California’s “exchange” for small business health insurance held a press conference August 1, 2013 and, according to their press release, “announced the insurance carriers and rates for its small-group market”… well, sort of.   They gave us the names of the insurance companies but they really just gave us “teaser” rates.  We need more information to fully understand if these rates are lower than current plans or not.

Covered California officials have said repeatedly that they are “active purchasers” and the purpose of the exchange is to use the purchasing power of large numbers to drive rates lower.  The Federal government has invested $900 million into California’s exchange experiment.  With this sizable public investment, now is the time for them to deliver on their promise of lower rates.

The booklet, SHOP Health Insurance Plans Aug. 1, 2013, distributed with the press release, includes a table (p. 6 of the PDF) that shows rate decreases of 2-28 percent in all regions except in Alameda County (region 6) where rates will likely increase.

Everyone wants small business and individual health insurance rates to decrease in 2014.  However, given the rates SHOP released and the new rules for rating individual and small group health insurance, I am led to the conclusion that some small groups (and individuals) will likely pay much more than they currently do – while some may pay less.   Below is my reasoning and some of the ways that health insurance will be priced differently in 2014 (note – my analysis focuses exclusively on rating differences between the current and 2014 and ignores differences that may result from plan benefit differences and narrow networks – see this blog post for the impact of network differences on rates):

2014 Separate Dependent Rates vs. 2013 Composite Family Rates

Beginning in 2014, the monthly rate for health insurance will be based on the age of each employee and the age of each dependent.  Currently, the rates for small business health insurance are based entirely on the age of the employee; meaning that an age 35 employee (EE) pays the same rate for her family whether her spouse is age 25 or 55.  In 2014, the family with the older spouse will pay considerably more.

Also, under the new rating system a family will pay extra for each person in the family – not a single composite rate.  Currently, a family with 5 children pays the same monthly premium as a family with 1 child.  Not in 2014, when the family will pay additional premium for the first three children under age 21.  There will be no extra charge for children number  4, 5, etc. as long as the children are age 20 or younger.  The family premium will increase for each child age 21-26.

As an example of the impact of this rating change, consider a family with an employee age 35, spouse age 40, children age 15, 17 and 25.  Insurance companies will charge this family for each person separately: 5 separate premiums will be added to get the family premium. (See example below).  Currently, the age 35 employee pays a single rate regardless of the age of her spouse and the number and age of her children.

This rating change signficantly impacts families who may have added older children (age 21-26) to their group health insurance plan at no additional cost if they were already paying for younger siblings.  In 2014 they will pay extra to cover the older children.  Families with only one child and a younger spouse will likely pay less in 2014 while families with many children – particularly children age 21-26 – and families with older spouses will likely pay more in 2014.

2014 Separate Age Rates vs. 2013 Age Bands

Current California state law requires health insurers to use age categories, known as “age bands,” to determine the rate for an employee and his/her dependents.  Currently, there is one rate for an employee in each of these categories:

  • age 29 and under,
  • age 30-39,
  • age 40-49,
  • age 50-54,
  • age 55-59, and
  • age 60-64.

Beginning in 2014, the federal health reform law (ACA) eliminates age bands and sets a specific rate for each employee and each dependent at every age. (See Appendix A, (p. 7 of the PDF) in this CMS Guidance Regarding Age Curves.)  The Federal law requires a specific percent increase in the monthly price of health insurance based on the age of the insured.  Sample age rate differences in 2014:

  • age 21-24        1.00
  • age 25             1.004
  • age 26             1.024
  • age 30             1.135
  • age 35             1.222
  • age 39             1.262
  • age 40             1.278
  • age 49             1.706
  • age 55             2.230
  • age 64+           3.000

This means that in 2014 a 49 year old will pay 33.5 percent more than a 40 year old for the same plan (((1.706-1.262)/1.262)=33.5%)

2014 Plans vs. 2013 Plans

We can compare the Covered California Health Net PPO Silver plan to three currently available Health Net Small Group PPO plans.  See Chart:

Benefit Comparison
  Health Net Plans   Effective Date    Ded. OOP Max.  Dr. Visit  Brand   Rx Ded.
1 Cov.CA PPO Silver    Jan. 1, 2014  $1,500   $6,350     $45   $500
2 HN Value PPO 45   Sept. 1, 2013  $1,500   $7,000  $45/$55   $250
3 HN Value PPO 40   Sept. 1, 2013  $1,500   $5,000     $40   $250
4 HN Value PPO 30   Sept. 1, 2013  $1,500   $4,500     $30   $200

2014 Family Rates vs. 2013 Family Rates

Using the rates Covered California released August 1st, 2013 and the CMS Age Curve Table, we can estimate the family rates for a 35 year old employee on the Covered California Health Net Silver PPO plan and compare it to the three Health Net plans, assuming a 1.0 RAF.  See Chart Below:

Family Rate Comparison
Health Net Plans EE     Age 35  Spouse Age 40  Child   Age 15  Child     Age 17  Child     Age 25   Total Monthly
1 Cov CA PPO Silver $ 347 $ 362 $ 180 $ 180 $ 285 $ 1,354
1a Cov CA PPO Silver $ 347 $ 362 $ 180 $ 180 $ 1,069
1b Cov CA PPO Silver $ 347 $ 362 $ 180 $    889
2 HN Value PPO 45 $ 294 –(family rate)—-$ 616 —————— $    910
3 HN Value PPO 40 $ 309 –(family rate)—-$ 646 —————— $    955
4 HN Value PPO 30 $ 395 –(family rate)—-$ 826 —————— $ 1,221

I calculated the rates for the Covered California plans by applying the CMS Age Curve rate to the standard 1.00 rate.  The standard 1.00 rate is $284/month.

  • Employee age 35 (1.222 x $284) = $347;
  • Spouse age 40 (1.278 x $284) = $362;
  • Child age 15 (0.635 x $284) = $180;
  • Child age 17 (0.635 x $284) = $180;
  • Child age 25 (1.004 x $284) =  $285.
  • Total monthly premium for the family: $1,354/month   ($347 + $362 + $180 + $180 + $285).

Assuming that the current Health Net Value 40 PPO plan is the most comparable plan to the 2014 Health Net plan offered in the SHOP, we can conclude a few things from the above tables.

  1. A family of 5 with this age distribution (#1) would be paying $4,788/year more for a slightly worse plan; or
  2. A family of 4 with this age distribution (#1a) would be paying $1,368/year more for a slightly worse plan; or
  3. A family of 3 with this age distribution (#1b) would be paying $792/year less for a slightly worse plan.

Apples-to-Apples Comparison

The only way to actually compare current rates with 2014 is for Covered California and all of the health insurance companies in the California Small Group Market to release their rates and let us prepare quotes for our clients.  Then, we will be able to determine whether the 2014 rates are a better deal or not.