Kilpatrick

Industry News

CMS Extends Small Group Transitional Relief Policies through 2017

On Mon, Feb 29, 2016, CMS issued a final extension addressing the transitional policy for non-grandfathered plans that are not compliant with the ACA. Policyholders will be allowed to renew their transitional plan coverage through Oct 1, 2017 as long as the coverage does not extend beyond Dec 31, 2017. All non-compliant policies must become compliant by Jan 1, 2018. Any policy renewed during the 2017 calendar year after Jan 1 must have a short plan year in order to terminate by Dec 31. CMS believes requiring that the transitional policies terminate immediately before Jan 1, 2018 will “allow for a smooth wind-down of transition relief…to align the end of these policies with open enrollment and the start of the calendar year.”

[Edited May 4, 2016] TDI will allow the extension in Texas as outlined by CMS. Carriers will have discretion to allow policyholders to change their anniversary dates or obtain short plan years within the CMS guidelines.

Implications

We conducted an extensive impact analysis of our small group book of business. The graphs and statistics below include all active programs among groups defined as “small employers” under the Texas insurance code. They include groups with ACA-compliant plans, non-compliant transitional relief plans, self-funded plans, association plans, and grandfathered plans.

21% of our small group block offers non-compliant plans under transitional relief. Only 1.3% of transitional policies renew in January.

The graphs below suggest how CMS’s guidance would impact the small group market if all carriers allowed applicable clients to modify their anniversary dates to postpone the transition to compliant plans.

The first graph represents the distribution of existing, active small group clients by anniversary month. Currently, 50% of our small group block renews in December (25%) and January (25%) with the remaining groups proportionately distributed (4-6%) in the other 10 months.

The second is a projection of the impact of CMS’s most recent guidance (the purpose of this article). Our projections assume 80% of existing transitional policies keep their plans until Jan 1, 2018. Under this projection, 42% of our small group block will renew in January 2018. On the same date, nearly all individual market policies will also renew by virtue of the open enrollment restrictions. January 1 is seven days after Christmas. Such a scenario is impossible to manage. Brokers cannot do it all in one month, particularly with holiday interruptions. Carriers can’t either. Groups and individuals will suffer.

Current Small Group Renewal Distribution (2016)

Projected Distribution of Small Group Renewals (2018)

The overwhelming majority of groups that have retained non-compliant policies are significantly disadvantaged—either financially or because comparable plans are not allowed due to metallic plan restrictions—by moving to ACA-compliant plans. Groups can avoid the disadvantages of the ACA-compliant small group market by switching to self-funded (e.g.: level funded) programs. 31% of groups with 10-24 enrolled employees and 40% of small groups with 25+ enrolled employees have transitional policies. The majority of groups with transitional policies, however, are not big enough to meet the minimum size requirements for self-funding. 58% of all transitional policies are offered by groups with less than 10 enrolled employees. (There are 4.5x as many groups in the US with < 10 employees than groups with 10-50 employees.)

% of all Groups in Size Range % of all Transitional Policies
< 10 enrolled 16.7% 58.2%
10-24 enrolled 30.7% 29.7%
25+ enrolled 39.9% 12.1%
all small groups 21.0% 100.0%

Background

In response to public pressure, CMS first announced transitional relief for small groups and individuals allowing them renew the coverage they had in place on Oct 1, 2013 even though that coverage did not comply with various ACA market reforms including community rating, essential health benefits, and metallic benefit levels. The most recent announcement is the second (and final) extension of the transitional relief policy under the Obama administration. Timeline of related guidance:

  • Nov 14, 2013 – The original transitional policy. Available to policy years beginning Jan 1 – Oct 1, 2014. All non-compliant policies would terminate by Sep 30, 2015.
  • Mar 5, 2014 – Extension of original policy. Available to policy years beginning Jan 1, 2014 – Oct 1, 2016. All non-compliant policies would terminate by Sep 30, 2017.
  • Feb 29, 2016 – Final extension. Available to policy years beginning Jan 1, 2014 – Oct 1, 2017. All non-compliant policies must terminate by Dec 31, 2017.
This entry was posted in Industry News, Our Perspective and tagged , , , , , , , , , , , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post. Both comments and trackbacks are currently closed.