Obamacare and Agency Value

Where is the Affordable Care Act headed? Are we prepared? Who will be covered and who won’t? Are we robbing from Peter to pay Paul? The list of questions is endless. The answers are few and far between.

In a speech delivered to a Dallas audience in early November, President Obama insisted, “We are going to get this done.” How that happens without leaving the projected 40 million Americans without insurance coverage remains to be seen. Later, pointing an implied finger at “some IT people in Washington,” during a fundraiser, was indicative that the system was not, in fact, prepared to implement this new law.

All Americans will have access to coverage at some level, whether through Medicare, Medicaid, federal or state-run exchanges, or a carrier they select from their state’s individual marketplace. Any subsidies are determined by age and income level. Research by Duke University’s Center for Health Policy and Inequalities projects that potentially 129 million (68 percent) of privately insured Americans will face changes to their current coverage by the end of 2014 because of the new mandated requirements that, if not covered, render a health plan illegal. For example, maternity coverage has to be provided.

As to the funding debate, the individual mandate facing healthy young people, along with reduced Medicare benefits for the elderly under health care reform are the primary sources of funding needed to cover the overhead of the anticipated 30 million new policies, which are promised to insurance carriers through ACA.

Technical Difficulties?

Following a frustrating false start in the first week of October, the Healthcare.gov website seems to be gradually morphing through its gawky adolescence in some states. Florida saw its inaugural enrollments the first week of November, albeit amidst spotty performance by the website. According to Marilyn Tavenner who heads up the Centers for Medicare & Medicaid Services and oversees the site, only 100,000 enrollments have been processed across 36 states that use the federal mandates. Obama had hoped for a half million by now. Tavenner has also given her assurance that Healthcare.gov will be fully functioning as promised by Nov. 30, 2013. When this article is read, it will be interesting to see if this happened!

The response among consumers seems to be a “wait and see” attitude. Some who hit the same speed bump at the initial launch have since taken another run at the process and successfully submitted applications. Many who are currently uninsured are waiting to decide between enrollment and the penalty imposed by the individual mandate. Still others are of the opinion that the website is too slow, which has led to the suggestion by a Palm Beach legal aid group to shut it down entirely until all the bugs are exterminated. Washington has said it won’t do that, given the improvement it is seeing in functionality as illustrated by the number of Americans enrolling.

“Users are seeing far fewer error messages and timeouts” than they were in the first day after Healthcare.gov launched on Oct. 1, U.S. Department of Health and Human Services Secretary Kathleen Sebelius said.

To Keep or Not to Keep

For those who are keeping their existing health coverage as promised by Obama at the inception of the ACA, premiums and deductibles are skyrocketing due to the overhead incurred by their carriers to meet the essential benefit requirements and accept clients with pre-existing conditions.

The number of cancellations varies by state. The current estimates are up to 5 million across the country. According to Kaiser Health News, Florida Blue canceled 300,000 policies, which accounts for 80 percent of its individual plans in the state.

In California, Kaiser Permanente pulled 160,000 — half of its statewide enrollment. California residents insured by Blue Shield received good news last month that the carrier is postponing cancellation of 115,000 individual policies until the end of March 2014. Optionally, those who would stand to save money through federal premium subsidies on Covered California may opt to do so despite the grace period.

Some Facts that Many Don’t Know

Only 5 percent of people in the United States are on individual plans, this is 15 million to 19 million individuals. Some 190 million people in United States are covered by employer plans, and any effect on these plans may be waived for a year. Many smaller employers may drop coverage.

If a health plan does not provide all of the coverage requirements of Obamacare enacted in 2009, that plan is then termed “illegal.” Existing plans will have to meet the requirements of more coverage, and thus will most likely cost more if left in place and potentially much higher deductibles will result.

In addition, all health plans have to include dental coverage.

Only 14 states have set up their own state exchanges. All the policies will be similar in the exchange and an applicant will look at about four and pick the one they want. Thirty-six states declined to create their own exchanges. Except for California, Healthcare.gov is not working in many states for the federal exchange plan enrollment.

The Heritage Foundation has a lot of good information on what is going on with Obamacare. It states that men’s rates will go up 62 percent and women’s rates will go up 99 percent. However, coverage costs for young people aged up to 27 years will go down, and in some states like New York, the rates have gone down because it had a more stringent plan. In California, rates are going up about 3 percent.

Impact on Agency Value

What is the impact of Obamacare on independent insurance agencies, and their value if they insure clients with health coverages?

There is a lot of uncertainty of how each and every policy of that agency will be affected by insurance company cancellations and the employers that will make many employees part-time or have some layoffs to avoid having to pay for their health insurance.

The impact will be different for every agency: lost revenues for some; increased premiums for others. If an agency that writes health coverages decides to sell its book of business before 2016 — when the true impact should be realized — how will buyers structure purchases to minimize their risk as the impact unfolds over the next two years? It is also uncertain how much commission agents writing business through the exchanges will receive, which also will vary by state.

Once the dust settles, hopefully the value of this important coverage in an agency’s book of business will be maintained.