By Richard Princinsky
Do you own a company in Maryland? Do you have fewer than 50 employees?
If so, are you ready for the 2014 wave of provisions from the Patient Protection and Affordable Care Act?
Small businesses that provide health insurance to their employees are accustomed to a very straightforward rating structure. It has been relatively easy to prepare and project the costs of insurance each year.
The cost of health insurance currently depends on the average age of all employees enrolled in the health insurance plan. Once the average age has been determined, insurance companies establish the rates for each tier level of coverage, meaning individuals, individuals plus spouses, families, and all employees pay the same tier rate, regardless of their ages.
Get ready, because this rating structure is about to change.
Starting on Jan. 1, 2014, under the PPACA, insurance companies must implement a new member-level rating structure. In Maryland, for our small businesses, the new rating structure to determine the cost of health insurance will be based on the age of each individual employee and dependents enrolled. That means rates will be based on each person’s age, not a group’s average age and common tier level rate. All employees and their dependents with different ages will have a unique rate.
With the new rating structure, employers will be charged by the insurance company a monthly premium of the sum of each of their employees’ uniquely calculated rates. Each employee’s unique rate will be based on his or her age. If an employee would like to include a spouse on the plan, the cost will be the sum of the two individual rates based on their ages. The family plan rate will be the sum of each member’s rate based on their age. For example, the rate will be comprised of the rate associated with the age of the employee, the spouse, the oldest three children under the age of 21, and all adult children between the ages of 21 and 26.
Now take into consideration the rate structure ratios moving from 5-to-1 to 3-to-1. An example of the current ratio would imply that if the individual group rate was $100 per month for the lowest average age group in the state, then the group with the highest average age could not be charged more than $500 per month for the individual rate. The compression of a 3-to-1 ratio creates less of a gap in cost between the younger person and older person. Therefore, the change from the current rates may be greater for the younger person than the older. However, it is yet to be determined because the older worker will now be rated solely on his or her age, without the help of their younger co-workers bringing the average age down. Stay tuned …
If they haven’t already, all employers should put administrative systems in place and revise business strategies / plans to meet the current and ongoing demands of the PPACA, such as defined contribution options. As it stands, if an employer chooses to offer health insurance through the State SHOP Exchange and offers a monetary contribution to help offset the employee cost, that amount must be an equal percentage regardless of the different costs for each employee’s uniquely calculated rate based on his or her age. This may be a different approach than the current method some employers use to determine contribution amounts.
While there have been delays and revisions to some of the health care reform provisions, many remain in effect, such as the PCORI fee (an excise tax to fund the Patient Centered Outcomes Research Institute), elimination of all pre-existing condition exclusions, employee notice of exchanges, new wellness program requirements, and so on. Many are on the horizon, slated to begin in 2014, including the implementation of required health exchanges, the individual mandate, non-grandfathered plans that must comply with the annual limitation on out-of-pocket maximums, 90-day waiting period limits, and the requirement for all plans to comply with deductible limitations.
Employers need to be aware and ready for each implementation round of health care reform requirements. The wait-and-see approach is not advised. All employers should have a team of trusted advisors, such as an experienced employee benefits broker, to assist with compliance and implementation strategy.
Employers can only hope that compliance with the PPACA will be simplified as provisions are continually reviewed and implemented in the coming months.
MACPA partnershipRJP & Associates, Inc., has been the MACPA’s exclusive preferred provider of employee benefits for more than 20 years. The RJP team supports the MACPA in multiple capacities. As a leading resource for health care reform education and planning, employee benefits regulatory compliance, and corporate wellness, the RJP experts offer webcasts; present at chapter meetings, town halls, and conferences; and are always accessible to all MACPA members and clients for employee benefits and HR support.
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Richard Princinsky is president of Richard J. Princinsky & Associates, Inc.