ACA poses unintended consequences for health insurance consortiums

Ready or not, federal Affordable Care Act implementation is underway. Despite hitting a national enrollment milestone of 3 million registrants on Jan. 24, only 5 percent of eligible individuals in Missouri had enrolled in the marketplace by the end of 2013, according to an ongoing Kaiser Family Foundation study. A recent Gallup poll showed the problem-plagued national health care law holding an unfavorable public opinion rating of nearly 50 percent.

While the national partisan debate continues, some Ozarks-area groups are struggling to reconcile hard-fought gains as ACA requirements come with some unintended consequences.

As ACA phases in, smaller health care consortiums are on the chopping block by 2015. The problem lies in the 50-employee tipping point, established in part to extend coverage to the employees of small businesses. However, the law also stipulates businesses with fewer than 50 employees can’t join a larger group for insurance purposes.

In 2005, the Missouri Association of Manufacturers formed the state’s first private industry health insurance consortium. As part of membership, an original group of 32 employers, representing 2,000 people, voluntarily forfeited their right to protections under small group reform in order to join the consortium. This move allowed insurance companies to underwrite the group as if they were a larger entity, helping to mitigate cost.   

MAM CEO Kim Inman said through early renewal in November, the association secured health insurance for its now 4,000 covered individuals in 2014. Beyond that, 2015 is uncertain for the 70 percent of association members whose businesses fall under the 50-employee cap and are enrolled in the consortium.

“When you’re looking at all the lives we cover, it seems like a very big negative that something being put in place to help people will actually hurt uninsured individuals who already have coverage,” she said. “It is making it much harder on all of these organizations.”

Springfield-based SWI Industrial Solutions Inc. is one such MAM member facing health care uncertainty.

“Being part of the consortium is a lifesaver for small businesses,” said Kelli Fleck, human resources manager for the sheltered workshop. “Premiums were cut in half when we initially joined. Quality care at affordable rates is basically nonexistent for small businesses without a consortium.”

While SWI employs 210 disabled workers, only its 22 core staff members are included on the company insurance plan. Of those, 19 take advantage of 100 percent employer-paid coverage. Fleck said SWI pays premiums $388 monthly per employee, down from more than $1,000 before joining the consortium soon after it began in 2005.

“Nonprofits are not known for their high wages. Good benefits are what allows us to attract good workers,” she said. “If the consortium goes away in 2015, it would be devastating to us.”

Fleck said SWI has yet to determine if a group plan or individual plans through HealthCare.gov would be most beneficial to employees if the consortium falls though, but noted individual plans would have less draw for new and existing employees.

Legal maneuvering
Prior to ACA, Missouri law prohibited the combining of large and small employers under a common plan and premium rate structure. Operating under a one-time waiver from the Missouri Department of Insurance in 2005, MAM was granted special permission to form a consortium. The following year, Missouri House Bill 1827 allowed for broader formation of health insurance consortiums beginning Jan. 1, 2007.

Sponsored by Rep. Lyle Rowland, R-Cedarcreek, the bill allowed for the formation of consortiums based loosely on a nonprofit, member-owned co-op model that has been utilized successfully in finance, agriculture and utilities. It also permitted groups of small employers to band together to purchase health insurance for their members. Such health insurance co-ops are now in place in 23 states as part of the ACA, but Missouri isn’t one of them.

As president of Jenkins and Associates in 2005, Doug Jenkins worked with state lawmakers on HB 1827 as a broker for the first manufacturing consortium. Jenkins said the bill created large group buying power, offering more stable long-term rates and reducing vulnerability in claims risk to small employers.

Using his previous company as an example – Arthur J. Gallagher & Co. (NYSE: AJG) acquired the 16-year Springfield insurance consultant Dec. 27 – Jenkins said for many small businesses during the past decade, health insurance cost increases were driven by the utilization of others in its pool.

“There have been years where hardly anyone in our office has gone to see the doctor,” he said, “yet our premiums jumped by 25 percent.”

The strategy behind consortiums was simple: strength in numbers. He points to 1,000 total members as the tipping point.

“It not only gives you the negotiating ability, but it spreads the claims out over a wider group of people,” he said. “With a thousand people, it doesn’t matter what insurance company I go to, these groups’ renewals will be based solely on their own performance under the plan.”

Learning curve
Jenkins said the education sector also has benefited from the use of consortiums, with smaller school districts, as well as municipalities, attracted to structure based on the disrupting impact of fluctuating premiums on inflexible budgets.

“School districts, being in the public sector, operate under a fixed dollar,” he said. “It’s not like they can increase the cost of their widget to offset health expenses. Whatever funding they get each year is all they get.”

The 50-person threshold under ACA will move to 100 in 2016, but as it stands now, it’s a problem for area school districts.

Without the benefit of their consortiums, Jenkins said districts with less than 50 employees face difficult decisions. According to the Missouri Department of Elementary and Secondary Education, area schools of this size include Walnut Grove, Billings, Verona, Hurley and Niangua.

Chadwick R-1 Superintendent Dana Comstock said her district has always paid 100 percent of health care costs for anyone working more than 20 hours a week, amounting to a district cost of about $5,000 annually per employee. Like Inman, Comstock isn’t sure of ACA’s long-term ramifications on the district’s ability to join consortiums, but she noted her district was able to lock in prices for 2014 with an early renewal.

ACA roadblocks
Early reports regarding rates are bleak for small groups. Employee benefits specialist Heather DeHart, of Nixon & Lindstrom Insurance, said restrictions on group plans within the ACA are partly to blame, while other mandates, insurance carriers and plan designs are all coming together for a big impact.

DeHart said the biggest roadblock to equitable coverage might be the community rating system utilized by the federal exchange. While group health care prices historically have been based on detailed data such as usage patterns, wellness activities, occupational risk factors and other group health traits, ACA’s community rating reflects only the most basic demographic details – age, gender, ZIP code and tobacco usage.

While some organizations and groups are able to maintain reasonable coverage rates in the short term, the ACA’s broad classifications are undoing much of the preventative health and wellness efforts that have become a cost-cutting tool as companies strive to keep premiums in check.

“What we’re seeing for groups under 50 are double-digit increases – 30 to 60 percent,” said DeHart, who works with small businesses, municipalities and some rural school districts. “We were told by the insurance carriers to expect something along those lines, and now we’re seeing it.”

Jenkins is once again working with state lawmaker Rowland, as well as Sen. Claire McCaskill, D-Mo., to present legislation that allows small groups to waive their right or opt -out of ACA requirements in favor of consortium membership.

“It’s a long shot,” he said, referring to whether Missouri would get the exemption that already has been drafted. “Some lawyers are telling us ‘absolutely not – in no way, shape or form is the federal government going to allow modifications.’ Others are saying, ‘There’s enough grey area to consider it.’”

Inman’s organization is likewise making a separate legislative push via grassroots efforts to make lawmakers acutely aware of the ACA’s unintended consequences.

“The right said everyone is getting duped, and the left said it’s helping millions of people,” Jenkins said of practical ACA implementation. “Quite frankly, I think the answer is it’s neither, and/or both. There are winners and losers. I personally think that right now there are more people losing.”

Features Editor Emily Letterman contributed to this story.