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Norm's Desk

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Will the ACA outlaw participation rate requirements? Answer: YES

In January, we questioned whether the ACA would force insurance carriers to eliminate their "participation rate" requirements.  These are rules that carriers have put in place to guard against adverse selection (i.e., what happens when only the sick people sign up for the health insurance).  Carriers routinely require an employer to enroll a minimum of 75% to 50% "participation rate" of its eligible population to accept the group.  This is enormous frustration for many employers with diverse workforces.  On the one hand, they may have a segment of their workforce (managers, administrators, etc.) that demands benefits and is willing to pay for them.  On the other hand, they may have a larger portion of their workforce that is not willing to pay any amount for a benefits program.  When 66% of the employees don't want to pay even a small amount for benefits, the 33% that do are penalized.  There are ways around this through "carve-out" programs and multiple entities, but they require additional administrative burdens.

With the ACA and its employer mandate to offer health insurance, that "participation rate" requirement has been looming large as an obstacle to offering coverage.  The obstacle is now crumbling.  We have seen internal signs that the carriers are waking up to the idea that the ACA makes "participation rates" illegal under its guarantee issue requirements (for a detailed analysis, see "Does the ACA ban Participation Rates" linked above).  Now, United Healthcare has put it in writing.  In a March 25, 2013 newsletter release, UHC confirmed that "small and large employers cannot be denied coverage for the failure to satisfy minimum participation or contribution requirements."

Kudos are not exactly in order for UHC, it is simply confirming what is in a final rule release by HHS regarding the ACA's insurance market rules.  Thus, UHC will not be the lone ranger here.  All other carriers will follow suit.

This is extremely good news for employers looking for alternatives to paying the mandate penalty.  All they have to do is make an offer of health insurance to their full-time employees that costs no more than 9.5% of the employee's W-2 income and they will pay no penalty.  If only 10% of their employer population signs up, it will not matter.  The carrier cannot deny them coverage.

BUT, must the carrier offer renewal of the coverage?  The ACA mandates (Sec. 2703) that the carrier renew the coverage that was offered.  However, the proposed regulations appear to offer an out to the carriers.  One of the exceptions to the guaranteed renewal requirement is as follows:

Violation of participation or contribution rules. In the case of group health insurance coverage, the plan sponsor has failed to comply with a material plan provision relating to employer contribution or group participation rules, pursuant to applicable state law.

Does this mean that you will have a year to reach an adequate participation rate before being dropped?  Carriers have been notoriously lax on participation rates once you are "in the door."  Will this now change?  This is an open question.  There are others: 

(1) How much will that premium be?  Community rating rules will drastically change premium ratings after January 1st.

(2) Will carriers be willing to relax participation rates sooner than January 1st?  Wouldn't it behoove them to do so in an effort to obtain new business?

Please note that the guaranteed issue restrictions on participation rates will still be allowed in self-insured or ASO programs.  


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