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Insurance & Risk Management Business Trends Analysis, Business and Industry Trends Analysis

In March 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA). It was designed to force health insurance firms to provide more coverage, force more individuals and employers to participate in health care insurance and increase the number of people who qualify for Medicaid.
Provisions that took effect within the first six months of signing included coverage for adult children up to age 26 on their parents’ policies; making it unlawful for insurers to place lifetime caps on payouts or deny coverage should a policy holder become ill; and new policies being required to pay the full cost of selected preventive care and exempt that care from deductibles. Effective in 2010, small businesses with fewer than 25 employees and average annual wages of less than $50,000 became eligible for tax credits to cover up to 35% of staff insurance premiums.
Online health care insurance “exchanges” began enabling consumers to shop for health coverage on a state-by-state basis as of October 1, 2013, with the insurance sold to take effect beginning January 1, 2014. However, many aspects of regulations covering the exchanges were pushed back to 2014 or beyond, as the plan was largely running behind schedule. This is partly due to 36 states declining to set up their own exchange programs, which required the federal government to do so on their behalf.
Beginning with income earned in 2013, a 3.8% unearned income tax is levied on individuals earning more than $200,000 per year and families earning more than $250,000 per year to fund the programs in the act. Employers with more than 50 employees that do not offer health benefits began paying a fine per full time staff member if any of the workers receives a tax credit to buy coverage. This fine was originally scheduled to cover 2014, but in mid-2013 the Obama Administration delayed it until 2015. Businesses with more than 200 employees are required to enroll all staff automatically in health insurance plans. Also in 2014, the government began fining citizens who choose not to carry health insurance. The fine started at $95 per year or 1% of annual income (whichever is greater), and rises to $695 per year or 2.5% of income by 2016.
The act is more than 1,000 pages in length and has far too many provisions to cover succinctly; however, there are a number of additional provisions that are little known. These include allowing insurers to charge smokers as much as 50% more for coverage in new polices; and a 30% break for employees who participate in company wellness programs or meet high health standards. 
A 2011 McKinsey & Company study found that millions of Americans may find that their employers no longer offer insurance, due to the ACA. Many employers are expected to opt for paying a $2,000 or more per-employee annual fine rather than pay vastly the higher premiums required to purchase employer-sponsored insurance coverage.
Self-insurance is an option for small businesses that was gaining traction as of 2013. Providers including UnitedHealth Group and Humana both began offering the coverage in which small businesses elect to pay workers’ medical costs directly as opposed to purchasing managed care plans. The practice allows small businesses to avoid Affordable Care Act requirements, such as more costly mental health and maternity coverage, while bypassing changes to pricing rules that apply to coverage for groups. Self-insurance works best for employers with relatively young, healthy workers with lower health costs. Should growing numbers of small companies with healthy staffs opt for self-insurance instead of the exchanges outlined in the Affordable Care Act, premiums for the less healthy workforces that remain on the exchanges would rise. Fearing just such a circumstance, some states, including California and Rhode Island, have been debating bills that would impose new rules that limit self-insurance coverage.
At least initially, the ACA provided positive growth to the earnings of health insurance providers. The long-term problem for the industry is that Congress may attempt to reduce costs and profits throughout the health industry, due to the staggering total cost of health care in the U.S., at more than $3 trillion per year. Insurance firms and health care providers have been reacting by consolidating, with an extremely high level of mergers and acquisitions. Their goal is not only to streamline operations and protect profit margins, but also to gain significant market share and pricing power. 
Massive health insurance company mergers were announced in 2015. Anthem, Inc. agreed to acquire CIGNA Corp. for more than $48 billion. Also, Aetna agreed to buy competitor Humana for $37 billion. These mergers may have several strategic goals, including a reduction in overall operating costs through the reduction of duplicated management and administrative jobs (when the mergers are completed and the firms are fully consolidated), as well as greater overall presence and power within health care markets.

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