ACA’s Small Business Rules Could Trigger Higher Premiums For 2016

According to the American Academy of Actuaries (the Academy), the scheduled expansion of how small employers are defined under health care reform to include groups sized 51 to 100 creates the likelihood of premium increases, both for groups with one to 50 employees and groups with 51-100 employees. The Academy explains that, when groups with 51-100 employees renew or purchase new coverage, they will have to comply with the Patient Protection and Affordable Care Act’s (ACA) rules and regulations that govern fully-insured plans in the small group market, which now only covers groups from one to 50 (or two to 50, as defined by certain states).

In a double whammy for the same group, the Academy points out that the ACA’s shared responsibility provisions, currently applicable to only groups of 100 or more, will also apply to groups of 50-99 employees in 2016. As a consequence, in the small group market, which will consist of employers with one to 100 employees in 2016, those with between one and 49 employees will not be subject to shared responsibility penalties, but those members of the same group with 50-100 employees will. Employees in groups about that size (51-100) comprise roughly 30 percent of total employees in groups sized 1-100, the Academy has found.

Effects of stricter rating rules. Groups in the 51-100 employee size category will face a number of adverse consequences as a result of the ACA rules kicking in for 2016, says the Academy, including more restrictive rating rules, which will increase relative premiums for some groups (while reducing them for some others). In 2016, the rating variables for groups sized 51-100 that will be prohibited, but that are still currently used, include health status/historical group claims experience, industry, group size, gender, and employee participation/employer contribution rates. Something like the prohibition of a health status rating could increase the premiums for groups with very healthy employees while reducing them for less healthy groups.

Effects of benefit and cost-sharing requirements. Another possible contributor to increased premiums, as well as reduced flexibility, for those in the 51-100 employee groups could be the ACA’s essential health benefits (EHB) requirement, along with its requirement that plans satisfy a metallic benefit level. Most of the group plans most likely did not previously cover many EHBs, such as pediatric dental.

The Academy theorizes that the imposition of these requirements on the one to 50 employee groups in 2014 did not significantly impede plan design flexibility because those groups traditionally had a fairly limited range of benefit-design choices.

More likelihood of self-insuring. Groups sized 51-100 may be more likely to self-insure in response to the more restrictive rating and benefit requirements, says the Academy, especially if they have younger and healthier populations, since a self-funded group’s health plan costs more directly reflect its own claims experience and demographics. The Academy also states that if a substantial number of lower-cost groups decide to self-insure, the small group, single risk pool plans would experience adverse selection, along with premium increases.

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