On Tuesday, July 16th, House Bill 649 was presented to Governor McCrory for signature. H649 makes technical changes to the Small Employer Group Health Coverage Reform Act. The stated purpose of the bill is to “mitigate the effects of the federal Affordable Care Act on North Carolina’s small businesses and to increase stop loss insurance options for small employers.” The bill was first proposed in April and was ratified on Monday, July 15.
Specifically, H649 adds the term “Grandfathered health plan” to the NC Small Employer Group Health Coverage Reform Act and changes the definition of “small employer” to mean “an employer that employed an average of at least one but not more than 50 employees on business days during the preceding calendar year and that employs at least one employee on the first day of the plan year.” Most notable about this change to the small employer definition is that the number of employees must be determined using the same method as that set forth in section 4980H(c)(2) of the Internal Revenue Code, which was added by the Affordable Care Act (ACA). Section 4980H(c)(2) requires that the hours of service of part-time employees be considered in the employer size computation by converting the hours of all part-time employees to full-time equivalents. There is a limited exception for hours of service provided by seasonal employees. The new small employer definition takes effect on January 1, 2014. The old definition will still be applicable after January 1, 2014 to grandfathered health plans.
H649 also adopts community rating provisions similar to those in the ACA. As of January 1, 2014, carriers in the small group market are only allowed to adjust premiums based age, geographic area and tobacco use. Like the provision in the ACA, premium adjustments for age may not vary by more than the ratio of three to one (3:1) for adults. However, the variations permitted by the ACA for tobacco use are limited by H649. In the ACA, premiums may vary by a ratio of one and one-half to one (1.5:1) for tobacco users. H649 limits the permissible premium rate variation in the small group market for tobacco users to one and two-tenths to one (1.2:1). For example, the ACA permits a carrier in the small group market to charge a smoker $375 for the same policy a non-smoker receives for $250 (i.e., 1.5:1). Under H649, however, a carrier in the small group market will not be permitted to charge a smoker more than $300 for the same policy a non-smoker in North Carolina recieves for $250 (i.e., 1.2:1). Previously, rating variations based on tobacco use were not permitted in North Carolina, but were permitted in 33 other states. (See State Health Facts from the Kaiser Family Foundation) The community rating provisions of H649 will take effect on January 1, 2014, at the same time the community rating provisions of the ACA take effect.
Perhaps the most significant change to the small group market is in Section 3 of the bill. Section 3 of H649 changes the prohibition on providing stop loss coverage to small employers by making the prohibition applicable only with respect to employers “who employ fewer than 26 eligible employees.” The resulting expanded access to self-insurance arrangements for small employers requires an annual attachment point for claims incurred per individual of at least $20,000, and an annual aggregate attachment point of at least $20,000 or 120% of expected claims, whichever is greater. The effect of permitting stop loss coverage in the small group market is to allow groups with at least 26 eligible employees to avoid the community ratings required by the ACA. The anticipated disruption in the small group market due to community ratings has been characterized by some as “siesmic.” The expanded availability of stop loss coverage to groups in the small group market may lessen the disruption, or at least provide an alternative to small groups dreading the change. This section of the bill is scheduled to become effective on October 1, 2013.
Lastly, Section 4 of the bill expands the small employer definition to include employers with up to 100 employees, effective January 1, 2016, as required by the ACA. With so many changes to the small group market set to take effect on Janaury 1, 2014, little attention has been paid to the fact that the small group market is scheduled to get much, much bigger in 2016. Whatever disruption may result from community ratings come January 1, 2014, it will shed some light on the disruption that can be expected in 2016 when community ratings are required for all employers with 100 or less employees.
You can read the text of the ratified House Bill 649 here.
UPDATE: Governor McCrory signed House Bill 649 into law on July 25, 2013. Session Law 2013-357, as it is now called, can be found here.
