CMS FAQs Address Federally-Facilitated SHOP Premiums, Contributions.

The Centers for Medicare and Medicaid Services (CMS) recently issued frequently asked questions (FAQs) on the federally-facilitated Small Business Health Options Program (FF-SHOP). The FAQs address premium calculations and employer and employee contributions.

Premium calculations. In the FF-SHOPs, the total premium charged to the group is determined by summing the premiums of each of the participants and beneficiaries covered under the plan. Under the individual rating method, the premium for each individual covered participant and beneficiary under a specific plan may be adjusted using allowable rating factors, which include age and tobacco usage.

A composite rating also may be used. Composite premiums will be available in all FF-SHOPs at an employer’s request or as may be required by applicable state law. Under this approach, a total premium is calculated by adding up the per-member premiums for each employee enrolling in coverage. The total amount is then divided by the number of employees to produce a uniform premium rate.

According to the FAQs, CMS expects that employers would have the information necessary to perform the calculations for composite rating (i.e., dates of birth) only for their employees, and not for their employees’ dependents. Thus, this approach will be applied only for the employees whom the employer expects to enroll, not for their dependents. For this reason, the FF-SHOPs are able to accommodate composite rating for employees only. Premiums for employees’ dependents will be determined on an individual rating basis.

Issuers in FF-SHOPs are required to accept the composite premium for a group for any new person added to a plan mid-year; any terminations or additions will not change this amount. At the time of renewal, a group’s average premium for the next 12 months would be recalculated.

The FF-SHOPs are able to accommodate composite premiums for medical plans only.

Geographic rating area. All the premiums would be adjusted using the applicable geographic rating area. For small group plans (inside and outside SHOPs), the geographic rating area will be determined using the principal business address of the group policyholder.

If an employer group moves its principal business address to a different geographic rating area in the same state, the FF-SHOPs will re-run the eligibility determination process to verify that the employer is still located in the same state. If the employer moves to a different state and continues to opt to offer coverage to all full-time employees through the SHOP in which it has its principal business address, the group will lose its eligibility for enrollment in the SHOP in its former state, and would have to re-apply to participate in the SHOP in its new state.

Employer contributions. The FAQs explain that employers in the FF-SHOPs will contribute to employee and dependent premiums in the following manner:

• The employer will select a metal level of coverage;
• The employer will select a qualified health plan (QHP) within that level of coverage to serve as a reference plan on which contributions will be based;
• The employer will define a percentage contribution toward premiums for employee-only coverage under the reference plan;
• If dependent coverage is offered, the employer will define a percentage contribution toward premiums for dependent coverage under the reference plan;
• The resulting contribution amounts for each employee’s coverage may then be applied toward the QHP selected by the employee. In the FF-SHOPs in plan years beginning prior to Jan. 1, 2015, employers will offer their employees one QHP for medical coverage. In this case, the benchmark plan is the one selected by the employer.

For 2014, employers in the FF-SHOPs will not be able to contribute a different amount to premiums for employees and their dependents based on whether the employee works full-time or part-time. Employers in the FF-SHOPs will be able to contribute a uniform percentage to all employees and will not be able to vary the amount based on employee classes (e.g., owners or salaried and hourly workers).

Employee contributions. In most FF-SHOPs, employers will be able to choose how employees contribute to premiums, according to the FAQs. Employers in all FF-SHOPs will be able to have their employees contribute the same amount towards premiums (i.e., composite rating), subject to the imposition of the tobacco surcharge, as applicable.

Alternatively, in most FF-SHOP states, employers will have the option to have employees contribute to premiums based on age, also subject to the imposition of the tobacco surcharge, as applicable. If a state allows both methodologies, the FF-SHOPs will make both options available to employers.

Employees in the FF-SHOPs will always contribute to dependent coverage on a per-member basis. Under this approach, employer contributions (if applicable) will be subtracted from the total dependent per-member premiums for each employee’s family member. Thus, dependent contributions in the FF-SHOPs will not be based on an average of all dependents enrolling at a company. This approach ensures that rates for dependent children are not artificially inflated because adult dependent premium amounts are included when establishing average dependent premiums, according to the FAQs.

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