Early Renewals Under the ACA: Right for You?

By David Martin © William Gallagher Associates September 10, 2013

On Jan. 1, 2014 certain rating changes under the Patient Protection and Affordable Care Act (ACA) will impact how individual and small group plans (under 50 lives) will be priced. In accordance with the ACA rules only four factors will be permitted when setting rates: Age, tobacco use, family composition and geography. Factors no longer permitted include health status, claims experience, gender, industry, and group size.

As a result of these changes it is anticipated that some groups could experience large rate increases in 2014. Vendors are anticipating increases in a 20 percent to 40 percent range. However, they are also quick to point out that not all groups will experience these large increases. In fact, some groups may benefit from these changes.

Opting for an early renewal is an idea that has emerged to delay the impact of these rating increases. For example, a small group (under 50 lives) could elect to renew their medical plan On Dec. 1, 2013, to avoid a potential large increase that would otherwise be effective Jan. 1, 2014. Under this scenario a small group could delay potential costly increases for an additional 12 months until their Dec. 1, 2014 renewal. Still, other ACA fees and taxes would still apply and rates could still increase based on current rating factors.

On the surface this approach has some appeal. The potential to save or delay tens of thousands of dollars of increased medical premiums is certainly something that should be considered. However, when you sit back and look under the surface, there are a few reasons why you may want to proceed with some caution.

Rate Modifications

Remember, not all groups will receive these kinds of increases and at this point it is unclear what kind of increase companies may see. Based on the new rating rules there is the possibility that a group with older, less healthy employees may actually not see much impact. Massachusetts has been given a three-year “transition” period in which to implement the new ACA rating rules that might help keep renewals manageable. But the impact in other states could be much different.

Legal Environment

There have not been any publicized federal rulings about whether early renewals would be allowed for these purposes. There are currently rules about changes in plan years being allowed only as a “valid business decision”, which serves as some background about how federal agencies may feel about companies taking an “end around” to avoid some of the ACA rules. . It would be surprising for the agencies in charge of ACA to retroactively disallow early renewals. Some states, including Rhode Island, currently will not allow early renewals. There are other states that will also not allow “arbitrary” renewal dates to delay or avoid the ACA rules. Keep in mind that the carrier must also be willing to undertake an early renewal. At this point Massachusetts is not currently releasing early renewals. We are currently monitoring all states for their positions on early renewals.

Plan Design

Deductibles may need to be reset depending on plan design (i.e., plan year or calendar year deductibles and co-insurance) which could have a negative impact on some members depending on a company’s particular plan design and timing of an early renewal.

Other plans tied to the medical plan year, such as dental and vision, may also have to change in order to align with the early renewal date, creating more administrative work. Companies with varying renewal dates for different plans (such as life and disability plans) could also face the prospect of multiple open enrollments. Finally, plans could lose their “grandfathered” status under an early renewal.

The Last Word

All ideas that will have an impact on the design and cost of health programs should be thoroughly analyzed to make sure you are taking the best course of action for your group plans, your employees and their families and your firm, including whether early renewal is the best choice for your organization.

David Martin is a vice president in the employee benefits group at William Gallagher Associates. He specializes in working with mid- to large size companies in all areas of employee benefit plan design, funding, compliance, administration and communications.© 2013 William Gallagher Associates. All rights reserved. Republished with permission.

Related External Article:

Health-Care Overhaul Pushes Small Firms to Lock in Lower Rates, Wall Street Journal, September 2013

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