Extra, Extra! Why ACA’s Auto-Enroll Tool May Not Be Best For Your Clients

Extra, Extra! is a new addition to the Agent E Pub where you will find various Q&A’s, articles and news items specific to the Agent Community.

Insurance Business America by Caitlin Bronson, July 2014

Naperville, Ill.-based producer Mark Brown was pleased when he heard about the new auto-enrollment tool proposed by the Department of Health and Human Services. Brown believes the tool, which will automatically re-enroll policyholders in their existing insurance plan, will eliminate some of the hassle he has come to associate with the Affordable Care Act.

“No one liked signing up the first time,” Brown said. “They will like it less the second, especially if there is an increase in their premium.”
    
The auto-enrollment tool is set to go forward through the federal Healthcare.gov, with a choice to adopt the tool in states running their own health insurance marketplaces.

Major healthcare research firm Avalere believes higher premiums are exactly what clients will end up facing, however—especially if the auto-enroll tool goes forward. Jenna Stento, a senior manager at Avalere, told Kaiser the new feature “could conceivably mean people will pay more in premiums unless they proactively take steps to comparison shop.”

As it turns out, the 87% of Americans who used federal subsidies to help pay premiums for their newly minted exchange plans face some complicated issues in automatic re-enrollment. Namely much higher premiums and out-of-pocket costs.

That’s because federal subsidies are attached to so-called Silver plans, which operate as the “benchmark plan” in the US. However, according to an Avalere estimate, these plans will cost 8% more in 2015, meaning a new, lower-priced plan will become the new benchmark for federal subsidies.

If clients are automatically re-enrolled in what was previously a benchmark plan, they could see federal subsidies remain the same while overall out-of-pocket costs increase.

To illustrate the point, Avalere offered the hypothetical case of a Maryland resident named “Sue.” Last year, Sue enrolled in a benchmark Silver plan in her region with a monthly premium of $214. Based on her income, her contribution was set at $58, qualifying her for a federal subsidy of $156 to make up the difference.

Even if Sue had chosen a plan with a higher premium, her federal subsidy would have remained the same. However, she would have had to pay more out of her own pocket.

In 2015, however, the fluctuation in premium price means Sue’s plan is no longer the “benchmark” plan in her area. In fact, it is the ninth-lowest of 18 Silver plans, with a new monthly premium of $267. The new benchmark plan costs $231 for a monthly premium. Sue’s contribution will remain the same, qualifying her for a higher federal subsidy of $173 to make up the difference between her $58 and the $231 monthly premium for the “standard” plan.

Automatically re-enrolling with that carrier means she will have to pay another $36 a month to maintain her previous plan—something that could be surprising to Sue as she assumes all things will remain the same.

And that’s not just characteristic of Maryland. In its research, Avalere investigated premiums and plans in nine states, with eight heading for new benchmark plans.

The bottom line?

Producers working with clients in states with new benchmark plans shouldn’t be so quick to default to the auto-enroll.

“There could be significant financial value to take a look at the site and see if there might be more affordable options for you, given the changes since last year,” Steno concluded.

FAQ

What is the Cadillac tax?
 
The so-called Cadillac tax is an excise tax on high cost health plans offered by employers. Beginning in 2018, health plans that cost more than $10,200 for an individual or $27,500 for a family plan will be subject to the tax, which is 40% of the amount that exceeds those thresholds. For example, if a family plan costs $30,000, the employer that offers the plan would owe 40% of $2,500 ($30,000 minus $27,500), or $1,000 for each family it covers under that plan.

The tax was intended to be a disincentive for employers to provide overly rich health benefits, and the cost of the health plan is one measure of the level of benefits. However, some plans may cost more because they cover people with higher-than-average health care costs, including retirees, older workers and workers in high-risk occupations. The cost thresholds for plans that cover a significant number of individuals in any of those categories are higher.