Price Volatility in 2014
Companies with less than 100 employees are quite familiar with having their employees disclose their health history, gender and other demographic information during an annual review process. Medical carrier underwriters use this information to develop competitive alternative proposals.
Currently, carriers have the legal right to set premiums based upon a group’s health status, age, claims experience, gender, SIC code, geography, group size and tobacco use. The only rating regulations are “rate bands” applied to each category which limit the range between the highest and lowest of each category. The simplest example is age, where carriers are able to apply a 7:1 ratio between the oldest and youngest participant.
One of the Affordable Care Act’s smallest changes with the largest impact is the new rating requirements being applied to all fully insured small group's (<100 employees) in 2014.
The regulations push the small group market toward a more pure community-rated model, meaning the healthy subsidize the less healthy, younger members subsidize older members, large groups subsidize small groups and favorable industries subsidize less favorable industries. The result? Companies will all move towards the median rate.
We’re all well aware of the volatility of premiums in the medical insurance market. Companies have become used to the 20 to 30 percent swings that are all too common. Pundits will argue whether long-term community rating is the solution; we worry about the transition. At Caravus, we’ve always preferred to initiate change gradually like turning a volume knob rather than flipping a light switch.
Unfortunately, the regulations require immediate compliance in 2014. The outcome could lead to many companies flipping that proverbial switch and no longer offering coverage to employees.
Who Wins, Who Loses?
Collectively, as a small group market in the U.S., the total premium dollars will not change but among each employer group (and their employees) there will be winners and losers in this major price shift.
How to Manage?
For groups that fall into multiple “loser” categories, it will be very challenging to run from the forecasted rate increases in 2014. For some, this will mean greater cost shifting to employees or a significant erosion of the plan benefits. Others will focus on alternatives such as potentially risky self-insured solutions or even a full dissolution of their group plans in lieu of sending employees to the state insurance exchange.
The regulatory environment remains fluid and we are far from final regulations being released for many of the new rules being applied to the industry in 2014. Currently, the best advice is to stay informed and observant as the deadline looms. Caravus consultants will be in touch during the first half of 2013 to discuss options and strategies that marry compliance and cost-containment.