In an effort to make health coverage more affordable and accessible, the Affordable Care Act (ACA) implemented parameters to the premium rating methodologies used by insurers in the individual and small group markets. Insurers in these markets can vary premium based on age so long as the insurers adhere to the proper age band rating procedure. This procedure has remained unchanged since 2014, but pursuant to a rule issued by the Department of Health and Human Services (HHS), the rating methodology will change come 2018.

Change to Rating Methodology

Changes to the age band rating methodology will begin to take effect in 2018. Presently, the methodology requires that insurers assign a single banded premium rate for all individuals ages 0-20, with single ratings applied to each year of age from 21 upward (to age 63). Under the new methodology effective in 2018, insurers can apply a single banded premium rate for all individuals ages 0-14 and begin to assign a single rate to each year of age as early as age 15. As a result, insureds will begin to see a premium increase upon turning age 15 rather than age 21.

Impact on Employers

Employers in the small group insurance market will be affected by this rating change. In most states, a small group employer is one with 50 or fewer employees. However, California defines a small group employer as one with up to 100 full-time and full-time equivalent employees. Thus, a wider swath of employers in California will be impacted than in other states.

The new rating methodology will likely bring a premium increase for 2018 renewals for most small group employers. While employers can do little to change their classification as a small group employer and, consequently, the age band ratings that apply, there may be other plan design strategies that could counteract the rising premium costs. Employers should carefully review premium increases expected in 2018 and explore cost-control measures in other areas of their plan.