The Affordable Care Act (ACA) has already changed the health insurance landscape in the United States. In 2014, the health insurance landscape will continue to shift when several of the ACA’s provisions are implemented. The ACA’s community rating rules are one of the key provisions that will be implemented in 2014.
The community rating rules apply to two classes of insurance purchasers, individuals and small groups. Small groups are defined by the ACA as employers with between 1 and 100 employees; however, states will have the option to define small groups as employers with up to 50 employees up until 2016.
For those affected by the community rating rules, the ACA allows rates to vary based on four factors. First, rates can vary by age, but rates cannot vary by more than a 3:1 ratio across rating bands established by the Secretary of Health and Human Services (herein “Secretary”). Second, rates can vary by tobacco use, but rates cannot vary by more than 1.5:1 ratio. Third, rates may vary between self-only insurance coverage and family insurance coverage. Fourth, rates may vary by rating area, which will be established by state governments. If a state elects to forego setting its rating areas or if the Secretary determines that the state failed to do so “adequately,” the rating areas for that state may be established by the Secretary.
Most expect the ACA’s community rating rules to increase insurance premiums for both individuals and small groups. Businesses that are classified as a small group are also expected to see increases in their premiums. Small businesses with a young and healthy workforce will likely pay more for health insurance coverage then they would have before the implementation of the community rating rules because insurers will be forced to charge small businesses with young and healthy workforces approximately the same rate they charge small businesses with older and unhealthy workforces. One estimate indicates that small businesses with young and healthy workers in Indiana could see premiums increase by as much as 30%.
The ACA’s community rating rules may be advantageous for small businesses with older and unhealthy workforces, but community rating will simply encourage small businesses with younger and healthier workforces to drop out of the insurance marketplace or self-insure. A small business with young and healthy workers could utilize either option because self-insurance is not covered by the ACA’s community rating rules and any employer could choose to drop out of the insurance marketplace, leaving the small business’s employees without insurance. Dropping out of the insurance marketplace altogether could have the adverse consequence of exposing the small business to the ACA’s penalty provisions, but this consequence may be acceptable for small businesses if rates begin to rise. So what's the answer to combating high cost of providing health insurance for your organization in the future? Consider implementing a "Self-funded" health plan for your company. Self-funding is a viable option for companies with at least 20 employees, or paying if your company is paying in access of $15,000, a month in premium.
Advantages of Self-funding Under PPACA
• Self-funded plans escape the health insurance industry fee under PPACA, the proceeds of which are used to fund state and federal
health insurance exchanges. The cost will add 2% to 3% to premiums in 2014.
• Self-funded plans also avoid the essential health benefits mandates of PPACA. These services include ambulatory patient services;
emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including
behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devises; laboratory services;
preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.
It’s estimated that the services mandated for fully insured plans by PPACA will increase premiums from 7.5% to as much as 15%.
• Self-funded plans are not required to limit deductibles, which allows more flexibility to the employer to offer high deductible
plans at lower costs.
• Self-funded plans also avoid state premium taxes, which cost participants and employers around 1.75% of premiums each year.
In total, a properly designed self-funded plan may realize savings of as much as 20% over a fully insured plan.
Among the other advantages to self-funding are:
• Self-insured plans are not tied to community rating for determining premiums as are insured arrangements. This means a healthy
group won’t be penalized for the bad experience of other companies in a community rating pool.
• Self-funded plans provide more data to employers so they can determine what their true costs of coverage are. With this data,
employers can more directly address high cost services.
• Medical loss ratio requirements do not limit self-funded plans’ expenditures on administrative expenses as they will for insured plans.
• Self-funded plans are likely to be in a better position to manage future uncertainty because they escape greater regulation that the
health insurance industry faces.
• Review of premium increases by the Secretary of HHS under the health care reform law does not apply to self-funded plans.
• Self-funded plans avoid the adverse selection insured plans are likely to encounter.
You need a very knowledgeable Broker to help you determine if self insuring is a good fit for your organization. Setting-up the proper "Stop-loss" coverage is critical to a successful self-insured plan, again this is where experience plays a big role.
If you have Questions on the Benefits of a Self-funded Health Plan can Provide Your Company please contact:
Bret Harding (Certified Healthcare Reform Specialist).