By Elizabeth Kay, Compliance & Retention Analyst, AEIS Advisors

Employ­ers that are grow­ing up, and are in the awk­ward teenage years, are about to get a big sur­prise, and not the good kind.

When a com­pa­ny first opens, they are excit­ed when they first imple­ment their ben­e­fit plans for their hand­ful of employ­ees. They offer one or two med­ical plans, per­haps some den­tal and vision, and a small life insur­ance pol­i­cy. thinking manThe com­pa­ny knows that the small group rates will be high, but not much can be done, so they live with it. The rates are based on the employee’s age and where the com­pa­ny is locat­ed. They rely on their bro­ker to show them the dif­fer­ent options and help them offer plans with the best val­ue to their employees.

Then the com­pa­ny starts to grow. They hire a few more employ­ees, they have to look at mak­ing their ben­e­fit offer­ings rich­er so they can be lever­aged to recruit new tal­ent and retain the tal­ent they have, and they have to begin con­cern­ing them­selves with addi­tion­al require­ments such as the Con­sol­i­dat­ed Omnibus Bud­get Rec­on­cil­i­a­tion Act (COBRA). The rates are still the rates; still high, but man­age­able. They may expe­ri­ence some dis­com­fort that comes with grow­ing up, but noth­ing that they are not able to overcome.

As the com­pa­ny ages and con­tin­ues to grow, they may come to the awk­ward teenage years; when they are almost up to 50 employ­ees, or slight­ly more than 50 employ­ees. Not real­ly a “young” com­pa­ny, but not yet a well-estab­lished “adult,” and the grow­ing pains become more notice­able. Now they have to be con­cerned with the Fam­i­ly and Med­ical Leave Act (FMLA), sex­u­al harass­ment pre­ven­tion train­ing, and whether or not to move to an online human resource infor­ma­tion sys­tem (HRIS) and ben­e­fits enroll­ment sys­tem to make onboard­ing of employ­ees easier.

In addi­tion, once they exceed 50 employ­ees, they can move away from small group med­ical insur­ance to mid-mar­ket or large group med­ical insur­ance plans. These plans are com­pos­ite rat­ed instead of rat­ed on the employee’s age. And once a group is that size the car­ri­er can col­lect more claims data and rate their plans based on that data, instead of the larg­er pool of clients/members that are used to rate small groups, which may lead to low­er rates.

The Patient Pro­tec­tion and Afford­able Care Act (PPACA) has changed the rules slight­ly and it will mean the grow­ing pains of ado­les­cence for these com­pa­nies are going to last even longer and require some strate­gic plan­ning for 2015 and 2016. The PPACA is chang­ing the clas­si­fi­ca­tion of small group from 2 to 50 employ­ees to 2 to 99 employ­ees begin­ning in 2016. Employ­ers of 50 or more employ­ees still have to com­ply with the employ­er-shared man­date (“play or pay”), even though they will be con­sid­ered to be a small group. But that is not the biggest grow­ing pain.

For those com­pa­nies that cur­rent­ly have more than 50 employ­ees, and have a med­ical plan with com­pos­ite rates, they will be moved back to rates based on the employee’s age and loca­tion of the com­pa­ny at their plan’s renew­al in 2016. Now, why is this such a big deal? They have expe­ri­enced age band­ed rates before, right?

Well, for com­pa­nies with a diverse work­force, with some younger employ­ees, and oth­ers that are more sea­soned, they are now going to be pay­ing very dif­fer­ent pre­mi­ums for each demo­graph­ic where they used to pay the same rate, no mat­ter their age. In addi­tion, com­mu­ni­ty rat­ing under PPACA is dif­fer­ent from the age band­ed rat­ing they had before. Pre­vi­ous­ly, employ­ee rates were deter­mined by the age band the employ­ee fell into. For exam­ple, 30 to 39, 40 to 49, 50 to 54, etc. Then, if the employ­ee enrolled any depen­dents, there was a rate for their depen­dents that was gen­er­at­ed based on the age brack­et the employ­ee fell into, and an employ­ee with their spouse and one child had the same rate as an employ­ee with their spouse and three chil­dren if the employ­ees were in the same age bracket.

But com­mu­ni­ty rat­ing means that every employ­ee is rat­ed based on their actu­al age, not on a range of years, and each depen­dent in a fam­i­ly has their own rate, based on their indi­vid­ual age as well. There is one rate for ages 0 to 18, an indi­vid­ual rate for ages 19 to 64, and one rate for ages 65 and old­er. Please see the exam­ples of John Doe and Jane Smith below com­par­ing pre-PPACA age band­ed rat­ing to PPACA com­mu­ni­ty rating.

Name / Age Pre-PPACA
Rating
Employee +
Fam­i­ly Age
40 to 49
PPACA
Community
Rating
Name / Age Pre-PPACA
Rating
Employee +
Fam­i­ly Age
40 to 49
PPACA
Community
Rating
John / 43    $900      $356 Jane / 45    $900      $365
Spouse / 40     N/A      $349 Spouse / 49     N/A      $400
Child #1 / 12     N/A      $250 Child #1 / 20     N/A      $275
Child #2 / 10     N/A      $250 Child #2 / 17     N/A      $250
Child #3 / 15     N/A      $250
Total
Premium
   $900    $1,205 Total
Premium
   $900    $1,540

 

As you can see, under the old age band­ed rat­ing, both John and Jane were pay­ing the same rate, as they both had fam­i­lies, and each were in the 40 to 49 age bracket.

Under the PPACA com­mu­ni­ty rat­ing for small groups, their rates become very dif­fer­ent because they are rat­ed not only on their indi­vid­ual ages, but are also pay­ing a sep­a­rate rate for each depen­dent based on their ages.

Now, let’s look at it from anoth­er angle. Michael and Jen­nifer worked for a com­pa­ny that moved from age band­ed rates in 2014, to a com­pos­ite rat­ed plan in 2015, when they grew to have more than 50 employ­ees. Jen­nifer was hap­py, but Michael was not. Let’s see why in the exam­ple below.

Name / Age Pre-PPACA
Rating
Employee +
Fam­i­ly Age
30 to 39
Com­pos­ite
Rating
Name / Age Pre-PPACA
Rating
Employee +
Fam­i­ly Age
50 to 54
Com­pos­ite
Rating
Michael / 31     $950    $1,150 Jen­nifer / 53    $1,450   $1,150

 

As a result of the aver­aged rat­ing under com­pos­ite rates, Michael had a rate increase and Jen­nifer had a rate decrease.

Now, imag­ine being Michael or Jen­nifer, work­ing for a com­pa­ny that is still in its “ado­les­cence.” The com­pa­ny is still grow­ing, but not yet to a size of 100 employ­ees going into 2016. So they moved from age band­ed rates in 2014 to com­pos­ite in 2015, only to have to move back to com­mu­ni­ty rat­ing in 2016. Talk about feel­ing like a yo-yo!

Then to add insult to injury, they will most like­ly have to pay even more in pre­mi­ums as they will be rat­ed on each indi­vid­ual of their fam­i­ly that they enroll in the plan.

It is because of these changes in the insur­ance indus­try that make hav­ing a trust­ed advi­sor to walk com­pa­nies through these sig­nif­i­cant changes, and to help strate­gize and pre­pare for them, is so impor­tant. Many busi­ness­es are being blind­sided by the sig­nif­i­cant increase in pre­mi­ums the com­mu­ni­ty rat­ing struc­ture is caus­ing and employ­ees who are required to pay a por­tion of their pre­mi­ums are being blind­sided as well.

For com­pa­nies who are still in those awk­ward teenage years in 2015, where they have more than 50 employ­ees, but few­er than 100, they will need to deter­mine if they want to risk mov­ing to a com­pos­ite rat­ed plan for 2015. Will they be at 100 employ­ees or more at their renew­al in 2016? If it is not clear they will be that large, they may want to stay on an age rat­ed, mid-mar­ket plan for anoth­er year, or risk major dis­rup­tion for their employ­ees in 2016.

For those com­pa­nies in a state where com­pos­ite rates are the norm, even for small group, they will need to plan ahead. The employ­er con­tri­bu­tion strat­e­gy will most like­ly need to change from a flat con­tri­bu­tion to a per­cent­age so that old­er employ­ees are not hit with a high­er rate increase than the younger employ­ees. The employ­ees of com­pa­nies with 2 to 100 employ­ees should be edu­cat­ed by their employ­er about what is com­ing down the line so that they can have time to pre­pare them­selves and their families.

As an advi­sor to our clients, we may not always deliv­er the news that our clients want to hear, but knowl­edge is pow­er, and it is our duty to give them the infor­ma­tion they need to make the nec­es­sary deci­sions, and to plan ahead for the sus­tain­abil­i­ty and growth of their com­pa­nies so they can mature into adulthood.

For infor­ma­tion to help you deter­mine if you are a small or large employ­er under PPACA, request UBA’s PPACA Advi­sor: “Count­ing Employ­ees Under PPACA

Top­ics: ACA, employ­ee ben­e­fits, PPACA, COBRA, The Patient Pro­tec­tion and Afford­able Care Act, com­mu­ni­ty rat­ing, com­pos­ite rat­ing, small group insurance

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