Column 98 - When Bigger become Smaller!

Column 98 May 24, 2015

When Bigger become Smaller!

The Affordable Care Act (ACA-aka Obamacare) is a far reaching piece of legislation that has affected both the health care delivery system and the health care financing system.  These are two very distinct partitions in what we call "health care" in this country.  

In terms of health care financing, insurance reforms are some of the most significant changes that we actually see in our day to day lives.

One such change that will be felt profoundly in January 2016, is the change in definition of small employer.  In the past, this has been defined for insurance purposes as those with under 50 employees.  But in 2016, the threshold is moved to 100 employees.

Why is this such a big deal?  The rating structure, underwriting and products for the small group market are quite different than large groups.

First the rating structure.  This will be a likely unpleasant surprise for groups of 50 who will now be considered small group.  This is because small group products are age rated.  Further, small group products were rated for employees and their dependents on a four tiered basis: employee, employee & spouse, employee & child(ren) and family.  The employee rates were based on six age bands: <30, 30-40, 40-50, 50-55, 55-60 and 60-65.

The ACA changed this dramatically.  Every individual in the family is based on their individual age.  Children over age 18 are rated as individual adults.  This increased rates for families with older children and makes each employee's enrollment specific to them and their family ages.

Groups of over 50 enjoy composite rates based on the ages of the enrolled census.  Typically only 4 rates are used for the census: employee, employee & spouse, employee & child(ren) and family.  This makes administration quite simple and straightforward.  It is easily explained to employees.  Payroll deductions are easily set up in the accounting system. Allocating and projecting benefits costs for budgeting is also easy.

While small employers may not like the age rated system, they are accustomed to it and their census is typically small enough that it's not too big of a hassle.  Implementing this system for larger groups is going to be much more challenging. 

An employer has the option to charge employees a fixed amount in a way similar to the existing structure.   They have to pay the insurance company as billed and work out the details behind the scene.  This can be daunting.

Another issue effecting the new small group market is minimum participation levels. The law essentially stated that insurance companies could decline to offer coverage if a group did not meet their standard for number of employees that enrolled.   

In a final rule in 213 HHS clarified as follows: "We have determined that small employers (less than 100 employees) cannot be denied guaranteed availability of coverage for failure to satisfy minimum participation or contribution requirements....in the case of a small employer that fails to meet contribution or minimum participation requirements, an issuer may limit its offering of coverage to an annual open enrollment period, which we set forth in this final rule as the period beginning November 15 and extending through December 15 of each year."

An annual open enrollment period gives the insurer some protection against adverse selection.

As 2016 approaches, it's critical that groups review their participation to determine if they will need to take advantage of this special open enrollment period. I caution all groups that have Grandmothered to look at this open enrollment period very seriously.  We are told that Grandmothering will likely go away and all groups will have to comply. Groups that renew 12/1 may want to request renewal to be 1/1 to get their plans on a calendar year basis to coincide with deductible accrual periods.  But they should proceed with caution.

I have one group that has 85 employees, but most are low paid.  The employees do not feel they can pay their share of premium and participation is very low; only about 15 enrolled. With "grandmothering" the day of reckoning would be 12/1/2015 when the insurer would likely cancel the group.  But fortunately, this special open enrollment will give them protection against the carrier cancelling their coverage as well open up the rest of the market to them.  

They had requested that we look at moving their group in June of this year.  I explained that no carrier would accept them with this low participation.  This will save their group insurance offering.  Of course, this does not protect them from the "shared responsibility payment" or penalty if their plan is deemed unaffordable.  But that is another issue!