26 Aug 2013

Small group carriers offering “early renewal” December 1. Good idea?

26 Aug 2013

Almost all small group medical carriers are offering the option for small businesses to change their current plan year renewal date to December 1, 2013.  The idea is to renew at then-current rates, buying themselves up to 11 months of time, before the full effects of the Affordable Care Act kick in.

Is this a good idea?

Small businesses are being asked to make this decision with limited information. Even businesses with plans scheduled to renew January 1, 2014 don’t yet know what their 2014 rates will be. Kaiser is requiring small business clients to submit an Intent to Renew Early no later than this Friday, August 30.  Any small business that thinks they may want to renew their Kaiser plan early, or simply wants more time to decide should complete this form before Friday. It is not binding (Kaiser will require a final decision by the beginning of October). Please also refer to Kaiser’s FAQ on early renewal.

Pay somewhat higher rates now, to postpone even higher rates?

Yes, this is the crux of it. Depending on your plan, carrier and demographics, carriers are offering the “opportunity” to end your current 12-month contract early, and pay higher rates beginning December 1, 2013. For groups with anniversary dates in the first half of the calendar year, the likely early-renewal rate increase would be 4% to 15%.  Please contact your Allpointe broker  if you have questions about your specific plan, and what early renewal rates are offered.

Some guidance for small business owners

We have spent countless hours over the past several years following the developments of the Affordable Care Act.  Bradley Vaccaro recently was certified by the National Association of Health Underwriters as a PPACA Professional. We fully expect the changes coming in 2014 to vary widely in how they affect our clients. Some are likely to benefit and see lower-than-expected rates in 2014. Others could be looking at significant year over year rate jumps, and could benefit from an early renewal. Here is our best guidance on which category your business falls into:

Most Likely to Benefit from Early Renewal

  • Anniversary date in early 2014. In general, we don’t think it makes sense for clients who renewed in June, 2013 or later to renew again in December.  Pay higher rates starting December 1 for 7+ months to push off next year’s rates by a few months?  Probably not a net gain. We think the businesses most likely to benefit from early renewal have anniversary dates of January 1, or at least Q1 2014.
  • Very healthy groups with a low RAF.  Beginning in 2014, small groups will move to community rating, meaning rates will be determined by age and geography only. The Risk Adjustment Factor (RAF) will be eliminated.  Effectively all groups will have a 1.00 RAF — which means that groups who currently have a .90 RAF (very healthy and/or larger groups) are going to see rates rise just to get to the same level of parity as everyone else.
  • Disproportionate number of employees in specific age ranges.  Small groups currently have very wide “age bands” — rates are the same for all employees in the same age band.  Under 30, 30-39, 40-49, etc.  In 2014, all small groups will move to premiums determined by the actual age of each employee.  If your group happens to have a disproportionate number of employees aged 36-39 and 46-49, their rates could increase more significantly than most others.
  • Large percentage of employees under age 40.  Beginning with 2014 plan renewals, rates will be somewhat “compressed,” as the ACA requires no more than a 3:1 ratio of the highest rates for oldest employees to the lowest rates for youngest employees.  That is, if the cost for a 25-year old employee is $250/month, your 64-year old employee cannot be more than $750/month. Overall, we expect this to mean larger increases for the younger employees.
  • High level of participation in one of Anthem Blue Cross’ Generic Rx-only PPO plans. These plans have been a great value and are popular for their low deductibles and moderate costs. But “generic Rx-only” won’t meet minimum requirements in 2014, and we expect these plans to be eliminated at your 2014 renewal.
  • High participation in high-deductible PPO plans.  The Affordable Care Act expressly required small group plans to have a maximum deductible of $2,000 for a single employee ($4,000 for a family). This has been amended to allow a handful of higher deductible options at the Bronze (possibly Silver) tier of new plans in 2014. HSA-compatible plans will survive, but we expect there to be only a few plan options available with deductibles higher than $2,000 annually for a single employee.  Lower deductibles generally mean higher premiums.

Least likely to benefit from early renewal (could even benefit from new structure in 2014)

  • If you said, “That’s not us,” to most or all of the points above.
  • One or more employees that have a single child enrolled as a dependent.  Currently, it doesn’t matter if you have one child or five — the premiums for any number of children on a small group plan are the same.  In 2014, each dependent will have his/her own cost, based on their age.
  • Groups that would like to offer multiple carrier plans.  The new Covered California small business exchange (SHOP) will make it easy for employers to offer Blue Shield, Health Net and Kaiser alongside each other, without concern about how many employees choose which carrier. We expect some groups to consider switching to the small group exchange on January 1, 2014.
  • Groups that can’t stand paper forms.  Don’t jump into the small business exchange just for this reason, but online plan comparison, open enrollment, and new hire onboarding is expected as part of the rollout from Covered California, bringing small groups on par with their bigger competitors.
  • Groups that qualify for the Small Business Tax Credit.  The credit jumps from 35% to 50% in 2014 — but only if you buy your small business plan through the SHOP. Because the credit phases out for businesses that have close to 25 employees and average wages approaching $50,000/year, it is our experience that most urban California clients do not qualify.  But some do, especially non-profits and businesses with 10 or fewer employees.

There may be some ancillary challenges to renewing early, such as having to run another open enrollment period in November. And your dental, vision, life, disability, and Flex plans may or may not allow a change to your plan anniversary with those carriers.  But please begin looking at your demographics, and seeing where your business stands against this list.  And do not hesitate to call 888-992-2244 or email to discuss your options.

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