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Obamacare Pricing - The Good, The Bad, And The Variables For Employer Sponsored Health Plans

Many small employers are very concerned about increasing healthcare premiums, and rightfully so. These large premium projections are partly due to a rating methodology called “community rating.”

Prior to the Affordable Care Act (ACA), insurance companies determined small group rates after analyzing and applying a risk factor to employee ages, genders, and medical conditions. Shortly after the ACA passed, small group fully-insured insurance carriers faced new restrictions on how they could assess risk. Today, health, age, and gender have little to no bearing on the monthly premium cost.

The Good:  Historically, small employers have faced unpredictable premium swings because insurance companies divided customers into different “pools.” A small employer with higher claims may have seen a larger increase because they were moved into a high risk pool. With community rates, all the small businesses are in the same big pool; theoretically resulting in long-term rate stabilization.

The Variables: Community rates are age banded. This has pros and cons. If an employer currently has a 4-tier rating structure (i.e. single, employee + spouse, employee + child, and family), age bands can be an administrative hassle because each insured has a different age-based rate. Employees with children over the age of 21 may experience larger-than-average increases as well. Younger employees may see decreased rates and older employees may see significant premium increases.

The Ugly: Employers with a predominant number of young, healthy, male employees experience the greatest potential increase in rates.

Ask your broker or consultant to provide you with predictive modeling to determine if/how community rates will impact future cost. Additionally, begin looking at solutions such as level-funded plans, account-based health plans, and defined contribution platforms.