Obamacare continues to drive changes in the small group market. Additionally, the current definition of “small group” is going to change in 2016 from covering 2-50 employees to covering 2-99 employees. More on the effect of that later. Lets look at some of the big questions and trends.
WHERE IS SMALL GROUP GOING?
PPACA continues to drive the small group market. The buzz currently is about the wide disparity in rate requests around the country. Some plans are having trend increases (7-9%) and others are requesting increases as high as 60% or more. How did this come to be? Here is what is happening:
GUESSING AT CLAIMS- In early 2013, carriers had to file for rate increases for the next year. Now consider that, in most areas of the country, they had been cherry-picking groups and individuals with medical underwriting. The numbers were predictable, and controllable. Now, they had to decide what to charge in the new world of ObamaCare – where they had to take everyone, regardless of illness and claims, based on almost zero data. There were some predictive models in states like NY that had community-rated plans (the reason that NY paid 40% more than the rest of the country). Basically, however, they had to guess at what the enrollment would be, what the claims would be. Their entire cash flow model was based on dart-board metrics. Now they have the real numbers, and many guessed wrong.
LESS COMPETITION- A number of companies around the country chose to not offer on the exchanges, or pulled out of the market entirely, prior to January 1, 2014. This meant that in almost every state groups and individuals that were previously covered had to find new coverage, from fewer carriers.
INFLUX OF SICK PEOPLE– Another issue at hand are what I call “hostage” clients – employers (or individuals) where they couldn’t change because someone in the company had diabetes, a heart condition, or cancer – making it impossible for them to change insurers. Now, all of a sudden, they had their pick of plans, and medical conditions didn’t matter. The same thing happened in the individual marketplace.
Some of the larger companies did a much better job than others at “guessing” and that explains the low end of the increases. Many companies have been flat out shocked at the claims amounts being paid out, and need to adjust for it in this years rate increases. Rate increase requests have run as high as 60+%!
ACA TAXES– Additional ACA taxes and fees have kicked in and contribute to a higher increase this year.
For persons that could not get coverage before, the community rating in ObamaCare is a blessing. That same blessing, however, provides groups with an issue. If your group is healthy, you still have to pay the same pooled rate as everyone else. In effect, their higher claims drive up your rates.
IS SELF-FUNDING THE ANSWER? The answer for those healthy groups (with more than 10 employees) is to consider a form of self-insurance. Large companies have been self-insuring for decades, and it adds a layer of complexity, but it has a significant benefit. If you can prove you are a healthier group, you can get lower rates. Simple as that. How do you prove it? You get a medical statement from each employee (which is also their application if you decide to take the companies offer) and the insurance company underwrites you.
PENALTIES, INITIATIVES & DISCOUNTS– Innovative companies are taking new approaches to their employees and benefits. One thing to keep in the back of your mind- you cannot charge your employees more if they don’t do something you want, under many regulations, including ADA. But you can reward their good behavior.
WELLNESS INCENTIVES- The United Healthcare Allsavers Plan, as an example, caps your annual renewal at 9% or less if at least 60% of your employees participate in a simple pedometer program. It also sends a cash reward to participating employees each quarter. Companies are providing a $20 gift certificate to each employee who gets an annual physical. Health plans have reimbursement programs for gyms, but a cash incentive may save you a lot of claims in the long range. Have a smoking cessation program, a weight loss program, and exercise program come on site – and reward your participants.
SMOKING PENALTY- this is the one thing that can be a punishment, specifically because it is allowed under ObamaCare. PPACA allows up to a 50% surcharge, and some insurance companies charge the extra amount. So can you! Consider charging your smokers 20% more than the rest of your group (especially if you bring in a smoking cessation class, and they refuse to participate).
PHONE THE DOCTOR- Companies are adding telemedicine, which employees really like. Call an 800#, you can speak to a doctor, who can prescribe for routine things over the phone. Have that same feeling you get every time you have a UTI? Start treating it tonight, long before you could get an appt, have the Rx called in, and pick it up!
PRIVATE EXCHANGES- Enroll your employees on your own private exchange – they can log in, see all their benefit options, choose between medical and dental plans, select optional coverage’s like disability, hospital and accident coverage. Employees select more coverage’s, and have a higher participation rate, with private exchanges.
LOSE THE SPOUSE- More and more, companies are saying “if your spouse had coverage available, they should take it.” Some companies charge more if your spouse has a coverage option and waives it, to go on your plan. Another easier plan is to simply provide a financial incentive (we will pay you a bonus of $500 if your wife waives coverage, proves their other coverage, and stays off a year).
For companies where they do not pay for dependent coverage, another option is not allowing dependents to be covered – that makes them eligible for a subsidy on the exchange!
COVERING THE GAP- You have an option to save a lot of premiums by taking a high-deductible health plan, but are worried how your employees will pay the deductible? 85% of all medical plan participants in the US, according to a recent study, have total claims less than $2000 a year.
Two approaches – the HRA and the GAP plan. In the HRA (Health Reimbursement Arrangement) the employer agrees to fund up to a preset amount of the deductible each year for the employee, which typically only a few will ever take advantage of. Alternatively, you can buy a GAP plan to cover that deductible for very little premium (the premiums are really low because the insurance company knows not many will ever have claims paid out).
PROFESSIONAL EMPLOYER ORGANIZATIONS- PEO’s are not new, but they have taken on a second life since ObamaCare started. The PEO essentially hires your employees, puts them on their payroll, covers their medical, workers comp, payroll etc. The theory is that they will provide you a lower cost basis on those plans, and reduce your administrative load.
Several major payroll players are pushing their PEO’s as the answer to all of your problems. Ask yourself a few simple questions – are you willing to give up that much control? Will they, in fact, actually save you enough to pay for the 6-10% administrative charge they add on? What happens if I decide I don’t like it and want out in 4 months?
How will the change in rating size affect markets
First, if you have less than 50 employees, nothing is going to change for you. For those with 51-99 employees, how it will change for you may depend on how your claims are, and where you are located. In New York, for example, Oxford is reporting that more than two-thirds of their 51-99 clients will get an increase of 20% or more.
This may turn out to be a very segmented market, with three types of groups – good claims, normal claims, and bad claims. If you have Good Claims, you will get the same increase as everyone else, but may be able to save by shifting to a self-insured program (see Self-funding above). “Normal Claims” groups may have to accept the rate increase, and will have to find some benefits changes to make it minimize. If your group has “Bad Claims,” however, you may be happy to “settle” for the community rated increase, as it would have been worse the old way.
If you are in a state (like NY) that limits the purchase of reinsurance to large group, you may be in a for a hard renewal – currently it is looking like self –insured groups will be limited to groups of 100+ employees. For those groups currently self insured with less than 100 employees, keep a close eye on the actions NY State takes.
Things are changing every day, and Fall 2015 promises to bring more crazy than before. You need a professional to give you the guidance and advice that will help you stay current. Just give us a call!