Remember the old Saturday morning cartoons where the Coyote, in yet another failed attempt to catch the elusive Roadrunner, would order some TNT from Acme, hide it in a big pile of birdseed, and wait patiently for his target to take the bait?
The plan, of course, was to blow the little sucker up when he stopped to eat, but things never seemed to work out the way he had hoped. The Roadrunner would stop, eat a bunch of seed, stick out his tongue, say “meep meep” (yes, it was “meep meep” not “beep beep”), and be on his way.
The Coyote, furious, would head over to the spot where he had set the trap and pick up the explosives to see what went wrong, only to have them blow up in his face.
As they say, timing is everything… It wasn’t that the TNT didn’t work – it just didn’t go off when the Coyote expected it too.
A lot of brokers probably feel like the Coyote right now. They had this great plan – acquire a technology solution that would give them the capacity to sign up lots and lots of people in the individual market when their small group plans blew up during the 2014 Open Enrollment Period. Only the plans didn’t blow up the way they expected, and now they’re feeling duped.
We would encourage you to learn from the Coyote’s mistake – don’t assume that you had a faulty strategy; instead, realize that it’s simply a matter of timing.
Last year was a weird time in the health insurance industry – the Healthcare.gov site didn’t work, then it did; the opponents of the legislation did a much better job criticizing the law than supporters did promoting it; and some insurance companies sat on the sidelines and didn’t participate in the individual marketplace year one. No wonder employers were hesitant to give their employees the “opportunity” to buy individual health coverage and apply for a government subsidy. Yes, 8 million people did sign up for coverage, but most of those were early adopters who either needed health insurance due to a pre-existing condition or who actually understood how the subsidies work; most enrollees weren’t previously covered by a group plan.
The real reason, though, that most small employers didn’t drop their group coverage last year is because their brokers offered them a solution – a temporary solution, that is. Small employers that were previously paying below-average rates were advised to renew their plans on December 1, 2013 so that they would not be subject to the new modified adjusted community rating (ACR) rules until December of this year. ACR will cause the premiums for many of these healthy small employers to skyrocket, so they wanted to put off the impact as long as possible.
Most unhealthy groups, on the other hand, switched their effective date to January 1st so they could take advantage of the lower rates right away – many groups that paid above average rates under the old rules saw their rates come down under the new ACR rules.
What that means is that the spike in premiums that will cause many small employers to drop their group health coverage hasn’t actually happened yet – they have yet to feel the impact of the Affordable Care Act’s market reforms, but when they do, they’ll definitely be looking for a solution. Interestingly, this will happen at the same time that millions of Americans will be shopping for coverage in the individual market – open enrollment starts again on November 15th. So there’s a lot bigger chance that these employers will make the decision to ditch their group health plan this year than there was last year. Don’t let this blow up in your face by getting rid of your technology solution before the upcoming open enrollment period.
Of course, some would argue that these healthy small employers have a solution this year as well – they could take advantage of the transition rules, which allow their carriers to renew their non-compliant plans if permitted by the state, and further delay the impact of ACR. Or they could move to one of the new ASO (administrative services only) plans being marketed by carriers in the small group market – self-funded plans don’t have to play by the ACR rules. While both of those are indeed viable options for some small employers, not every group will take advantage of them.
But let’s suppose for a minute that they did – that nearly every relatively healthy small employer chose to further delay the impact of ACR by renewing their non-compliant plans or by switching to a self-funded option. If that did happen, what would happen to the unhealthy groups who, by and large, have a January 1st renewal date? Their premiums would go up, right? The only reason the carriers lowered the rates on the unhealthy groups who jumped on the ACA-compliant plans early is because they were counting on the healthier groups signing up later in the year. If the healthier groups never join that rating pool because they have other options, then there will be no healthy premium to support the unhealthy premium insurers are already receiving, so the rates on the unhealthy groups will move back up, and this would cause them to re-think their group health plan. These groups, too, are up for renewal right in the middle of the open enrollment period in the individual market.
Do we know which of these scenarios will happen? Of course not – we don’t have a crystal ball. But we do have enough foresight to be able to predict that things won’t continue to go as smoothly as the government hopes they will. There’s simply no way you can change all the rating rules and start giving away free money in the individual market and have no impact at all on the number of groups offering health insurance to their employees. And when this law blows up in the government’s face, brokers who have a solution – those who haven’t shipped their “defective” explosives back to Acme – will be in the perfect position to take advantage of it.