Effective in 2014
The ACA's major market reforms changed how individual and fully insured small group rates are built.
1-Hour CE Course Resource
Modified Adjusted Community Rating
A practical reference for understanding how the ACA changed individual and fully insured small group rating, which factors carriers may still use, which factors are off limits, and why certain clients look for alternatives.
Fewer rating factors
Age, geography, family composition, tobacco, and wellness remain. Health status, gender, industry, and group size are generally out for ACA small group.
Rate compression
Rates became more similar than they were under pre-ACA underwriting, but premiums can still differ significantly.
Strategy matters
Fully insured may help some groups, while level-funded, transitional, or other options may help others.
What MACR changed
Before 2014, small group pricing in Texas could reflect both case characteristics and risk characteristics. MACR changed the rating conversation by removing many of those variables for ACA-compliant individual and fully insured small group plans.
Before the ACA
Carriers could consider characteristics such as age, gender, location, industry, and group size. Underwriters could also consider medical conditions, claims history, and other risk characteristics, which could lead to a large rate-up after the initial quote.
Starting in 2014
For ACA-compliant fully insured small group plans, carriers could no longer rate a group based on industry, group size, gender, medical conditions, claims experience, or other health-status factors. The quote became more predictable, but not always cheaper.
The federal MACR rules
These are the core rating rules for ACA-compliant individual and fully insured small group coverage. Texas uses the federal age curve and CMS-approved rating areas.
Carriers may use
- ✓Family composition. Premiums are built per member. For children under age 21, only the three oldest children are counted.
- ✓Rating area. Geographic rating is permitted. There is no federal cap on how much one rating area can differ from another.
- ✓Age. Adult age rating is limited to 3:1 between age 21 and age 64. A 64-year-old cannot be charged more than three times the 21-year-old rate for the same plan and rating area.
- ✓Tobacco. Federal rules allow up to 1.5:1, applied to the tobacco user's portion of premium. In small group, the surcharge must be avoidable through a wellness or cessation program.
- ✓Wellness programs. Group-level premium discounts are permitted within the HIPAA/ACA wellness rules.
Carriers may not use
- ×Health status. A carrier cannot rate up an ACA-compliant small group because employees have medical conditions.
- ×Claims experience. A bad claims year does not create a group-specific rate-up under MACR.
- ×Gender. Male/female mix is not a permitted rating factor in the ACA-compliant small group market.
- ×Industry or SIC code. It may still matter for level-funded quoting and internal tracking, but it cannot price the fully insured ACA small group quote.
- ×Group size. A 2-life group and a 40-life group are not priced differently because of size under the MACR small group rating rules.
Single risk pool
A carrier cannot rate up one small group because that group had claims. Instead, the carrier prices its block. Each issuer has one individual-market risk pool and one small-group risk pool in the state.
Composite rating
Small group carriers may still offer composite or average rates, but the underlying premium is built from per-member rates and then converted into composite tiers.
Texas: then and now
The old Texas system helps explain why MACR created winners and losers. Many of the old Texas rating statutes still exist, but they are dormant where federal ACA rules preempt them.
| Step or factor | Pre-ACA Texas approach | Why it mattered |
|---|---|---|
| Group size | Up to 20% variation was allowed. | Smaller groups could be priced higher even with the same average age. |
| Industry | Industry classification could create up to 15% variation. | Higher-risk industries could start with higher base rates. |
| Age and gender | Wide age and gender spreads were common in practice. | Younger males, older females, and healthier groups often benefited from the old rules. |
| Location | Rates reflected geographic cost differences and provider contracts. | Geography still matters under MACR, but now through CMS-approved rating areas. |
| Medical underwriting | Rates could vary from the index rate, creating a roughly 67% top-to-bottom spread. | A $300 base rate could become about $500 after underwriting. |
| Renewal risk load | Additional risk adjustment could apply at renewal. | A group's own claims or conditions could continue to affect renewal pricing. |
27 rating areas
Texas now has 27 CMS-approved rating areas for individual and small group market rating.
Tobacco nuance
Texas law permits tobacco rating up to the federal maximum, but small group carrier practice varies. The small group wellness-program escape must be considered.
Co-op hook
Texas health group cooperatives are a useful local comparison point when discussing association-style coverage concepts.
Who is subject to MACR?
The simplest rule: MACR applies to ACA-compliant individual coverage and fully insured small group coverage. It does not apply to every health coverage arrangement an agent may discuss.
| Coverage or arrangement | Subject to MACR? | Course takeaway |
|---|---|---|
| Individual major medical | Yes | Guaranteed issue, community-rated, and affected by individual market risk-pool dynamics. |
| ACA-compliant fully insured small group | Yes | The main focus of the class. These plans use the limited rating factors discussed above. |
| Grandfathered plans | No | They avoid many 2014 reforms but are rare and generally locked into old plan designs. |
| Transitional / grandmothered plans | No | They avoided certain 2014 reforms and continue while CMS and the state permit renewal. |
| Large group | No | Large group coverage is not rated under the small group MACR rules. |
| Self-insured / level-funded | No | These arrangements can use underwriting and broader case/risk characteristics, subject to other compliance rules. |
| Association health plans | In flux | The 2018 AHP rule was rescinded. It is unknown whether this option will be re-introduced under the second Trump administration. |
| No Participation / No Contribution window | Yes | This can solve participation or contribution issues, but it does not avoid MACR pricing. |
Rate compression
MACR did not make all groups pay the same amount. It narrowed the rating range by removing many old factors. As premiums rise, even a fixed percentage difference can become a bigger dollar difference.
Winners and losers
Likely winners
- Older groups
- Groups with older males or younger females
- Sicker groups
- Groups that would have been medically rated up before 2014
Likely losers
- Younger groups
- Groups with younger males
- Healthier groups
- Groups that would have received favorable pre-ACA street rates
How agents use this
The goal is not to push every client away from fully insured coverage. The goal is to understand which rule set helps the client and which rule set hurts the client.
When fully insured may help
Fully insured ACA small group coverage can be attractive for groups that would have been punished under the old rules, especially groups with older or less healthy populations.
When level-funded may help
Level-funded coverage may be worth quoting for younger, healthier groups that are willing to go through underwriting and accept the added compliance and funding considerations.
When legacy plans may help
Grandfathered and transitional plans can still be valuable, but the trade-off is limited flexibility. The employer may be locked into the same plan design year after year.
Broker ethics: the micro and macro problem
At the client level, helping a healthy group find a lower-cost alternative may be the right recommendation. At the market level, when healthier groups leave the community-rated pool, the remaining pool can become less healthy and more expensive. Good advice means helping the client in front of you while understanding how the broader risk pool is affected.
Common alternatives and escape hatches
Some options avoid MACR entirely. Others do not avoid MACR but solve a different problem, such as participation or contribution.
Grandfathered plans
Avoids MACRPlans in place before March 23, 2010 may avoid many 2014 reforms, but material changes can jeopardize grandfathered status. These plans are increasingly rare.
Transitional plans
Avoids MACRAlso called grandmothered plans. These can continue under the extended non-enforcement policy while permitted by CMS and the state, but they generally renew without plan flexibility.
Level-funded / self-insured
Avoids MACRCan use underwriting and more old-rule-style rating factors. Watch for self-funded compliance duties, 6055 reporting, COBRA/state continuation issues, stop-loss terms, and terminal liability.
Association health plans
In fluxThe 2018 federal AHP rule was rescinded. New federal rulemaking may occur, but agents should not treat AHPs as an active federal pathway unless current rules support it.
ICHRA / QSEHRA
Sidesteps group planThese move employees toward individual-market coverage, which is itself community-rated. In Texas, network and individual-market pricing issues can make this a harder sell.
NPNC small group OE
Still MACRNo Participation / No Contribution can solve participation and contribution problems during the special window, but the group remains MACR-rated.
Short-term plans
Individuals onlyShort-term limited-duration insurance is not ACA-compliant and can be medically underwritten. It may be a bridge strategy for individuals, but it is not a substitute for major medical coverage.
Health care sharing ministries
Not insuranceThese arrangements may provide some financial help with claims, but they are not insurance, are not guaranteed to pay claims, and may exclude pre-existing conditions.
2026 update board
The core MACR mechanics remain stable, but the surrounding market has changed. Items marked in flux involve rules or market conditions that may continue to change.
| Topic | Status | Attendee takeaway |
|---|---|---|
| Core MACR factors | Confirm | Age 3:1, rating area, family composition, tobacco, and wellness remain the central rating factors. |
| Texas rating areas | Confirm | Texas uses 27 CMS-approved rating areas. Update old references to 26 rating areas. |
| Tobacco in Texas small group | Carrier-specific | Do not state flatly that tobacco is not permitted. It is permitted up to federal limits, but carrier practice varies and the small group wellness escape matters. |
| Transitional plans | Confirm | CMS extended the non-enforcement policy on an open-ended basis until CMS announces an end date. |
| Level-funded migration | New data | KFF's 2025 employer survey shows level-funded plans have become a major small-firm strategy. |
| Association health plans | In flux | The 2018 rule was rescinded in 2024. New rules would require fresh rulemaking. |
| Short-term plans | In flux | Federal enforcement and replacement-rule activity remains unsettled, so short-term strategy may change. |
| Individual market rates | New data | 2026 individual-market rate pressure provides a live example of what can happen when healthy lives exit a community-rated pool. |
Quick review questions
Use these to test whether the rating rules and strategy implications are clear.
A healthy 8-person Austin tech firm gets a fully insured renewal at +14%. Which option could let a carrier price the group on its actual risk?
Answer: A level-funded plan. A different fully insured ACA carrier may produce a different rate, but it still uses MACR rules. Level-funded coverage can use underwriting and actual risk characteristics.
Under MACR, which factor may still lawfully change a Texas small group's premium?
Answer: Moving from one rating area to another. Industry, gender, and medical diagnoses are not permitted MACR small group rating factors.
A 21-year-old pays $400/month. What is the maximum charge for a 64-year-old in the same plan and rating area?
Answer: $1,200/month. The adult age curve is capped at 3:1 from age 21 to age 64 and older.
Why might a quoting portal still ask for an SIC code if industry rating is banned under MACR?
Answer: Industry may still matter for level-funded offers, internal tracking, and non-MACR contexts, even though it does not price the fully insured ACA small group quote.
Does No Participation / No Contribution avoid MACR?
Answer: No. It can solve participation and contribution problems during the small group open enrollment window, but the plan remains fully insured and MACR-rated.
Course materials
Use these links to download the slide deck or watch the class recording.