California Health Insurance Reform Update: March 2012
There’s been a lot of talk about health insurance reform during the last few years. Passage of the Federal reform legislation in March 2010 accelerated the discussion – and confusion. To help make sense of the new law and to help people navigate the ever-changing landscape of health insurance, we’ve made a list of the most important items that individuals and small businesses in California should know about the Patient Protection & Affordable Care Act, signed March 23, 2010 and the Health Care & Education Affordability Reconciliation Act, signed into law March 30, 2010. Collectively the new law is referred to as “PPACA.”
The health insurance companies are complying with the new law. There is nothing specifically that a small business owner or individual with his/her own health insurance needs to do as of March 2012 to comply with the new law.
Changes since the 2010 passage of PPACA:
- Federal High Risk Pool for individuals – California: Pre-existing Condition Insurance Plan (PCIP)
The Federal government established a program to assist people who are unable to qualify for individual health insurance due to pre-existing medical conditions. This program has no insurance company – the Federal government pays all of the claims. PCIP is California’s version of the Federal plan. It has very good benefits and the monthly premium is usually less than the State’s high risk (MRMIP) program. Here is an article that compares the PCIP plan with the MRMIP plan. The biggest limitation to enrollment on the PCIP plan is that one can not have had coverage in the 6 month period preceding enrollment. The MRMIP plan does not require 6 months of no coverage to enroll.
- No pre-existing condition limitations for children under age 19
This requirement allows children to obtain an individual health insurance plan even if they have serious pre-existing medical conditions. A new California law (AB2244) applies this Federal requirement to California. Under this law children are able to enroll on a “guarantee issue” (GI) basis if they apply during the month of their birth. The health insurance companies must offer coverage. The companies do “medical underwriting” and they can charge as much as three times the standard enrollment rate for children with serious medical conditions. This article describes guarantee issue for children in California.
- No copayment for preventative services
A number of medical tests and screenings to determine whether a health problem exists must now be available with no copayment to the patient. Here is a link to the list of “copayment free” preventative tests. While these services require no patient copayment, they do cost money. Accordingly, the cost for these services is now included in slightly higher monthly premium payments for health insurance.
- Dependent coverage extended to age 26
Perhaps the most popular change associated with PPACA, children can now stay on a parent’s health insurance plan until their 27th birthday. In 2011, California amended its law so that employers and employees can deduct the premium for children age 23-26. Importantly, there is no requirement that the children be dependents; be a full time student; or be living with the parents. In fact the children can live in a different state, be fully employed and have their own children and still obtain coverage through the parents’ health insurance plan.
- Few insurance companies offer “grandfather” status on small group plans
While President Obama had promised that “if you like your current health insurance plan then you’ll be able to keep it after reform;” the reality is different. The Federal government set the criteria to keep “grandfather” status so narrowly that few small employers have been able to qualify. As of February 2012 only two health insurance companies offer “grandfather” small group plans in California: Kaiser Permanente and Health Net. None of the other insurance companies in the small group market (Anthem Blue Cross, Blue Shield of California, Aetna and United Health Care) offer grandfather status.
- Discrimination testing put on hold
PPACA forbids employers from offering highly compensated employees better benefits and less strict eligibility standards than non-highly compensated employees. While “discrimination testing” (Section 105(h)(2) of the Tax Code) currently applies to self-funded health insurance plans, it has never been applied to fully-insured small group plans – until now. This presents an enormous set of problems because, unlike large employers, most small employers offer many different plans (e.g., PPO, HMO, HSA, etc. with various deductibles and copayments). The IRS was tasked with enforcing this new law and they must have realized how difficult it would be to enforce and how disruptive it would have been to the small group market because in January 2011 they issued IRS Notice 2011-1 which put the discrimination testing on hold by saying:
“Because regulatory guidance is essential to the operation of the statutory provisions, the Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), have determined that compliance with § 2716 should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued under § 2716. In order to provide insured group health plan sponsors time to implement any changes required as a result of the regulations or other guidance, the Departments anticipate that the guidance will not apply until plan years beginning a specified period after issuance.
- Insurance companies must meet “Medical Loss Ratio” (MLR) requirements – 80% paid to providers for individual & small group plans.
Sometimes referred to as the “Minimum Loss Ratio,” this requirement has caused insurance companies to limit the amount that they spend on: contracting with hospitals and doctors; utilization review (fraud prevention); enrollment; claims adjudication; agent compensation; issuing member I.D. cards; and all of the other things that insurance companies do to finance America’s health care. Consequently, many of the insurance companies have laid off employees and it may be that it will take a bit longer to get your insurance problems solved. (Remember that the staff at BenefitsCafe.com is always available to help solve health insurance related problems for our clients.) The upside of the MLR requirement is that insurance companies must refund money to employers if the insurance company paid medical providers less than 80 percent of the premium money they collected for individual and small group plans. The insurance companies should announce whether they will be refunding premium soon.Note: In 2011 Blue Shield of California (BSCA) returned nearly $450 million of premium to employers and individuals. BSCA returned this money because of its pledge to make only 2 percent profit and return the rest to its members. It was not due to the MLR requirement.
The majority of the changes to health insurance are scheduled to take place beginning January 1, 2014.