Due Diligence Post Affordable Care Act (ACA)
I recently worked with a small company who was able to cut their health insurance costs substantially by moving to an ACA compliant health plan. That may sound strange to hear as I know the majority of small businesses have seen rates go up in 2014 versus down, but in this case, the opposite happened.
This happened to be a very small group with just three employees enrolled in their group health plan. There are many factors associated with the ACA that affect plans and rates, one is the elimination of what we call a “group size factor”. This is essentially a load on premiums for smaller companies to account for the fact that administrative costs are higher for small groups where there are fewer people enrolled to spread the insurance companies fixed costs associated with managing a health plan. This change eliminating group size as something an insurance company can charge for benefits very small groups.
There are many changes in the health insurance market and while some changes are apparent others are more obscure. Following are a few examples that could have varying impacts on different companies based on your demographics and current health plan:
- Age rating factors for small companies generally used 5-year bands, now they are based on each yearly age
- Individual and small group plans must meet certain actuarial values
- Individual and small group plans must cover minimum essential benefits as defined by the ACA
The reality is that you cannot assume that the ACA impact on your neighbor will mirror the impact for you. Especially in the group health insurance market, each company is different and each should analyze the impact independently.
The company I described at the start of this article was advised to renew their 2013 health plan in December because most business were benefiting from doing so. Had they done that, they would have overpaid substantially in 2014. They could have saved even more by analyzing their options at the start of 2014 and making a change then.
The moral of this story is that it is more important than ever to do your due diligence. You could argue that was always the case with health insurance, but the ACA makes it even more so.