Small Firms at Risk of Health-Plan Cancellations, Too

Companies with 50 to 99 workers don't necessarily have reason to hope insurers will let them keep their noncompliant plans, despite Obama announcem...
David McCannNovember 15, 2013

Individuals whose health plans have been canceled or not renewed because they wouldn’t have complied with the Affordable Care Act come Jan. 1 have been big news. Hardly any talk has been heard about the impact on small companies with noncompliant plans.

Some of those companies stand to have their plans canceled or not renewed as well. Those with plan years starting on Jan. 1 are likely to already have either a new, compliant health-insurance contract in place or a grandfathered plan, or have decided to stop offering group coverage to employees. But following President Obama’s announcement Thursday that health insurers will be allowed to continue offering noncompliant plans for another year, employers with plan years scheduled to start at later dates, and that don’t yet have new insurance contracts nailed down, may be hopeful that their policies will be renewed.

That hope may not be well-founded.

Simultaneously with President Obama’s  announcement, the Department of Health & Human Services sent a letter to state insurance commissioners detailing the new policy.

The temporary rule change applies to “health insurance coverage in the individual or small group market that is renewed” for plan years starting from January 1, 2014 through October 1, 2014, the letter said.

The letter did not define “small group market,” although for most purposes of the Affordable Care Act (ACA) the term applies to plan-sponsoring employers with fewer than 100 full-time and full-time-equivalent (FTE) employees (although states are allowed to lower that number to 50). Employers with fewer than 50 such workers do not have to offer health care under the ACA, so the rule change likely applies to those with noncompliant plans and from 50 to 99 full-timers and FTEs.

Will insurers actually cancel the small group plans? After all, they willingly offered those plans before Obama’s announcement; why should they cancel them now that they’re allowed to keep them?

It’s not yet known if they will, but the insurance industry’s early reaction to Obama’s announcement was skeptical with regard to the individual market.

“Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers,” Karen Ignagni, president and CEO of America’s Health Insurance Plans, the industry’s trade group, said in a statement Thursday. “Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace.”

At this point, notes Drew Crouch, head of government relations at Buck Consultants, insurers are already looking at 2015 rates for small groups. “This is an awfully quick change the government is trying to implement,” he says. “What is the right lead time for that? Two or three months isn’t enough.”

So what are small employers with health-plan years that begin a few months from now, and haven’t yet secured an insurance contract for that plan year, supposed to do? “They’ll have to wait,” says Crouch. “What they should do depends on what the insurance commissioners in each state do and whether insurers are actually willing to renew these policies.”