Healthcare Reform and Small California Employers

If you have 50 employees or less, here’s what’s coming

There’s an oft-quoted (though nonexistent) Chinese curse that says, “May you live in interesting times.” Well, welcome to “interesting times” in the form of changes to our healthcare system.

Though large employers were generally elated when the US Treasury Department announced a one year delay in implementing the “play or pay” provisions of the Patient Protection and Affordable Care Act (PPACA), small employers (of less than 50 full-time or full-time-equivalent employees) were less than happy to find themselves excluded from this provision. That means that, ironically, small employers are faced with a wide host of changes, more so than their large group counterparts, effective January 1, 2014. If that’s the bad news, then the good news is that small employers will have more options available to them. So what does a small employer need to prepare for? Here are some of the more significant items:

• With your first renewal in 2014 the waiting period for new hires to be eligible for the health coverage cannot exceed 60 days (this is also true for large employers). Because most carriers require a “first of the month start date” this effectively compels the waiting period to be first of the month following 30 days.
• Currently small group rates in California can vary +/- 10% to the filed rates (known as the risk adjustment factor or RAF). Starting at the beginning of the year, carriers can no longer ask medical questions and the RAF goes away. This is great news for groups that had a 1.1 RAF, however not so great for those with a .90 RAF.
• At this time there are age bands for rates (under age 30, 30-39, 40-49 etc.). Going forward there will be an under-20 rate for children, and each age over 20 will have a specific rate. Also, spouses will be rated based on their own age, not the age of the employee. Finally, each child will also be rated — up to three children. How this affects any one individual rate will vary, but it does mean employers will need to collect census data on each family member.
• Additionally, there are a host of reporting and disclosure requirements, the first of which was to distribute a notice of the availability of the state exchange (Covered California) to existing employees by October 1, 2013, and for new hires within 14 days of their hire dates.

 There are a variety of new options for small employers:

• First, Covered California SHOP (the exchange for small employers): This state-run purchasing pool will give employees the option to choose from Blue Shield, Kaiser, and Health Net. This will be available January 1, 2014, for employers of 50 employees and less. Additionally, employers with less than 25 employees and an average salary under $50,000 could be eligible for a tax subsidy.
• There is also Early Renewal: All of the carriers are offering small groups the option to renew by December 1, 2013, to lock in 2013 pricing. Those with a RAF of less than 1.0 should consider this option.
• And finally there is the option for companies that now offer health plan coverage to drop the group plan and have employees purchase individual coverage. Now that carriers must offer coverage to all applicants and cannot ask medical questions nor impose pre-existing limitations, employers can get out of offering group-sponsored plans and ask that employees buy their own coverage either through the exchange or the traditional market. Individual plan pricing is expected to increase dramatically January 1, 2014, so we must currently wait until then to have the pricing released.

 

So as you can see the fourth quarter of 2013 will be busy with all of these changes. If there is one thing that is certain, it will be that the small employer healthcare market will look very different next year. Please let us know if you need help making your plans.