If you are a small group plan sponsor and you haven't punted your employees over to the ACA exchanges, get ready. Chances are, you and your employers will be paying higher premiums soon.
That's the conclusion from a new report from the Office of the Actuary, Centers for Medicare and Medicaid Services. That's the federal government's chief number cruncher responsible for predicting the effects of the Affordable Care Act.
At issue: the adjusted community rating that insurance companies use to calculate premiums for small groups.
Until this year, most employers benefited from rules that allowed insurance companies to charge less for insurance plans benefiting younger and healthier groups. The Affordable Care Act, however, significantly restricts the flexibility of insurers to pass the savings of a younger and healthier risk pool back to the customer.
For example, prior to 2014, it was common for plan sponsors with the youngest and healthiest employees to pay premiums that were as little as 1/4th or 1/5th those of the premiums paid by those employing much older, sicker groups of employees. The Affordable Care Act, however, restrict that premium spread from as high as 5:1 down to a maximum of 3:1. This means that insurers will be forced by law to raise rates on younger and healthier groups, in order to subsidize lower premiums for older workers.
The result: As many as 2/3rds of current small group plan sponsors may face significantly higher premiums in 2014, or, in the case of employers who wisely chose to renew policies prior to the new year, in 2015.
Analysts expect the bulk of the impact of the new pricing system to hit the market as of January 2015, unless Congress changes the law (or unless the President issues an executive order altering the law's provisions and deadlines, as he has done a number of times thus far).
This does not affect employer eligibility for tax credits. The Affordable Care Act still makes a system of tax credits available for small employers with fewer than 25 employees, whose annual salary is less than $50,000. Employers, however, must pay at least 50 percent of the premium. So if your business was already at 50 percent, any premium increases are still likely to affect you. Unfortunately, in Illinois, and other states the SHOP exchange programs have yet to be successfully rolled out to the market.
The Office of the Chief Actuary cites a great deal of uncertainty still regarding the extent to which adverse selection will lead some small groups to drop plans. No one knows for sure what the end result will be, but one projection by Gorman Actuarial and Dr. Jonathan Gruber estimates that 89 percent of small employers in the State of Maine will realize a premium increase averaging 12 percent. The changes are largely due to the elimination of group health as a factor in setting premiums.
Another similar study for the State of Wisconsin estimates that some 63 percent of employers will experience an increase averaging 15 percent.
A few businesses, however - those with older or sicker workers - stand to benefit from the new rules. About 11 percent of employers in Maine will see a rate decline of 17 percent.
In Ohio, a separate study by Milliman indicates that small group premiums will increase between 5 and 15 percent.
Overall, the Office of the Actuary predicts that 65 percent of small employers will experience rate increases. 35 percent of small employers will see rate reductions. The rate increases will affect about 11 million workers nationwide. About 6 million workers will see rate reductions, provided the savings are actually passed on to the insured employees.
Zeiler Insurance Services can assist you in exploring all the health care options and maximizing your choices and the value for your premium dollar.