September 19, 2016
Once limited mostly to large companies, self-funding is now becoming accessible to even smaller employer groups. The Affordable Care Act is changing the landscape of health insurance. Options that once seemed very risky and unsuitable for small businesses are now being considered as viable options.
As of Jan. 1, 2016 the definition of small employer is slated to be classified as employers who have 100 or fewer employees. The change in rates for those in the 51-99 employer market will be dramatic.
This is similar to when employer groups with 50 or fewer employees moved to this rating methodology. Insurers will be required to use “adjusted community rating” when setting premiums for individual and small-group plans sold on the exchanges and the private market. Insurers can’t consider health history in determining premiums. Instead, carriers may only look at age and demographic regions when offering coverage to small employers.
With a self-insured plan, an employer sets aside funds to cover employee health claims rather than paying set per-employee premiums to an insurance carrier. These plans are not subject to the ACA’s community-rating requirements.
Insurers are now beginning to offer self-funded plans to small businesses with as few as 10 employees. Insurers with small group self-funding products predict substantial growth over the next several years, especially in businesses with younger and healthier employees.
One of the more popular products being utilized in the small groups market is “level- funding.” A level-funded self-funding product is right in the middle of the insurance scale. The product is considered a hybrid between fully insured and self-funding. It allows an employer to have a self-funded plan in place and reap all of the benefits without all of the risk, especially when this product is purchased from an integrated carrier. It is considered a conservative approach that has safeguards in place to make it appear and act like a fully insured plan, but the platform is self-funded.
In a level-funded plan, an employer group pays a set monthly premium to an insurance carrier, similar to a fully-insured plan. The insurance carrier handles the administration. If the group has a favorable medical loss ratio, the surplus could either be fully refunded to the employer or split between the carrier and employer at the end of the year.
Other reasons companies are exploring self-funded health benefit options include:
· Eliminating carrier profit margins and risk charges.
· Avoiding taxes and fees mandated by the ACA — a 1% to 3% percent addition to premium costs.
· Avoiding compliance with the essential benefits mandated by the ACA. Self-funded plan designs can be flexible and built specifically with your employee population in mind.
· Using the population health as a factor in underwriting, which can result in a favorable premium if the population is a young, healthy group with good claims experience.
· Managing and reducing costs by utilizing transparent data, educating employees and customizing wellness programs.
If your company has more than 50 employees, self-funding could be a viable option for your consideration.