If you are a small employer offering health benefits insurance not under a grandfathered plan (see below), this information will help you understand the new way of calculating employee premiums and thereby assist you in making informed decisions about how you design and select your company’s health benefits plans.
Under the Affordable Care Act (ACA), one impact of the mandate changes how carriers will be able to rate a small employer’s group for the purpose of determining premiums.
Prior to ACA, a carrier would likely set rates based on several factors (age, health, geography, number of family members, etc.). A carrier could also base its rating on the health (or risk) of the specific group. This was referred to as a Risk Adjustment Factor. Under ACA, a group’s health profile can no longer be used as a rating factor for small-group employers. Also previously, the carrier would set rates for specific age bands and establish rates for the group based upon where it (the business) was domiciled. Now, a method called community rating is used and rate-setting (which determines your premium) takes into account the specific ages of all family members and where each person lives. The mandate also requires that the risk be spread among all members of the group in a much more compressed ratio — a 3:1 ratio. Previously the risk could be spread as wide as 8:1. See Age Rating Chart (below left).
To maintain premium levels sufficient to cover the expenses anticipated under a plan, it is expected that younger people will likely see a rate increase; and older persons will likely see a decrease. In a perfect model, the premium would remain the same if benefits were unchanged. Few employers fit within this model, so are likely to see rate changes as a result of this new community rating method.
What does this mean to you as an employer? What you pay for a health plan depends on your specific plan design (including choice of network); the age and residence of your employees (and their dependents, if offered coverage); and your company’s contribution strategy for sharing the cost of healthcare insurance with your employees and their spouses and/or dependents. To analyze and determine what this means to you as an employer, consider the overall age of your workforce. If your average employee is aged 21 to 30 years old, you may be subject to an overall rate increase. If your workforce is more mature (older than 50-65 years old), you may see an overall rate decrease.
With the community rating method, rates will be set based on your plan’s effective date. With the elimination of age bands, each year a renewal will undergo a rate change for ALL employees and dependents between the ages of 21-64. It is anticipated that these fluctuations may cause you to consider the impact to your specific situation. This may potentially cause you to adjust the manner by which you task your employees with paying for their (and their dependents, if applicable) portion of healthcare.
To illustrate these concepts, here is an example. This family has a 53-year-old subscriber with a spouse aged 45 and five children (one of whom has attained age 21). Under the pre-ACA method of rating, this family would carry a premium of $1797 per month based on the subscriber’s age and the rest of the family. Under the community rating model, each person (with the exception of the fourth child under the age of 21) is charged the specific premium for his/her age and is charged $1679 per month (a savings of $118/month).
Alternatively, a younger family with a subscriber and spouse aged 28 with three children would see a premium change from $1020 per month to $1071 per month (an increase of $51 per month) because of community rating.
Western Growers Insurance Services (www.wgis.com) is committed to helping customers stay on top of all insurance needs and sees the evolution of healthcare reform as one additional way to bring value to you. Since the ACA rules are resulting in greater standardization across the small-group marketplace (from product offering to pricing), it is important to understand the value propositions of the varied alternatives beyond the price tag. If we can offer additional support to you, please contact us at 800-333-4WGA (800-333-4942).
Definition of a small-group employer: SMALL EMPLOYER.—The term “small employer” in connection with a group health plan means, with respect to a calendar year and a plan year, an employer who employed an average of at least one but not more than 50 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.
A small-group employer not under a grandfathered plan is subject to new rating rules that result in rating everyone according to his/her age at the time the plan goes into effect. This may result in rate increases for younger employees or rate decreases for older employees.
What does it mean to have a Grandfathered plan? If you had your plan prior to March 23, 2010, it is grandfathered as long as you kept the benefits just about the same as they were on March 23, 2010.
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