Redefinition of Small Group

2016 is shaping up to be yet another impactful Affordable Care Act (ACA) year, particularly for employers with 51-100 employees (full and part-time).  The two year reprieve from the ACA’s employer mandate/share responsibility for such employers ends beginning in 2016.  But perhaps more importantly, and having a potentially greater impact, is the redefinition of what constitutes a so called SMALL EMPLOYER.  Plans that begin or renew on or after 1/1/2016 that are: (i) fully insured; (ii) non-grandmothered*; and (iii) have 1-100 employees, will be required to comply with certain ACA regulations heretofore applicable only to fully insured groups with fewer than 51 employees. 

Let’s take a look at the impact of this redefinition. Data collected by the Medical Expenditure Panel Survey (MEPS) in 2013 found 159,000 private sector employers offering fully insured coverage in the 50-99 employee segment.  The Employee Benefit Research Institutes (EBRI) 2012 analysis of the Current Population Survey concluded that employees working for firms with 50-99 employees comprised 30% of the “1-99 employee” segment.  Suffice it to say, the upcoming expansion of the small group market to include the 51-99 employee cohort affects a large number of employers.

ACA compliance is complicated and dynamic, with delays and modifications taking place regularly and rapidly.  There are a number of considerations affecting the “when” and “what” of impact, including:

• Plan anniversary (or start) date
• Size of the employer
• Funding type (i.e., fully insured vs. self funded)
• Grandfather status
• Grandmother status*

The redefinition of small employers to include those with 51-100 employees means that as affected plans begin or renew on or after January 1, 2016 (with the aforementioned three exceptions), they will be required to conform to new (for them) regulations affecting benefit coverage, actuarial value of plans, and premium rating restrictions (i.e. community rating). There is great concern among stakeholders that these new regulations, combined with the potential impact of adverse risk selection, could result in premium increases affecting both the 1-50 and 51-99 employer segments.  Here are the “new” regulations coming into play for most 51-100 life employers starting in 2016, due to the redefinition of small employer:

1. Rating restrictions – rating variables are prohibited for: health status, claims experience, industry type, group size, gender, employee participation levels, employer premium cost sharing; and limited for: age (3:1 ratio), geography, tobacco use (50%), wellness programs (30%), and family size (no additional charge for more than 3 children under the age of 21).  Perhaps the greatest impact of such “community rating”, is the loss of composite rates (e.g., employee, employee plus spouse, employee plus child(ren), employee plus family); replaced by individual or “list” rates applicable to each covered employee.  The administrative complexity associated with this change can not be underestimated.  Human Resource professionals will be forced to change manuals, on boarding processes, open enrollment meetings, etc., to accommodate the “employee specific” difference associated with community rating.
2. Essential Health Benefits – the ACA has a specific list of ten (10) so called essential health benefits that affected plans must cover, including things like habilitative services and pediatric dental and vision care. (See http://sstevenshealthcare.blogspot.com/2013/12/acas-essential-health-benefits-minimum.html )
3. Metallic Benefit Levels of Coverage – the ACA’s metal series (i.e., bronze, silver, gold, and platinum) relates to the actuarial value of plans’ out of pocket or cost sharing features.  So the combination of plan related copay, deductible, and coinsurance levels must meet the minimum (or bronze) level of coverage, with allowances for reduced out of pocket levels up to the platinum level.

One (if not the only) way for employers in the 1-100 employee life segment to avoid these provisions, and the potential increase in premiums associated with them, is to move from fully insured to partial self funding.  The combination of these new ACA related regulations and the new found prevalence of self funding for smaller employers could bode well for some employers, while creating a huge disruption in the fully insured employer pools. Put another way, employers that opt to partially self insure in 2016 and beyond can avoid the aforementioned, and other ACA requirements, thus potentially keeping premiums at a relatively lower level.  But, as more healthy groups opt for self funding, the fully insured market could end up with a disproportionate share of un-healthy groups, thus driving up rates for ALL employers in the 1-100 segment.  A previous post delved into self funding and its ACA related “relief” – http://sstevenshealthcare.blogspot.com/2013/08/aca-compliance-understanding.html and http://sstevenshealthcare.blogspot.com/2013/10/self-funding-overviewsummary.html.

Ironically, the very same provisions that some employers may seek to avoid by self funding can provide a welcome return to a fully insured arrangement (i.e., guaranteed issue, no health questions, etc.) should claims and plan use become excessive under the partial self funded arrangement. Employers would be wise to assess the various alternate funding arrangements that may be available to them, and weigh the associated costs, risks, and rewards.  And employers affected by the redefinition of small employer should begin thinking about the impact of the various ACA related regulations, and plan accordingly!

* Grandmothered plans were allowed to delay full ACA compliance for up to two (2) years, provided they remained with the same insurer, and their insurer continued to offer “delayed” plans. Such plans lose grandmother/delay status with their 2016 renewal. See http://sstevenshealthcare.blogspot.com/2014/05/understanding-two-separate-aca-delays.html and http://sstevenshealthcare.blogspot.com/2014/03/aca-transition-reliefdelay-extendedmaybe.html for details on grandmother/delay status.

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