In my last blog post, we talked about preparing for the tsunami known as the Affordable Care Act, also known as ‘Obamacare.’ It will fundamentally change the way health insurance works across the country and in most cases, it will increase cost. What can be done to mitigate the impact?
Micro-employers, those with less than 10 employees may benefit from the rating rule changes. But larger small groups with more than 10 but less than 50 employees will most likely subsidize these changes by redistributing the premium paid. Employers that were previously in a preferred risk industry, e.g., engineering companies or accounting firms, will pay more. Employers in more risky industries, e.g., dynamite makers, will pay less due to the elimination of industry rating.
The ‘Obamacare’ rating rule changes label (and disallow) all but four rating factors as “discriminatory”, mandating essential health benefits and guaranteed issue coverage. In some states, these changes will cause significant disruption in the small group market.
Which factors are permitted?
- Self-only or family enrollment
- Geographic area
- Age (except the rate cannot vary by more than 3 to 1 for adults, 44 states exceed that threshold)
- Tobacco use (except the rate cannot vary by more than 1.5 to 1)
Which factors are found to be discriminatory by ‘Obamacare?’
- Industry
- Sex
- Participation-rate
- Group size
What are some options?
Postpone the change: If you’re a small company with less than 50 employees, it may make sense to head off the insurance rating rule changes by renewing early. This strategy might be the right solution for a company that needs more time to assess its options and to get a clearer picture of how the law will actually impact premiums. The availability of this option will be determined by health insurance carriers, so be to check with them for guidance.
Investigate PEOs: Small employers might also want to consider working with a professional employer organization. The PEO business model is a co-employment relationship between the employer and the PEO, which allows the PEO the ability to consolidate risk and combine small group employers together to make them a large employer for the purposes of underwriting. This strategy will help a small employer avoid the rating rule changes and give it more financial flexibility in exchange for “sharing” the risk of employment and all of the responsibilities that come with that role. This solution might be the right fit for employers in a preferred risk industry or with a healthy workforce. For a list of qualified PEOs in your market, visit the National Association of Professional Employer Organizations.
Evaluate private insurance exchanges: If you’re already frustrated with the financial burden of offering health insurance to your employees and watching those costs increase 2-3x the rate of overall inflation, the private insurance exchange might make sense. The PIE is a defined contribution, cafeteria-style offering of benefits that uses technology to create an online shopping experience for employees to choose health insurance and other forms of employer sponsored insurance like dental, life and disability products. This solution doesn’t help the employer avoid the rating rule changes, but it does provide an opportunity for the employer to set a defined benefits budget in total and for each employee to help it reduce the rate of increase from year to year and avoid the morale bruising responsibility of delivering bad news each year in the form of higher rates. The PIE industry is evolving and at this time there isn’t one solution provider that meets all the needs of an employer.
Gaunya, GBA, is principal at Methuen, Mass.-based Borislow Insurance. He can be reached at 978-689-8200 or mark@borislow.com.
