The Coming Disaster: 4 Reasons the Affordable Care Act is Poised to Crush Small Employers in 2014

                                                 March 12, 2014

The Coming Disaster: 4 Reasons the Affordable Care Act is Poised to Crush Small Employers in 2014

By: Gregg Kennerly

  • “Socializing” of rates- young can’t afford
  • Guarantee Issue causes “Healthy People” get a raw deal.
  • Mandated “Essential Benefits” add significant cost to plans.
  • Administrative Burden- no composite rates- one year age bands

December 1, 2014 is Nuclear Meltdown Day.  Approximately 50% of Virginia businesses changed their contract date to 12/1.

Even as many of the regulations of the ACA (ObamaCare) are finalized, changes and delays in many other provisions continue to be made almost daily.  Unfortunately, the changes being made don’t address the disaster in costs set to hit small employers in the fourth quarter of 2014.  As most in our industry know, the major provisions of the ACA become effective for employer plans on the first renewal date in 2014.  In response,  major Health Plans offered policyholders early renewals for 12/1/2013, that would allow small businesses to avoid the impact of the ACA until 12/1/2014, along with giving themselves more time to get plans and systems updated.

The results of the early renewal offer were astounding!  Reports from Anthem Blue Cross and Optima Health Plan are that well over 15,000 businesses in the Commonwealth elected to renew 12/1/2014.  This has created unprecedented administrative delays and mistakes due to the burden of renewing 15,000 employer plans all at once.  This has also created the coming disaster of huge rate increases for the same 15,000+ employers.

Although small employers with less than 50 employees are not subject to the Employer Mandate, the rating rules of the ACA have a dramatic impact on the way rates are set for small employees.

The top four reasons most small employers will get large rate increases in 2014 are:

  1. The ACA essentially “socializes” health rates.  This means there is no gender rating, and age rating is much less pronounced. Young males will pay about 2X their current rates, on average, and the spread allowed between youngest and oldest is compressed from about 7:1 to 3:1.  The effect of this is very large on young people, with the difference in the older age rates being loaded into the rates for younger ages.  We have seen rate increases of up to 84% on employer plans with a high percentage of young males. This would seem to be at odds with the goal of trying to get younger people to purchase health insurance.
  2. No medical underwriting.  Rates for employer-sponsored health plans may no longer be based on the health of the employees in the plan. Everyone pays the same age-based rate in a given area (tobacco rating is still allowed).  Groups that have had good claim experience have low rates based on the group being healthier than average.  The rates for these groups are increasing dramatically due to the “socialization” of the rates and the loss of their “healthy group” discount.  Is this fair to people who take care of themselves and try to make healthy choices?
  3. Mandated “Essential Benefits” add significant cost to the plans offered in compliance with the ACA.  People are not free to determine what coverage they need.  Every health plan offered must include coverage and rates for mandated benefits such as maternity and pediatric dental coverage regardless of whether an individual can use the benefit.  Single 18 year old males are paying for maternity and pediatric dental coverage whether they have children or not.
  4. Under the ACA, plans for employers with less than 50 employees must be rated in one-year age increments and can’t be “composite” or average rated.  The administrative burden for employers under this type of rating is skyrocketing as huge multi-page rate matrixes are required to determine rates for employees at every age, for every possible combination of dependents.  Setting contribution levels and payroll records for contributions will be much more labor intensive.

Summary:  Tens of thousands of Virginia employers will experience huge rate increases to their health plans in the fourth quarter of 2014 as a result of the provisions of the Affordable Care Act.  The impact on the horizon in the fourth quarter is caused by a majority of employers electing to renew their contracts at the end of 2013 to delay ACA changes until December 1, 2014.  I anticipate a significant revolt against the ACA by employers and political pressure from opponents of the law for significant changes in the ACA.



Gregg Kennerly is a Principal with Advanced Benefit Strategies of Virginia (ABS).  ABS is an employee benefits brokerage and consulting firm specializing in helping clients understand and comply with the provisions of the Affordable Care Act.             [email protected]                   757-536-4554


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