Revised SHOP FAQ clarifies average employee quoting option for employers
Nov. 6, 2013
On October 31, the Centers for Medicare and Medicaid Services released a revised FAQ on the Small Business Health Options Program (SHOP). As stated in a previous FAQ, employers will be able to choose between two options of how employer and employee contributions are determined on the SHOP. An employer may choose between employees paying the same premium amount or paying premiums based on employees’ ages.
What happens if an employer chooses the option to have employees pay the same premium amount?
If an employer chooses that all employees will pay the same premium amount, SHOP will calculate an average employee premium, or what the FAQ refers to as a "composite rate."
There are four steps in calculating the average employee premium. The SHOP will:
- Calculate the per-member rate for each employee signing up for coverage,
- Aggregate the rates for all employees,
- Average over the number of employees in the group to calculate the average employee premium, and then
- The employer will be presented with a per-employee average premium based on those per-member rates.
The SHOP will continue to quote the average employee premium established at the start of the plan year, regardless of demographic changes that occur during the year.
If an employer chooses to receive premium quotes from the SHOP based on the average employee premiums, how are premiums for additional plan members (e.g., spouses and children) calculated?
In the federally facilitated-SHOP structure, dependents will be quoted a per-member rate, regardless of an employer’s decision to receive an average premium quote for employees.
The SHOP will not be establishing composite rating tiers (such as one person, two person, or family rates).
Can an employer choose to receive premium quotes on an average employee basis for standalone dental plans on the SHOP?
No. The SHOP’s option to receive a per-employee average premium quote only applies to medical plans.
What happens if the employer chooses the average employee premium quoting on the SHOP? How will the issuer bill the employer for the group premiums?
In 2014, if an employer chooses to have the SHOP quote premiums based on average employee rates, issuers will have two options on how to rate and bill the employer that are received through the SHOP.
- Issuers will have the option of accepting the average employee premium quote generated by the SHOP for premium billing of the group throughout the plan year, or
- Issuers can maintain per-member rating for employees.
What happens if the employer chooses the average employee premium quoting and then the issuer chooses to keep the per-member rate to calculate group premiums? What will the employer’s invoice look like?
If demographic changes occur during the year (e.g., new hires or terminations), the SHOP quote that an employer initially received and the amounts on the bill from an issuer who continues to use per-member rating of employees, will differ.
How will an employer know if a certain issuer is not going to use the SHOP’s average employee premium quote for billing purposes?
Issuers not billing using average employee rating will be identified in a PDF document available to employers during the FF-SHOP application process and through the SHOP Employer Call Center.
Issuers will also be communicating these differences to groups regarding their invoices and SHOP MyAccounts.
Does this apply to small group plans offered off the SHOP as well?
This approach is only required for FF-SHOP plans. Non-Exchange plans are not required to offer average employee quoting, unless required by the state.
Where can I find more information?
For more information, please visit https://www.healthcare.gov/small-businesses/
The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. The impact of these reforms on individual situations may vary. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. As required by US Treasury Regulations, we also inform you that any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.