Why you should early renew your health insurance plan before it’s too late!
As with everything related to the Affordable Care Act, the topic at hand in this article is information in motion. The details can change at any time and make this obsolete; additionally, every company and individual truly needs to consult a licensed expert to ensure that they are making the right choices for their unique situation. At Bridgeport Benefits, we pride ourselves on being up to date with information as it unfolds regarding this historic change in the way that our country provides and receives health care. Please feel free to call us at 818.865.6800 or email me at firstname.lastname@example.org for a review of your situation.
The Patient Protection Affordability and Accountability Act (PPACA) has been designed to reform the health insurance system so that all Americans have access to affordable and quality health insurance. The PPACA has many features affecting virtually everyone – large employers, small employers and individuals. Many aspects of health reform, such as the recent opening of the health insurance exchanges, have received considerable attention. Other areas of the reform haven’t received nearly the same publicity. In this article we address the sleeping giant that is a great threat to the insurance rates of small businesses (those with 50 full time employees or less) called, “Community Rating.”
Community rating of small employer groups, along with other changes to the small group insurance market, have received little attention since the passage of the ACA. Small employers really should be aware of the impact of these changes and how their business may be affected. The changes apply to plan renewals that take effect on or after January 1, 2014. The enrollment period for those effective changes is NOW!
What Are Some of the Small Group Changes and How Do They Impact My Plan?
Historically, all small groups in CA have been rated based on the ages, geographic area and health conditions of their covered employees. Each employer group was assigned a Risk Adjustment Factor (RAF) reflecting their population. In California, health insurance carriers would then assign a base rate created specifically for each plan derived from the aforementioned factors. These base rates have a neutral RAF of 1.0. Based on changes in the health factors and group size, a health insurance company could increase or decrease a group’s rates by up to 10% by assigning an RAF between .90 and 1.1.
In this “new era” of Affordable Care community rates, RAFs will no longer exist and all groups will be assigned the same plan rate. While this may seem like a very equitable system, the expected result is a raise in insurance rates for those that have previously had a young, relatively healthy population. The reason for this is logical, but has been lost in the confusion. The cost of health care, like every other cost, is rising. It is the responsibility of the insurance carriers to increase revenue that will help sustain this new system. Therefore, it would not make sense for them to drop the rates of those that have had relatively high premiums in the past. In order to even the playing field, which is a requirement of the current legislation, they must raise the rates for those with the healthiest populations to bring them in line with the new norm. Healthy groups with currently low RAFs may experience significant changes to their health plan rates. Conversely, some groups with unhealthy populations and RAFs currently at or near 1.1 may actually benefit from the change.
These changes to community rating coincide with changes to age rate bands between the youngest and oldest employees. For example, previously there has been no limit on the difference in premium that could be charged between medical plan rates of a 25 year old and a 60 year old. PPACA changes this and imposes new rate regulations. Beginning with renewals on or after January 1, 2014, PPACA limits the ratio of rates for the youngest and oldest employee rates to 3:1. We expect a significant increase in rates for the youngest age groups due to these changes. We do not expect a corresponding decrease to the rates for the older age groups for the same reasons mentioned above.
Finally, some health plans may not meet the minimum coverage requirements of PPACA. These plans will be eliminated for groups renewing on or after January 1, 2014 and will be replaced with plans that meet the government’s new requirements. Some of these plans are popular options for employers and employees alike and the replacement plans may result in higher cost options upon renewal.
Small Employer Strategies to Manage PPACA Changes
All small group health insurance carriers are offering groups the opportunity to early-renew their plans. Most early renewal program (ERP) effective dates are November 1 or December 1, 2013. The ERPs give small group employers the chance to delay the effects of community and age rating changes. For example, if your current plan renews April 1 of each year, and you decide to early renew December 1, 2013, your next renewal date will be December 1, 2014. Your plan will not have to contend with any changes until the new renewal date as you will have had an eight month extension to your current plan. Since it is still unclear the exact ramifications from the Affordable Care Act, delaying plan renewals will give employers and their advisors time to adjust and respond to the new market dynamics. Most insurance carriers are providing rate stability and incentives for their clients to early renew as they have to contend with market uncertainty just as employers do.
Employers are encouraged to seek counsel from their advisors about how to plan and combat the effects of healthcare reform. With change comes opportunity, but you must be informed of all options in order to take advantage of the new small group insurance market. As previously mentioned, we are available to help you sort this out. Please reach out to us, if we haven’t already reviewed your options.