HHS changes transition rules AGAIN. Ok, it’s starting to get a bit ridiculous. Every time brokers think they have the ACA figured out, the government changes the rules. It happened again just recently. Before we tell you about the rule change, though, here’s a quick summary of how we got here.
ACA Market Reforms
The Affordable Care Act, signed into law six years ago, makes a number of changes to the small group market. Some of these changes occurred in 2010 and 2011, but the biggest changes were scheduled to begin on the employer’s renewal date in 2014. These “market reforms” require all ACA-qualified plans to cover the law’s “essential health benefits” and prohibit small group fully insured carriers from rating based on gender or medical conditions.
These reforms did benefit some employers: most companies that were paying above-average premiums in the past saw their rates go down as a result of the new rules. Unfortunately, small employers that benefitted from the old rating structure would see their rates skyrocket under the new rules, so these employers wanted to put off moving to plans with the market reforms as long as possible.
December 1 Renewal Strategy
To help postpone the ACA’s negative impact on these small group clients, a lot of agents moved their clients to a December 1 renewal date back in 2013. Doing so meant that the new rating rules and resulting premium increases wouldn’t kick in for these employers until December 1, 2014—eleven months later than groups with a January 1 renewal date.
One-Year Transition Relief
After many small groups had already moved their effective date, , the government decided to provide “transition relief” that ultimately made the 12/1 renewal strategy unnecessary. Under this relief, small employers could renew their existing plans on or before October 1, 2014 and avoid the new rating rules for one more year even if they weren’t grandfathered. This relief option also applied to individual health plans, but the states and the insurance companies were given the ability to decide whether to permit this relief or not. Some states said yes; some said no; and some insurance carriers decided to allow the change for small groups but not individuals.
Two More Years
Shortly after the original announcement about the transition relief, the Centers for Medicare and Medicaid Services (CMS) issued additional guidance and extended the relief two more years. As long as employers renewed their plans by October 1, 2016, they wouldn’t have to implement the new essential health benefits and would not be subject to the modified adjusted community rating rules until their renewal date in 2017.
The guidance also clarified the rules for large-business employers with 51-100 employees who were scheduled to be redefined as small-business employers on their renewal date in 2016: while the relief did not apply to large groups, these companies would have the option of renewing their existing plans between January 1 and October 1, 2016. However, because the Protecting Affordable Coverage for Employers (PACE) Act allowed states to stick with the current definition of small group (up to 50 employees), these mid-sized-business employers, in most states, did not take advantage of the relief.
Yet Another Change
That brings us to the most recent change. In March, CMS once again extended the transition relief, but rather than providing a final renewal date for the plans as they had in the past, CMS said that employers could renew their existing transitional plans on or before October 1, 2017, as long as they end by December 31, 2017 and start playing by the new ACA rules no later than January 1, 2018.
There are two possibilities for employers that want to extend their current coverage:
- Renew early on January 1, 2017: If a small-business employer renews their plan July 1, 2016, for instance, CMS says that the employer, with the carrier’s permission, could renew again on January 1 so that they would have a normal plan year in 2017 and could keep their current coverage until the very end of the transition period.
- Go with a short plan year in 2017: A second option for the employer in our example is to renew its existing non-ACA plan July 1, 2016 and then, on its renewal date in 2017, renew again. This time, though, the plan would only last for six months and, on January 1, 2018, the group would renew under the new rules.
As with the previous changes, it is up to the states and the carriers whether to allow this change or not, but most are expected to go along with it. The problem is that it will encourage employers to once again move to a calendar year plan with a January 1 renewal date. This is a busy time of the year since it’s during the open enrollment period in the individual market and shortly after the Annual Election Period for Medicare Advantage and Part D plans, so some brokers liked having their groups renew December 1 or even October 1. Now, all that business will be concentrated in a short timeframe again, requiring brokers to pick and choose what products to represent and which clients to spend their time with.
Another Option for Employers: Self-Funding
Keep in mind that the small-business employers that are currently taking advantage of the transitional relief are primarily groups that benefit from the old rating rules and would pay significantly more under modified adjusted community rating. The good news is that there is another option for these companies, either before or after January 1, 2018: self-funding.
Generally reserved for large-business employers, the self-funding strategy has become popular among small-business employers in the past couple years primarily because self-funded plans can often offer a lower rate than a fully-insured ACA-compliant plan. Many small-business employers, rather than taking advantage of the transition relief, have already moved to self-funded plans, and this migration is likely to continue in the coming months.
The better news is, AHCP has access to a great self-funded plan option that you can present to your clients. We’d love to talk with you about it, so give us a call today and we’ll tell you everything you need to know.