I thought I submitted this last Monday to CSPC; however, I made the mistake of submitting it to my recruiting blog for A&M. But, since healthcare reform is such an exciting topic, I thought I would share the thrill on the correct blog.
My paper originally started out with the intention of analyzing healthcare reforms impact on all sizes of businesses, evaluating the overall effect this act would have on the economy, markets, and unemployment as a whole. However, as I began to navigate the 906 page document, I began to focus more on small businesses and the new regulations and requirements that directly impacted this sector. After several days of research, I realized that the Patient Protection and Affordable Care Act is by far one of the most convoluted documents known to mankind, but that is beside the point.
My research basically honed into two aspects of the law- the small business health options program (SHOP) and the minimum loss ratio. For a brief overview, SHOP sets up exchanges that small businesses (less than 100 e’ees) can pool together and, theoretically, receive lower rates since there is more participation in a health plan. Like I said, this requires participation in the plan. Throughout my research, I found several scenarios, including the Health Insurance Plan of California (HIPC) and the Commonwealth Care in Massachusetts, that exhibited the failure of cost containment due to a lack of incentive for participation of businesses and a high enough penalty for non-participation. With even higher rates due to a lack of participation, tax credits for people who are deemed by the government to need “assistance”, and a penalty for non-participation, many experts in healthcare brokerages, companies, and research centers that I have interviewed are speculating anywhere from 15%-35% of small businesses will be forced to close their doors or be acquired by other firms. Since 7 out of 10 e’ees work for small businesses, this percentage is terrifying.
The other area (and one that I was most excited about) addressed the minimum loss ratio. In overview, this percentage mandates the amount of premiums the firm is required to spend on claims. This heavily affects the small business brokerages that receive commission from the insurance companies. While there are a slew of calculations that you can get into with this, in essence, when insurance companies are forced to spend more on claims, they must reduce costs in other areas, particularly general and administrative expenses. Sadly, the primary component of this budget line-item is commissions paid to brokerages. However, one of the greatest moments for me throughout this research was being able to apply my technical knowledge to forecast the financial statements of Aetna, Inc. to discover why commissions have been decreasing all across the industry. It was enlightening and refreshing to calculate and observe the mechanics behind corporate management’s decisions.
While the healthcare industry needs a great amount of reform, the Patient Protection and Affordable Care Act provides reform that comes at the expense of small businesses across America. If healthcare reform suffers the same fate as many other implementations throughout history, a significant sector of employment may cease to exist in the United States.