Often times, employers are faced with group healthcare rates that are generally not negotiable. This is typically due to the fact that there is no leverage against an insurance company regarding a group's actual claims performance or their demographics. This can especially apply to small group employers subject to community rating in states that have adopted either the 50-under or the 100-under community rating requirements. However, most employers are also faced with another dilemma: a strong desire to reduce healthcare costs.
There are several strategies that employers may want to consider pursuing in order to reduce their fixed group healthcare costs and take on variable costs. These strategies can help mitigate concern over exceeding a benefits budget or having a stop-loss component, which puts employers at risk for an unlimited set of benefit payments. Below are some strategies and trends in the group health-care market that can help employers save money.
Adopt a Health Savings Account
One option you have is to adopt an Health Savings Account (HSA) qualifying high deductible Consumer Directed Health Plan (CDHP), partnered with a Health Reimbursement Arrangement (HRA).
The employer implements a catastrophically high deductible CDHP, and then based on their budget, decides whether or not to or how much to fund of the IRS minimum required HSA deductible. That deductible is a necessary component to this strategy. It must happen before a Third-Party Administrator (TPA) enters to administer and pay claims in excess of that deductible. Then, those claims are reimbursed by the company through an HRA -- administered by the TPA.
The advantage of this approach is that the employer has a low fixed cost premium expense to the insurance company. The employer also has a definable funding requirement for each subscribing employees’ HSA . This, in turn, helps employees have money in their pocket to pay routine expenses like prescription drug costs and routine doctor's visits. It also takes on a variable expense in the event of a catastrophic claim, through the use of an employer-funded HRA.
The employer-funded HRA works like this: once expenses are incurred and the insurance company administers the claim, the employee submits the claim to the TPA. The TPA reimburses the allowable expense directly to the Subscribers bank account up to the maximum amount of the HRA that the employer has agreed to fund, limiting the employees out of pocket expenses. This strategy requires a strong benefits administration system and an integrated TPA for efficiency and accounting purposes, to ensure ease of enrollment and ongoing recordkeeping. For it to work successfully, the employer generally needs to have an infrastructure in order to simplify its ongoing administration and communication -- both for the employee and the employer.
Use Professional-Employer Organizations (PEO’s)
The second strategy is the use of Professional Employer Organizations (PEO). For employers who don't want to do it themselves or are looking for a mostly turnkey solution, PEO’s may be a good alternative to the first strategy. Entities are typically rated demographically on these programs, so the PEO sponsoring the healthcare programs will rate the employer based upon its demographic. This may then result in better rates.
It’s important to note that Health Savings Accounts are available through these plans if a consumer-directed option is chosen, but PEOs will not administer a health reimbursement arrangement. That is considered an ERISA plan that must be offered to all employees of a PEO. So if an employer wants to duplicate the strategy mentioned earlier, they would need to have an external third-party administrator for their health reimbursement arrangement.
Try Shared Surplus/Level Funded Self-funded Health Plans
A third possible strategy is the use of shared surplus/level funded self-funded health plans. Employers can adopt into these plans to limit their risk. This can be especially useful to small and mid-sized employers if they use vendors that offer what is called fully insured “split”, “shared surplus” or “level” funding, which is a hybrid contract.
Under this arrangement, the plan sponsor gets protection; it gets to participate in the insurance company's risk pool and use its experience to temper increases when the customer has large claims. It also prevents the “lasering” (I.e.: an increase of the employers liability to self-fund a specific type of claim at a higher deductible) of ongoing, high cost claims that may cross plan years, but retains level rates billed each month and has no obligation to fund claims from its own account. If the plan has large claims that exceed the loss fund in any month or extended period, the insurer steps in to pay all claims “floating” the money, and it recoups it in later months.
If the loss-fund ends-up in a deficit at the end of the Plan Year, the insurer is responsible for claims payments, not the plan sponsor. If the year was particularly bad, the insurer can only increase the customers level rate to a certain limit because of its state regulatory limits, thus protecting the employer from a considerable rate increase. The employer can also “walk-away” and move its employees and business to a true fully-insured community-rated contract if they are eligible for that rating segment. This would provide a layer of protection and mobility in the event of an exceptionally bad renewal and potentially large ongoing claims expenses that would result in consistently high ongoing renewal premiums.
However, when the employer has a good year and the stop-loss claims fund has a surplus, then the insurance company shares 50/50 with the employer in the surplus --- thus the term “Shared Surplus”. The employer's surplus refund is then applied to the following year's administrative costs, reducing the operating expense of the plan.
Not every state will allow insurers to offer this approach due to the marketplace restrictions and state insurance regulation. For small employers they just may not be available in many states, and in some states they're just not considered favorable when compared to the fully-insured approach generally mandated for Professional Employer Organizations.
True self-insured plans may be offered at both the state and federal level. This gives employers even more flexibility on plan design and funding approaches, so long as the employers plan design conforms with all required mandates, like the PPACA. This approach also includes considerable additional risks for entities without a strong balance sheet and cash flow.
There are several ways you can reduce your Group Healthcare Rates this year. Some of the top strategies are:
- Health Savings Account qualifying Consumer Directed Health Plans partnered with Health Reimbursement Arrangements
- PEO’s; and
- Shared Surplus/Level-funded experience rated Health Plans
All of the options mentioned above are available in New Jersey and New York, although Shared Surplus/Split Funded Health Plans are only available for companies of 100 or more eligible employees in New York and NJ, and many other states to as few as 5 eligible and enrolled employees but often for 10 to 25 or more eligible and enrolled.
RMR Wealth Builders can help you keep up on strategies for the Group Healthcare market.
Contact us with any questions regarding group healthcare or 2019 Group Healthcare trends.