Starting in January 2014, insurers will be required to use “adjusted community rating” when setting premiums for individual and small-group plans sold on the exchanges and the private market. (If your state is allowing the renewal of existing plans in 2014, you may not be affected by this until 2015.) This means that insurers can’t consider health history (or factors such as occupation or gender) in determining premiums; instead, carriers must offer all small employers (generally, those with 49 or fewer employees) in a given geographic region essentially the same deal. Limited adjustments are allowed only for age, family size (i.e., individual or family), and tobacco use.
This is great for small companies with a history of large health claims that have driven up premiums. But community rating will fall hard on younger, healthy companies. “Small groups could see premiums doubling, depending on their age and other factors,” says Blumling. As a result, healthy companies that meet their state’s small-group definition and want to offer coverage “almost have no other choice than looking at self-funding or partial self-funding for their first renewal in 2014,” says Ashley, of FirstPerson.
In self-funded plans, an employer sets aside funds to cover employee health claims, rather than paying per-employee premiums to an insurance company. These plans are not subject to the ACA’s community-rating requirements. Companies with fewer than 250 employees typically combine self-funded health plans with stop-loss insurance, which protects them against losses from higher-than-expected claims in a given plan year. If actual claims are less than the amount that has been funded, you’re refunded the difference.
Once limited mainly to large companies, self-funding is now becoming accessible to ever-smaller groups. Says Ashley: “More and more carriers are offering modified self-funding products specifically designed for groups as small as 10 employees.”