HHS Releases Small Group Insurance Regulations

Last week, The Department of Health and Human Services (HHS) released two sets of proposed regulations related to provisions of the Affordable Care Act (ACA) important to individual and fully-insured small group health plans.  Rules were released regarding essential health benefits, plan actuarial valuation, and small group rating and underwriting rules.

While the group health plan guidance is specific to the small group market, some provisions will be of interest to all employers.  Notably:

• HHS has released a calculator which may be helpful for employers attempting to estimate the actuarial value (AV) of a plan.
• The underwriting and rating rules could apply to fully-insured large employers beginning in 2017 if a state opens its exchange to the large group market.

Important Background Notes for Employer-Sponsored Group Plans

The ACA defines the small group market as employers with 100 or fewer employees, however, states have the option to define small groups as 50 or fewer until 2016.  Beginning with plan years starting 1/1/2016, all employers with 100 or fewer employees will be included in the small group market rules.

• The insurance rating and underwriting rules apply to all fully-insured small group plans offered both through a state or federal exchange, and also to plans sold outside, or separate from, an exchange.  While a health insurance carrier may offer different plan designs in or out of the exchange, they will not be able to apply different underwriting or rating rules.
• The essential health benefits rules apply only to fully-insured small group health insurance plans.  Fully-insured large group plans and self-funded plans are not required to offer plan designs which meet the essential health benefit set requirements.
• Most of the rating and underwriting requirements described in the rules apply directly to the health insurance “issuer” (the term used in the regulations for the health insurance carrier).  Consequently, small employers will not be directly responsible for the implementation of, and compliance with, most of these rules.  However, the group health plans which will be available for purchase by small employers beginning in 2014 will be dramatically impacted.

Rules of Particular Interest to Employers

Executives and product managers at health insurance carriers will be very busy redesigning their small group plans to meet a wide range of new requirements beginning in 2014.  In particular, carriers will need to redesign many plans to provide all essential health benefits as defined by  HHS and each state’s specific requirements.  The regulations contain detailed and extensive rules controlling how carriers will design and rate small group plans.  Following is a more detailed description of a couple of issues of particular interest to small employers.

Limit on deductibles

Beginning in 2014, the ACA limits plan deductibles in the small group market to no more than $2,000 for self-only coverage and $4,000 for nonself-only coverage (indexed in future years).  In the preamble to the rules, HHS recognized that it may not be practical to design a 60% “bronze plan” as required by the law, while still maintaining the $2,000 deductible maximum.

In a welcome development for some small employers, the proposed rules allow carriers to offer plan designs with a higher deductible if necessary to offer a 60% plan.  While detailed plan designs will vary from carrier to carrier, it is expected that due to this rule some carriers will offer “bronze” small group plans with deductibles exceeding $3,000.

“Modified Community Rating” Rules

Health insurance issuers may vary premiums based on a very limited set of specified factors:

1. Whether the plan or coverage applies to an individual or family
2. Rating areas within a state
3. Age, limited to a variation of 3:1 for adults
4. Tobacco use, limited to a variation of 1.5:1

All other rating factors are prohibited.  Consequently, small employer rates may not be based on the group’s claims experience.  The rules permit the use of both age-banded and composite rating, and employers are allowed to set required employee contributions based on either approach.

Actuarial Value Calculator

The ACA requires carriers to offer different level plans, referred to as the metal tiers (bronze, silver, gold, and platinum).  Plans in each tier must meet an actuarial value within a specific range (e.g. 60% for bronze, 70% for silver, etc.).  HHS has released an actuarial value (AV) calculator to assist health insurance issuers in determining the value of different plan designs.  The calculator will be used by carriers to make sure a specific plan design falls within the allowed value ranges for each metal tier.

What about large and self-funded employers?

A separate section of the ACA (the shared responsibility or “pay or play” rules) requires large fully-insured and self-funded employers to offer a “minimum value” plan to all full-time employees, or face the risk of paying an employer penalty.  Minimum value (MV) is defined as an actuarial value of at least 60% (similar to a “bronze” plan in the small group market).

The AV calculator released with this guidance uses assumptions and claims data specific to the small group market, thus it does not directly address the MV requirement for large employers.  However, in a separate section of the guidance, HHS states they will also be releasing a minimum value calculator for large and self-funded employers to use, and that the MV calculator will be very similar to the existing AV tool for carrier use.

Until the large employer MV calculator is released, employers can get at least a rough estimate of their plans by using the new HHS AV calculator.  Once the MV calculator is released, employers can more accurately verify their plan’s status using that tool.  The rules also allow an employer to determine plan value by obtaining an actuarial valuation by a qualified actuary.  The HHS AV calculator can be found at http://cciio.cms.gov/resources/regulations/index.html#pm under the “Plan Management” section of the page.

Summary

This new guidance primarily provides health insurance companies with many of the rules they need to begin to design their 2014 plan offerings in the individual and small group market.  It is widely expected that the regulatory agencies will be releasing a large volume of additional ACA related guidance in the coming months applicable to all employer-sponsored health plans.  Stay tuned!

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