FOUR FACTORS AFFECTING RATES
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The ACA and Future Rates
UNDERSTANDING THE CHANGES FOR SMALL BUSINESSES
Due to a change in the law last year, many California small businesses chose to continue their health coverage for one more year rather than switch to a new Affordable Care Act (ACA) plan. This year when they renew coverage, these small businesses will need to switch to an ACA plan.The ACA plans selected for their employees will reflect changes in how products are now designed and rates are set.
Before 2014, the price of insurance varied according
to the health status of employees of the group.
The ACA has created
new standards on how
all carriers set rates.
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STANDARDIZING PRODUCT AND PRICE
All plans must cover 10 essential health benefits at the following metal levels: platinum, gold, silver, and bronze.
Plans issued before January 1, 2014, lack standardization in pricing and benefits.
ACA plans contain standardized benefits priced at platinum, gold, silver, and bronze levels, which refer to the amount each plan pays for the employees' healthcare costs.
Before January 1, 2014, California health plans each set their own geographic pricing regions based on different healthcare costs by area. Now, plans must use the 19 pricing regions in California established by law.
Example: John Smith runs a coffee shop in the San Francisco area. The rates for his five employees will rise based on the change in pricing regions.
Example: Sarah Jones works at a 10-person gift store in the Santa Cruz area. Her plan rates will go down based on the change in pricing regions.
INTRODUCING MEMBER-LEVEL RATING
Previously, carriers could use multiple criteria to set rates. For example, older members generally paid more, reflecting higher healthcare costs for that age population. Spouses and dependents also paid rates based on the age of the subscriber.
Plans in effect since January 1, 2014, now set rates defined by specific criteria. For example, all plans are restricted to a 3:1 ratio of rate variation based on age, meaning an older person cannot be charged more than three times the rate of a younger person. The ages of spouses and/or children will now also count toward the family rate, eliminating the previous blended rate for children.
John Doe (single) is a 28-year-old employee and will see a rate increase based on the change
in age rating.
Jane Doe (single) is a 55-year-old employee and will see a rate decrease based on the change
in age rating.
The Jones family will see a rate decrease based on the fact that both parents are 32 and have
one five-year-old daughter.
The Brown family will see a rate increase based on the fact that the parents are 53 and 56 and they have four children, ages 16, 18, 22, and 23. New family ratings count both parents’ ages, the first three children under age 21 and every child over age 21.
ELIMINATING RISK ADJUSTMENT FACTOR (RAF)
Before January 1, 2014, carriers could adjust rates by 10% on a group-to-group basis to reflect the expected risk at the group level. For new and renewed plans, the ACA no longer permits carriers to adjust rates this way; carriers must rate the total population together.
Example: Rates might decrease for a group that uses more healthcare services since carriers cannot charge higher rates now for using more services.
Example: Rates might increase for a group that uses fewer healthcare services because carriers cannot charge lower rates for using less service.
For more information or to determine subsidy eligibility, please visit coveredca.com or contact your broker to discuss your options.