Friday, March 13, 2015

Small Group Market Transition

Do you provide health insurance to your employees?  Do you know if you have a grandfathered plan?  In 2016, grandfathered plans will be eliminated.  Note, this is different than what is written below because the legislation only extended grandfathered plans to 2016.  I have heard estimates that 70% of small businesses have grandfathered plans.  Please read below as you may be seeing significant increases in your health insurance premiums.  The information below was prepared by Covered California.
Small Group Market Transition: Key Issues
On March 5, 2014, the federal Health & Human Services Agency announced a two-year extension for individual and small group health plans (1-50 employees) that allows issuers to continue policies that do not comply with the Affordable Care Act standards. At the option of a state, individual and small businesses would be able to keep their non-compliant coverage into 2017, depending on the policy year.
Legislation has been introduced, SB 1446 by Senator DeSaulnier, to implement this option for small groups in California.
Key Issues:
  • Employers & Employees: There are about 250,000 employers who now offer health coverage in today's small group market. These employer sponsored plans cover about 2.2 million individuals.
  • Potential Rate Impact. Based on an aggregate of information from multiple carriers, an estimate of how the provisions of the ACA affect the small group market is as follows (Note: data includes medical rate trend of 4-5%):
Rate Impact: Employers & Employees in Existing Small Group Market

Statewide Percentage of Small Group EmployersStatewide Percentage of Affected Small Group EmployeesRange of Rate
Average Increase/ Decrease
  • Timing. Approximately 1/3 of the overall California small group market renews in the first half of the year, and approximately 40-50% of the market renews in November and December. Thus, a majority of the market has yet to become effective on new rates which reflect ACA provision related costs. Employers receive renewal rate information approximately 75 days prior to their effective date.
  • Potential Market Impact. Current market conditions will result in the above rate impacts to a significant number of small groups in late 2014 as they move to Affordable Care Act compliant plans. Legislation to delay rate increase may have more groups extend current coverage. In either circumstance, it should be expected that that there will be some market disruption for small group employers once being required to move to Affordable Care Act compliant plans. In response to associated rate increases, these employers are likely to seek options to reduce costs, which could induce dropping coverage.
  • Potential Impact to SHOP.  Delay in the requirement for small businesses to move to Affordable Care Act compliant plans will correspondingly delay SHOP membership growth.  Long-term, there should be little effect on overall membership SHOP will achieve.

Scott Hauge
Small Business California
2311 Taraval Street
San Francisco, CA  94116

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