effective 4/1/2021, it is important to realize that implementation rules are somewhat fluid at this point. I will provide information to the “best of my knowledge” at the time of writing. In this arena, nothing is so constant as change.

The main consumer groups can be divided according to size: Individuals; Small Employers (with less than 50 full time equivalent employees; Large Employers (over 50 employees). Medicare beneficiaries are often in a separate group.

Why the ACA?

There are many reasons for this type of reform including:

1. Almost half of working-age adults in the U.S. had inadequate insurance or no coverage at all according to Commonwealth Study released 4/28/2013.

2. Health Care (sickness care) economics is unlike any other sector of the economy: Supply creates demand. Third party payers (Insurers, Medicare, MediCal) insulate it from outside price pressure.

3. Health Care Cost Inflation has risen at a much greater rate than any other segment of the economy. Currently we spend about 18% of Gross Domestic Product on this one segment of the economy.

4. Hospitals are mandated to provide service regardless of consumer’s ability to pay. This results in cost shifting to those that pay to cover the costs of those that do not.

Shasta County median family income early in 2000’s of $44,058 for a family of four means that those folks are at about 200% of the Federal Poverty Level (FPL) and will qualify for subsidized coverage.

What is the Federal Poverty Level (FPL) and why is it important?

This is the income number that is used to define poverty and qualify for subsidized coverage or MediCal. This number is adjusted each year for inflation. The ACA allows subsidized health insurance coverage for those whose income does not exceed 400% of FPL. For a family of four, 400% of FPL equals $104,800. Tax credits now extend well past that number. The chart can be found at: https://www.coveredca.com/pdfs/FPL-chart.pdf.

How is health care economics different?

Let’s assume you went into Costco and loaded up your cart. Then someone else added items to the cart. At checkout, you were expected to pay whatever they charged. You simply wouldn’t do that. Yet, we do it in health care every day. We are insulated from the cost-benefit analysis that we make in other economic decisions.

What drives health care costs and insurance premiums?

In short, your health insurance premiums include the following: payments to providers (doctors, hospitals, Rx etc.) + reserves (for claims incurred but not yet reported) + administration + stop-loss insurance to protect from excess large claims (this is reinsured).

The ACA requires insurers to have a Medical Loss Ratio (MLR) of no less than 80% for individual and small group plans and 85% for large group plans. This means they must pay out 80-85% in direct medical expenses. When each year’s accounting is done, if the plans performed better, the company must refund back to the policy owners.

Claims costs are expenses paid to providers. Many of our health problems are driven by our lifestyle. Obesity is growing faster than any previous public health issue America has faced. If current trends continue, one in three of us incur health problems like heart disease, diabetes and cancers from obesity. Obesity is a complicating condition for Covid 19. This condition is largely self-induced.

One of my major concerns is that none of the plans so far have adequately addressed the cost of health care. There are currently some attempts to address prescription drug costs, but overall the issue has been largely ignored. So as we unpack the ARP in future columns, we will be looking primarily at the insurance costs. Stay tuned..



Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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