[Congressional Record (Bound Edition), Volume 160 (2014), Part 3]
[House]
[Pages 3280-3281]
[From the U.S. Government Publishing Office, www.gpo.gov]




               THE AMERICAN PEOPLE EXPECT ACCOUNTABILITY

  (Mr. BOEHNER asked and was given permission to address the House for 
1 minute.)
  Mr. BOEHNER. Mr. Speaker, my colleagues, this week the House will 
consider several measures to stop government abuse, especially when it 
threatens freedom and limits opportunity.
  The American people expect accountability, and every day the House is 
focused on carrying out responsible oversight.
  As an example, late on Friday, the Obama administration released a 
report that we demanded detailing the impact of the health care law and 
what it will do to employer-sponsored health plans.
  You may not have seen the report. It was released rather quietly on 
Friday afternoon, so I am going to enter it into the Record today. I 
urge every Member to read it and share it with your constituents.
  As you do, keep in mind that the White House promised that this law 
would bring down health insurance premiums by some $2,000 per family. 
Instead, according to the administration's own bookkeepers, premiums 
will go up for two out of three small businesses in our country.
  This amounts to about 11 million employees who are going to see more 
money coming out of their paycheck for their health insurance every 
month, and remember, these premiums will be felt not just by workers, 
but the small business owners themselves, making it even harder to 
create jobs.
  Another sucker punch to our economy. Another broken promise to 
hardworking Americans--and the only reason we even know about it is 
that the House demanded this transparency from the administration.
  That is why the House continues to focus on stopping government abuse 
and promoting better solutions for middle class families and small 
businesses.

     [From Centers for Medicare & Medicaid Services, Feb. 21, 2014]

   Report to Congress on the Impact on Premiums for Individuals and 
 Families With Employer-Sponsored Health Insurance From the Guaranteed 
     Issue, Guaranteed Renewal, and Fair Health Insurance Premiums 
                 Provisions of the Affordable Care Act


                              Introduction

       The ``Department of Defense and Full-Year Continuing 
     Appropriations Act, 2011'' required this report to Congress 
     on the impact of sections 2701 through 2703 of the Public 
     Health Service (PHS) Act, as amended by the Affordable Care 
     Act (ACA) on the premiums paid by individuals and families 
     with employer-sponsored health insurance. Specifically, the 
     Chief Actuary of the Centers for Medicare & Medicaid Services 
     (CMS) is to provide an estimate of the number of individuals 
     and families who will experience a premium increase and the 
     number who will see a decrease as a result of these three 
     provisions.
       Section 2701 of PHS Act is titled ``Fair Health Insurance 
     Premiums'' and requires adjusted community rating for plan 
     years beginning on or after January 1, 2014. Specifically, 
     premium rates in the individual and small group market 
     charged for non-grandfathered health insurance coverage may 
     only be varied on the basis of the following four 
     characteristics:
       Individual or family enrollment.
       Geographic area--premium rates can vary by the area of the 
     country.
       Age--premium rates can be higher for an older applicant 
     than that for a younger applicant, but the ratio of premiums 
     cannot exceed 3:1 for adults.
       Tobacco use--premium rates can be higher for smokers, but 
     the ratio cannot exceed 1.5:1.
       Section 2702 of the PHS Act requires the guaranteed 
     issuance of health insurance coverage in the individual and 
     group market subject to specified exceptions. This means that 
     insurers that offer coverage in the individual or group 
     market generally must accept all applicants for that coverage 
     in that market. Under section 2703 of the PHS Act, group and 
     individual health insurance coverage must be guaranteed 
     renewable at the option of the plan sponsor or individual, 
     subject to specified exceptions. These three sections do not 
     apply to grandfathered health insurance coverage.


                               Background

       Prior to the passage of the ACA, the insurance products in 
     the small group market were already required to be guaranteed 
     issue and renewable under the Health Insurance Portability 
     and Accountability Act of 1996 (HIPAA). In addition, large 
     group policies are not subject to section 2701 of the PHS 
     Act. Self-funded plans are also not subject to the provisions 
     analyzed in this report. As a result, large group and self-
     funded plans will be unaffected by the new rating 
     requirements. Since these three specific ACA provisions will 
     not have any significant effect on the premium rates paid by 
     individuals working for large sized employers, the remainder 
     of this report will focus on health insurance policies in the 
     small group market.
       To help individuals with pre-existing conditions gain 
     affordable insurance coverage, Sections 2702 and 2703 of PHS 
     Act generally require guaranteed issuance and renewability of 
     policies to any employer that applies for coverage offered in 
     the applicable market within enrollment periods, regardless 
     of the health histories of its employees or other prohibited 
     factors. These requirements apply to all small group health 
     insurance plans other than grandfathered plans (as defined by 
     federal regulations at 45 CFR 147) beginning on or after 
     January 1, 2014. Some analysts expect that these 
     grandfathered plans will experience reduced enrollment as 
     individuals leave for new plans that are not only cheaper due 
     to lower administrative costs, but also offer more generous 
     coverage, or leave for individual market coverage for which 
     individuals may qualify for premium tax credits. Under HIPAA, 
     all states currently have adopted guaranteed issue and 
     renewal requirements for small group policies.
       The Chief Actuary was required to estimate the impact of 
     these three specific ACA provisions--fair health insurance 
     premiums, guaranteed issue and renewability--on the premiums 
     for individuals and families with employer sponsored health 
     insurance. Since fully insured small group policies are 
     already guaranteed issue and renewal in all states, we expect 
     there is no material net impact of these two ACA provisions 
     on premium rates. As a result, the premium rate impact in the 
     small group market is expected to result from only the new 
     adjusted community rating provision in section 2701 of the 
     PHS Act.


             Adjusted Community Rating for Small Employers

       This new adjusted community rating criteria is a change 
     from the current small group market industry practice that 
     existed prior to when these criteria take effect. Previously, 
     issuers in most states could vary premiums by factors such 
     as: health status of the group, group size, and industry code 
     or classification. Smaller firms, and those performing high-
     risk work, or firms with sick employees, received 
     significantly higher premiums than those with a lower risk 
     group. In addition, they could be subject to large premium 
     increases based on a new diagnosis for a single employee.
       The ACA created a new health insurance Exchange for small 
     businesses called the SHOP (Small Business Health Options 
     Program), to offer plans tailored for small employers with 
     100 or fewer employees. All health plans (other than those 
     offered through the SHOP) will be subject to the premium 
     rating requirements of section 2701 of the PHS Act. Beginning 
     2014, most individuals must obtain a form of minimum 
     essential coverage or face a penalty. Individuals with income 
     between 100 and 400 percent of federal poverty level (FPL) 
     may be eligible for premium tax credits and cost sharing 
     reductions on a sliding scale to help reduce the cost if the 
     coverage is obtained through the Exchanges.
       There is considerable uncertainty as to whether small 
     employers will decide to terminate their existing offer of 
     health insurance coverage and send their employees to 
     individual market Exchanges. Many factors may be relevant to 
     their decisions. For example, the decision could depend 
     heavily on

[[Page 3281]]

     the extent to which employees are eligible for a premium tax 
     credit on the individual market Exchanges. Some expect that 
     it would be cheaper for employees with income below 250 
     percent of FPL to buy coverage from the individual market 
     Exchanges given the premium tax credits and cost-sharing 
     reductions available at these income levels. Small employers 
     with predominantly low-wage, part-time and seasonal employees 
     may find it to their financial advantage to terminate 
     existing coverage. Small businesses with 50 or fewer workers 
     may find terminating existing coverage particularly 
     attractive since they are not required by the ACA to offer 
     affordable minimum essential health insurance coverage, and 
     their workers have access to health insurance in the new 
     Exchanges. Alternatively, it may be financially attractive 
     for small employers with relatively healthy employees to 
     continue to provide coverage but convert to a self-insured 
     arrangement with stop-loss coverage. If such coverage becomes 
     widely available, some analysts expect a substantial increase 
     in self-insured small employers. However, small group 
     employers will also have to consider employee resistance and 
     administrative complexity to substitute alternative types of 
     compensation for employer's health benefits contributions, 
     which may encourage small employers to continue to offer 
     insurance coverage on a tax-favored basis.
       Prior to 2014, insurers could set lower premiums for small 
     employers with younger and healthier employees due to their 
     low expected health care needs, and significantly higher 
     rates for small employers with older and sicker employees 
     with greater expected health care needs. The ratio of 
     premiums charged between old and young ages was typically 5:1 
     or more, and could translate into much higher premiums for 
     firms with older employees. In addition, gender could also be 
     used as a rating factor. Before 2014, employers with more 
     women of childbearing age were commonly charged higher 
     premiums.
       The adjusted community rating under ACA prohibits the use 
     of gender, health status and claims history as rating 
     factors, and restricts the premium rating ratio for adults to 
     between young and old ages. These changes are expected to 
     further relieve the financial burdens for older and sicker 
     individuals as coverage could become more affordable for 
     them. However, for younger and healthier individuals, 
     premiums could increase since health status is no longer 
     permitted as a rating factor and the new age rating band is 
     limited to 3:1 for adults, less than what insurers typically 
     have used.
       Some analysts are concerned with the possibility of adverse 
     selection, which prompts small employers with younger and 
     healthier individuals to drop coverage or switch to other 
     forms of coverage such as self-insurance, leaving the 
     remaining risk pool with only the sickest individuals thereby 
     raising premiums significantly. The propensity for adverse 
     selection is mitigated by other ACA provisions that encourage 
     small employers to offer coverage and premium stabilization 
     programs in the fully insured market such as risk adjustment. 
     For example, small employers with 25 or fewer employees whose 
     average annual salary is less than $50,000 may be eligible 
     for small business tax credit on a sliding scale if they 
     contribute at least 50 percent of the total premium. Many 
     analysts believe that these and other factors will help 
     attract a broad and stable group of employers to reduce the 
     negative impact on premiums and avoid the adverse selection 
     problem.


                   Estimates by Independent Modelers

       A number of independent modelers developed estimates of 
     post-ACA premium rates and enrollment of small group coverage 
     for a number of states and the country as a whole. For 
     example, some of their findings are summarized below.
       Wisconsin--A study by Gorman Actuarial and Dr. Jonathan 
     Gruber predicted that the small group market is expected to 
     see relatively small premium rate increase--1.3 percent. 
     Fifty-three percent of small group plans, or 63 percent of 
     the small group employees, will experience a premium rate 
     increase of 15 percent, while 47 percent of small groups or 
     37 percent of the employees will experience a 16 percent 
     decrease. Most of the impact is due to elimination of health 
     status as a rating factor.
       Maine--A study by Gorman Actuarial and Dr. Jonathan Gruber 
     estimated that a large majority (89 percent) of small 
     employers are expected to experience a premium rate increase 
     of 12 percent on average, while the remaining 11 percent will 
     experience an average premium rate decline of 17 percent. The 
     impact is largely due to the elimination of group size as a 
     rating factor.
       Ohio--A study from Milliman estimates that, before the 
     application of tax subsidies, the small group premium rates 
     are going to increase by 5 to 15 percent.
       National--Actuaries at Oliver Wyman examined the national 
     impact on premium rates of adjusted community rating, 
     guaranteed issue and renewal using a database of actual 
     claims covering over 6 million people. They predict that the 
     small group premium rates will increase by 20 percent.


                             OACT Estimates

       This analysis focuses on the number of people with health 
     insurance coverage through their employer whose premium rates 
     are expected to increase or decrease as a result of the 
     guaranteed issue, guaranteed renewability, and premium rating 
     provisions of the ACA only. Other factors affecting rates 
     such as changes in product design, provider networks, or 
     competition are not considered. In addition, other provisions 
     of the ACA, including the coverage expansions, the extension 
     of dependent coverage to age 26, the individual mandate, and 
     the employer mandate will impact the availability of 
     coverage, the take-up of that coverage, and the premium rates 
     charged to those who currently have employer-sponsored 
     insurance, but those impacts are not included in this 
     estimate. We prepared a more complete report on the financial 
     effects of the ACA in 2010. As mentioned previously, the 
     effect on large employers is expected to be negligible, 
     therefore our evaluation examines the impact on employees of 
     fully-insured small firms.
       In 2012, about 18 million people were enrolled in the small 
     group health insurance market through employers with 50 fewer 
     employees. About 8 percent of small firms offered a self-
     insured health plan, therefore about 17 million people 
     received coverage in the fully-insured small group health 
     market. These 17 million people will be affected by the new 
     premium rating requirements contained in the ACA. Before the 
     premium rating provision of the ACA took effect, firms with 
     employees who had better than average health risks would 
     typically pay lower premiums, and therefore, they were more 
     likely to be the firms that offer health insurance. As a 
     result, most of people with coverage in the small group 
     market have premium rates that are below average. Based on 
     our review of the available research and discussions with 
     several actuarial experts, we have estimated that roughly 65 
     percent of small employers offering health insurance coverage 
     have premium rates that are below average.
       Once the new premium rating requirements go into effect, it 
     is anticipated that the small employers that offer health 
     insurance coverage to their employees and their families 
     would have average premium rates. Therefore, we are 
     estimating that 65 percent of the small firms are expected to 
     experience increases in their premium rates while the 
     remaining 35 percent are anticipated to have rate reductions. 
     The individuals and families that receive health insurance 
     coverage from their small employer generally contribute a 
     portion of the premium. For this analysis, if the employer 
     premium increases, it is assumed that the employee 
     contribution will rise as well. Similarly, if the employer 
     premium is reduced, the employee contribution is assumed to 
     decrease. This results in roughly 11 million individuals 
     whose premiums are estimated to be higher as a result of the 
     ACA and about 6 million individuals who are estimated to have 
     lower premiums.
       There is a rather large degree of uncertainty associated 
     with this estimate. The impact could vary significantly 
     depending on the mix of firms that decide to offer health 
     insurance coverage. In reality, the employer's decisions to 
     offer coverage will be based on far more factors than the 
     three that are focused on in this report so understanding the 
     effects of just these provisions will always be challenging. 
     Using their Compare model, RAND analyzed the impact of the 
     entire ACA on small group premiums and determined that the 
     effect would be minimal. Further, note that the number of 
     affected individuals will be smaller in 2014 because (i) a 
     number of small group plans were renewed early, and (ii) 
     about half of the states have allowed extensions to their 
     pre-ACA rating rules under the transitional policy announced 
     by CMS on November 14, 2013.


                                Summary

       The Affordable Care Act requires all non-grandfathered 
     health insurance coverage in the individual and group markets 
     to be guaranteed issue and guaranteed renewable. In addition, 
     all non-grandfathered insurance plans and policies in the 
     individual and group markets can vary premium rates based 
     only on age, family status, geography, and tobacco use, and 
     the variation in the age and tobacco use factors is limited. 
     This new premium rating requirement will impact the premiums 
     paid by individuals and families working for small employers 
     who offer health insurance. Specifically, we have estimated 
     that the premium rates for roughly 11 million people will 
     increase and about 6 million people are expected to 
     experience a premium rate reduction due to sections 2701 
     through 2703 of the PHS Act.

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