How To Let A Small Group Plan In Ohio Choose To Choose To Get A Premium For A Health Plan

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1 June 25, 2014 Mr. Clyde Hamstreet Interim Executive Director Cover Oregon SW Upper Boones Ferry Road, Suite 200 Durham, OR Dear Mr. Hamstreet: The Department of Consumer and Business Services Insurance Division and Cover Oregon share the goal of fostering an insurance market that provides quality, affordable options for consumers. For small employers, this includes providing employees and their dependents with the option of employee choice, and I believe our organizations both remain committed to making this a reality. However, the implementation of employee choice in 2015 will disrupt the small group market and lead to higher premiums. I am writing to you to recommend that Cover Oregon implement a one-year transition to employee choice in its Small Business Health Options Program (SHOP). As you are aware, the Center for Consumer Information and Insurance Oversight (CCIIO) approved Oregon s use of a modified composite rating methodology 1, designed to be applied in conjunction with employee choice and a premium reallocation mechanism to protect against adverse selection. Due to technology challenges, Cover Oregon is currently using a direct enrollment approach to enroll small groups in Qualified Health Plans (QHPs). This approach does not accommodate employee choice but supports Oregon s approved rating methodology, which is key to maintaining stability in small group premiums, facilitating defined employer contributions, and simplifying employee decisions. Without confirmation that the Federally-facilitated SHOP can support composite rating in 2015, offering employee choice in Oregon for 2015 would require use of pure per-member rating. Based on discussions with issuers 2 and consultation with my actuarial staff, an immediate shift from composite to pure per-member rating, combined with employee choice, raises adverse selection concerns and is likely to increase rates and cause significant uncertainty and disruption. Based on our discussions and consultation with issuers, the direct enrollment approach remains the most viable process for enrolling small groups in QHPs during I understand that Cover Oregon is committed to investigating options for a state-based SHOP over the next several months. The continuation of direct enrollment for an additional year will allow for careful consideration of these options and analysis of any resulting modifications to Oregon s rating methodology in consultation with the division, CCIIO, issuers, producers, and small businesses. I recommend that a determination regarding the 2016 SHOP be made no later than December 2014 to provide stakeholders with sufficient 1 See attached brief describing Oregon s small group rating methodology. 2 SHOP issuers consulted include: Atrio Health Plans, Health Republic Insurance Company, Kaiser Foundation Health Plan of the Northwest, Moda Health Plan, Oregon s Health CO-OP, PacificSource Health Plans, Providence Health Plans, and Trillium Community Health Plan. Other small group issuers not participating in SHOP were also contacted, including: Health Net Health Plan of Oregon, LifeWise Health Plan of Oregon, Regence BlueCross BlueShield of Oregon, and UnitedHealthcare Insurance Company.

2 Mr. Clyde Hamstreet June 25, 2014 Page 2 of 2 time to plan and implement any required changes. This critical deliberative process hinges on Cover Oregon s ability to continue direct enrollment in 2015, which will only be possible with a one-year transition to employee choice. In my expert judgment and based on the reasons cited above, it is in the best interest of small employers and their employees and dependents that employee choice be delayed by one year. Given that the division is currently reviewing issuers 2015 rates, a timely response will provide maximum time for the division s actuarial staff to conduct its robust review of small group rates and ensure that they are reasonable for Oregon s small business and their employees and dependents. If you have any questions or wish to discuss this issue further, please do not hesitate to contact me. I appreciate your consideration of my recommendation and look forward to your response. Sincerely, Laura N. Cali Insurance Commissioner Attachment

3 Oregon Small Group Rating for Health Benefit Plans Issued on or after January 1, 2014 The Oregon Small Group Market For many years, Oregon has required that small group premium be determined on a tiered-composite rating basis. This means that all small group employees pay a premium based on the combined rating characteristics of the entire group, with adjustment factors to each employee s premium to include covered dependents. Oregon s tiered-composite rating methodology ensures that premium is equitably distributed across the small group, simplifies employee decisions, facilitates defined employer contributions, and streamlines overall administration of the small group policy. Because tiered-composite rating is also widely used in the large group market, the use of tiered-composite rates also ensures consistent practices across the entire group market. This consistency will become even more important once the small group market expands to groups with up to 100 employees in Implementation of Federal Market Rules The final federal market rules, as published in the Federal Register on February 27, 2013, require that the total premium charged for small group plans issued on or after January 1, 2014 be derived using a per-member rating methodology. This means that the rating factors (age, geographic area, and tobacco use) must be applied to each covered employee and his/her covered dependents to determine an aggregate group premium. For any one family, no more than the three oldest covered children under age 21 can be considered in determining the aggregate premium. The market rules clarify that the per-member rating methodology does not preclude a state from requiring insurers to offer an average rate per enrollee as long as the total group premium equals the aggregate premium derived by the per-member methodology. In the current Oregon small group market, employees pay an average rate, adjusted by tier factors based on the type of coverage purchased (e.g., employee only, employee + spouse, employee + children, and employee + family). To minimize disruption in the small group market in 2014, Oregon will maintain its tiered-composite rating requirement, both inside and outside of its state-based exchange. The following sections outline the required methodology for developing aggregate small group premiums and allocating these premiums to covered employees and their dependents. Development of Aggregate Small Group Premiums As required by 45 CFR (c)(1) and (3), total premium charged to a small group must be developed using a per-member rating methodology. For each covered employee and his/her covered dependents, the premium must be determined as follows: - For each covered adult age 21 or older: Calculate the rate for each person by multiplying the base rate by the applicable age, geographic area, and tobacco use factors. The tobacco use factor must not be applied if the individual enrolls in a tobacco cessation program. - For each covered child age 0 to 20: Calculate the rate for each of the oldest three children by multiplying the base rate by the applicable age, geographic area, and tobacco use factors. The tobacco use factor must not be applied if the individual enrolls in a tobacco cessation program. Age, geographic area, and tobacco use are determined at the time that coverage is issued to the group. The small group s aggregate premium is equal to the sum of the premiums determined for each covered employee and his/her covered dependents. Allocation of Premium to Small Group Members Once the small group s aggregate premium has been calculated, it must be allocated back to covered employees based on the tier factor applicable to each employee s family composition (e.g., employee only, employee + spouse, employee + children, and employee + family). Oregon will require standard tier definitions and factors for all carriers, in and out of the exchange. The standard tier definitions and factors are as follows: - Employee only = Employee + spouse = Employee + children (including all covered children up to age 26) = Employee + family (including spouse and all covered children up to age 26) = 2.85 Note that all children under age 26 are considered to meet the definition of children for employee + family and employee + children tiers. Page 1 of 2

4 The formula to determine the final premium for each employee is as follows: Page 2 of 2 Final employee premium = [Group aggregate premium] / [Weighted employee count] x [Employee s tier factor] For example, consider the following group of employees: - Employee A: Employee + spouse + 2 children = Employee + family - Employee B: Employee + spouse - Employee C: Employee + spouse + 3 children = Employee + family - Employee D: Employee + 4 children = Employee + children - Employee E: Employee only Using the applicable tier factors and family composition of each employee, the tier-factor weighted employee count is calculated as follows: - Employee A: Employee + family = Employee B: Employee + spouse = Employee C: Employee + family = Employee D: Employee + children = Employee E: Employee only = 1.00 Weighted employee count = 2 x x x = To calculate the final monthly premium for each employee, the aggregate small group premium is divided by the weighted employee count and multiplied by each employee s applicable tier factor. Continuing with the example above, and assuming the total monthly premium for the group is $5,275, each employee s monthly premium is calculated as follows: - Employee A: $5,275 / x 2.85 = $1,425 - Employee B: $5,275 / x 2.00 = $1,000 - Employee C: $5,275 / x 2.85 = $1,425 - Employee D: $5,275 / x 1.85 = $925 - Employee E: $5,275 / x 1.00 = $500 Group total = $5,275 Recalculation of Average Monthly Premiums Throughout a small group s policy period, employees may come and go and employees may qualify for special enrollment periods due to various life events. The methodology described above determines an employee s monthly premium based on a census of employees and their covered dependents at the time the group s policy is issued. The average monthly premium for each of the tiers must remain in effect throughout the entire policy period and may not increase or decrease to reflect changes in the small group s census. The average monthly premium must be recalculated annually, based on the census at the time the policy is rated.

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