Composite Rating for Small Group Markets

STATE OF NEBRASKA DEPARTMENT OF INSURANCE Bruce R. Ramge Director July 29, 2015 CB-135 [LOGO] Pete Ricketts Governor # BULLETIN # SUBJECT: COMPOSITE RATING FOR SMALL GROUP MARKETS The purpose of this bulletin is to notify all health insurers in the major medical non-grandfathered (NGF) small group market of an alternative rating method that will be allowed for all policy years and rates implemented beginning on or after January 1, 2016. This method only pertains to the ACA compliant Off-Exchange NGF small group market, and does not include On-Exchange plans or Transitional NGF plans. This methodology is optional for issuers in the Nebraska small group market. # Composite Rating versus Individual per Member Rating A carrier may choose not to provide family composite premiums, and just continue to use the individual per member method for all small groups. If a carrier chooses to allow composite rating then it must make the method available for all small employers in the market, and each small employer should be allowed to choose whether they will use composite rating or the standard per member rating. The only family composite method available to an issuer is the method described in this bulletin. A carrier that chooses to allow composite rating should provide the following statement in their actuarial memorandum for the rating period in which composite rating will be applied: "Composite rating is allowed for the indicated period, the method being used follows all rules as published by the State of Nebraska Department of Insurance". # Determination of Small Group Premiums For each covered employee and his covered dependents, the premium is to be determined as follows: For each adult age 21+, calculate the rate for each person by multiplying the base rate by the applicable age and geographic area factors. Do not apply a tobacco use factor at this time. 1 of 3 941 O Street, Suite 400 • PO Box 82089 • Lincoln, Nebraska 68501-2089 Phone (402) 471-2201 • Facsimile (402) 471-4610 • Website http://www.doi.nebraska.gov An Equal Opportunity Employer For each child age 0 to 20: Calculate the rate for each of the oldest three children by multiplying the base rate by the applicable age and geographic area factors. Do not apply a tobacco use factor at this time. The age and geographic area are determined at the time that coverage is quoted to the group. The small group's aggregate premium prior to any tobacco use factors is equal to the sum of the premiums determined for each covered employee and his covered dependents. ## Approach Once the small group's aggregate premium has been calculated based on the individual per member rating method, it must be allocated to covered employees based on the tier factor applicable to each employee's family composition. All issuers using a composite premium approach must use the following tier factors which may not vary by employer: Employee only = 1.00 Employee + spouse = 2.00 Employee + children = 1.85 Employee + spouse + children = 2.85 Note: "Employee + spouse + children" is also referred to as "Employee + Family". In Nebraska, some children can be covered in a family policy up to age 30 if certain criteria are met. All children under age 30 that meet state requirements (and age 26 per federal law if these requirements are not met) are considered to meet the definition of "children" for employee + family and employee + children tiers. ## The Final Employee Premium Final employee premium = [Group aggregate premium] / [Weighted employee count] x [Employee's tier factor]. For example: 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: 2 of 3 Employee A: Employee + family = 2.85 Employee B: Employee + spouse = 2.00 Employee C: Employee + family = 2.85 Employee D: Employee + children = 1.85 Employee E: Employee only = 1.00 Weighted employee count = 2 x 2.85 + 1 x 2.00 + 1 x 1.85 + 1.00 = 10.55 For 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. For example, (assuming the total monthly premium for the group is $5,275), each employee's monthly premium is calculated as: Employee A: $5,275 / 10.55 x 2.85 = $1,425 Employee B: $5,275 / 10.55 x 2.00 = $1,000 Employee C: $5,275 / 10.55 x 2.85 = $1,425 Employee D: $5,275 / 10.55 x 1.85 = $925 Employee E: $5,275 / 10.55 x 1.00 = $500 Group total = $5,275 ## Recalculation of Average Monthly Premiums Employees come and go and employees may also qualify for special enrollment periods due to various life events. The method 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. ## Tobacco Factors Family composite premiums do not include a tobacco use factor. If a tobacco use factor is used, it must be applied to the specific individual, and is applied to the premium that person contributed to the aggregate premium. The additional premium is then added to the monthly premium for that individual based upon the tier allocation. Questions concerning this bulletin may be directed to the Life & Health Division Actuary at 402-471-2201 or email Michael.Muldoon@nebraska.gov. Bruce R. Ramge Bruce R. Ramge Director 3 of 3