Podcast Center
Video Center
Webcasts
Resource Center
Events
July 28, 2011 at 08:00 PM
Is the American Recovery and Reinvestment Act lowering your renewal premiums? Though it’s certainly not intentional, this seems to be an accidental side effect of recent economic legislation.
For those of you who have been asleep since February 2009, this bill, enacted by Congress on behalf of President Obama, was designed to help spur economic growth. Whether that’s happened is highly debatable but, notably, one provision of the legislation allowed people who had been laid off to get back on their company’s group health plan at a fraction of the cost. (As most of you know, COBRA can run an enrolled employee up to 102 percent of the premium.) The ARRA allowed the same person to enroll or re-enroll at only 35 percent of the premium for up to nine months, with the employer most often paying the difference.
For employees who were enrolled in COBRA, this was a direct reduction of their premiums. For those who were laid off and had not elected continuation of their medical benefits, they now had an option to enroll through a new open enrollment. This was retroactive through September 2008. With the new subsidy, these employees were now able to enroll for less than the cost of coverage had been while they were actively employed.
Not surprisingly, due to this provision, we saw a tremendous spike in COBRA participation during open enrollment period. As an advisor, I recommended that many of my clients begin utilizing COBRA administrative services during this time.
The enrollee rush
So, in the 12-18 months following the passing of ARRA, insurance carriers saw a tremendous increase in utilization with new enrollees. COBRA participants were using the company health plans at a much higher rate than expected. Many employees had already met their deductible, or decided, like any rational person, to go ahead and get full use of the benefits before they lost coverage. For some, this meant going ahead with an elective procedure or finally getting in to see the doctor for something they had put off. Others planned a pregnancy around their remaining time on the company plan.
Since no one could have predicted this legislation (or its impact), there was not enough trend factor built into the rate model for the plans that year. As a result, at one of the most perilous times in our industry, underwriters reacted exactly as they were trained to do: they increased the rates. With the increased utilization, the natural reaction was to pass it through at renewals. This is why, two years ago, 20-35 percent renewal rate hikes were common among small group plans.
