Small employers enrolling in coverage on Small Business Health Options Program exchanges need to decide what their employer contribution will be and whether to charge different employees different amounts based on their age. The Centers for Medicare and Medicaid Services gives them new health care reform guidance to help them mull over those questions in Frequently Asked Questions #6, issued Oct. 31.
Starting Jan. 1, 2014, insurers in the small group market must consider all enrollees in health plans to be members of a single risk pool (a market-wide index rate) when developing rates and premiums, under final market rules published Feb. 22, 2013 by the U.S. Department of Health and Human Services. On top of that however, the insurer when writing a contract for a small group will rate each individual member of the group based on age primarily, but also tobacco use. The total premium charged by the insurer is determined by summing the individually rated premiums of all covered participants and beneficiaries. And the bill the insurer sends may list a different premium for each participant, or it may list an average premium (self-only and family), depending on state rules and employer preferences.
List vs. Composite Method
Employers may convert a list of individually rated premiums into an averaged-out composite premium for all enrollees to get one single rate for self-only and one rate for families. Employers can demand insurers to give them composite premiums or states may require insurers to bill that way. These can carry over to how the employer collects SHOP premiums from workers.
- Individual premium — The premium for each individual covered participant and beneficiary under a specific plan may be adjusted using allowable rating factors, which include age and tobacco usage.
- Composite premium — Premiums are averaged out premiums of all ages to yield a single premium for self-only and families for the geographic rating area. The rating area is determined using the principal business address of the group policyholder.
Composite premiums agreed between the SHOP insurer and the employer have the advantage of being fixed for a year-long period, thus giving the employer a degree of per-member predictability, one CMS FAQ states. Older employees are billed at the same rate as younger employees for the same plan, which may be considered fairer.
On the other hand, the individual premiums are allowed under the Age Discrimination in Employment Act. Its advantages include the fact that younger employees are billed less, making them more likely to take up the offer of coverage. But if an employer signs up with an estimate of lots of young people buying coverage, but instead more old people buy coverage, the result could be an unforeseen increase in premium from the SHOP insurer, the CMS FAQ indicates.
Continuity in the method can avoid shocks to employees over premiums. If premiums have been composite to date, and the company institutes premiums based on individual ratings, the oldest employee will pay more and the youngest employee will pay less, and those changes could be perceived as drastic, as stated in this brief from the Robert Wood Johnson Foundation.
Insurers are required to accommodate composite rating for employees only; not their dependents, because that would require collecting birthday information they cannot be counted on having, CMS said. For dependents, premium rating will be individual only.
Employer Share of Contribution
The employer contribution can be any amount, but it must be the same (dollar figure or percentage) for all employees to avoid discrimination. The employer may choose between a percentage of premium or a flat amount. (Flat employer payments impel employees toward choosing lower-priced plans, the RWJF paper states.)