When it comes to small group health insurance, there are lots of different avenues you can take regarding how rates are structured. Today, we’re going to be discussing age-banded vs. composite rates in small-group health insurance.
Contact Cosmo Insurance Agency today to speak with an insurance agent about the best employee benefits package for your business.
What Is Age-Banded Rating?
Age-banded means that if someone in a group is, for example, 20 years old, they get a certain rate on that plan. For instance, they might pay $392 a month, whereas another employee in the group who is 60 years old might pay $972 a month. There’s a huge gap between the two.
What Is Composite Rating?
The composite rating is different. With a composite rating, that 60-year-old and that 20-year-old would pay the same rate.
How Age-Banded Rates Have Changed Insurance Costs
Since 2014, when Obamacare was put into effect, age-banded rates were introduced. This change has complicated how many businesses calculate contributions. The good news is that now, more than ever, it’s important to reach out to your broker—or to Cosmo Insurance Agency—to inquire about composite rates.
Here in New Jersey, we can offer composite rates with as few as five employees enrolled. This option is available in other states as well, although each has its own rules. Some require five employees; others require ten.
How Age-Banded Rating Works for Families
You might ask yourself, “Why in the world was age-banding even introduced in 2014?” The answer is a bit complex, but I’ll try to simplify it.
In 2014, the Affordable Care Act allowed individuals to stay on their parent’s health insurance plan until the age of 26. To adjust for this, the market introduced some changes. One of those changes is that, with age-banded rates, you pay for your family based on the first three oldest children. The rest are covered 100%.
For example, if you have six kids—three between the ages of 20 and 26 and three between 10 and 20—you’re in trouble. Why? Because you’re paying a premium for each one of those older kids. This makes age-banding especially tough for small businesses that are already struggling to afford basic health insurance plans.
This is why it’s important to find out about the new composite rates that are available, especially in New Jersey.
Let’s look at an example. With age-banding, you might have Joe Pal paying $1,037 a month for a single plan, while Julie Smith pays $623 a month for the same type of plan. That’s a big difference. However, if composite rates were in place, both of them might pay $623 or a figure somewhere in between.
The Downside of Age-Banded Rates for Families
For families, age-banding works like this: if I have a family—me, my spouse, and 10 kids—I usually just pay for the first three oldest children. The rest are covered 100%.
However, this didn’t fully take effect when Obamacare was implemented. Why? Because one of the law’s provisions allows children to stay on their parent’s plan until age 26. But you still have to pay for those young adults.
For example, let’s consider Joe’s family:
- Joe (the policyholder)
- Nicole (his spouse)
- Jennifer (their child)
- If Amanda, who is 11 years old, is part of the family, there’s no premium for her because you only pay for the first three oldest children. So Amanda’s coverage is free.
But for the children aged 20 to 26, you have to pay an additional premium. Let’s break it down:
Joe’s family includes children aged 13, 15, and 16 (all covered in the standard rate). However, there are additional costs for children aged 20 to 26. Young adults who think, “I’m on my parents’ plan, so it’s free,” might be surprised. Sometimes, it’s not free.
In this case, Joe’s family pays a total of $5,139 a month—a very high premium. That’s a significant burden.
Secure A Composite Rate for Your Employee Benefits Package with Cosmo Insurance Agency
As I said earlier, composite rates are more important now than ever before. These options are new, and they allow businesses to save. With as few as five enrolled employees, we can offer composite rates.
If you’re a business owner, it’s time to look into these options. Reach out to us at Cosmo Insurance Agency to learn how composite rates can help your business save on health insurance costs.
