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Changes in ACR could encourage small businesses to reconsider health coverage

September 19, 2016

Small businesses may want to reconsider group health care coverage now that the Affordable Care Act (ACA) is in full effect and changes have been made to the adjusted community rating (ACR) provisions. Initially, the changes brought on by the ACA were deemed too costly for small employers who are not required to offer insurance. However, with a tightening labor market and a better understanding of the provisions of the ACA, offering health care benefits may be worth a second look.

Knowing where your business falls in terms of group size is the first step to determining if the new ACR will apply to you. Group sizes for the federal ACR are defined by the Department of Health and Human Services who have deemed “up to 50” eligible employees as a small group. (This number is calculated differently from the applicable large employer (ALE) rating.) Some states use average total number of employees (ATNE) and some use full-time equivalents (FTE). Knowing your rating is essential for any business concerned about ACA compliance.

Prior to the ACA, health insurance underwriters used multiple provisions to determine the ACR, which in turn dictated policy cost. Those provisions included pre-existing conditions and gender, along with age and tobacco use among others. During this time, actual or expected health status or claims history could have a significant effect on group premiums, which was especially problematic for small businesses with fewer policies to spread the cost around.

The ACA sought to insure as many Americans as possible, and with its implementation it eliminated the pre-existing conditions and gender provisions and prohibited the establishment of premiums based on expected health status. (Individual or family coverage, geographic area, age and tobacco use are still used as rating factors in determining premium rates.) This means premiums could not be inflated for these factors, which was good news for small businesses. However, it spread the cost of covering those individuals across the insurance market, increasing average premium cost nationally. Regardless, adjustments to the ACR have been considered one of the benefits of the ACA and could open the door for small businesses to consider offering group health coverage now that costly barriers have been eliminated.

Despite the ACA’s successes, there have been several inherent problems in the tenure of the policy such as the initial issues with set up. With subsidies running low, competition leaving the online marketplace, and the cost of policies increasing in order to cover everyone, many in the labor force are looking for a total benefit package from their employers. Benefits, more than ever, are driving employment decisions. While the cost of health care coverage is a large investment for small businesses, the investment in human capital and talent is paramount.

With all of the ACA’s issues coming to a head, it may be worthwhile for small employers to reconsider their options for benefits not just in health care, but in all aspects. Understand your group size and what laws apply to you, then add an analysis of your total benefit package to your HR and overall business strategy for the coming years. Offering group coverage can now be seen as a strategic move on the part of employers looking to attract and retain talent, and the ACR changes make health care worth a second look.

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