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The Impact of Community Based Ratings on Small Group Health Plans

What the ACA Adjusted Community Rating Means For You

Adjusted Community Rating (ACR) shifts how insurance companies calculate rates for "small group" companies like yours. If you have 2-49 full-time employees, your company falls into the ACA's small group category. You may think that the adjusted community rating does not affect companies your size, but that is not true.

From insurance quotes we've seen so far in this small group category, the change in adjusted community rating makes two things clear: your insurance quotes will be longer and more complicated than ever, and your premiums will likely be considerably higher. However, these rating changes do not affect large groups, and by partnering with Century II, your small company is considered part of a large group and enables you to avoid these adjusted community ratings. 

What's the Impact of Adjusted Community Rating? 

Here's what the impact of this change means for small businesses like yours:

1. Rates and premiums are rising dramatically for small group employers.

2. Rate sheets are complex, long, and confusing. Here's why:

a. Each of your employees has a different rate, based only on these factors:

    • age
    • location
    • smoker or non-smoker
b. Every year, even with the exact same staff, the ages of your employees change, so every year your rate is calculated differently.

c. Different rate for smokers versus non-smokers.

A PEO Helps You Avoid the Adjusted Community Rating

A PEO can save you time and money by avoiding the ACA Adjusted Community Based Rating system. With a PEO, your business becomes part of a large group and thus has access to large group benefits. This collective large group plan is not subject to the restrictions of a small group. Our healthcare plan allows you to offer "large company" benefits to your employees without the burden of complex reporting. We take this off your hands so you can focus on your business.

Community Rating: Definition 

Community rating refers to a group insurance pricing system that pools people within an area into a "community". Insurance carriers consider this community a risk pool and charge premiums based on "banded factors". Previously, carriers based community rating on 8 factors, but the Affordable Care Act (ACA) has "adjusted" the way community rating is calculated and new ratings are based on only 4 factors.

"Adjusted" Community Rating: What Changed?

The ACA limits the factors used to calculate premiums and requires insurers to use the adjusted community rating. Premiums used to be determined by many factors, but with the ACA's change, premiums are based on just 4 factors. Here's what the adjustment looks like:



Factors prior to ACA 
(Before January 1, 2014)            
Factors after ACA takes effect
(After January 1, 2014) 
 • Family size
 • Family size
 • Age
 • Age
 • Gender 
 • Geographic area
 • Geographic area
 • Tobacco use   
 • Tobacco use   
 
 • Occupation   
 
 • Industry   
 
 • Weight   
 
 • Health status 
 
 • Claims history  
 
• And more  
 
 

The Age Band Factor

In addition to the reduced factors used to calculate rates for small business, the ACA has limited age bands. Before the ACA, insurers used age rating bands of up to 8:1 to spread premium costs over all age groups. The ACA limits age bands to just 3:1. In essence, the age band rating means that young people will pay more for their coverage and older people will pay less. 
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