New Guidance on Composite Rating

In the December 2nd proposed rule on payment parameters for 2015, HHS also provided some clarification on composite rating.

They begin by pointing out that the February 27, 2013 Market Rules “generally directed that issuers calculate a separate premium for each individual covered under the plan or coverage based on allowable rating factors including age and tobacco use, and sum the individual rates to determine the total premium charged by the issuer to a family or to a group health plan.” You may have heard the term member-level rating associated with this practice.

HHS goes on to say that “in the small group market it is common industry billing practice to charge an employer a uniform premium for a given family composition by adding the per-member rates and dividing by the total number of employees covered under the employer’s health insurance plan” and confirms that “nothing prevents an issuer from converting per-member rates into average enrollee premium amounts (calculated composite premiums), provided that the total group premium is the same total amount derived in accordance with the process established by the regulations.”

In this proposed rule, HHS says that it intends to add a provision that would require any carrier that chooses to offer composite rates in the small group market to make sure the premium “does not vary for any plan participant or beneficiary during the plan year with respect to the particular plan involved.” In other words, the carrier would composite rate the group at the beginning of the plan year and hold those rates until renewal time – new members would join at the composite rate, not the age-banded rate.

This rule would apply to health insurance issuers offering non-grandfathered plans in the small group market and would begin in 2015, though HHS encourages carriers to adopt this practice for the 2014 plan year.

HHS is also “considering establishing a uniform tiered-composite rating structure that would apply market wide.” Under this approach, “a small group market issuer offering composite rating would calculate the composite premium for different tiers of enrollees covered under the employer’s plan. For example, in a two-tier structure, one composite premium would be calculated for covered adults (employees and adult dependents) and another composite premium would be calculated for covered children. Alternatively, in a three-tier structure, there would be one composite premium for covered employees, a second composite premium for covered adult dependents, and a third composite premium for covered children. The premium for a given family composition would simply be determined by summing the applicable tiered-composite rates.”

This proposed rule will now enter the comment period and HHS is seeking comments on “all aspects of this approach to composite rating.”

If you’d like to read the entire proposed rule about composite rating, here it is. It’s only two pages.

What does this mean for brokers?

The important question, of course, is what this means for insurance agents, especially agents who have been advising their clients that the small group market would be a nightmare and they’d do better dissolving their group coverage and letting the employees purchase an individual plan with a government subsidy.

First, it does simplify things a bit in the small group market because it confirms that composite rating is permissible and that the carrier would hold the rates all year long. That’s probably a good thing. For groups that choose to maintain coverage, it will be easier to develop a contribution strategy that’s fair to everyone; offer multiple plan options to employees; and explain those plans during the enrollment meeting. That’s IF the carrier chooses to composite rate – it’s not a requirement, and some carriers will choose to apply a member-level rating strategy instead.

For carriers that do decide to composite rate, it still doesn’t solve the group’s #1 problem: in most cases, offering employer-sponsored health insurance blocks employees and their family members from getting a government subsidy. In many companies, the group plan will hurt a significant percentage of employees and their family members, and that’s not changing. If anything, the composite rating rule will make this point easier to illustrate to employers and employees because brokers can use a single family rate when comparing the group plan with the individual market – they don’t need to factor in the employee and dependent ages when showing the family premium on the group plan.

Next week’s coaching call

For HPA partners (agents who have a private exchange site through Health Partners America), we’ll discuss the new composite rating rules on the December 19th members-only coaching call and will provide some examples that will help you illustrate this for your clients. Register now via the Events tab in your Member’s Area to reserve your spot.

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