Large vs. Small Group Classification: Why It Matters For Your 2014 Renewal

While the Employer Mandate (and related penalties) was effectively delayed until 2016 for Employers with 50-99 full-time employees, being classified as an employer with 50-99 employees vs. one with 1-49 employees could play a significant role in your company’s 2014 renewal. For those companies on the 50 employee “cusp”, the classification at renewal could have a major financial and administrative impact. To best illustrate this point, look at how the classification would affect two fictitious companies.

Company A Profile(older, healthy group):

  • 48 to 52 full-time employees with an average age of 55.
  • The group is healthy and therefore currently has competitive, underwritten composite/group rates.
  • They early renewed their medical plan effective 12/1/13, and will have to comply with the ACA effective 12/1/14.

Company B Profile(younger, unhealthy group):

  • 48 to 52 full-time employees with an average age of 35.
  • While the group is relatively young, there are a number of notable health conditions present that have lead to expensive, underwritten composite/group rates.
  • They early renewed their medical plan effective 12/1/13, and will have to comply with the ACA effective 12/1/14.

Now consider what will happen when each Company is classified as “Small” and “Large” at renewal:

Scenario 1: Company A & B are classified as “Small” Employers (employing 1-49 full-time employees).

  • All employees and dependents will only be rated based on age and tobacco usage.
  • All plans offered must offer Essential Health Benefits (EHB)

Scenario 2: Company A & B are classified as “Large” Employers (employing 50-99 full-time employees).

  • The Groups will be composite/group rated, with claim results and health conditions being factored into overall rating.
  • Plans offered do not have to offer EHB

Company A Analysis under both Scenarios:

Under Scenario 1, Company A will have an unfavorable renewal from both a pricing and administrative standpoint. By being rated only based on age and tobacco usage, this healthy yet older group will no longer benefit from favorable underwriting. The plans will most likely change due to the EHB requirement, and each employee could essentially have a different premium expense (and payroll deduction) due to individual rates being used.

Under Scenario 2, Company A will have a favorable renewal from both a pricing and administrative standpoint. The group will continue to be composite/group rated and will benefit from favorable underwriting. The renewal plans will most likely remain similar from a design standpoint to the former plans.

Company B Analysis under both Scenarios:

Under Scenario 1, Company B will most likely have a favorable renewal from a pricing standpoint. As a young group, the individual age rates should be lower than current rates (which are higher due to unfavorable underwriting factors). The plans will most likely change due to the EHB requirement, and each employee could essentially have a different premium expense (and payroll deduction) due to individual rates being used.

Under Scenario 2, Company B will have an unfavorable renewal from a pricing standpoint, driven by the fact that underwriting conditions will keep rates high. The group will continue to be composite/group rated and the renewal plans will most likely remain similar from a design standpoint to the former plans.

Summary

Being classified as an employer with 1-49 or 50-99 full-time employees will affect the pricing and administration of your 2014 group health insurance renewal. At Invincia, our Employee Benefits Team can help your company incorporate a number of strategies to better manage the higher cost and administrative effort you may be faced with.

About the Author Patrick Beale165

Patrick Beale manages the employee benefits department at Invincia and has clients that range from 2 – 250+ employees. Prior to joining Invincia, he worked in the Assurance and Advisory Department at PriceWaterhouseCoopers in McLean, VA. He is more than happy to answer any questions you may have and can be contacted at PGBeale@invincia.net or 804-751-0600.

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