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Small Business Employee Benefits

FAQ - How are Small Group Health Plans Impacted by the ACA?

As a result of the Affordable Care Act (ACA), employers who offer a fully-insured small group health plan are seeing an impact on their health coverage in two primary ways. First, new taxes and fees are, on average, increasing premium rates. Second, new plan and coverage requirements are impacting plan design, plan benefits, and cost. [Impact of ACA on small group plans]

This articles provides an overview of the key provisions having the greatest impact on employers offering a fully-insured small group health plan. 

New ACA Taxes and Fees Impacting the Cost of Small Group Health Plans

To fund some of the ACA mandated changes and programs, several new taxes and fees are impacting premiums and rates. Fully-insured small group health plans are seeing the following health reform fees added to their premiums. The fees impact employers differently based on location and plan design. However on average, employers are seeing premium rate increases because of these new ACA taxes and fees.

Patient-Centered Outcomes Research Institute (PCORI) Fee – Beginning with plan years that ended after September 30, 2012, the ACA imposed a new fee on commercial health insurance issuers and self-funded plans. This fee is $1 per member for the first year, $2 per member for the second year and indexed to medical inflation thereafter. The PCORI fee began in October 2012 and ends in 2019.

Insurer Fee – This fee is collected from health insurance issuers based on certain net written health insurance premiums for fully-insured groups. The Insurer Fee will fund premium tax subsidies for low-income individuals and families who purchase insurance through ACA Exchanges ("Health Insurance Marketplaces"). The new fee is permanent and expected to total $8 billion in 2014 for all insurers, increasing to $14.3 billion in 2018. Based on industry estimates, the impact on premiums is 2.5 percent. 

Transitional Reinsurance Fee – For years 2014 to 2016, the ACA imposes a fee on health insurance issuers and self-funded group health plans and then distributes the funds to issuers in the non-grandfathered individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all health issuers to provide greater financial stability. The fee is assessed on a per capita basis. The ACA specifies that the total amounts of the Reinsurance Fee collected are $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, totaling $25 billion. Based on industry estimates, the average projected cost is about $5 per member/per month in 2014, decreasing each year for the subsequent two years.

Risk Adjustment Fee – This ACA fee is assessed on health insurance issuers of risk-adjusted plans in the non-grandfathered individual and small group markets. The fee helps fund the administrative costs of running the Risk Adjustment Program. The Risk Adjustment Fee is estimated to be about $1 per member per year. The Risk Adjustment Fee is permanent and began in 2014.

For employers with fully-insured group plans, the cumulative financial impact of the health reform fees in 2014, based on the government rule and industry analysis, shows an increase in the premium of about 3.8 percent. Read more about the new health insurance industry taxes and fees here.

New ACA Plan and Coverage Requirements Impacting Small Group Health Plans

The ACA requires certain plan design, coverage, and administration changes that impact employers with a fully-insured small group health plan. Here are the major changes:

Summary of Benefits and Coverage (SBC) – Starting September 23, 2012, health insurance issuers and group health plans are required to provide eligible participants with an easy-to-understand summary about a health plan’s benefits and coverage. The new regulation is intended to help individuals better understand their health insurance options. 

Adjusted Community Rating and Market Restriction – As of 2014, health insurance premium rates in the individual and small group markets are only allowed to vary by family size, geography, tobacco use, and age. Other rating factors previously used such as gender, industry, group size, health status and medical history are now prohibited. The impact of age factors is limited to a range of 3 to 1. Tobacco users may also have their premium varied by up to 50 percent higher than non-tobacco users. As a result of these changes, a significant number of employers will see more substantial premium increases than under previous regulations.

Employer Mandate (aka Employer Shared Responsibility Fees, or Play or Pay) – Under the ACA, employers with 50+ full time equivalent (FTE) employees may be subject to a penalty if they do not offer affordable, minimum essential coverage to full-time employees. The employer mandate starts January 1, 2015 for employers with 100+ FTEs, and starts January 1, 2016 for employers with 50+ FTE. Employers with fewer than 50 FTE employees are not subject to the employer mandate. See this FAQ: Does My Small Business Have to Provide Health Insurance?

Essential Health Benefits (EHB) & Annual Limit Prohibitions – As of 2014, fully-insured small group employers are required to cover all Essential Health Benefits (EHBs). And, all annual and lifetime dollar limits must be removed from EHB. See the final rule on Essential Health Benefits here.

Deductible Limits for EHBs -  For plan years beginning on or after January 1, 2014, non-grandfathered, fully-insured small group plans must limit deductibles to $2,000 for individuals and $4,000 for families (in-network).

Out-of-Pocket Maximums for EHBs - For plan years beginning on or after January 1, 2014, all non-grandfathered plans that cover EHBs must limit annual out-of-pocket member expenses for in-network EHBs. Expenses for EHBs, including coinsurance, deductibles, copays and similar charges cannot exceed 2014 out-of-pocket limits set by the IRS for High Deductible Health Plans. The 2014 out-of pocket maximum for EHBs is $6,350 for self-only coverage and $12,700 for family coverage. Note: Some of the out-of-pocket limits have been delayed until 2015. See this article.

Prohibition of Pre-existing Condition Exclusions for All Ages – As of 2014, pre-existing condition exclusions must be removed for all members, not just those under age 19.

Guaranteed Availability and Renewability - All carriers in the individual and group markets are required to offer all products approved for sale in a particular market and accept any individual or group that applies for any of those products. Plans and policies are guaranteed renewable.

Do you have a question about how the ACA impacts your small group health plan, or your small business? Please leave a comment or question.

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