Since the inception of the Affordable Care Act (ACA), many small group employers and brokers alike have experienced constant change and confusion. Premiums continue to rise and many feel there are limited options available to them. Small groups with fewer than 50 employers are not mandated to provide health insurance, but many would like to offer it as a way to fill full-time positions and attract talented employees. Before health care reform, health insurers were allowed to rate up or charge higher premiums to small groups based on their medical history, age, and gender. This made it difficult for unhealthy groups to find affordable coverage.
Healthcare.gov defines community rating as: “A rule that prevents health insurers from varying premiums without a geographic area based on age, gender, health status, or other factors.” Community rating means that all enrollees pay the same premium amount regardless of their health status. The cost is pooled or spread out over a large number of insured people. For groups with fewer than 50 employees, ACA community rating benefitted some and hurt others. Small groups with multiple health conditions or an aging population benefitted from lower rates, while younger healthier groups pay more.
Under ACA guidelines, the “Adjusted Community Rating” methodology is being used. Health insurers aren’t allowed to charge higher premiums based on health conditions, medical claims, or gender. However, they are allowed to charge higher premiums based on the number of employees enrolled in the plan and where the group is located within areas that have higher costs of care. Insurers can consider an employee’s age and whether they use tobacco products. The age ratio of 3:1 means that an older adult cannot be charged more than three times the rate of a younger adult. The tobacco ratio of 1.5:1 means that a person using tobacco cannot be charged more than 1.5 times the non-tobacco user rate.
The ACA’s Health Insurance Tax is due to return in 2018 and threatens to increase already high insurance premiums even more. According to America’s Health Insurance Plans (AHIP), “The health insurance tax (HIT) is a $100 billion+ tax on health coverage for individuals, small businesses, seniors, states, and tax payers. For example families in the small-employer market could see their premiums go up an additional $7,000 over the next 10 years because of this tax. AHIP will continue to push for a full repeal of the health insurance tax because it makes health care less affordable for the very people who need the most help affording health care.”
ACA-compliant plans are fully insured plans. All the risk is passed on to the insurance carrier. These small group plans offer a wide variety of plan designs that can benefit the small employer, however many factors continue to threaten additional premium hikes in the upcoming years. Small business owners are faced with controlling their costs. It’s not surprising that over half of small group employers do not offer health insurance coverage. As ACA premiums continue to rise, so does the need for ACA alternatives. When ACA plans arrived, small employers were allowed to keep their coverage with only minor changes to their plan or risked losing their transitional (grand-mothered status). Now, as these small group employers consider moving to ACA plans, some may see a premium reduction, while others will see significant increases. The employer groups that can’t find a reduction will stay on their transitional plans to avoid ACA as long as possible. However, with transitional plans soon to expire, employers need alternative options.
Many of the health insurers have already provided alternatives to ACA plans and are currently available to small businesses. Historically, self-funding has been a viable option for large group employer with 100 or more employees. The introduction of level-funding has created an alternative for groups in the small group market. Level-funded plans are self-insured plans with predictable premiums and are available to groups down to 10 employees. These plans have a low specific attachment point. The healthier groups usually receive the more attractive rates since they are medically underwritten. Groups that select a level-funded product option will have level or fixed monthly premiums. To be considered for coverage, groups must be healthy and approved by the underwriters. Lower risk groups may pay premium rates lower than ACA rates, while higher risk groups will pay premium rates higher than ACA rates. Many of the small groups that qualify for level-funding options will not be familiar with the concept and will rely heavily on their broker for expertise.
Level-Funding Cost components:
- Administrative Expenses
- Stop loss (Specific and Aggregate)
- Claims fund (paid by the level-funded entity). At the end of the coverage period, a shared savings opportunity exists for groups with claims surplus.
At renewal and if the group had a low claims year, there should be minimal rate increase. In a bad claims year, the employer never has to pay more than the level premium amount because the stop loss coverage protects them. However, they should expect to see a rate increase and now have the option of moving to a community-rated ACA plan if premium savings exists.
Multiple Employer Welfare Arrangements (MEWA)
A Multiple Employer Welfare Arrangement (MEWA) is another popular alternative to ACA plans. MEWAs were created several years ago and can benefit small groups down to two employees. They are a self-funded insurance plan where multiple employers pool their financial resources and share their risk. MEWAs are member-owned profits that stay within the group and can be dispersed among the member companies. Much like the level funding, employer groups must qualify medically.
Typically a board of trustees is formed to manage the MEWA, enabling greater flexibility in selecting plan designs and meeting the overall needs of the group. MEWAs can implement programs that promote wellness and can save overall claims costs of the group, which ultimately lower premiums. Since the group is in control within the MEWA, there is increased stability and lower tax rates for the member companies that don’t exist with fully insured plans.
Small group employers, along with their brokers, are facing a dilemma. Many employers want to offer coverage for their employees while attracting talented future employees. Premiums are on the rise and options were limited, but adversity breeds solutions. The insurance industry has answered and created alternatives for the small group market by providing level funding and MEWA plans.
Please contact your Cornerstone sales representative to learn more about our partner carriers that offer MEWA and level funded alternatives now available to your small group clients.