Traditional health insurance carriers are naturally profit-oriented. Their revenues must, like all businesses, cover their expenses. The Affordable Care Act (ACA) has changed the financial model for health insurance carriers by pegging medical loss ratios for large group plans at 15 percent. That has required insurance carriers to rethink their business model because they’ve still got to make money and pay expenses, so they’ve done just about the only thing they can to compensate: raise premiums.
To help companies cope with the increase in health insurance premium costs, the Ohio Department of Insurance (ODI) has updated its 20-year-old regulations for everyone’s advantage.
“When Ohio decided not to establish a state health insurance exchange, it created an opportunity to build a better mousetrap,” says William F. Hutter, CEO of Sequent.
“There had been legislation on Ohio’s books that allowed an organization to form a multiple employer welfare arrangement, which can essentially bind employers together to form a way to provide health coverage. There is now an entity, which companies can join, that allows member companies to participate in a nonprofit health plan that creates a direct relationship between membership, premiums and expenses.”
Smart Business spoke with Hutter about how Ohio’s new regulations create opportunities for employers to mitigate their health insurance expenses.
What do you expect will happen to premiums in the coming years?
This year brings significant changes for small employers because all health insurance plans will need to meet ACA guidelines. Health insurance providers will need to produce pretty big numbers to maintain revenue under the ACA medical loss ratios, or they will need to skinny down operating expenses. They’ll likely choose to increase insurance premiums.
What options do businesses have to mitigate premium increases?
ODI realized it needed to update its regulations because the existing laws were out of touch with the new financial model of health insurance. It sponsored legislation along with other key participants that laid the groundwork for new rules that allow businesses to participate in a multiple employer welfare arrangement.
Ohio businesses can now enjoy greater transparency into their health insurance expenses that most health insurance carriers won’t provide.
The multiple employer welfare arrangement has the potential to reward employers that monitor the health of their employees, provide wellness programs and incentivize employees to adopt healthier habits by reducing health insurance costs.
This model also creates transparency, allowing employers to see their health coverage expenses, understand why they’re going up or down and take actions to positively affect the rates. These insurance pools offer economies of scale without pooling the risk. Each member company is in its own risk bucket.
How can companies take part in a multiple employer welfare arrangement?
A company would need to work with an entity that manages a multiple employer welfare arrangement. The company’s employees would complete a personal health care survey, which will provide a rating based on the health of the group.
The result is that the company pays for its own risk but the transparency allows a company to do something to lower its costs. Members of the health fund arrangement are incentivized to help employees be healthier —by offering health screenings and wellness programs, for example — and healthier employees are generally more productive and have fewer absences.
This program makes the most sense for companies with 100 or fewer employees. Any company with more than 50 employees will experience the full impact of the ACA, which includes the administrative, regulatory and reporting requirements. Companies that join a multiple employer welfare arrangement can have much of that burden lifted.
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