4.26.2013

Affordable Care Act is Anything but Affordable

Healthcare reform and the ACA mandate have been preached as a savior from the rising healthcare costs but the reality cannot be any farther from the truth. Simply put, the ACA is a program which focuses on paying the premiums rather than looking at how to bring down the healthcare costs.


Starting 2014 we will start to see that the mandate regulations will force insurance companies to increase their premiums due to the increased exposure to risk and businesses to either pay more or drop coverage for their workers.

Businesses will have to play or pay

Starting 2014 the ACA will penalize employers (> 50) up to $2000 per employee if they fail to provide health insurance benefits. These businesses will have to decide whether to pay a fixed fine of $2000 per employee or pay more for the health benefits. Obviously the $2000 penalty is less than what the insurance benefits will cost, which makes dropping the coverage more lucrative for businesses.

Small businesses with less than 50 employees will be exempt from health insurance mandate. They will have to decide whether to continue offering the coverage with higher costs or drop the benefits altogether.

Workers will suffer either way

If businesses drop the health coverage, their workers will have to pick up the tab through individual plans which can be an expensive option. Even if businesses continue to offer health coverage, they will have to adjust their processes to accommodate the higher premiums.

Currently anyone working between 30 to 40 hours weekly is considered a fulltime employee. Since ACA requires health benefits for fulltime workers, many businesses will cut their employees hours to avoid having to pay such benefits.

Why premiums will rise

Traditionally the insurance companies have calculated their premiums by looking at the age, health and benefits. The healthy population enjoyed the healthy premiums and reaped the rewards of being a low risk customer.

The ACA mandate will change all of that because it restricts insurers to not consider age, health or benefits and forces them to underwrite their plans by combining everyone into the same risk pool.

In the “same risk pool” model healthy individuals pay for the unhealthy because it distributes a higher risk over a single block of population without any regards to their individual risks. As more unhealthy people join the pool, the higher the premiums go.

Medical practices will increase rates

The healthcare reform has a double whammy for medical practices. Not only do they have to face the rising costs of their own workers and 2% Medicare cuts through sequestration, they are also required to implement electronic health records and adopt ICD-10 billing codes. Starting in 2014 there will be compliancy penalties.

Bottom line

While it is easy to blame the insurance companies for the humongous costs, the truth is that the United States has by far the most expensive care system in the world. The margins that the insurance industry rakes in ranges from less than 1% to a high of 9%, meaning the other 90% goes to the healthcare delivery and maintenance.

Obama probably had the best for the healthcare in his mind but the way he tried to implement this was not the best way to go. He did a good job of painting the insurance industry as a villain and the sole reason for our ugly healthcare situation.

Unless we address things like utilization management, preventative care, fraud, waste and abuse, our healthcare costs will only go north.


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