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Should employer exchange plans list bill?

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The Patient Protection and Affordable Care Act (PPACA) is supposed to narrow the gap between what older consumers and younger consumers pay for individual health coverage.

But the PPACA health insurance exchange program create new gaps in the cost of what coverage costs for older enrollees and newer enrollees in some small-group health plans.

Consultants at Wakely, a health care actuarial consulting firm, compare SHOP plan premium allocation methods – composite rating and list billing — in a draft report posted on the website of the District of Columbia Health Benefit Exchange Authority. 

PPACA calls for the U.S. Department of Health and Human Services (HHS) and states to set up a system of exchanges, or Web-based health insurance supermarkets for individuals and small groups, by Oct. 1. The District of Columbia has decided to run its own exchange program, rather than letting HHS provide exchange services for its residents.

PPACA will require all exchange plans to cover standardized “essential health benefits” (EHB) benefits package, and it will require all plans sold through an exchange to fit into one of four “metal levels” based on the percentage of the actuarial value of the EHB package that the plan covers.

The most basic plans, or “bronze level” plans, must cover about 60 percent of the actuarial value of the EHB package. The value percentages are about 70 percent for silver plans, about 80 percent for gold plans and about 90 percent for platinum plans.

HHS will require SHOP exchanges to give employers the option of letting employees choose from a coverage menu that includes all exchange plans offered at a given “metal level.”

In the individual market today, carriers in some states charge the oldest insureds five times as much as they charge the youngest. PPACA would limit the maximum ratio between the chargest for the oldest enrollees and the youngest to 3 to 1.

When exchange managers are offering employers the “any bronze plan,” “any silver plan,” “any gold plan” and “any platinum plan” options, they will have decide whether to use a composite rate system, a list bill system, a combination of those systems, or some variation on the composite rate or list bill approach, the consultants said in their draft report.

In a plan that uses a composite rate system, all employees in a group pay the same rate, regardless of age. The main factor leading to employees paying different would be the employee’s family size.

In a plan that uses a list bill system, employees would pay age-specific rates that were calculated individually, using age, geography and tobacco use.

“The list bill literally shows these individually calculated premium rates to the employer for each employee,” the consultants said. “List billing makes transparent to the  employer what they generally know, but may tend to forget—that older employees cost more  and younger employees less for coverage. Also, list billing automatically adjusts premiums mid-year for mid-year changes in the census, e.g., when a 64-year-old employee retires and a 25- year-old is newly hired.”

Today, employers that use list billing can choose between paying a fixed dollar amount per worker or a fixed percentage of premium.

PPACA regulations probably would not let an employer pay a fixed amount per employee in through a list bill arrangement but probably could use a list bill arrangement and pay a fixed percentage of each employee’s premium, the consultants said. 

The consultants suggested that one possible disadvantage is that older employees would pay more than younger employees to enroll in the same plan.

“Composite premiums are typical in most states,” the consultants said. “Changing to list billing could  present an operational challenge for issuers and significant change to how employers and brokers consider premium rates…. Some stakeholders think that having a methodology in which employees of all ages pay  the same amount, for each plan, is important.” 

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