As a team member at Bernard Health, I meet regularly with small business owners (which I’ll define as employers with less than 50 full time employees) throughout the year to discuss their company’s group health insurance strategy and the effects that PPACA (a.k.a Healthcare Reform) may have on their business and the insurance benefits they offer employees. While most all of these business owners are aware of Healthcare Reform, many don’t quite know, or understand, what parts of the legislation will have the greatest impact on their business.
Without a doubt, I believe the greatest impact of Healthcare Reform on small businesses will be the transition to Community Ratings. Let me explain.
In today’s marketplace a variety of factors go into what a group’s insurance premiums will be. Factors such as demographics (both age and gender), family composition, geographic area, tobacco use, group size, industry, and health underwriting and experience all play a role in helping an insurer match a premium rate to the risk associated with the groups they insure. Groups with favorable risk factors receive lower rates than groups with unfavorable risk factors.
However, starting January 1, 2014 the marketplace will move to adjusted community ratings where groups can no longer be rated based upon underwriting and perceived risk. The only factors that insurance carriers will be able to rate a group on is geographic area, age, family status and smoking status.
So how will this transition effect a small business employer. Rates stand to change, drastically! See the diagram below.
If you’re a group that currently falls along the healthy side of the risk curve, expect rates to increase. Alternatively, if you’re a group that currently falls along the unhealthy side of the risk curve, you may be in store for a decrease. Anthem, the state of Indiana’s largest insurance carrier, is projecting that 45% of its small groups will see an increase of 14%-35% simply from the removal of the risk adjustment factor.
As a small business owner, have you started to plan for the effects of community ratings? If so, what strategies are you considering? Share your thoughts in the comments below!