What’s Next for Small Groups Who Renewed Early?
Posted in Affordable Care ActMost California small business owners chose to renew their group health insurance plans early in 2014. Although most couldn’t tell you why they chose the early renewal, they did make the right choice.
The process of renewing early is known as “grandmothering”. The name is an offshoot of the previous form of keeping your old plan in 2010 known as “grandfathering”.
Renewing early was a way for small business owners to delay the implementation of new Obamacare rules set to take place in 2015. The new rules were to take effect during the month the plan renewed in 2015.
Prior to 2015, group health insurance plans renewed evenly across all 12 months of the year. It all depended on what month their group plan was set up originally. So if a small business owner started their group health insurance plan on February 1, 2011, they would renew on February 1 each year after.
Why renew early?
Most California small business owners were in no hurry to transition their health insurance plans. This was because of the increased cost and the uncertainty of Obamacare itself.
New Obamacare compliant plans have several changes that are causing group health insurance renewal premiums to go up drastically in 2015. And with Obamacare rules changing literally every week, employers didn’t want to jump in early only to find out that rules were going to change again and again.
Insurance companies in California responded to the demand for an Obamacare delay by offering employers to renew early or “grandmother”. If an employer chose to renew early, their renewal date would change to December 1, 2014 thereby delaying the Obamacare changes from taking place until their next renewal on December 1, 2015.
Factors in increased premiums
There are six major factors as to why a renewal into an Obamacare compliant plan means increased premiums.
Rating Areas: California was previously split up between 9 different rating areas. That meant your group’s premiums would vary depending on which of the 9 rating areas your business was located in. In 2015, the number of rating areas was increased to 19. That means that if you were previously in a lower rated area, in 2015 you may be moved to a higher rated area and vice versa.
Rating Tiers: Most small business owners know that if an employee had dependents on their plan, the entire family was rated based on the age of the employee. That is no longer the case under Obamacare. Now each family member is rated based on their own age. Another rating tier change was the number of dependents that employees were charged for. In the past an employee would pay the same whether they had 1 child on their plan or 10 children. Today that number has been moved up to 3 children which means an employee who has 4 children used to get 3 of them covered for free and now only gets 1 covered for free.
Age Brackets: Under the old rules for small group health insurance, employees fit into age brackets. There was a bracket for 0-29, 30-39, 40-49, etc. After the 2015 renewal, age brackets would be eliminated starting at age 21 meaning that each employee would be rated at their actual age each year instead of in 10 or 5 year brackets.
Risk Adjustment Factors: If you paid any attention to your group renewal in the past, you probably noticed something called a Risk Adjustment Factor or RAF. It would have a number ranging from .90 to 1.10. The RAF was a way for rewarding or penalizing a small group for the overall health of their employees and their dependents. Rewards for a healthy group could be as much as 10% off the normal premium. Penalties could be as much as a 10% increase on top of the normal premium. Risk Adjustment Factors are no longer permitted once a group renews in 2015.
Mandated Coverage: Severe mental illness was really the only coverage that was mandated by law prior to 2015. Afterwards, a list of 10 Essential Health Benefits must be included in every health insurance plan going forward. The list of Essential Health Benefits included obvious things such as doctor visits, emergency room visits, hospital stays, prescriptions, and lab work. But it also includes some other coverage such as maternity, rehabilitation, preventative care covered at 100%, as well as pediatric dental and vision.
Metal Tiers: If you’ve taken the time to research any new health insurance plan, you will likely have come across the 4 metal tiers: platinum, gold, silver, and bronze. Each new health insurance plan must fit into one of these metal tiers. The tier system has really simplified the choices for both individual and small group health insurance but it has also forced major changes on some plans that don’t fit into one of the 4 new tiers.
Is there a way to continue delaying Obamacare?
For a bill that was signed into law way back on March 23, 2010, it sure has taken quite a while to implement all the changes. Even still, many small business owners want to know if there is a way to continue delaying the law’s implementation. The reality is that the answer is no. We are out of delay tactics. No more grandfathering. No more grandmothering.
Employers now must implement the new Obamacare rules or discontinue their plan altogether. Most will choose to renew with a new plan that closely matches their previous one and most will pay an increased premium. But it doesn’t have to be that way. There are choices.
See our Guide to 4 Killer Strategies for small business owners to provide the exact benefits their employees want at the exact budget the employer can afford.
Whichever route you choose with your small group health insurance plan, make sure you have a good insurance agent reviewing your options. Their services come at no cost to you or your employees.
