The Affordable Care Act (ACA) has made the health insurance environment extremely unstable.
“Because the law is so new and was written in such a vague manner it has led to much guessing, anxiety and estimates. These three factors are leading to rising premium prices as carriers are unsure of what the pools will look like,” says Brian Bernier, account executive at ECBM.
These “pools” are the mix of enrolled employees of all companies, which are based on the number of employees at your business. Underwriters use them to estimate risk profiles and therefore premium rates.
Underwriters can usually estimate these rates fairly accurately, but because this law is unprecedented carriers don’t know what risks will be in what pools. They therefore are estimating much higher premiums. This is especially true for the employers that fall in the less than 100 employee pools, although increases are hitting businesses with anywhere from 50 to 2,000 employees.
Smart Business spoke with Bernier about why cost cutting is becoming critically important to offset these premium increases.
What should businesses be doing in order to offset these increases?
Companies should have an insurance broker perform a full and detailed analysis of the plan design, funding mechanism and carrier selection. There are new and exciting ways brokers can design the plans either through consumer driven or hybrid designs. Businesses should investigate partial self-funding with a cap on total spend in order to reduce risk and/or look into other carrier options that may have deeper discounts.
Some brokers are able to work with you to determine a maximum budget and then design your plan to fit that budget.
Why is partial self-funding so effective and what’s the risk?
Insurance companies’ rates have a built-in margin of error. The less underwriting information they have about your employees, the higher the price, which protects them from the unknown. Partial self-funding allows you to pay your claims directly, eliminating mark-ups and group pricing while retaining more savings.
The main risk discussed in self-funding is the possibility of unlimited costs based on high claims. This risk exists, but it can be eliminated with additional insurance, called stop-loss insurance. With stop-loss, you can cap your cost, typically at or below your current premium. In essence, you cap your maximum cost and if your claims come in below that amount you keep the savings.
In addition to the true cost and potential savings, self-funding provides information, which leads to a targeted focus on wellness and helps create cost reduction into the future. Like every other part of your purchasing process, the more detailed the information, the less cost there is.
Why aren’t more companies using partial self-funding?
Actually, most Fortune 1000 companies use this method. Companies with 100 employees and higher should be looking at this option. Your broker needs to provide a written comparison that allows you to determine if this option could be beneficial.
What does this mean for employees? Will you see resistance to these changes?
Self-funding is a behind-the-scenes change to the funding mechanism, not the plan options. Employees can potentially see no change. Once you go self-funded, you are given greater legal flexibility when designing your plan options. (State mandates no longer apply but you still must follow the ACA.) Your broker can mirror your exact plan design under the self-funded model in order to cause as little employee disruption as possible.
If you do decide to change your plan options in addition to self-funding or simply change your plan options without self-funding, communication is key. Your broker should have ideas on the best ways to discuss changes to help mitigate pushback and foster understanding.
What else did you want to discuss?
Like everything else, technology provides the ability for more detailed information. Understanding the overall health of your employees and finding ways to help improve it is the most efficient and cost-effective way to accomplish everyone’s goals. Companies that keep employees happy and healthy, while reducing overall costs to the business, will be the most successful going forward.
Insights Risk Management is brought to you by ECBM