Page background

LinkedInlink Pinterest link YouTube link

Express

Norm's Desk

Keep up with our fearless leader right here! Join the fight or just admire the grit.

Boot

TxSIP     CALA

Does the ACA ban Participation Rate Requirements?

The Affordable Care Act (aka "PPACA" aka "Obamacare) is a massive piece of legislation.  The law of unintended consequences preceeds it and guarantees that there will be unforseen goods and bads (mostly bads in my opinion) coming from this legislation for years to come.  

In the interest of inaugural amity, here is a potential good.  

Does the ACA make insurance carrier participation rate requirements illegal?  "Participation rates" are rules that carriers put in place to ensure a minimum percentage of employees in a particular group enroll in the plan.  For example, a carrier might require that 75% of eligible employees enroll in the plan before agreeing to accept the group.  The percentage is set by the insurance carrier.  It is not a requirement of any state law.

Why do carriers have these rules?  To avoid "adverse selection."  Adverse selection is what happens when only sick people enroll in a health plan.  Consider this example:  an employer with 100 employees applies for a group medical policy.  However, only 10 employees actually enroll.  Odds are that these 10 employees are the ones that need the health insurance the most.  They are going to have the most claims and it will greatly exceed the premiums they will pay for that insurance.  The carrier has missed out on collecting the premiums from the 90 employees that will not have any medical expenses for the year.  This is adverse selection.

What does this have to do with the ACA?  In 2014, ACA will guarantee the availability of insurance coverage to individuals and groups.  We call this "guaranteed issue."  Take a look a Sec. 2702 of the ACA:

(a) Guaranteed Issuance of Coverage in the Individual and Group Market.--Subject to subsection (b) through (e), each health insurance issuer that offers health coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.

(b) Enrollment.---

(1) Restriction.--A health insurance issuer described in subsection (a) may restrict enrollment in coverage described in such subsection to open or special enrollment periods.

(2) Establishment.--A health insurance issuer described in subsection (a) shall, in accordance with the regulations promulgated under paragraph (3), establish special enrollment periods for qualifying events (under section 603 of the Employee Retirement Income Security Act of 1974.

(3) Regulations.--The Secretary shall promulgate regulations with respect to enrollment periods under paragraphs (1) and (2).

(emphasis added)

By the way, there are no subsections (c), (d), and (e) in this provision of the Act.  Does this provision leave room for an insurance carrier to decline coverage to a group because it fails to meet the carrier's rules on participation rates?  It seems not.  

When you consider that at the same time this provision goes into effect the carriers will also be prohibited from considering claims in their pricing, concerns about adverse selection no longer make sense.

We submitted this question to a large regional carrier for comment.  Their first response was that this was not the intended effect of the provision, but that they are considering what they will do with participation rates.

Laws have all sorts of unintended consequences.  If the ACA actually turns out to prohibit participation rates, that could be helpful to many employers struggling to figure out how to live with the new law.