Jesse Patton, president of Associations Marketing Group Inc., said insurers are already making adjustments to prepare for possible health-care reform mandates, which he said could force smaller players out of the market. Photo by Duane Tinkey
Jesse Patton, president of Associations Marketing Group Inc., said insurers are already making adjustments to prepare for possible health-care reform mandates, which he said could force smaller players out of the market. Photo by Duane Tinkey

Whenever insurance broker Jesse Patton speaks at symposiums and describes how employers could be hurt by many of the health-care reform proposals under consideration by lawmakers, someone usually asks, "What's the good thing about this legislation?"

"I tell them it definitely has gotten the American consumer engaged in the health-care debate, which I think is a good thing," he said. Patton, president of Associations Marketing Group Inc., currently serves as the national legislative chairman for the National Association of Health Underwriters. "I used to have 40 to 50 people show up at a meeting about health care," he said. "Now, it's 300 to 400."

Despite the complexity of health-care reform - and the added uncertainty that a comprehensive package will pass now that the Democrats have lost their filibuster-proof supermajority in the Senate - there are some interesting implications for Iowa companies if even some of the proposed measures are enacted this year.

Because increased mandates would in many cases lead to higher expenses for insurers, premiums are likely to increase, Patton said. Additionally, "the average employer and individual are probably going to see rate increases kick in before they begin seeing benefits increase," he said. "I think this is going to be a touchy area for consumers."

Sean Yolish, vice president for benefits with Merit Resources Inc., said he also anticipates that costs and premiums would increase, along with administrative burdens.

As a professional employer organization (PEO), the Des Moines-based company administers payroll and benefits for about 350 companies, ranging from two employees to upwards of 500.

"I would say PEOs are generally watching (health-care reform) with bated breath," Yolish said in a separate interview. "Some small businesses may be exempt from these requirements; others may not. So there will be a host of administrative burdens on the PEOs to ensure compliance for their clients."

With so many variables involved, "not even the Congressional Budget Office can make a good estimate," he said. "But if there are more people in the health plan, and more people who are not paying into the pool as much as they're pulling (benefits) out of the pool, then what people are paying today could certainly increase tomorrow to cover that additional expense."

Proposed mandates could require many employers to foot the majority of group coverage costs or face penalties. Under the House version of the reform bill, businesses would have to pay at least 72.5 percent of the employee-only coverage and 65 percent of family coverage, Yolish noted.

"Generally speaking in Iowa, the 72.5 percent, from what I've seen over the last two years with our clients, I don't think is going to be over and above what the norm is," he said. However, some companies may not be covering at least 65 percent of the cost of family coverage.

Merit Resources requires each of its clients to offer health insurance, Yolish said, and most of them carry group health coverage through Merit's master policy with Wellmark Blue Cross and Blue Shield. "I would estimate that each one of our clients, on their own, has more than 75 percent of their eligible employees participating," he said.

Because insurance carriers have already budgeted expenses for 2010, any new mandates passed this year are "going to squeeze them," Patton said. "So in 2011 you're going to see the insurance companies trying to recoup a lot of the fees (through increased premiums)," he said.

Patton said Wellmark has already announced to brokers that it plans to reduce agent commissions by one percentage point, "so what we're going to get is going to go down," he said. "It appears the carriers are already anticipating the legislation passing and making adjustments accordingly."

Under proposed legislation, insurers would also have to meet minimum loss ratios of 85 percent beginning in 2012, meaning that at least 85 percent of the money they receive in premiums would have to go toward paying health-care costs for policyholders rather than toward administrative costs. That requirement could actually lead to less competition, Patton said.

"The smaller carriers may not be able to survive with these minimum loss requirements," he said. "Even in Iowa (where Wellmark dominates the market), the Coventrys and other smaller carriers keep the pressure on Wellmark. If they go by the wayside, you'll tend to see prices go up more."

From a PEO perspective, Yolish said, the impact of additional taxes on payroll will be one of the first considerations, since payroll administration is a PEO mainstay.

One potential challenge: a proposed additional Medicare tax of 0.9 percent on employees with annual earnings exceeding $200,000. That measure would create a significant administrative challenge in processing payrolls, Yolish said, because no other payroll taxes begin at a certain level of income.

Businesses' response to reform is one thing, but the real wild card will be how the public handles it, Patton said.

"There may be a lot of unintended consequences. ... We have a very good insurance market in this state; so how much control do you relinquish to the government?"