The Patient Protection and Affordable Care Act (ACA) drastically changes all the business rules and now many seem surprised at the displacement it is causing. Policy cancelations, and plan changes for 2014 are being widely reported in the individual and small group markets. While the ACA is providing access to coverage for folks with pre-existing conditions and premium subsidies to lower income levels; high percentages of the currently insured are being regulated into different benefit and rate structures.
The ACA and California regulations that are primarily responsible for this displacement are:
- Mandated Age Band Curve. For individual and small group polices, ACA mandates that rates for the ages 21 to 64+ cannot vary at more than a 3 to 1 ratio. California regulations currently provide for rates by age bands, (60-64 for example), with the individual age band relativities actuarially determined by each insurance carrier. The current method typically yields ratios in the in the 5-6 to 1 range and a higher ratio for ages above age 64.Not only is the 3 to 1 maximum ratio mandated, each individual age relativity, along the age band curve is specified by regulators. This means that your rates will increase every birthday rather than every five or ten years as under current regulations.How does the 3 to 1 mandate effect rates?The 3 to 1 mandate distorts the matching of actual claim costs with premiums. This means that younger people will pay more than what their actuarially determined claims cost would indicate, older folks less and everyone else will fall somewhere in between.
- Mandated Benefits. ACA mandates 10 essential benefits that must be included in all health plans. This provision is generally causing price increases because even the most comprehensive legacy plans did not include all of the essential ten, or the level of essential 10 required. No matter your age or gender your policy must include pediatric dental and maternity coverage. Comprehensive prescription drug and mental/substance coverage are mandated where legacy policies may have had limited or no coverage for these benefits. Mandated out-of-network emergency benefits and no-cost preventative services also add to the overall cost of coverage.
- Metallic Plans. All plans offered must be within specified categories labeled Platinum, Gold, Silver and Bronze. The labels indicate their actuarial value. We cannot go into a detailed definition of actuarial value here – but briefly it is the amount of expected benefits a plan will pay out across a credible population. Plan actuarial values must be plus or minus 2% of: 90% Platinum; 80% Gold; 70% Silver; and 60% Bronze.
- Family Tier Structure. ACA mandates that each family member be individually age rated and combined in a family structure. Up to the three oldest children’s ages are applied. This means families with three children will pay more than those with one or two; and families with kids over age 20 will pay more than those under 21.
- California Rating Areas and Risk Adjustment Factor (RAF). ACA does away with California’s small group RAF, so groups currently with .9 to .99 RAF’s will be seeing upward movement in premiums and 1.01 to 1.1 groups will see corresponding premium decreases. California has also mandated changes to rating areas. Any changes in rating areas creates displacement by folks moving from lower to higher or higher to lower rated territories. For example, Santa Cruz County, a relatively lower cost area, and Monterey County, a relatively high cost area, have been combined into one new territory mandate. This will result in premium cost increases or decreases from the current norm.
So why are so many plans no longer available (being cancelled)? Primarily it is the combined effects of the mandated benefits and the metallic category requirements. Meeting the essential 10 significantly changes many plans’ actuarial value and all 2014 plans must fit within the metallic categories. For example, if a plan has an 85% actuarial value it is not permitted in 2014. It must be withdrawn or modified to Platinum or Gold ranges, which may require significant changes.
Rates are going up, down, and for a few staying the same, based on the cumulative effects of the mandated age band curve, change in family tier structure, RAF elimination and rating areas.
All in all – these factors combine to create benefit and rate displacement for almost everyone. And this does not even address significant changes to provider networks that are hitting on January 1, 2014, that will displace many from their doctors and hospitals.
For a comprehensive discussion of these and all topics, CalCPA’s Group Insurance Trust has published a California CPA’s guide e-book to the Affordable Care Act called “April 15th Will Look Like a Picnic.” CalCPA members can download a complimentary copy from the Group Insurance Trust’s web site CPAProtectPlus.com. We have also set-up an ACA question email ACA@CalCPA.org and a phone line 650-522-3258 for Society members to get answers to questions they may have for themselves, their firm and their clients.
CalCPA’s Group Insurance Trust provides health, dental, vision, disability and life insurance to over 11,000 CPAs, their employees and families – we hope you will consider the Trust for your firm’s ACA compliant health plan.