June 17, 2013 Insurance Insights

June 17, 2013

Insurance Insights
By:  Margaret R. Beck CLU, ChFC, CEBS


Column One Introduction


The purpose of this column is to provide information and assistance in understanding health insurance issues and the impact of the Affordable Care Act (ACA). This legislation created the biggest change to our health care financing and insurance system since Medicare was enacted in 1965.  It is also known as PPACA (Patient Protection & Affordable Care Act) and Obamacare.  For the sake of brevity, we will use ACA.


The bill was passed on March 23, 2010 and provisions have effective dates from then through 2018.  It is lengthy and complex, but I hope to provide insight into how it will affect our readers, directly and indirectly.  This is not designed to be a political forum on the merits or faults of the legislation.  However, I will try to point out areas that may have a positive or detrimental effect on our readers.


It is important to realize that implementation rules are somewhat fluid at this point. So I will provide information to the best of my knowledge at the time of writing.  In this arena, nothing is so constant as change.


The main consumer groups can be divided according to size:  Individuals; Small Employers (with less than 50 full time equivalent employees; Large Employers (over 50 employees).  I will address the implementation issues for each of these groups and explain the differences.



  • CA licensed insurance broker since 1978:  DOI 0556632

n  Chartered Life Underwriter 

n  Chartered Financial Consultant 

n  Certified Employee Benefits Specialist 

n  NAHU PPACA Certification 

n  IFEBP (International Foundation of Employee Benefit Plans) ACA University

n  Mercy Medical Center Advisory Board, past member

n  Blue Shield of CA Broker Advisory Council, past member


I have the privilege of working in many areas of this industry which gives me a unique perspective.  As a broker, I am an advocate for my clients both in shopping for coverage and assisting when there are problems.


Why the ACA?


There are many reasons that this type of reform has been addressed. Here are a few:

1.    Almost half of working-age adults in the U.S. had inadequate insurance or no coverage at all last year according to Commonwealth Study released 4/28/2013.

2.    Health Care (sickness care) economics is unlike any other sector of the economy: Supply creates demand. Third party payers (Insurers, Medicare, MediCal) insulate it from outside pressure.

3.    Health Care Cost Inflation is rising at a much greater rate than any other segment of the economy.  Currently we spend about 18% of Gross Domestic Product on this one segment of the economy.

4.    Hospitals are mandated to provide service regardless of consumer's ability to pay.  This results in cost shifting to those that pay to cover the costs of those that do not.


So, who are those folks that are uninsured?

According to the Kaiser Foundation report there are about 48.9 million uninsured or underinsured in the US: 21% of adults, 10% of children. The law attempts to provide more access to coverage through expansion of Medicaid (MediCal) and providing subsidized coverage to those low income uninsured.  Shasta County median family income at $44,058 for a family of four means that those folks are at about 200% of the Federal Poverty Level (FPL) and will qualify for subsidized coverage.


What is the Federal Poverty Level (FPL) and why is it important?

This is the income number that is used to define poverty and qualify for subsidized coverage or MediCal.  This number is adjusted each year for inflation.  The ACA allows subsidized health insurance coverage for those whose income does not exceed 400% of FPL.  For a family of four, 400% of FPL equals $94,200.  A quick chart can be found at http://www.familiesusa.org/resources/tools-for-advocates/guides/federal-poverty-guidelines.html


How is health care economics different?

Let's assume you went into Costco and loaded up your cart. Then someone else put a bunch of stuff in your cart. When you got to the check out you were expected to pay whatever they charged.  Well you simply wouldn't do that.  Yet, we do it in health care every day.  We are insulated from the cost-benefit analysis that we make in any other economic decision.  When we choose our home, our groceries, cars etc. we weigh the costs and benefits before we choose.   


What drives health care costs and insurance premiums?

This could take an entire column to cover. In short, your health insurance premiums include the following: payments to providers (doctors, hospitals, Rx etc) + reserves (for claims incurred but not yet reported) + administration + stop-loss insurance to protect from an individual large claim (this is reinsured).


The ACA requires that insurers must have a Medical Loss Ratio (MLR) of no less than 80% for individual and small group plans and 85% for large group plans.  This means they must pay out 80-85% in direct medical expenses.  So when each year's accounting is done, if the plans performed better, the company must refund back to the policy owners.  It is reported that last year insurers paid out $1.1 billion in refunds.


Claims costs are expenses paid to providers. Many of our health problems are driven by our lifestyle.  Obesity is growing faster than any previous public health issue America has faced. If current trends continue, one in three of us incur health problems like heart disease, diabetes and cancers from obesity.  The U.S. is expected to spend $344 billion on health care costs attributable to obesity in 2018 which will account for more than 21 percent of the nation's direct health care spending in 2018This condition is largely self-induced.