Small and Large Group Markets Impact in MA


About seven years ago, when the state of Massachusetts passed its landmark healthcare reform bill, Chapter 58, the state created a health insurance marketplace (The Connector) to respond to the needs of the uninsured. The goal was to make insurance available and affordable for certain segments of the Commonwealth that largely remained uninsured. Massachusetts was clearly ahead of the curve, and is now the model for other regional marketplaces that are emerging today per PPACA. As a trailblazer, of course, Massachusetts was able to design the insurance marketplace in a way that suited the needs of the state. As such, MA decided to merge the individual and small group markets to create a larger risk pool and to give some rate relief to those that had trouble affording insurance. However, some insurers and vocal small employer groups were worried that the blending of risk would adversely affect their rates. As a result, MA allowed surcharges/discounts to be built into insurance pricing keep the rating fair. When PPACA was enacted, it mandated not only the existence of health insurance marketplaces, but the parameters for all health insurance marketplaces. Unfortunately, the surcharges/discounts that our clients have been benefitting from for years are now disallowed under PPACA as of January 1, 2014.

The MA Division of Insurance tried many ways to work with the federal government on this issue because an abrupt end to these pricing mechanisms will ultimately result in adverse rate action for many small employers in the Commonwealth. The Insurance Commissioner considered de-merging the small group and individual markets if the government did not provide ample transition time for the PPACA regulations to take effect.

From a fiscal standpoint, it might be better if MA was allowed to un-merge the individual and small group markets and let the rates stand on their own. Surely, small groups will have better rates if they are not blended with the adverse risk that is likely present within the individual market. Especially in 2016 when the small group market is expanded to include groups 100 employees or less.

In the end, the state was granted a three year transition period away from the surcharges/discounts that will help keep renewal rates in check, hopefully, for the next couple of years. This is better then abruptly taking them away as of January 1, 2014, but it will eventually catch up to us and smaller employers in Massachusetts may be adversely affected by this.


Frequently Asked Questions

Why were individual and small market combined and when?

In 2006, the MA Healthcare Reform law, Chapter 58, merged the individual and small group health insurance markets when the idea of The Connector was introduced. This was to smooth out the risk, make the risk pool greater, and make insurance affordable for more people. The state of MA still allowed discounts, however, for individual coverage and for larger small groups (over 30 employees) with certain low risk factors. These allowed discounts/surcharges kept rates down for a lot of our clients in the 30-50 employee range. As of January 1, 2014, however, the PPACA law eliminates the surcharges and discounts that are currently at play. We feel that though this may advantage individual pricing, small group premium will ultimately increase.

What did the Commonwealth ask the federal government for by way of assistance?

The MA State Insurance Commissioner considered de-merging the individual and small group market if the state was not given more time to adjust to the PPACA regulations. After a couple of tries, the federal government ended up agreeing to a three year phase-in period, taking the de-merger off the table. The individual and small group markets will remain merged. The phase-in period looks like this:

  • For policy years beginning on or after January 1, 2014, but before January 1, 2015, 2/3 of the newly eliminated factors can be used.
  • For policy years beginning on or after January 1, 2015, but before January 1, 2016, 1/3 of the newly eliminated factors can be used.
  • For policy years beginning on or after January 1, 2016, none of the eliminated factors can be used.


According to local insurers, whether the 2/3 and 1/3 calculation will be a percentage or flat dollar amount of certain discounts/surcharges remains to be seen. Although this three year ramp up will act as a cushion so that premiums will not abruptly go up or down, we will see premiums rise eventually as a result of this.

What are the risk factors being used now? Which ones are going away?

There are several allowable risk factors that can be used, depending on the group, among them are:

  • Group size
  • Industry
  • Participation Rates


Insurance premium prices start with the base rate – the average cost for the average person with the benefits in the plan. Then they are adjusted, based on various factors. The law specifies the factors and the amounts. The way the group size adjustment works is that insurers, at their discretion, can provide discounts for larger small groups (30-50), and charge add-on surcharges for smaller small groups and individuals. The largest discount allowed is said to be 5% off the base rate. The largest surcharge allowed is said to be 10% added to the base rate.

Currently, individuals and smaller small groups pay more than they should, and larger small groups (30-50) pay less than they should. We’ve been told that the dividing line varies, but is around groups of 10 subscribers. Individuals and groups below 10 pay the surcharge, and groups above 10 pay get the discount. The insurers do not have to justify their discounts or surcharges – the DOI allows them as long as the discounts are not more than 5% and the surcharges are not more than 10%.

What types of employers benefit from those risk factors?

In general, middle small market employers in the 30-50 range and individuals got the discounts. The smaller employers, more like 10 lives, are more than likely hit with the surcharge.

What is the rate increase expected to be for an employer benefiting from them now?

The discounts were said to be not more than 5% and the surcharges were said to be not more than 10%. You can expect in future years that increases for plans that have benefitted from the 5% discount will see at least this much as an adjustment. These figures simply act as a baseline. Other factors, however, can and will contribute to higher increases.

If you have any questions about the impact of the merger of the individual and small group market, please direct them to your Client Executive at WGA.