Over the next 5 years an employer with 50 employees will spend roughly $2.5 million on their healthcare programs, taking into account a 4 percent annual increase. With yet another failed attempt to repeal and replace the ACA, small businesses are looking for ways to control the rising costs of health care. Companies are no longer looking at renewals as a 12-month event, but rather a continuous improvement process. So what is the right platform to reduce this trend over time?
First a quick recap of how we got here: As it did with individuals, the ACA community rating method spread the costs associated with the different risk profiles over the entire risk pool. For smaller groups, older and sicker groups benefitted from lower rates while younger and healthier groups paid more.
One response to this situation is that small groups that have seen significant increases to their health insurance may want to look at level-funded plans.
Level-funded plans are a combination of fully insured and self-insured plans. With level funding, employers pay a fixed fee that is determined by the carrier or third party administrator. These plans come with individual and aggregate stop-loss insurance, which protects companies if an individual or the group exceeds a certain dollar amount. At the end of the year, a refund will be issued to the company if it paid more than its plan members spent.
So let’s review the reasons to choose level funding:
You struggle to find affordable group coverage for your employees
In a level-funded plan, the employer is not subject to all of the required coverages, or the state essential benefits, that are core to the ACA. This could immediately get them out of paying 7-9% in taxes, fees and profits to the carrier. Also, you only pay for the claims your group uses. In the event of a bad claims year you would be protected through stop loss insurance. In the worst case scenario you can opt back into the ACA plans. Should you have money left over at the end of the year from your claims fund, it is returned to you as cash or premium reduction for the next year.
Your workforce is relatively young and/or healthy
Again, you only pay for the claims your group uses. Why would you waste money on hefty premiums every month knowing that your group rarely visits the doctor’s office?
You want better access to your claims data
It’s impossible to make positive changes to your health plan without accurately knowing the cost drivers. With level funding you receive claims data that allows you to modify plan design, target specific areas and introduce the appropriate resources to help your employees and manage cost.
For small and mid-sized groups, the question is why not explore a level-funded plan? With the potential for significant savings, protection against extraordinary costs and the ability to fall back on the ACA plans, there is very little reason not to do so.