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Composite Premiums in the Small Group Market in Virginia

On Oct. 7, 2014, the Virginia Bureau of Insurance published two documents relating to composite premiums in the Virginia small group market. As background, final rules issued by HHS on March 11, 2014, provided for a two-tiered federal calculation method for composite rates (one tier for each covered adult age 21 or older and a second tier for each covered child under age 21). However, the same final rule permitted states to substitute their own alternative to the federal methodology by seeking approval from HHS.

According to the two documents, Virginia has been approved for and will implement a four-tiered rating structure, including employee, employee plus spouse, employee plus children and employee plus family. This means that while insurers issuing small group market plans in Virginia may continue to provide per-member billing, they may choose to provide family composite premiums on an optional basis. If so, the insurer must follow the state’s four-tiered alternative method, and must make it available for each small employer in the market, regardless of size. Importantly, tiered composite rates must be set at the beginning of the plan year and do not change throughout the plan year, even if the distribution of employees among the tier levels changes.

The tiered-composite methodology applies to Virginia small employer premium rates for plans offered outside of the federally-facilitated exchange in Virginia beginning Jan. 1, 2015. Those offered on the exchange must use per-member ratings.

Composite Premiums in the Small Group Market in Virginia

Approved Virginia Alternate Methodology

On July 28, 2014, the U.S. Court of Appeals for the Fourth Circuit, in Bostic v. Rainey, No. 14-1167 (4th Cir. 2014), upheld a federal district court ruling against Virginia’s ban on same-sex marriage. However, the court issued a stay on their ruling, meaning the ban on same-sex marriage remains in effect pending the outcome of any appeals. So for now, the ban remains the law in Virginia. The issue seems headed eventually to the U.S. Supreme Court.

Bostic v. Rainey

Read the full nationwide compliance report here.

Contact Steven G. Cosby, MHSA with questions or to request more information and to schedule a healthcare plan evaluation, savings analysis or group plan solution for your company.

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Three Small Business Health Insurance Trends

Trend #1: Consumer-Driven Healthcare

Consumer driven healthcare (CDH or CDHC) refers to healthcare where patients/employees behave as medical consumers. With CDH employees have a more active role in deciding how their healthcare dollars will be spent. Health Savings Accounts (HSAs) are a well-known staple of CDH, as are Health Reimbursement Arrangements (HRAs).

CDH is growing in popularity, mostly fueled by cost. CDH is attractive to employers because of the cost-savings they offer, though it shifts more responsibility of healthcare choices to employees. Critics of CDH say shifting healthcare responsibility is a burden to employees.

Whether employees are ready or not, CDH strategies are already incorporated into many employer-sponsored healthcare plans and individual and family health insurance plans. And, many experts suggest all types of health insurance will have CDH features within five years.

Trend #2: Individual and Family Health Insurance

Individual and family insurance is replacing employer-sponsored health insurance. Employer-sponsored group health insurance has seen steady decline over the last few years, largely due to the increasing cost for employers and employees. And, studies show that up to 60% of educated employers plan to pursue alternative ways to offering health insurance, including giving employees tax-free money to purchase their own individual or family health insurance policies (pure defined contribution).

This trend toward individual and family health insurance is accelerated by health care reform because:

All individual health plans become guaranteed issue in 2014 (currently, medical underwriting exists in most states)

Premium tax subsidies will be available in 2014 to the majority of Americans to lower their individual health insurance premium expense (when the plan is purchased through the new health insurance marketplaces)

Nearly all Americans will be required to have health insurance or pay a tax penalty, starting in 2014 (known as the “individual mandate”)

Trend #3: Defined Contribution Replacing Defined Benefit Plans

Because of the two trends above, fueled by the unsustainable cost of employer-sponsored group health insurance and health reform, defined contribution health plans are replacing defined benefit plans.

Employers are shifting away from paying the direct cost of employee health insurance (a defined benefit plan), and instead giving each employee a fixed annual healthcare allowance (a defined contribution plan) – employers are requiring that every employee obtain private or government-sponsored-health insurance in order to receive this tax-free benefit.

Defined contribution plans are especially growing in popularity with small businesses (< 50 employees) who have either not been able to offer group health insurance due to cost or minimum participation requirements, or who are looking for a more cost-effective way to offer health benefits.

Source:  Zane