Small Employers & Association/Trust Plans • June, 2015

Will your company be affected? As it currently stands, employers with 1-50 total employees are considered “small” by Washington State statute when purchasing group medical insurance. In 2016, this definition is scheduled to be expanded to include employers who have 1-100 total employees. At the same time, the Washington State Office of the Insurance Commissioner is sparring with Association & Trust medical plans, threatening to close those programs.

What this really means…Whether your medical plan is moved from “large” to “small” status, or your Association/Trust loses the ability to offer you “large” group medical coverage, you will be looking at a similar outcome. Fewer plans, less plan design flexibility, more restrictive prescription plan coverage, and a more complicated rate structure

The Definition of “Small”
As medical plans renew in 2016, a provision of the Affordable Care Act (healthcare reform) expands the definition of a “small” employer from 1-50 to 1-100. Each state has some leeway with the definition, since they determine how an employer is to count their employees. In Washington State, the current calculation method does not match the Affordable Care Act calculation method. We do not expect the current method to change significantly (other than the number of employees considered a small group). The size of the employer is based on the average number of total employees your company had during the PRIOR calendar year. You must include all your full-time, part-time, seasonal and union employees, as well as any partners (do not include independent contractors). Each employee is counted as one (1) full employee, regardless of the number of hours worked. You must include all applicable employees, even if they were not eligible for your medical benefits. If Associations Become Dinosaurs If you are currently covered by an Association or Trust medical plan, you most likely are being rated as a “large” group. If your Association/Trust will no longer be able to offer you “large” group medical coverage, this new definition of “small” will apply to your company if you have 100 or fewer employees.

If Associations Become Dinosaurs
If you are currently covered by an Association or Trust medical plan, you most likely are being rated as a “large” group. If your Association/Trust will no longer be able to offer you “large” group medical coverage, this new definition of “small” will apply to your company if you have 100 or fewer employees.

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Why This Matters For employers with 1-100 employees, insurance carriers are currently required to segment them into two different “pools” – those with 1-50 total employees and those with 51-100 total employees. The 1-50 pool is subject to “community” rating rules, while the 51-100 pool is subject to “merit” rating rules. In 2016, all employers with 1-100 employees will be considered part of the “community” rating pool. If you move to this pool, you can expect:

  •  Fewer plan design options – The community rated pool has set plan designs; no customization is allowed. We call these “shelf” products.
  • Lower prescription drug coverage – Most community rated plans have converted from flat drug copays (eg. $50 copay) to coinsurance (eg. 30% of the full drug cost). This is especially true for higher cost nonformulary (nonpreferred) and specialty drugs.
  • Complicated rate structure – Community rated plans are required to charge based on each person’s age, plus those with children may end up paying much more than today. Premiums are calculated by adding together: 
    • Employee (based on the employee’s age) 
    • Spouse (based on the spouse’s age) 
    • Children < age 21 (charge each of 1st 3) 
    • Each child age 21+
  • Rate compression – Community rated plans are required to follow a 3:1 ratio; the rate for age 65 can be no more than 3 times the rate for age 21. Therefore, groups with a younger average population may experience higher rate increases than groups with older populations.

This article is provided for informational purposes only. Please contact your attorney and/or accountant to determine if this information may affect your business. © 2015 GHB Insurance

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