Community Rating: An Unforeseen Upside of Obamacare?
A key provision of the new healthcare law could mean lower costs for certain companies
A few months ago, Inc. profiled Steven Elliott, the founder and CEO of Edgerton, Ohio-based manufacturer Oren Elliot Products. At the time, Elliot was planning some pretty big changes at his 43-employee business in response to the Affordable Care Act. Told by his broker to expect premium increases of up to 15 percent, Elliott anticipated dropping his health plan in 2014 and giving employees a salary bump to help them buy their own insurance through Ohio’s new state health-insurance exchange.
But Elliott got a surprise when his insurance renewal notice came this spring (his company’s plan year starts in July): his actual increase was only 9 percent. That’s less than 12 percent increase he had last year--and a small enough hit that he’s decided to continue coverage for at least another year, possibly two.
Elliott is no fan of Obamacare, but it turns out that he is a beneficiary of one of the law's key provisions--starting in January 2014, insurers are required to use “adjusted community rating” to determine premiumsfor individual and small groups. Most notably, the provision bars insurers from considering health history and current health status. As of January 2014, all small employers (defined as those with 50 or fewer employees, increasing to 100 or fewer in 2016) in a particular geographic region must get the same premium rate--although adjustments are permitted for age, tobacco use, and family size of group members.
This is a boon for a company like Elliott’s--which has a history of large health claims that have driven up premiums in the past. “We were told by our broker that our group had the smallest increase they know of,” says Elliott. “Other groups in Ohio had increase of 15 percent or 20 percent or even higher.” But the provision could be a bitter pill for healthier companies, who could see premiums shoot up 20 percent or more on top of “normal” trend increases of 6 percent to 10 percent, based on estimates from around the country.
As a result, numerous industry observers and benefits advisers expect to see more small employers with healthy employees switch to self-funded plans, in which an employer sets aside funds designated to cover employee health claims, rather than paying per-employee premiums to an insurance company. Self-funded plans also are not subject to the ACA’s community rating requirements (or its “essential health benefits” rules, another major driver in premium increases). And if rising employee claims start driving the costs of a self-funded plan too high--that is, if your healthy employees start getting less healthy--there is always the option of retreating to a fully funded small group plan, where community rating would now work to your advantage.
Long story short: Like it or not, community rating is coming. And whether you end up a winner or loser could come down to how well you play game.