June 20, 2012: From the desk of SHADAC Director Lynn Blewett
As we wait for the Supreme Court to make its historical decision on President Obama’s Affordable Care Act (ACA), many policy analysts are suggesting that several states--already well into the implementation of the ACA--will continue their efforts to develop Health Insurance Exchanges for individuals and small businesses regardless of the court's decision. The need for access to affordable health insurance coverage is not going away.
An interesting twist to the complicated story of the ACA is that large employers have a stake in the development of exchanges. This seems counterintuitve: Large firms are typically self-insured, so their employees are not eligible to purchase coverage in the exchanges; however, early retirees from large firms who are not yet Medicare-eligible are, in fact, eligible for exchange coverage, and some large employers are counting on this when making benefit decisions for this group.
Case in point: Minnesota-based 3M recently told its employees that after 2014 there will be no longer be a group medical plan for early retirees. Instead, 3M has directed these early retirees to the new exchanges to find affordable coverage while providing some transition credits ($300 a month at the outset) and eventually a Health Reimbursement Account for “non-Medicare eligible retirees” in 2015 to help subsidize their estimated $650 a month premium. When I asked a potential early retiree whether 3M would change its early retirement policy if the Supreme Court ruled against the constitutionality of the individual mandate or even did something more dramatic, like throwing out the entire Affordable Care Act, the response was, “They are not going back – this is a big money saver for them and the decision has been made.”
Why is this development so significant? Two reasons.
First, if the individual mandate is upheld, other large self-insured employers might follow 3M’s lead, in which case a significant number of early retirees may look to the Health Insurance Exchange to purchase coverage. Since early retirees are likely to be older (60-65), they are also likely to have one or more pre-existing health conditions, thereby raising the overall risk (i.e., expected health cost) profile of those purchasing coverage in the exchange and elevating coverage prices. An increase in the price of coverage may discourage young, healthy people from purchasing coverage, raising the overall risk profile of the exchange further. To avoid this scenario and offset the increase in the risk profile of the pool, additional incentives might be required to entice young people to purchase coverage.
Second, if the Supreme Court rules that the individual mandate is unconstitutional, other key health insurance reform provisions will likely also be eliminated – including the the prohibition of pricing remiums based on pre-existing conditions and the limitation on age-based pricing. Without these provisions, early retirees from large employers who go the route of 3M are going to have a very difficult time finding an affordable health insurance policy - that is, if they can find a health insurance company willing to sell them a policy at all.
If the Supreme Court rules against the mandate, states do have the regulatory authority to establish their own state-specific rules to govern the individual market and their state-based Health Insurance Exchange. States will want to consider the potential of other employers to follow 3M's lead and what types of rating restrictions and potential increased subsidies will help assure affordable coverage in the exchange. With potentially thousands of early retirees looking for affordable coverage in the private health insurance market, the loss of the Individual Mandate in the ACA will not change the course now seen for the future of the individual market in many states, so states will need to respond accordingly.