Composite Rating for Small Group Employers
Under the ACA’s reforms, issuers may vary the premium rate charged to a non-grandfathered plan in the individual or small group market from the rate established for that particular plan only based on the following factors:
Age: The rate can differ up to 3:1 for like individuals of different ages who are 21 years and older.
Family Size: Rates may differ based on whether coverage is for an individual or a family.
Geography: States can establish up to seven geographic rating areas to determine the collective health care risk of the residents.
Tobacco Use: Users of tobacco can be charged rates up to 50 percent higher than non-tobacco users.
All other rating factors are prohibited. This means that several factors commonly used by issuers to set higher premiums prior to 2014 (such as health status, claims history, duration of coverage, gender, occupation, small employer size and industry) can no longer be used.
Many employers want to know whether they can determine their own composite rating. However, their authority to do this is unclear at this time, as official guidance from the federal government has yet to be issued.As a result, some issuers no longer determine composite ratings for their group plans.
In response to this, many small employers want to know whether they can determine their own composite rating. However, their authority to do this is unclear at this time, as official guidance from the federal government has yet to be issued.
Composite rating is the practice of lumping all eligible employees together and assigning a single rating, regardless of individual factors (such as age, gender or tobacco use) that may make somebody a higher or lower insurance risk. The composite premium is calculated by dividing the total group premium by the number of enrollees to arrive at an average enrollee premium amount.