Uncertainty Lingers For The Rising Costs Of The Small Group Market: CMS

The Centers for Medicare and Medicaid Services’ (CMS) Office of the Actuary estimates that premium rates will increase for approximately 11 million people, but decrease for roughly 6 million people, as an impact of Public Health Services Act (PHSA) Secs. 2701 through 2703, as amended by the Patient Protection and Affordable Care Act (ACA). However, CMS acknowledged significant uncertainty with its estimate, as the “mix of firms” that choose to offer health insurance coverage will greatly alter the impact on premium rates.

Background. In the CMS report, Report to Congress on the impact on premiums for individuals and families with employer-sponsored health insurance from the guaranteed issue, guaranteed renewal, and fair health insurance premiums provisions of the Affordable Care Act, CMS focused on health insurance policies for the small group market. PHSA Sec. 2701 oprovides that health insurance coverage can only be varied upon individual or family enrollment, geographic area, age, and tobacco use. Sec. 2702 requires that health insurers generally cover all individuals and groups, and Sec. 2703 requires health insurers to renew a plan at the option of the individual or plan sponsor, subject to specific exceptions. However, the three sections are not applicable to grandfathered health insurance coverage.

Adjusted community rating. Prior to the enactment of the ACA, health insurers were able to vary premiums based on the health status of a group, group size, and industry code or classification. Smaller firms could charge higher premiums for high-risk work and groups with sick employees, and could increase premiums after a single employee received a new diagnosis. However, after the ACA amended PHSA Sec. 2701, insurers may no longer have the ease of variability with insurance premiums. Consequently, CMS acknowledges the considerable uncertainty that exists in whether small employers will terminate existing health insurance coverage for employees, or send employees to the individual market exchanges. With federal subsidies and premium tax credits, it could be cheaper for some employees to purchase coverage from the individual market exchanges, and a financial advantage for employers to terminate existing coverage. However, the report also notes that it could be financially attractive for small employers to continue providing coverage if they have relatively healthy employees.

Premium impact estimates. Numerous studies for Wisconsin, Maine, and Ohio, as well as the entire U.S., all estimate an increase in group premium rates, with the elimination of health status as an impact rating factor. While an estimated 65 percent of small employers previously offered health insurance plans with below average premium rates, CMS projects that those small firms will increase their premiums to average rates. In addition, CMS estimates that 35 percent of small firms will have rate reductions. However, the agency notes that “in reality” there will be many more factors that will alter employer’s decisions to offer coverage, besides PHSA Secs. 2701 through 2703. Consequently, the true impact on premium costs remains uncertain.

For more information, visit http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/ACA-Employer-Premium-Impact.pdf.

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