Will Small Firms Self-Insure After Jan. 1, 2014?

June 27, 2013 by Frank West

Starting Jan. 1, 2014, the Affordable Care Act (ACA) will bring about significant changes in the regulatory landscape for small firms offering health insurance to their employees.

Regulations affecting small firms include “guaranteed issue” and “guaranteed renewal” which require health insurers to offer and renew plans to all enrollees, regardless of health status. Additionally, three-to-one age rate banding will require that the premium paid by the oldest adult enrollee in a health plan will not exceed the premium paid by the youngest adult enrollee by more than a factor of three for the same set of benefits. Such regulations could have the effect of raising premiums for firms with young and healthy workers.

The ACA’s small group regulations will apply to firms with 100 or fewer workers. The impact of ACA’s regulations could be particularly strong for firms with 51 to 100 workers, because health plans available to firms with 50 or fewer workers are already subject to significant regulation, including guaranteed issue requirements, under federal and state law.

Because of the ACA’s regulations, some smaller employers with young and healthy workers are considering avoiding the purchase of health care coverage in the regulated market, opting instead to self-insure their employees. Firms that self-insure pay directly for employees’ health care expenses, and assume the financial risk associated with unpredictable health costs incurred by employees and their family members.

Historically, concerns about these financial risks have dissuaded most small firms from self-insuring. According to the most recent Kaiser Family Foundation Survey, only 15 percent of insured workers at firms with fewer than 200 employees are enrolled in self-insured plans, compared to 81 percent of insured workers at larger firms. However, if their premiums increase due to regulations, small employers may find self-insurance more attractive. This will have broader consequences. If small firms with young and healthy workers self-insure, premiums could increase for firms remaining on the regulated market.

RAND has developed the COMPARE computer micro-simulation model, which uses what is known about the health care system to estimate what will happen as a result of changes such as those prescribed under the ACA. Recent RAND work provides estimates of the proportion of small firms that will self-insure after implementation of the ACA. These simulations suggest that a critical factor affecting self-insurance decisions will be the pricing and availability of stop-loss coverage, a type of reinsurance for self-insured firms.

One common type of stop-loss policy reimburses the self-insured firm if an enrollee’s health care claims exceed a specific dollar value, called the attachment point. An attachment point of $10,000 per enrollee is considered generous. COMPARE predicts that a large proportion of small firms will self-insure only if generous stop-loss coverage becomes widely available, at an affordable price.

Moreover, COMPARE predicts that such increases in self-insurance would occur even if the ACA were not implemented, as long as affordable and comprehensive stop-loss coverage is available. Therefore, we estimate that any increase in self-insurance would be due to the availability of generous stop-loss coverage, not to a strong interest in avoiding ACA regulations.

Will small firms self-insure? The answer will largely depend on actions taken by stakeholders other than small employers, namely, companies selling stop-loss coverage, and the government. There are already many signs that insurers are trying to lure small firms into self-insuring by advertising low stop-loss attachment points. This inducement to self-insurance could be counterbalanced by government action, in order to maintain a balance of healthy and less healthy employees across the marketplace (including the exchanges, the regulated market outside the exchanges, and the self-insured market).

Currently only a handful of states impose limits on how low attachment points can be set. What should the government do to maintain balance among the different segments of the small business health insurance market? One option is to mandate limits on stop-loss attachment points so as to discourage small firms from self-insuring. However, this option could have the drawback that consumers in self-insured plans would have less financial protection in the event that their firms self-insure.

This commentary appeared on The RAND Blog on June 17, 2013.

Filed Under: Affordable Care Act, Group Health Benefits, Group Health Insurance, Health Insurance Tagged With: Affordable Care Act, Group Health, Group Medical Insurance, Health Care Reform, Obamacare

Why a Health Insurance Penalty May Look Tempting.

June 22, 2013 by Frank West

Why a Health Insurance Penalty May Look Tempting .

Often, when the government wants you to do something, it makes you pay if you don’t. That would seem to be the case with Obamacare, which penalizes companies for not providing health care. But in that penalty, there could be a paradoxical result: dropping health coverage could save companies a lot of money.

$11,429

Employer portion of family health benefit, average current cost

$2,000

Employer penalty for not providing benefits under Obamacare

Once new health insurance exchanges are up and running in October, companies with 50 or more full-time employees will face a choice: Provide affordable care to all full-time employees, or pay a penalty. But that penalty is only $2,000 a person, excluding the first 30 employees. With an employer’s contribution to family health coverage now averaging $11,429 a year, taking that penalty would seem to yield big savings.

Yet there may be costs in employee satisfaction, especially if companies don’t raise pay enough to keep workers whole when they buy insurance on the exchanges.

“No one wants to drop health insurance and have unhappy employees,” says Rick Wald, who heads Deloitte’s employer health care consulting practice.

Few experts see immediate, big changes to existing employer-sponsored coverage. But that may change in time. A generation ago, defined-benefit pensions were prevalent. Not so today.

So why did the government set the penalty at $2,000?

Policy experts don’t agree on the rationale, and the White House didn’t respond to requests for comment. Perhaps the intent was to start a gradual shift from employer-sponsored coverage to the new exchanges. Or maybe the low amount was a compromise needed to pass the law.

Whatever the reason, the government is about to conduct a huge experiment in corporate decision-making.

By ANNA BERNASEK Published: June 22, 2013 New York Times Business Daily

Sources: 2012 Employer Health Benefits survey from the Kaiser Family Foundation and Health Research and Educational Trust; the Affordable Care Act

Filed Under: Group Health Benefits, Health Insurance Exchange Tagged With: Group Health, Group Medical Insurance, Health Insurance Exchange

What to Expect of the Small-Business Insurance Exchanges.

June 21, 2013 by Frank West

Looking to buy a small group plan from your state’s new health-insurance exchange? There’s a risk it won’t be ready to open on time in October.

A report released Wednesday from U.S. Government Accountability Office said that officials still have big tasks to complete, including reviewing plans that will be sold in the exchanges and training and certifying consumer aides who can help small businesses and individuals find plans. (See related article, “Health-Insurance Exchanges Are Falling Behind Schedule.”)

Eleven percent of 783 firms with less than $20 million in annual revenue said that their biggest concern regarding the health-care law is how the insurance exchanges will operate, according to an April survey by The Wall Street Journal and Vistage International Inc., a San Diego-based executive-mentoring group. That compares with 33% who said the cost of health care is their top concern.

If you own a small business and are looking to purchase a small-group plan from your state’s exchange, here’s what you need to know:

Is my small business eligible to buy insurance from an exchange?

The exchanges are limited to only businesses with 100 or fewer full-time-equivalent employees. Full-time equivalent is the number of employees on full-time schedules plus the number of employees on part-time schedules, converted to a full-time basis.

How would an exchange benefit my business?

The small-business exchanges are expected to make it easier for small employers to manage their health-benefits programs. An employer could make a single payment to an exchange, which would disburse the money to the various insurance providers covering its staff, among other benefits.

Also, small group plans purchased through an exchange could be less expensive than what’s available in the private marketplace. This is because the exchanges are expected to attract a large pool of participants, which theoretically would create more competition among insurers, thus resulting in lower insurance premiums.

Husband-and-wife business owners Chris and Maria Guertin of Minneapolis are among those hoping to find a small-group insurance plan within their budget through their state’s exchange. They say they currently can’t afford one to cover themselves, their one full-time employee and any recruits they hire in the future for Sport Resource Group Inc., a retail and wholesale company they started in 2006. But they would like to be able to offer health insurance as an employee benefit to attract and retain top talent in order to grow the business. “A group plan right now is too much,” says Mr. Guertin.

Who’s running the exchanges?

Seventeen states are running their own small business exchanges, with the federal Centers for Medicare and Medicaid Services carrying out the task on behalf of the remaining 33 states. For more information on the exchange in your state, visit www.healthcare.gov/marketplace.

What kind of plans will the exchanges offer?

The exchanges will offer insurance plans from private insurance companies. For 2014, employers in states where the federal government is running the exchange will be able to select just one plan to offer to workers. Which carriers will be participating and how many will vary by state. In some states, such as New Hampshire, only one insurance carrier has expressed interest in the small-business exchange.

When will I be able to start using my state’s exchange?

Though enrollment is slated to begin in October of this year, with plans to take effect in January 2014, the GAO report suggests they may not open in time. The 17 states running their own exchanges were late on an average of 44% of key activities that were originally scheduled to be completed by the end of March, it said.

There have been other setbacks as well. The federal government said in April that contrary to initial plans, it wouldn’t allow workers in the first year to choose between a range of insurance options offered through employers. For the first year, companies will select one plan to offer to workers.

Also, in some states only one insurance carrier has expressed interest in the small-business exchange. For example, regulators in New Hampshire have said they received applications from only one carrier, Anthem Blue Cross and Blue Shield, a unit of WellPoint Inc., WLP +2.48%to sell small group plans or individual policies next year. And in Washington state, officials have had to postpone the exchange altogether because they couldn’t find a carrier willing to offer small-business plans for all parts of the state.

Can I get a tax credit?

If you have fewer than 25 full-time equivalent employees, you may qualify for a tax credit of up to 35% of your premium costs this year and up to 50% in 2014.

Do I even need to buy a small-group plan?

Once your firm reaches 50 full-time equivalent employees, a penalty will kick in if you fail to provide coverage for employees who average 30 or more hours a week in a given month, starting in January. The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees are not offered coverage. The government will rely on data about the composition of employers’ workforces this year in order to determine whether a firm will be liable.

Also, if an employer with 50 or more full-time equivalent employees does offer coverage, but the insurance doesn’t meet the law’s minimum requirements, there is a penalty of $3,000 for each worker who gets a federal subsidy through state insurance exchanges.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Filed Under: Group Health Benefits, Group Health Insurance, Health Insurance Exchange Tagged With: Group Health, Group Medical Insurance, Health Insurance Exchange

Some Employees Plan to Work Longer in Hopes of Enjoying Workplace Health Benefits.

May 13, 2013 by Frank West

Some Employees Plan to Work Longer in Hopes of Enjoying Workplace Health Benefits

About 50 percent of American workers say they plan to work more years than they originally planned to work to maintain their employer-provided health insurance. This finding was the result of a recent study about workers and health insurance. However, their wishes to work longer may not be in line with reality in all cases. Research shows that only about 20 percent of retirees said they were able to remain in the workplace longer to keep their coverage.According to the 2012 study that yielded these findings, a large number of Americans who are older planned to retire earlier if they knew they could count on health coverage. In a similar study conducted in 2003, only about 15 percent of workers said they would consider retiring early as long as they could count on health coverage. By 2012, that number had nearly doubled.
Experts believe that the federal health care reform law may alter the dynamics of the labor market for older workers. According the PPACA, all retired individuals will be permitted to buy health coverage from insurance exchanges. In addition to this, they will receive other insurance market reforms that are blended with exchanges. Some of these benefits include modified community rating, guaranteed issue, more health plan choices and cost sharing subsidies for anyone who is under 400 percent of the poverty line. With these options available, employers currently offering retiree health benefits may start considering dropping their own benefits. Experts believe that this will lessen the enthusiasm of workers to remain at their current jobs.
When it comes to retirement spending, health care expenses are important components. According to a study conducted in 2009, health care comprised 18 percent of expenses for people aged 85 or older. For those between the ages of 75 and 84, health care comprised about 15 percent of expenses. This number was only about 12 percent for those between the ages of 65 and 74. People receiving Medicare who were 65 years of age or older paid more than 10 percent of the cost of their own health care charges during that same year. On average, private insurance paid slightly less than 15 percent, and Medicare covered about 60 percent of the bill. However, experts note that the Medicare program designed for the elderly was not originally intended to pay for medical expenses in full.
Experts estimated that the average 65-year-old married couple with average drug expenses may need more than $160,000 saved in 2012 to even have a 50 percent chance of possessing enough money to pay for their own health expenses. This number excludes the cost of long-term care during retirement years. To enjoy a 90 percent chance of paying health expenses, a couple in 2012 would have needed $283,000 saved. It is important to understand how much money should be saved for a comfortable retirement. With the future still uncertain about health coverage, it is in every employer’s and employee’s best interest to discuss concerns with an agent.

Filed Under: Group Health Benefits, Group Health Insurance Tagged With: Group Health, Group Medical Insurance