How will health reform affect non-profits?

Dear Cheasty,

This is an interesting time to talk about non-profits given the economic collapse and the health care reform act. Would you be able to write a few paragraphs regarding the impact of healthcare reform, the rising costs and the challenges non-profits may feel with regard to offering benefits to their employees?

Thank you, Needing to Know about Non-Profits

Dear Non-Profits,

Over the last 10 or 15 years, health care costs in the commercial insurance industry (i.e. anything that isn’t Medicaid or Medicare) have ballooned.  Therefore, the cost of providing health insurance for employees has gotten harder and harder. This is true for both private industry as well as non-profits.

To make matters worse, most non-profits, like small businesses, may be saddled with the curse of the small group plan where prices are higher in order to cover the larger proportion of policy holders in the group with greater (read: costlier) health care needs.  As a result, many non-profits are having to make tough decisions about the quality of coverage they can afford to offer their employees, what percent of cost-sharing the organization can afford to bear, etc.  In the end, both employer and employee spend more, but get weaker benefits compared to years past.

The Affordable Care Act (the health reform law Congress passed in March, 2010) has been steadily making progress towards reducing insurance costs for small businesses and non-profits. And, when the law is fully implemented in 2014, it will go even further towards controlling costs in the health care industry at large.

Right now, however, here are some of the ways the ACA is helping make health insurance more affordable for non-profits:

  1. In the first place, small non-profits (fewer than 25 employees) can qualify for a refund up to 25% of the cost of purchasing insurance for their employees. Check with your tax accountant to see if you qualify, and whether you’ve filed the appropriate paperwork. In 2014, that refund cap will be even higher – you could get up to 35% back!
  2. Second, an industry regulation called “Medical Loss Ratio” (commonly referred to as the “80/20 Rule”) stipulates that insurance companies MUST spend at least 80% of the premium dollars they collect on the delivery of health care services, and only 20% on administration, profits, and payouts to shareholders. If they fail to make those percentages, then the insurer has to refund money to its beneficiaries in order to comply with the 80/20 Rule. This is a significant change in the way most insurers did business before, and the result is fantastic for people in the small group and individual markets.

To sum it all up, you stand a good chance of getting money back this summer.  In fact, Texas – with its previously unregulated market – is benefiting the most of any state. A new report from the Kaiser Family Foundation has estimated that this year 1.8 million Texans will receive more than $186 million in rebates because of the 80/20 Rule.

Some insurers are retroactively lowering premium payments for some small businesses, while others have decided to start providing free preventive health care (checkups, screenings, etc) for beneficiaries ahead of schedule to bring their numbers up to scratch. (In 2014, free preventive care will be the law of the land and we’ll all get those annual exams free.)

So that’s what non-profits need to know about health reform right now.

In less than two years – on January 1, 2014, to be precise! – you’ll need to know about a whole raft of ACA provisions that are going to control costs and enhance coverage in the insurance industry in general, but I’m just going to skim over them right now in the interest of time.

  1. The first thing to know is that insurers will no longer be able to deny coverage or even charge more for people with pre-existing conditions. That will lower costs for everybody, but especially in small group markets.
  2. Secondly, all insurance plans will have to cover 10 categories of health coverage called the “Essential Health Benefits.” This will ensure your employees get more robust coverage under whatever insurance plan you choose.
  3. And lastly, with the Health Insurance Exchanges for individuals and small businesses, you and your employees will have many more options of how to best guarantee the affordability of coverage for all.

The Affordable Care Act isn’t a guaranteed panacea for all the ills of the health care crisis in the United States, but it is a remarkable effort to begin fixing the problem, one step at a time. I hope this helps explain what non-profits should be looking for, both now and in the next few years.

To a well and healthy Texas, Cheasty Anderson