Group health insurance in the Obamacare era

How Obamacare changed group health insurance

  • By
  • healthinsurance.org contributor
  • November 28, 2016

Forty-nine percent of Americans had employer-sponsored health insurance, otherwise known as group health insurance, in 2015. It’s by far the largest single segment of insurance coverage in the country, covering 155 million people, including employees and their dependents. Group health insurance is popular for a variety of reasons:

Costs

First, the employer typically takes responsibility for a significant portion of the health care expenses. A recent Kaiser Family Foundation survey of employers found that in 2016, premiums for employer-sponsored health insurance averaged $18,142 a year for family coverage. But of that total, employees paid less than a third – or about $5,277 – from their paychecks. The employers covered nearly 71 percent of total family health insurance premiums.

And the premiums – including the portion paid by the employer and the portion paid by the employee – are paid with pre-tax funds, so they’re not counted as taxable compensation. This is a significant benefit to group health insurance, and contrasts sharply with the tax deductibility of individual health insurance (the kind you buy on your own), which depends on various factors, including whether you’re self-employed and how much you spend in total medical costs during the year.

Ease of enrollment

While cost is appealing, enrollment in group health plans is also relatively easy. When you’re hired, at the end of your initial waiting period – or during the annual open enrollment period your employer offers – you’ll be given information pertaining to the plan or plans available to you, and instructions on how to enroll (assuming you’re eligible for your employer’s plan).

The process is generally straightforward, although if your employer offers multiple plan choices, it can be challenging to determine which one will give you the best value.

How has Obamacare changed group health insurance?

The group health insurance market is composed of small groups and large groups. Under the Affordable Care Act, different regulations apply to each segment. In all but four states, “small group” means no more than 50 employees, while large group is anything more than that. But in California, Colorado, New York, and Vermont, “small group” means up to 100 employees.

Small-group health plans have been guaranteed issue under HIPAA for two decades, meaning that insurance companies could not decline an employer’s application for coverage, regardless of the group’s medical history or type of business. And as of 2012, there were 14 states that allowed self-employed individuals to be considered a “group of one” in order to be eligible for guaranteed-issue small-group coverage.

But HIPAA did not prohibit insurers from adjusting premiums based on the group’s medical history or industry type. And although 12 states had implemented some degree of community rating in their small-group markets by 2012, most states just used rating bands, which meant that groups with pre-existing medical conditions or high-risk jobs could be charged premiums that were a pre-determined percentage higher than the standard rates.

The ACA — otherwise known as Obamacare — changed all that. Small-group premiums can only vary based on age (with a maximum 3:1 ratio for older adults compared with younger adults), family size, geographical location, and tobacco use. These same rules apply in the individual market.

All new small-group plans must also cover the ACA’s essential health benefits, and must conform to metal level classifications based on actuarial value. Out-of-pocket costs must be capped at no more than $7,150 for an individual employee ($14,300 for family coverage) in 2017, and young adults must be allowed to remain on a parent’s policy until age 26.

In the large-group market, the ACA’s reforms are less pronounced, but there have been some important changes. Out-of-pocket costs must be capped, just as they are in the small-group market, and the requirement that young adults be allowed to remain on a parent’s policy until age 26 also applies in the large-group market.

And insurers can no longer impose minimum-participation requirements for large groups, which used to be an obstacle for some employers. If a large employer applies for coverage, the insurer must accept their application. But large employers are also more likely to self-insure: for employers with 500 or more employees, 80 percent were self-insured in 2015.

Under the ACA, all employers with 50 or more full-time equivalent employees are required to offer affordable, minimum value health insurance to their full-time (30+ hours per week) employees. The vast majority of large employers already offered coverage prior to the ACA, but the ACA imposes a tax penalty on large employers who don’t offer coverage if they have employees who end up getting subsidized coverage in the exchange instead. And the law includes more regulations in terms of how much employees can be required to pay for their coverage, and how robust the coverage must be.

There is no requirement under the ACA for small employers (fewer than 50 full-time equivalent employees) to offer health insurance. Many choose to do so in order to have a competitive benefits package, but the ACA does not penalize them if they choose not to offer coverage.

An array of options

Because large groups can use their size to negotiate better benefits, employer-sponsored plans typically are able to include a range of plan options. In addition to an HMO or PPO plan, employees may have the option to purchase coverage for dental and vision care, as well as life insurance, and short- and long-term disability insurance.

To be enrolled or not to be enrolled

The uninsured rate in the U.S. is at an all-time low, falling below 9 percent in 2016. The ACA has made coverage more affordable and accessible than it was prior to 2014, and group health insurance remains the single largest source of coverage for Americans.

Do most employees enroll in available plans? As with any health plan, higher premiums result in lower enrollment. But before opting out of an employer-sponsored plan, remember that the ACA requires most Americans to maintain health insurance coverage or face a tax penalty.

And if you’re eligible for coverage from your employer but decline it, you will likely be ineligible for subsidies in the exchange if you opt to buy your own health insurance instead. Here’s more about how that works, but the short-story is that if the plan your employer offers is considered affordable and offers minimum value under the ACA’s guidelines, you’re not eligible for subsidies in the exchange.

Unfortunately, this is true even if you’re caught in what’s known as the ACA’s family glitch. (If coverage is affordable for the employee, but not for family members who are added to the group plan, all of them are prevented from receiving subsidies in the exchange.)

What happens if you lose your job?

Prior to the ACA, COBRA was often the only realistic choice for employees who left their job and had pre-existing health conditions. The Congressional Omnibus Budget Reconciliation Act of 1985 allows ex-workers to continue to purchase health coverage through the employer-sponsored plan for a defined period – typically 18 to 36 months – after they leave their employers.

For employees who didn’t have pre-existing conditions, the individual market was generally the logical place to turn when they no longer had access to a group plan, as individual health insurance was much less expensive than COBRA in most states. That was because nearly every state allowed medical underwriting to be used in the individual market, which meant that only relatively healthy people could obtain coverage.

But the ACA changed all that. All individual-market plans issued since January 2014 are guaranteed issue, and rates can only be adjusted based on age (with a 3:1 ratio for adults), family size, geographical area, and tobacco use. Pre-existing conditions are no longer an obstacle to enrollment in the individual market. And although individual market coverage is limited to set enrollment periods, loss of other coverage counts as a qualifying event that triggers a special enrollment period, regardless of when it happens during the year.

Furthermore, the ACA also provides subsidies to keep premiums affordable for low and middle-income folks, and cost-sharing subsidies to reduce the burden of out-of-pocket costs for those with income up to 250 percent of the poverty level.

Although COBRA is still around, it’s much less important than it was prior to the ACA. It’s still certainly valued by former employees who need to keep their previous provider network, for example, but it’s no longer the default option for people who have pre-existing conditions. And COBRA has to be fully-funded by the ex-employee, whereas the ACA’s premium subsidies offset a significant portion of individual market premiums for 85 percent of the people who have enrolled in the ACA’s exchanges over the past three years.

In short, the ACA has opened up the entire individual market for all applicants, regardless of their medical history. It’s reduced “job lock” by allowing people to strike out on their own as entrepreneurs without worrying about where they’re going to get health insurance. And for those with relatively modest incomes – which is often the case when people lose or leave a job – the subsidies take some of the sting out of paying for coverage.

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