Small employers may need to change effective date for a THIRD time

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Here we go again…

First, brokers scrambled to change their small group clients to a December 1 effective date. The year was 2013, and at the time we were told that the new modified adjusted community rating rules, which promised to have a devastating impact on premiums for many small employers, would kick in at the group’s renewal date in 2014. Wanting to postpone the impact as long as possible, we moved all of our young, healthy groups to a 12/1 renewal date so they could continue to play by the old rules as long as possible. As Mark Bellman famously said at the time, “12/1 is the new 1/1.”

Unfortunately, not everyone got the message, and when employers and individuals who hadn’t changed their renewal date started receiving letters from their insurance companies that their non-ACA-compliant plans would be terminated at the end of 2013, they freaked out. And so did Congress after an NBC News “investigation” confirmed that President Obama knew back in 2010 that people might lose their existing plans. Of course, educated brokers also knew this since there was a grandfathering provision in the law and most of us had “the talk” with our clients in the fall of 2010, but that didn’t show up in the reports.

Anyway, as people continued to complain and President Obama’s poll numbers began to dip, the President announced that people could hang on to their existing plans for another year, even if they weren’t grandfathered. CMS sent out a letter in November confirming the one-year transitional period but then followed up with another letter in March that extended the deadline two more years. As long as a group renewed its current non-grandfathered and non-ACA-compliant plan by October 1, 2016, it wouldn’t need to play by the new rules until its 2017 renewal date. This was certainly good news for small employers that would be hurt by the new rating rules, but it also meant that October 1 was now the most desirable renewal date for healthier small employers, so once again companies worked with their insurers to change the start date of their plan year. 10/1 was the new 12/1.

In the process, a lot of mid-size employers with 51-100 employees also changed their effective dates because they, too, would be forced to comply with the new modified adjusted community rating rules when they were “re-defined” as small employers on their renewal date in 2016, or so they thought. In hopes of delaying that change as long as possible, these mid-market groups move their renewals to 10/1 only to learn that the new rules would not apply to them after all. Congress passed the PACE Act (Protecting Affordable Coverage for Employers Act) in 2015, which gave states the option of sticking with the current 2-50 definition of small group. Most states took advantage of this option. For small employers, though, it still made sense to have a 10/1 renewal.

Well now, for the third time in three years, small employers may once again need to change their renewal date. That’s because CMS just extended the timeframe for these transitional or “grandmothered” plans a little bit longer. In a February 29 letter, CMS states that “we will extend our transitional policy to policy years beginning on or before October 1, 2017, provided that all policies end by December 31, 2017” and that “States may permit issuers that have renewed policies under the transitional policy continually since 2014 to renew such coverage for a policy year starting on or before October 1, 2017; however, any policies renewed under this transitional policy must not extend past December 31, 2017.”

Importantly, CMS “will work with issuers and States to implement this policy, including options such as allowing policy years that are shorter than 12 months or early renewals with a January 1, 2017 start date.” What this means, in case you’re in denial after reading it, is that January 1 is now the best renewal date for younger, healthier groups. Whether they renew early on January 1, 2017 or go with a short plan year in 2017 and switch their renewal date on January 1, 2018, we’re likely to see most small employers migrate back to a January renewal date. So 1/1 is the new 10/1…

One final point, in case you missed it: this short but very important extension of the transition relief means that most small employers (and their employees) will not feel the true impact of the ACA’s community rating rules until after the November presidential election. Just sayin’…

I know everyone has some thoughts on this, so fire away. I can’t wait to read your comments.


This article was originally posted on LinkedIn.

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