The new report by CMS’s Office of the Actuary, at the request of Congress, highlights that the ACA will severely impact health insurance premiums for individuals and their families in the small business category. In 2012, the small fully-insured group health market included 17 million people.
Under the ACA’s new adjusted community rating criteria, the CMS notes that the ACA limits issuers the ability to “vary premiums by factors such as: health status of the group, group size, and industry code or classification.”
Earlier this month, the Internal Revenue Service, along with the Department of Treasury, disclosed that employers with fewer than 100 employees were granted a one-year exemption from providing insurance on Jan. 1, 2015. These companies are still required to report their workers and coverage next year, but will have until 2016 to pay for affordable health insurance for their full-time workforce. The employer mandate delay was widely debated by employee benefit researchers and benefit industry decision-makers.
One route to deal with the changes would be to limit employees that are categorized as full-time, according to a February Congressional Budget Office report. Employers will cut about 2 million full-time jobs in 2017, primarily from the low-wage earning group. From 2017 to 2024, the total number of hours worked is predicted to drop by 1.5% to 2% as result of the connected to the tax advantages, the legislative branch’s research arm stated.
The CMS highlights that traditional health insurance structures will change due to the ACA, increasing premiums for about 65% of all small firms and decreases for 35% or 6 million individuals.
“Prior to 2014, insurers could set lower premiums for small employers with younger and healthier employees due to their low expected health care needs, and significantly higher rates for small employers with older and sicker employees with greater expected health care needs,” the report reads. “…The adjusted community rating under the ACA prohibits the use of gender, health and claims history as rating factors, and restricts the premium rating ratio for adults between young and old ages.”
Small employers are categorized as having fewer than 50 full-time employees, according to IRS. This group is eligible for the Small Business Health Care Tax Credit if at least 50% of full-time employee’s premium costs are covered and they have fewer than 25 full-time employees with average annual wages of less than $50,000, the IRS mandates.
While future is unknown for many of these small businesses, where some are considering sending employees to individual market exchanges, looking into tax credit options or even terminating their health insurance coverage, the CMS anticipates that employee contributions to health premiums will likely rise as result.
The federal agency also lists that small health group can also consider coverage options in a self-insured arrangement with stop-loss coverage, but should expect “employee resistance and administrative complexity,” the report says.