The Issue – August 2014
THE AFFORDABLE CARE ACT
What Small Employers Should Expect from 2014 and Beyond
By Jason Lombardi
2014 is the big year of change for small group employers (employers with 2-50 employees) under the Affordable Care Act (ACA). As of January 1, 2014, the health plans that existed on the market prior to that date are no longer available and small group employers are being migrated to new ACA compliant plans upon their plan renewal in 2014. As this is a mandated requirement, the ability to “keep your plan if you like it” never really existed for most employers.
As a way for small group employers to postpone some of the changes under the Affordable Care Act that began in January 2014, insurance carriers created the “Early Renewal” option. The Early Renewal option allowed small group employers to renew their medical plans as of December 1, 2013 and lock in their rates and plan design until December 1, 2014, thereby delaying plan changes under ACA until late 2014. According to discussions with insurance carriers, general agents and our own book of business, approximately 85% of small group employers took advantage of Early Renewal.
The day of reckoning for small group employers that Early Renewed is quickly approaching. As such, small group employers need to be aware of the changes they will be seeing in their premium rating structure, medical plan design and network availability. In addition, employers should expect to experience slow turn-around time and longer than average on-hold times when reaching out to their insurance carrier, as 85% of the carrier’s business is renewing December 1st.
Small Group Premium Changes
The Affordable Care Act has changed how insurance carriers may determine premiums for small group employers. Previously, insurance carriers could use a numbers of factors when determining the premium, such as gender, industry, group size, health status and medical history. As of January 1, 2014, these criteria may no longer be used, and premium is determined on a community rating basis using only four factors: election tier, location, age and tobacco use (excluding CA).
- Family rating: Insurers will now use a per-member rating methodology in the small group market. The number of dependent children under the age of 21 will be capped at three.
- Geographic rating: The states must establish uniform rating regions (CA has 19 regions). If a state does not establish rating regions, the default will be one rating area for each metropolitan statistical area (MSA) in the state and one rating area for all other non-MSA portions of the state.
- Age rating: The premium variance for individuals age 21-63 can be no larger than 3:1. Premium variances used to be as high as 5:1. This mandated ratio is causing rate compression and it is the younger age bands (21-39) that will see the greatest percentage increase. A single age band will be used for children age 0-20 and for individuals 64 and older.
- Tobacco rating (excluding CA): “Tobacco use” is defined as the use of tobacco an average of four or more times per week within the past six months, including all tobacco products, but excluding religious and ceremonial uses of tobacco. Insurers may vary premium rates for tobacco users within a ratio of 1.5:1. The tobacco rating factor for small group employers may only apply in connection with a wellness program, allowing a tobacco user to avoid paying the full amount of the tobacco factor by participating in a tobacco cessation program.
As a result of these changes, a significant number of employers will see more substantial premium increases than under previous regulations.
The small group premium changes discussed above are not the only mandates that will increase employer cost. Other mandates include essential health benefits, “metal tier” structure, health insurer tax, reinsurance fee, medical device industry fee, pharmaceutical industry fee and Patient-Centered Outcome Research Institute (PCORI) fee, to name a few.
Given these cost increase drivers, the insurance carriers are under pressure to reduce premium rates. As such, insurers are getting creative and “retooling” their plan designs in an effort to maintain competitive pricing. Some of the most significant changes are modifications in provider network, drug formulary and out-of-pocket maximums.
Insurance carriers have developed “slim” or “skinny” networks. These modified networks typically contain 1/3 of the physicians and approximately 85% of the hospitals compared to the carrier’s full network. The insurance carriers have negotiated deeper discounts with these skinny network providers, which helps bring down the cost of insurance. But two large problems exist: employer disclosure and provider communication.
Upon renewal in 2014, employers are being mapped from their current plans to new ACA-compliant plans. Quite often the plans they are being migrated to use skinny networks, and disclosure in the renewal package of this network change is often absent. Typically, employers are happy to see that their premium is lower under their new ACA plan, but do not realize that employees no longer have access to the same number of providers or even their current provider. If you are a small group employer, upon your renewal, be sure that you are being migrated to a plan with a network of your choice, not the insurance carrier’s.
Provider communication also adds to the confusion. Quite often, a patient will call a provider’s office and inquire if that provider is in their insurance carrier’s network. Usually, the front desk person who answers the phone will say “yes, we are in-network with that carrier,” solely based on the insurance carrier’s name. What is being missed is the question of whether that provider is in the insurance carrier’s slim or skinny network. Any subsequent visit to that provider, who might actually no longer be in-network, will cause the enrollee to incur much higher out-of-pocket expenses.
A formulary is a list of prescription drugs, both generic and brand name, that are preferred by your health plan and usually at a lower copayment than drugs not on their formulary. Every insurance carrier maintains a formulary drug list.
Another change that is being introduced is a “select” formulary. Typically, an insurance carrier’s prescription drug formulary will have multiple brand name drugs available per therapeutic class. The new select formularies only contain one brand name drug per therapeutic class, thereby allowing the insurance carrier to focus on covering either the lowest cost drug or most effective drug in that class. Most importantly, if a member is taking a brand name prescription drug, that drug may suddenly no longer be covered in the same manner when the plan renews, if migrated to a plan with a select formulary.
Beginning in 2014, all in-network member cost sharing, including flat-dollar copayments, must accumulate to a plan’s Out-of-Pocket Maximum (OOPM). The out-of-pocket maximum is the dollar amount that must be paid by the insured before the plan’s coinsurance will change to 100%. The out-of-pocket limits under ACA match those mandated for Health Savings Accounts (HSA), which are $6,350 for single coverage and $12,700 for non-single coverage. This change to the OOPM has led insurance carriers to discontinue plans with low OOPMs ($2,500 and under) and transition nearly all plans to an OOPM of $6,350 for an individual and $12,700 for a family. Similar to the Network Changes above, employers are pleased that their premium is lower under their new ACA plan, but do not realize that the OOPM (maximum financial liability) for every employee has doubled or even tripled. One would expect a lower premium in such a case.
As market-wide changes became apparent in early 2014, there was much uproar over the “if you like your health plan you can keep it” statement. As a result, on March 5th, 2014, the United States Department of Health and Human Services (HHS) issued the “Extension of Transitional Policy,” which allows small groups to keep non-grandfathered plans for two more years, with renewals on or before October 1, 2016. This new ability to renew non-ACA compliant plans is called “grandmothering.” In order for grandmothering to be offered, each state’s legislature must adopt the grandmothering provision and the insurance carriers in that state must then decide to offer it as an option. As such, grandmothering is not yet an option in every state, but it is expected to be universally adopted by late 2014. In California, the grandmothering provision (SB 1446) has been passed by the legislature and is awaiting the Governor’s signature.
This fall will be historic, as the small group insurance industry has never seen so many small group employer plans renew at one time. We are hoping not to see the chaos of early 2014 when insurance carrier on-hold times dramatically increased, processing turn-around time skyrocketed and service became absent. The carriers have increased their staff and claim to be ready for the tidal wave, but only time will tell.
If you took advantage of Early Renewal, the day of reckoning is quickly approaching. Be sure your employee benefits broker pays attention to the nuances discussed above and is equipped to guide you and your employees through the ever-changing landscape of ACA. Lastly, be sure that any recommendation to renew your health plans prior to December 1st (if you Early Renewed) is, in fact, in your best interest and not your broker’s.
Jason Lombardi is the Vice President of Employee Benefits at Vita Insurance Associates. Vita is a full spectrum employee benefits firm, providing a complete range of expert and highly professional employee benefits brokerage, consulting, administrative and retirement services.
Jason provides full service employee benefit plan marketing, selection, implementation, compliance and management, as well as strategies on cost containment and benefit plan design, to a large client base across market industries.
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