There have been some changes recently to the Affordable Care Act. Thank you, Michelle Cassidy of Integra Insurance Services, for putting together this article to inform us about those changes.
Known best in common nomenclature as Obamacare, the Affordable Care Act is not a type of insurance, but simply a law signed into existence by President Barack Obama in March 2010. The Act was passed with the intent to improve the quality and affordability of health insurance. We in the insurance industry have seen a number of changes to the healthcare system over the past few years. Some changes, like the removal of pre-existing conditions and addition of preventive care covered at 100% by plans, are obvious wins.
However, come this fall, small employer groups (with fewer than 50 employees) renewing December 1, 2015 are in for a rude awakening. The Affordable Care Act is, in my opinion, going to prove the furthest thing from affordable for a lot of families, and rough for small business owners.
With the advent of Covered California, California’s answer to the Marketplace, income-based subsidies were made available if one qualified. Premium assistance and/or cost-sharing subsides might impact the immediate cost to some subscribers, assuming they haven’t over-estimated their projected annual household income at the time of application, but it doesn’t actually change the cost of coverage or premium calculations on the back end.
Beginning January 1, 2014, a suite of changes took place to the small group market (under 50 employees). The plans we had come to know and love were being discontinued and replaced by metal tiered plans to comply with the Affordable Care Act’s health plan values and Minimum Essential Coverage (MEC). Where groups once had the option to offer upwards of 50+ plans, there are now closer to ten plans available ranging from Bronze to Platinum.
The method of charging premium changed as well. All insurance carriers were forced to make an adjustment from the age-banded and tiered premium calculations (employee age band + tier choice) and establish a Member Level Rating system based on 5 factors: age, geographic location, family size, plan design, and tobacco use on ACA plans. Where there were once 7 age-bands and 4 tier choices (employee, employee + spouse, employee + child/dren, employee + family), there are now 45 age brackets: one rate for dependents 20 and younger, 43 individual rates for those aged 21-64, and one rate for those 65+.
Every person enrolled on the plan will receive a rate based on their date of birth at time of renewal, or in some instances (because no carrier interprets the law the same way) at the time of enrollment during the contract, the sum of those rates being the total monthly premium.
For example: An employee is 37, their spouse is 38, and they have 4 children (9, 7, 6, 3) covered under the plan. Each family member is assigned a rate based on their age. The total of the employee, spouse, and first three children is the monthly premium the carrier will bill.
The “saving grace” for a family is that the premiums are capped at 3 children for those under the age of 18. In the above example, only the first 3 children are billed. If one of the children were 19, there would be a total of 6 individual rates culminating into a family rate.
Having established the 2014 plan and premium changes, we may now look back down the timeline to Fall 2013 when the insurance carriers allowed all small business customers, regardless of renewal date, to renew their 2013 medical and/or specialty benefit coverage with an Early Renewal Option. The Early Renewal Option provided small groups the choice to change their annual renewal date to December 1, 2013. Electing this option prolonged the inevitable ACA transition.
In July 2014, Governor Jerry Brown signed Senate Bill 1446 referred to as the Grandmothering law. The bill enabled small employers that were currently offering health insurance policies that were in effect as of December 31, 2013, the option to renew existing coverage for one year. Essentially, all the small groups who had renewed their policies early had the ability to keep their plans for an additional year (December 1, 2014 – November 30, 2015). Their plan designs and rating structure would remain intact.
The time of extensions through legislation has expired. Grandmothered plans end November 30, 2015. All small group plans will be transitioned to Affordable Care Act compliant metal-tiered plans with Member Level Rating. All employees and their dependents will be subject to member-level rating. The fourth quarter rates were released, and for many employees, namely those with families, the increases are outrageous.
With limited plan options available under 4 tiers, each Grandmothered plan is being siphoned into a similar-but-not-equal metal tier plan. For instance, a group offering 5 different plans might be mapped into 1 or 2 similar ACA plans. When a group’s current plan selections are being mapped to a Silver plan, and the increase is anywhere from 40-90%, the only option to decrease the rate burden is a Bronze plan. No one wants a Bronze plan; it is limited to no doctor visits before the $5-6,000 deductible is met. It’s good for catastrophic coverage, but not when one is trying to retain talent. This doesn’t even take into account the increase to the employer contribution when the majority of Bay Area employers are paying 100% of employee only rates and at least 50% of dependent rates.
What we have noticed is that some of these family increases are so high because adult children are still on the plans. Remember, one of the ACA changes allowed dependents age 26 or under to stay on a parent’s plan. This was a great idea when the rating structure was different, but now that each member has their own rate it may be time to look at individual rates for them or through their employer.
At Integra, we’ve already reached out to our clients to present their December renewals and plan options. We anticipate many clients shifting from their current insurance carrier to a more competitive carrier, and reevaluating dependent contribution schedules. Needless to say, Q4 is going to be interesting!
Integra Insurance Services combines over 60 years of industry experience to provide progressive and strategic solutions to meet a wide range of insurance needs. With offices in Los Gatos and Campbell, California, we focus on serving the local community and California as a whole. The Los Gatos office focuses on Personal and Commercial insurance, while our Campbell location is dedicated to servicing Employee Benefits, Individual and Family plan needs.