Are you one of the many businesses with 2 – 100 employees who changed to an October renewal date? Need a refresher on why you made the decision to shift to an October or December renewal? Confused as to “why” you have an opportunity to move back to a January 1st renewal? If you answered yes to any of these questions, the following summary will explain a complicated topic.
“Why Your Insurance Rates May Double”
Let’s begin with an important term: “Community Rating.” This is a methodology insurance companies use to determine insurance rates (aka premiums). With community rates, health conditions are irrelevant which can have a positive or negative impact on rates.
Before the Affordable Care Act (ACA), insurance companies analyzed the medical conditions in order to determine the premiums. Companies with “healthier” employees received lower rates than companies insuring individuals with chronic health conditions.
Since the majority of people are generally healthy and only have 2- 3 office visits a year, 1-2 generic monthly prescriptions and a random procedure every few years, many employers successfully negotiated competitive renewal rates or moved to another insurance company to save money.
When people say, “Thanks to Obamacare my health insurance cost will double!” it’s likely due to community rating. Essentially what happens in community rating is all the low utilizers of healthcare are thrown into a pool with the high utilizers and the risk (and premium cost) is shared, which means the prices for the lower risk people increase.
Avoiding Pieces of the Affordable Care Act
When the ACA first rolled out, companies with 1 – 100 employees were expected to move to a community rated environment. When employers saw the projections of how community rates would impact premiums, many CFO’s grew very nervous about future healthcare costs. Insurance companies also grew concerned that employers would cancel coverage due to affordability issues. As the ACA evolved, the market responded and “transition relief” was introduced.
In laymen’s terms, ACA regulations were written in such a way that allowed employers to move their renewal into the 4th quarter in an effort to extend the existing plan design and rating structure for a longer window of time.
Why 4th Quarter? Simply stated, it marked the anniversary of when a bill was signed. While the shift to an October renewal date was only a short term fix throughout 2014 and 2015, many employers with 2 – 100 employees made the shift.
Good News for Employers with 51+ Employees!
The first group to feel the impact of community rates was individuals and employers with 50 or fewer employees. Beginning in 2014, if individuals or small businesses with 50 or fewer employees wanted to purchase coverage for the first time or move to a different insurance company, community rates went into effect. Thanks to the transition relief, employers could hold on to their existing plan and avoid the community rates.
In October 2015 President Obama passed the PACE (Protecting Affordable Coverage for Employees) Act. The Act had broad bipartisan support because it gave each state the authority to determine whether or not employers with 51 -99 employees would be subject to community rates. Missouri ruled that employers with 51+ employees did not need to comply with the new underwriting methodology, and employers breathed a sigh of relief.
Good News for Employers with 2 – 50 Employees!
In February 2016 relief was once again extended for smaller employers with policy years beginning on or before October 1, 2017. To be eligible for this relief, the insurance policy had to have been in effect as of October 1, 2013. This new provision extended the current rating structure and plan design until December 31, 2017.
What to Expect at Your 4th Quarter Renewal
Never before has insurance had so many extensions, interpretations, changes, and delays; it’s truly chaotic. That being said, here are a few things to expect at your next renewal:
- An automatic shift to a January plan year
- An option to shift to a January plan year
- Additional opportunities for rate relief