Small Group Transition Relief

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Late last week Kentucky Governor Beshear announced that insurance companies will have the option to extend pre-Affordable Care Act plans to small employers and individuals who have pre-ACA plans in force already, for another year. This announcement was made at the request of the Obama Administration and shortly after similar decisions were made by the States of Indiana and Ohio. Carriers are expected to notify the Kentucky Department of Insurance of their decision to renew non-ACA compliant plans by May 5, and we expect that most, if not all, of the health carriers active in the individual and small group markets will act on this opportunity.

This is certainly good short-term news for the majority of those small employers and individuals who have not yet been forced into the new plans and the community rating environment. Community rating has increased costs for many employers, particularly for those who have had favorable risk factors, particularly employers who had young, healthy employees. This transitional relief could inoculate these small employers and individuals from the higher premiums into the fourth quarter of 2017 in some cases.

It is fair to ask what the long term ramifications of this transition relief will be on community rates. Carriers developed their community rates with the reasonable expectation that those rates included the entire population of people who obtained coverage individually or through a small employer. If, however, only those who benefit from community rating (IE, those who have adverse risk factors) actually elect community rating until 2017, those community rates were clearly underpriced, and we can anticipate significant adjustments at some point in the future.

It is also fair to ask why the Obama Administration urged states to adopt this transitional relief. Frankly, the only rationale is that the Administration is beginning to recognize what small employers knew four years ago: community rating significantly raises their cost of doing business. Why two years of transitional relief then? I suspect it is because the relief postpones the pain of community rating on the voting public until after mid-term elections.