Many Californians are seeing their individual and family health insurance premiums jump with the inclusion of all the new Affordable Care Act benefits and regulations. A small sampling of the new ACA rates shows that Covered California individual health plans are comparably priced with current and future small group plans offered in California.
Individual plans closely mirror small group benefits
The Affordable Care Act benched marked the new individual plans to each state’s existing small group market. In other words, the ACA compliant health plans were designed to look and be priced similar to small group plans. (Small group plans are limited to employer groups of between 2 – 50 eligible employees) The most significant differences between the old individual plans and small group plans were that small group plan enrollment is guarantee issue, members are not rated up for pre-existing conditions and maternity is a standard benefit. Such benefits are now included in all 2014 individual plans. The guarantee issue rule alone significantly increases rates as insurance companies can’t select their pool of membership based on pre-existing conditions.
Comparing individual to group rates
A comparison of 2014 individual rates with current and future small group rates in California shows the ACA compliant plans offered are closely mirroring an employer sponsored small group health plan premiums. In the comparison below, I chose to compare the Silver Plan offerings from the four carriers in Region 3: Anthem Blue Cross, Blue Shield of California, Kaiser and Western Health Advantage. All carriers are offering plans inside and outside of the exchange.
The Silver Individual is the plan being offered through Covered California and is eligible for premium assistance. A designation of SHOP indicates a small group plan offered through Covered California. Blue Cross and Blue Shield had not yet published their SHOP plan rates so I could only incorporate a sampling of their existing small group plans.
Experience and rules influence final rates
While the new Covered California individual health plans look strikingly similar to plans and rates offered to small groups, there are some subtle differences between the plan benefits and how they are administered. There are several factors that have influenced rates of both plans offered through Covered California and those in the traditional small group market place.
Dental plans
Covered California decided not to bundle Pediatric Dental into the plans but instead offer stand alone children’s dental. I am not certain how many carriers bid to offer individual plans in the exchange with the expectation they would have to bundle the dental into the rate. Outside the exchange, the some carriers are bundling pediatric dental into the overall rate of the health plan. Small group plans aren’t bundling pediatric dental it must be purchased separately. Pediatric dental and vision is an essential health benefit that must be included in all health insurance plans in 2014.
Risk Adjustment Factor
California carriers had the option of discounting or increasing small group rates by 10%. The Risk Adjustment Factor of .9 – 1.1 of standard rates will no longer apply in 2014. Carriers freely penalized or rewarded small groups with the RAF which help blend there overall rates.
Unknown claims experience
Similar to a new group who has no claims experience and might receive a RAF of 1.1, the new guarantee issue individual market place has a certain element of unknown risk. I suspect the carriers are hedging their bets with rates slightly higher than the small group market for the same Silver type plan. Insurance companies have volumes of claims experience and actuarial data to help them determine small group rates. Important is that small group plans are guarantee issue and include many individuals and family members with health challenges that require medical treatment and health care expenses.
Ancillary benefits
Some carriers have offered other small group discounts if the employer also includes dental, vision and life insurance. Those nice profit centers don’t exist within the individual market through the exchange. Members of small groups may have an overall higher medical insurance premium because dental, vision and life are part of the health benefits package.
Age bands hurt some individuals
Small groups used age bands for calculating rates such as 40 – 45 years old which were all assigned the same rate. In 2014 age bands will give way to attained age rating. For instance, the age band of 60 – 64 is heavily weighted toward the 64 year old level.
Small group dependent coverage expensive
Some of the current small group rates have very expensive columns for adding a spouse or children relative to the employee only premium. In 2014, each individual in the household of a small group plan will be age rated. In this respect, small group plans will become more like existing individual and family plans.
Pre-tax with employer contribution
The real value of the small group plan for the employee is the employer contribution which could be 100% and that the employee contribution are pre-tax. To help keep health insurance affordable for those folks who don’t have any employer contribution the ACA created the Advance Premium Tax Credit based on age, income and rates of regional Silver plans.
Future rate stability
I think it is everyone’s hope that the new pool of ACA health plan membership in the individual market will reflect the same health care claim expenses as those in the small group market. If this does happen, California should see stable rate increases so that rates will be virtually identical between the individual and small group market.
