The unaffordable reality of the Affordable Care Act
I got my Obama Phone. Where’s my free health insurance? Many hard working Americans will need to replace “Free” with “unaffordable” to describe the impact of the Affordable Care Act on their health insurance premium cost. I want to be clear that this is not written by a conservative, but a business man that can do simple math. It will become abundantly clear in the coming months as eerily quiet insurance companies release the costs and benefits of newly designed health insurance packages that meet the requirements of ACA provisions. In 2014, millions of Americans will be asking for their benefits of this great healthcare law, and millions will find themselves paying for it. Which will you be?
Employer Group Plans:
Employees that receive insurance from their employers should get ready for change. We are about to mix risk pools, standardize benefits, and eliminate our carrier’s ability to customize benefit packages for our employer group plans. This will result in increased premiums and/or decreased benefits. You don’t have to be an expert in the insurance industry to understand that decreasing premiums in higher risk pools will have to be offset by either increasing premiums in lower risk pools or decreased benefits. The affordable Care Act isn’t magic, and isn’t capable of changing the actuarial calculations of the insurance industry.
There is a reason why large employers have access to lower premiums. They have more healthy employees to offset the higher risk employees. The healthcare law can’t change the way we do math. As we “level” the playing field between individuals, high risk groups, and small employer groups, many employees participating in employer group plans will find themselves paying for it. I realize the insurance companies are going to be under scrutiny for raising premiums by more than 10%, but we can’t expect our insurance carriers to loose money. Someone’s going to pay for it as long as the insurance industry needs to make a profit and that’s not changing.
To understand the reality, look no further than the definition of Affordable by the IRS. “Affordable” is defined as an individual policy meeting the requirements of the ACA costing less than 9.5% of annual income. Many individuals will find themselves with high cost individual premium offerings as the Affordable Care Act destroys the ability of their employers to offer affordable healthcare coverage. No longer meeting minimum insurance requirements, mini-med policies will not satisfy provisions in the ACA for employers to avoid penalties. As health insurance policies that do not meet the provisions in the ACA are eliminated, Individuals will find themselves with huge premium increases. Many employers will choose not to provide health insurance, but the ones that do will still not benefit the employee. Look at the example below:
Full Time Restaurant Shift Manger earning $14.00 per Hour.
Annual Earnings – $29,720
Employee Demographic – Young and Healthy
Current Type of Coverage – High deductible only for catastrophe
Current Premium Cost – $75 dollars Monthly = $900.00 annually
Maximum cost of an Individual premium to be considered “Affordable” – $2,823
Now I not saying that this individual’s cost for health insurance will go to go up to $2,823, but it will go up substantially to meet minimum essential benefits. Additional benefits must be provided to meet ACA provisions and a young healthy individual is going to have to pay more to reduce the premiums for a higher risk individual.
Effect from Affordable Care Act Employer Penalties:
Sure the Insurance companies will be under scrutiny for increasing premium costs more than 10%, but employers can offer anything they want to run their businesses. In 2014, employers with 50 or more full time and full time equivalent employees will be subject to $2,000 penalty per full time employee if they don’t offer health insurance meeting the provisions of the Affordable Care Act. Remember, one key component is the Individual policy can’t exceed 9.5% of income. As long as they offer it, they are not subject to a penalty.
Many employers will choose to limit hours fewer than 30 per week to minimize the number of employees they will be required to offer insurance to. Some will eliminate insurance offerings and pay the penalty. Many will offer high premium individual policies knowing that their employees won’t take it. In the above example, an employer could offer their employee and individual plan that could cost up to $2,800 annually and avoid paying ACA penalties. Find a young healthy individual that Makes $14.00 per hour and ask them if they will pay $230.00 per month for health insurance? What about the individual penalty for not having insurance? That goes from $95.00 in 2014 – $700 in 2016. Young and healthy individuals on limited incomes are going to do the math.
Failure by the Affordable Care Act:
What do you think our young and healthy individuals are going to do? The Emergency Room is still free. Did I mention that fewer young healthy individuals that are purchasing policies from insurance carriers will increase premium costs of families and higher risk groups? We are setting the stage to provide real incentive for employers to eliminate minimal healthcare coverage they can afford to their employees and pay penalties instead of offering insurance, or offer expensive individual policies (Under 9.5%) so nobody takes it anyway. Those in the middle can expect to fund this failed piece of legislation though our employer group plans and family policies. Wasn’t the vision to have affordable coverage for everyone?
So who are we leaving out in the cold? Millions of retail, restaurant, staffing, manufacturing, and service industry employees will find themselves wondering just where their affordable health insurance is. They will find out in the coming months that the ACA destroyed their employer’s ability to offer affordable coverage as their businesses determined and are now required to offer affordable coverage as the administration determines. Unfortunately, employees will find themselves on the short end of this stick.