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by Ron Lang, CEO of CalCPA Health

This time of the year, with most firms renewing their employee benefit plans, there is a big uptick in questions regarding managing health plans. For CalCPA members, CalCPA Health is an available resource; our tag line is “we answer questions for your firm, your clients and your family” (or at least try to answer anyway).

Health plans are a unique blend of Internal Revenue Service, Department of Health and Human Services, Department of Labor, California Department of Insurance, and other California agencies regulations. Buried in each of these, is the Affordable Care Act’s (ACA) code. Because of this complexity and liability, when providing answers and insights we always must disclose that we do not provide tax or legal advice (lol).

 

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By Ron Lang, CEO of CalCPA Health
For more information, email questions@calcpahealth.com.

With doctor office and medical facilities shuttered for much of the second quarter, many were thinking their health insurance rates may not be going up for their 2021 renewal. But most everyone will see increases for next year. Why?

The Affordable Care Act (ACA) established mandatory operating margins for health insurance companies. These regulations mean that premium increases are driven almost exclusively by underlying medical expense increases. This is the short answer: Insurance premiums increase because medical expenses are continuing to increase.

 

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The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law on March 27, 2020 with the purpose of helping employees out with benefit-related items during the COVID-19 crisis. The CARES Act repeals the Affordable Care Act’s exclusion of over-the-counter (OTC) medications from the definition of “qualified medical expenses”.  The bill is over 880 pages long, but to review the new rules regarding OTC provisions, see Sec. 3702 of the CARES Act.

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Applies to all small employer plans in California

Background

Two years ago the Affordable Care Act’s mandated premium rating method went into effect for small employers (under 50 employees). As of January 1, 2016, all small employers in California (under 100 employees) must be rated according to the ACA rating method. This ACA mandate applies to all insurance carriers and all groups under 100 employees in California.

Key Takeaways

  • Group and individual employee premium rates may be significantly changing due to ACA’s mandated method of calculating premiums – not due to the base cost of medical insurance.
  • The largest premium increases/decreases tend to be:
    • Younger employees (increase) / older employees (decrease)
    • Family size: one child (decrease); two or more children (increase)
    • Families with children over age 21 (large increase)
    • Spouse’s age higher than the employee (increase); lower than employee (decrease)
    • Employees over age 65 with Medicare secondary rates (increase); Medicare primary (decrease)
    • Employees in certain mandated “rating areas” (increase or decrease)

Premium Rating Rule Changes Explained

The premiums calculated under the ACA and legacy (grandmother or large group) methods can have great differences. Premium rate differences between the methods may be driven by any combination of the four rating variants detailed below.

  1. Age Rating. The ACA mandates that each age has its own specific rate and also mandates the relative premium cost between each age rate. This means that each employee has a birthday increase at the start of every plan year as compared to the legacy method which only had age increases when employees crossed an age band threshold (20-29; 30-40, etc.).Compared to the legacy rating method this mandate increases rates for younger people and lowers rates for the older ages. This can result in rates doubling in the younger ages. Many parents are shocked to learn that the ACA mandates a 57.5% premium increase when their 20 year old dependent child turns 21. This is true for all insurance companies.
  2. Family Rating. ACA mandates that each member of a family is individually age-rated and then summed to an employee total. The legacy method had four rating tiers: employee only; employee+spouse; employee+children; and family. The legacy employee+children and family rating did not consider how many or how old the enrolled children were. Under the ACA mandate, the eldest three children under age 21 in each family are age rated in addition to any dependent children age 21 and older. Families with two or more children, and older children, can see significant premium increases under the ACA method. The legacy method did not consider the spouse’s age. Employee+spouse and family categories can experience sharp differences under the ACA method if the spouse is significantly older or younger than the employee.
  3. Medicare Secondary. Under the legacy rating method employees over age 65 employed by groups with fewer than 20 employees were rated below larger firms because their coverage was secondary to Medicare. ACA’s age rating rules eliminate Medicare secondary rates so all 65+’s are rated the same, which causes the legacy secondary employees to have significant premium increases.
  4. Rating Areas. The legacy rating method had nine (9) rating areas in California. California has mandated 19 rating areas under ACA rating rules. The state did not subdivide the 9 into 19 but redrew many of the boundaries. This can create significant premium variances for certain employees that were previously in a relatively lower/higher rating area and have been assigned to relatively higher/lower premium area.

Analysis

Premiums can increase or decrease, on specific employees, on dependents and on the group in aggregate. In many instances the ACA premium increases tend to affect dependent/spouse costs. Firms typically contribute relatively less towards dependent premiums which transfers much of the increase to the employee. For analyzing premium changes, firms should calculate the amount the premium increase effects their employer contribution versus the employee’s contribution. The ACA rating method can cause disruption in the employer and employee contributions based on the change to the ACA age rates. This may require companies to restructure their employer contributions to mitigate large variations in employer or employee contributions for employee only coverage.

To mitigate the rise in premiums the law has brought about since the implementation of ACA, there has been a trend of employees migrating to lower benefit (higher deductible) plans. Migrating to lower premium plans is a tactic being used by many employers and employees.

Employees with children age 21+ may look to enrolling them in a lower benefit plan in the individual market. The individual market has limited plan choices and provider networks, but these trade-offs may yield a lower premium.

If you have any ACA related questions, please email aca@calcpa.org.

 

The Patient Protection and Affordable Care Act (ACA) was passed more than five years ago. Never has a piece of federal legislation been in the controversy spotlight for this length of time.

Typically, new federal and state laws require some tweaking before, during or after they are implemented. Fix-it bills can clarify the original intentions of lawmakers, correct mistakes and make the legislation practical to implement. In the ACA’s circumstance, be-cause of the high level of animosity surrounding the law’s fundamentals, significant fixes are not politically feasible. Read more

by Gregory M. Burke, CPA, MS (Tax)

The stated intent of the Patient Protection and Affordable Care Act (ACA) of 2010 was to increase health care insurance coverage with respect to the millions of uninsured Americans and control runaway health care costs. As part of the effort to meet these goals, the ACA enacted interrelated subsidy, penalty, and information reporting provisions. This article will focus on the information reporting provisions impacting “applicable large employers” in 2015. Read more

Four years after the passage of the Affordable care Act (ACA) there is still great debate on the law’s outcomes. How many uninsured will enroll? Will ACA create doctor shortages? Will death panels ration medical care? And the trillion dollar question: will the cost of health insurance go up, down or stay about the same?

Stay tuned to read the full article in the June issue of the CalCPA Magazine.

Ron Lang, CEO of the California Society of CPAs Group Insurance Trust, discusses how health care reform has changed the face of health care plans by covering the following topics: plan designs and pricing, network options, California Health Benefit Exchange, current and future regulatory changes and what we can expect for 2015. (Video taken at CalCPA Education Foundation’s Health Care Conference on 4/29/2014).