What the affordable care act means for your bottom line
When Colorado jeweler John W. Purvis III wanted to find out how “Obamacare” would affect his Lakewood retail store, Purvis Jewelers, he turned to his insurance agent for some answers. What he got was a good deal less.
“He was confused,” recalls Purvis. “He said he wasn’t sure what the legislation meant and how it would affect me.”
Jewelers across the country are running into similar levels of uncertainty as they attempt to understand the implications of the federal 2010 Patient Protection and Affordable Care Act (ACA). In many cases, they have little idea if the law will help cap their premiums or saddle them with costly mandates and fines.
If the law’s details are murky, there’s no doubt that everyone would like to find a solution to the continuing problem of rising costs. Annual premiums for employer-provided family coverage grew to just under $16,000 in 2012, a rate some 4 percent higher than the previous year, according to a report from the Kaiser Family Foundation.
Price hikes are the new normal.
Premium inflation has been considerably higher for smaller businesses such as Purvis Jewelers, which anticipates another 15 to 20 percent increase for its five-employee operation this January to match a similar increase last renewal period. That experience is not atypical. Consider Lewis Jewelers in Ann Arbor, Mich., which commonly sees an annual premium hike of more than 20 percent for its 25 employees, about half of whom are full time.
To keep premiums in line, jewelers are dancing the traditional small business two-step: raise deductibles and trim benefits. “What I have done each year is change plans and downgrade benefits,” says Purvis. “To stay with what I have would have caused premiums to jump so ridiculously high that I could not afford it.”
North Country Fair Jewelers in North Conway, N.H., has taken similar steps to control premiums. Yet costs continue to rise. It comes down to the need for the country to address the cost issue, says owner Brian Smith. “My feeling is that health costs have to somehow start stabilizing or going down.… It is becoming our most expensive thing in business. We always try to buy our employees health insurance, and if premiums keep going up, we can’t keep doing that.”
Enter Uncle Sam…
So will the ACA be the solution to rising costs? The law has some promising aspects. “Generally speaking, the law is more favorable to smaller businesses,” says a spokesperson for Northeast Business Group on Health, a coalition of 175 employers, unions, and health care providers. He points to the following features:
• Tax credits: The ACA provides for tax credits for businesses with 25 or fewer employees, if the employers pay at least half the workers’ premiums.
• State insurance marketplaces: Competition reduces costs. That’s the theory behind the new statewide health insurance exchanges, or marketplaces, where carriers will compete for business from employers with 50 or fewer full-time employees.
• Premium reform: An employee comes down with a serious illness at a small business. Then, at policy renewal time, premiums go through the roof. That common scenario will be prevented starting in 2014 when carriers will be prohibited from using claim history to set rates.
• Penalty exemption: Employers with 50 or fewer full-time workers are exempted from penalties for not providing health insurance.
There are some more subtle advantages. Greater transparency in medical service fees and patient comparison shopping may exert downward pricing pressure. So may the greater transparency on pricing resulting from the mandated separation of administrative costs and broker commissions from medical care costs in premium bills.
The law’s emphasis on wellness and on the rationalization of care also should help. “When people do not undertake expensive duplicate tests and unneeded procedures, and when people do not get sick as much, health care costs will flatten and premiums will not need to go up,” says Karl Ahlrichs, benefits consultant for Indianapolis-based insurance broker Gregory & Appel.
Jewelers also might benefit from greater access to high-quality workers, says Ahlrichs. “Jewelers are high-skill employers and finding talented people can be difficult.” Many high-quality people are trapped in large corporations, he says, unable to escape because they need insurance for a family member with a preexisting condition. Come 2014, preexisting conditions are eliminated as a pricing factor. Those people will be free to seek more rewarding employment at smaller businesses, says Ahlrichs. “These people may decide to do some volunteer work at their local community college and work part time at their jeweler friend.”
What can we truly expect from universal coverage?
Sounds good in theory. But will it work? Skepticism abounds among many jewelers, who possess a jaundiced view of the federal government’s skill in addressing practical issues. “Of course, health insurance will cost more,” says Lewis Jewelers assistant manager Fred Peterson. “Anything the government does is inefficient.”
Like other jewelers, he’s concerned about the costs required to meet the act’s goal of extending coverage to all Americans. “The law is a pipe dream,” says Peterson. “You can’t insure people without someone paying for it.” Bringing so many new people into the system, he reasons, will mean higher premiums for everyone.
In theory, the ACA addresses the expense issue by requiring everyone to toss some cash into the premium pot. “If the law takes everyone into account, it will expand coverage by slightly over 30 million people,” says Ahlrichs. “Many are young and healthy and do not buy insurance. Those ‘invincibles’ are intended to balance the people with high medical costs. If you understand how insurance works, the larger the overall pool of people in the various risk levels, the better the result over time.”
This very idea that everybody should share the premium burden resonates with many. “I feel everyone should have health insurance,” says Purvis. “It’s not fair for people like me to pay my premiums, then I will pay for people who have emergencies and they get free medical care.”
Yet there is appreciation for the law’s goals if not its implementation. “I think the law is a good idea in general,” says Smith of North Country Fair Jewelers. “I like it that certain things are covered and that people are not knocked out of the system.”
Smith hopes that the law will lower prices eventually: “The best thing about it is that a lot of people will be covered and will get wellness taken care of. It’s when people wait until the last minute and go to the emergency room that it costs a fortune.”
The coming tide of new regulations
The federal government currently is issuing a cascade of regulations designed to translate the ambitions of the Affordable Care Act into practical rules for businesses. To a great extent, the success of the act will depend on how well these regulations address marketplace concerns for cost control and quality care.
“The law’s not as good as many people had hoped,” says Ahlrichs. “It’s not as bad as many people say. If the law produces the results they are hoping for, we will have more people with insurance and we will have more workplace flexibility and competitive premiums.”
Maybe. But jewelers like Smith are holding their collective breath. “It’s a wait and see,” he says, alluding to the law’s many uncertainties. “It’s funny that more people don’t have a handle on it. But I guess we will all have a surprise soon.”