While one of the greatest benefits of the federal Affordable Care Act (“ACA”) is better access for all to quality healthcare, theoretically resulting in lower health care expenditures, there also are costs associated with the ACA. Many of these costs take the form of additional fees on participating insurers and health maintenance organizations in our nation’s healthcare system. The federal government will impose many of those fees beginning in calendar year 2014. For example, the Health Insurance Fee and the Transitional Reinsurance Contribution will apply to health insurance policies and health maintenance organization contracts that are in place in 2014, even if the policy or contract was written in calendar year 2013. In general, these fees will only apply to the months of coverage that occur in calendar year 2014, but the cost to the employer will be spread out over the entire policy/contract year.
There also will be additional operational cost impacts that only apply to health insurance policies or health maintenance organization contracts that become effective (or are renewed) on or after January 1, 2014. “Non-grandfathered” health coverage that becomes effective after that date will be required to include “essential health benefits” – some of which may not be included in an employer’s current coverage. These new benefits will increase the cost of coverage for that employer. Also, there is ACA-required rate compression impacting premium costs. Rate compression means that that there cannot be as wide a difference between the premiums charged for older and younger employees as is currently allowed in most states. This rate compression will result in comparatively higher premium rates for younger employees and comparatively lower rates for older employees. In addition, premiums will no longer be determined based upon an employer’s medical history or group health status. It is expected that changes such as these will result in very large premium increases for many employers, especially some small employers. These premium increases will be especially large for employer groups that have younger and healthier employees. All of these factors lead to greater costs to provide insurance to employees, and increase the cost of the insurance premium paid for the coverage.
To help mitigate the ACA’s impact on their health insurance premium, employers, including small employers, should contact their health insurance agents or brokers to determine whether the employers should renew their coverage early, in late 2013, as opposed to waiting until their 2014 policy anniversary dates. Employers renewing in late 2013 probably will pay a premium that is higher than they currently are paying, in part because of increasing medical costs (Medical Trend) that is always a factor, and in part because of the fees discussed above. However, renewing early will allow them to temporarily avoid the increased costs due to rate compression and additional benefits.
Early renewal will not be appropriate for every employer group. For example, employers with a significant number of older employees, or with less-healthy employees, may not see as large of an impact. Therefore, employers should contact their health insurance agent or broker to see if this is a solution that fits their particular needs. Because this is such a complicated and evolving area, employers should carefully, and independently, review the advice given to make sure that it is consistent with their specific circumstances.