• C OV E R S T ORY •
Use the Affordable Care Act
as a Sword at Renewal Time Or . . .
Your Insurance Company
Will Use It Against You
By Rhonda D. Orin and Daniel J. Healy
M
ost recent articles about the Patient Protection
and Affordable Care Act concern the postponement of employer mandates and the failures
of healthcare.gov. The media hype has led many
employers to shift their focus away from health care
law issues until 2015. But savvy employers are not
ignoring the law. They know that many of the law’s
provisions already affect their bottom line and, if
used correctly, the statute can be helpful.
Roughly speaking, three general groups are subject
to Affordable Care Act requirements: employers, individuals and insurance companies. Many
provisions applicable to insurance companies have
a ripple effect, in that provisions enacted for the
purpose of limiting insurance companies’ ability to
charge excess premiums are being manipulated to
increase premiums instead.
A common refrain from health insurers at renewal
time is that due to the health care law, premiums
must go up. What is notable, however, is that health
insurance companies have been flourishing since the
act was passed. Ten of them, for example, were in the
Fortu ne 500 for 2013, and eight of them improved
their rankings from 2012. It may be useful to keep this
fact in mind when they cry poor at renewal time.
4 Enforce: The Insurance Policy Enforcement Journal
It is increasingly common for insurance companies
to use the Affordable Care Act to increase premiums while — ironically — blaming the law for the
premium increases. By paying attention to the five
tips below the informed employer can avoid falling
prey to such tactics.
1. Fun and Games with the Medical Loss Ratio
Most renewals start when brokers provide employers
with a worksheet reporting on their claims experience in the current year, and documenting (supposedly) the need for a substantial premium increase.
One of the key numbers on that relatively indecipherable spreadsheet is a percentage called the medical loss
ratio. It is supposed to designate the ratio between the
premium dollars spent on health care and the premium
dollars that go to the insurance company’s administrative costs and bottom line. Its intent is policyholderfavorable: to keep premiums in line with costs.
Large plans are required by the Affordable Care Act
to have a medical loss ratio of at least 85%. That
means at least 85% of premiums must be spent on
actual health care costs. If that threshold is not met
on the group level (e.g., if only 75% was spent on