Small business owners have limited options when attempting to provide affordable healthcare benefits for their employees. Roughly 11 million small business employees do not have access to employer-sponsored benefits. In fact, employer-sponsored benefits for small business has dropped by 25% since 2010.
One reason is because the benefits cost per employee for small business is generally much higher than for larger companies. It’s also a much more complicated, time-consuming effort for small businesses to source and deliver benefits to employees. As a result, many small businesses are forced to offer only bare bones or no benefits plan at all; leaving workers to find coverage on the individual market or through state and federal exchanges.
But small businesses often want to offer affordable benefits to their employees. Not only does it help with employee retention, but they realize it’s the right thing to do. Fortunately, there is an effort underway at the Labor Department that could throw a lifeline to these small businesses and their employees.
Currently, ERISA allows groups of business with "common business interests," such as an industry or a franchise group, to come together under strict guidelines to form collective benefits sourcing programs. A rule change proposed by the Department of Labor would broaden this definition of "commonality-of-interest" to allow small businesses to band together using less stringent industry, geographic, or professional interests, to form association health plans.
This change would mean that much wider groups of small businesses, franchises, smaller associations, and even sole proprietors could qualify for collective sourcing of benefits through an AHP. There are tremendous benefits to this approach:
Economies of scale of collective purchasing will make employer-sponsored benefits affordable for many more small businesses, reducing the number of uninsured;
Typically, health benefits group purchasing can deliver 10%-30% savings compared to individual small employer purchasing, amounting to hundreds and thousands of dollars of savings per employee;
An AHP can bring access to broader benefits and services normally available only to larger businesses, including wellness and disease management programs;
Access to group benefits can aid in higher retention employees for small businesses, a critical driver of the U.S. economy;
Sourcing through an AHP can reduce administrative overhead for small businesses, allowing them to focus on their core business;
Instead of being a broker’s smallest client, participating in an AHP give small businesses greater access to professional management, consulting, oversight and advocacy normally available only to large businesses with professional staffs and resources.
For benefits brokers, associations and franchises, this rule change is an opportunity wrapped in a challenge. Before small businesses can unlock the benefits of AHPs, they first need to navigate a complex administrative, governance and sourcing process. These small businesses, association and franchisee members are going to turn to their trusted advisors, industry and franchise organizations for help understanding this new and industry-changing opportunity.
Brokers, association, and franchise leadership must begin preparing now to meet these questions with specific, proven recommendations on how to quickly take advantage of this emerging opportunity to create real value for their client's members and franchisees.
Fortunately, a proven playbook already exists for how best to deliver these association style benefits. This playbook will simply need to expand to a broader qualified set of small business over time as the DOL regulations are released toward the end of 2018 or early 2019.
Today, an AHP or trust can be sponsored by a group member association and deliver real benefits to its members. The AHP or trust’s role is to aggregate (and oversee) member needs to secure coverage on behalf of its members. The AHP contracts with a broker specializing in small business and program management to create a benefits portfolio for the members, negotiate with insurers on its behalf, and provide program management, enrollment, benefits administration, and ongoing member support. The goal is a turnkey solution for the collective sourcing of small business benefits.
An AHP can be set up using three different structures for medical and other benefits:
Fully insured medical: This is the easiest plan to administer and communicate. It requires no initial capital reserves and does not share risk among the members. Instead, the insurer takes on all financial risk with little or no financial outlay from the AHP at startup.
Self-funded medical: Insurers prefer this approach because it requires the AHP to fund some initial capital or financial reserves for self-funded claims. This means the association assumes a collective financial risk for providing health care benefits to its members through an earmarked fund to pay claims across all participating members, funded by premium contributions to the AHP or Trust. The advantage to the AHP is group-wide savings if the collective group has good claims experience over time. The downside is it requires some up-front capital or reserves to be set aside by the association and its members.
Hybrid medical: Also called a minimum premium program, this approach blends risk for all parties and allows dividends or gain sharing for members based on good loss performance.
In general, the timeline from contracting with a program creator/administrator, through insurer negotiations, to the final launch of any group purchasing plan is six to nine months. First, associations must formalize their intended structure, including the formation of an AHP, if one does not already exist. A qualified ERISA attorney should guide this formation process to ensure proper compliance and governance.
Next, the association should consider sourcing an external program manager to help collect the appropriate data for underwriting AHP members, develop the benefits offering, negotiate with insurers, and initiate the marketing and administration of the AHP program. Once this plan is finalized, the program administrator can begin activating the strategies, tactics and program administration required by AHP member, including call centers, website, reporting, enrollment, and administration. At this point, the new AHP is ready for launch for members and employees.
Ultimately, the DOL’s loosened regulations on AHPs will expand the universe of small businesses and employees that can secure employer-sponsored benefits. This access enables small businesses to save money for their company and their employees, broaden access to better coverage and benefit options, and keep their employees happy and healthy. With a more stable and higher performing workplace, employers and employees alike can focus on the business’s growth and long-term success.
Brokers, associations, and franchises have an important role to play in this equation and should begin preparing now to be a resource and eventual facilitator for their small business clients and members in the days ahead.
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