Small employers will see significant changes to how their employees’ health insurance policies are rated when provisions of the Patient Protection and Affordable Care Act kick in in 2014, according to officials from the state Insurance Department.
Insurance Department Chief Health Actuary Paul Lombardo explained some of the law’s expected pricing impact Monday to a group of lawmakers and small business employers. The group was tasked by House Speaker Chris Donovan with making legislative recommendations on how to address the health insurance needs of small businesses.
Insurance companies offer businesses with less than 50 people pooled or community rates. Many small employers will see changes to how much it costs to offer their employees health insurance due to modifications to the adjustments carriers can consider when setting those rates, Lombardo said.
“Every small employer will be impacted differently with different aspects the health care reform that comes up,” he said.
For instance, when setting community rates carriers are allowed to take into consideration the age of the employees at a business. They must group policyholders into age brackets of at least five years, Lombardo said. Currently the ratio between the highest premium charge for age to the lowest is about six to one, he said.
However, the health care reform law has a provision which states that ratio can not exceed three to one, he said.
“So what will happen is this will have the effect of compressing rates for age,” he said.
Because the provision is designed to be revenue-neutral, Lombardo said that compression will likely make it cheaper to insure older employees but more expensive to insure younger employees.
Based on current market figures the Insurance Department estimates that the rates of employees in the oldest age bracket will drop by about 20 percent. Meanwhile the youngest bracket will likely see in increase of at least 80 percent, he said.
“Odds are, that the ages in the middle of the cohort, the 40s, 35 to 45, probably won’t see a significant change in rates for age impact as a result of this federal law,” he said. “It’s going to be the extremes that have the most impact.”
So the change will have a significant negative impact on employers who have many younger workers and a positive one on businesses who employ older workers, Lombardo said.
Another change will allow insurance carriers to look at how many smokers work at a small business. Currently, whether or not someone smokes can have an impact on the rates of people with an individual health care plan, but can not affect a small group plan.
“In 2014, if you have any employees that smoke, the carrier can rate that employee 50 percent more than what they currently rate them today,” Lombardo said. “So obviously if you’re a small employer who has a portion of your employment group as smokers then you’re going to see a significant impact as a result of this factor.”
Another provision will prevent carriers from considering the nature of an employer’s industry when setting rates. Under the current law, carriers can set higher rates for more dangerous industries and discounts for low-claims industries, he said. The change may be beneficial or negative for businesses depending on the nature of their work, he said.
“Again there is a merging of risk, a blending of risk and there’s a compression that is occurring in the market place, effective 2014,” he said.
The law will also prevent insurance companies from factoring the size of a business into its rates. That change will likely benefit very small companies who can currently be charged a 25 percent premium and hurt larger companies whose rates will increase in order to recoup the lost revenue, he said.
The law eliminates the gender makeup of an employer’s workforce as a factor which carriers can look at while setting rates, Lombardo said. That could help out businesses that employ a lot of younger women, who typically have higher rates than men, he said. It will likely have a negative impact on companies with a lot of older women, who tend to use health care less than men, he said.
The health care reform law will also require small businesses to offer plans that have a minimum actuarial value of 60 percent. Lombardo said that means if an employee uses 100 percent of the benefits in a plan over one year, the insurance carrier must pay at least 60 percent of the total benefits. The other 40 percent can be up to the employee to pay, he said.
The change will only impact small businesses who currently offer plans which have an actuarial value of less than 60 percent. Since an actuarial value is determined through plugging benefits into a complicated formula, Lombardo said businesses could reach out to their insurance carriers or consultants for assistance in determining the value of their current plans.