New 2014 Small Group Insurance Rating Structure and Taxes

New 2014 Small Group Insurance Rating Structure and Taxes

The Patient Protection and Affordable Care Act (ACA) was signed into law on March 23, 2010, with the aim to improve the quality of health care in America and increase access to care for individuals and businesses.  Beginning in 2014, the ACA only allows for rate variance by four factors: age, family composition, geographic location, and tobacco use (California AB 1083 prohibits tobacco use as a rating factor).

  • California’s current 9 Geographic Rating Regions expanded to 19
  • Member Level Rating
  • Each individual will be rated (cap of 3 on children under 21)
  • 3:1 ratio will limit rates charged to 64 year-old to 3x those charged to 21 year-olds
  • Risk Adjustment Factors (RAF) are no longer used
  • Single-year age bands: no rate increases on birthday months, only policy anniversaries

Small Employer Health Care Tax Credit

 Beginning in 2010, ACA provides tax credits to eligible small businesses with no more than 25 employees and average annual wages of less than $50,000, offsetting the employer cost of providing health insurance to employees.

  • 2010 to 2013: A tax credit up to 35% of employer costs.
  • 2014 to 2016: A tax credit up to 50% of employer costs for those businesses that qualify and purchase coverage from the Covered California Small Business Health Options Program (SHOP).

Taxes & Fees

The following fees/taxes, mandated by the ACA, will be assessed on health insurance carriers (& self-insured employers as noted).  Carriers are integrating these into their rates.

PCORI – Patient Centered Outcomes Research Institute*

Goal: Fund research into the effectiveness of medical treatment
Amount: $2 per member for plan years beginning after 9/30/2013 & ending before 10/1/2014.  Plan years ending 10/1/2014 & after, this fee will be adjusted for inflation
Duration: Plan years ending after 9/30/2012 and ending before 10/1/2019

Reinsurance Tax

Goal: Help reinsure the individual market insurers who cover people with expensive claims. Amount: $63 per member for 2014 / $44 per member for 2015/ 2016-TBD.
Duration:  2014 – 2016

Health Insurer Tax*

Goal: Help fund premium tax credits and cost-sharing subsidies for lower income individuals and families
Amount: Varies based on carrier’s net premium for applicable year.

Duration: On-going

* Applies to self-insured employers also