Small Group Employers In Connecticut May Want To Consider Alternatives
Group health insurance rates are becoming a greater burden on small employers with every renewal. Double digit rate increases have become the norm. So what can a small employer do to help off-set rate hikes?
Most employers have simply been going by the standard formula of increasing the employees contribution toward the plan premium and raising medical and Rx copays to keep things at a manageable level. More proactive groups use either HSA or HRA designs in order to offer a plan with a more substantial deductible in order to lower premiums. Such strategies are becoming more and more popular every year.
Self funding health insurance and dental benefits has been a strategy used for many years by large employer groups and consortiums. Until recently, a group needed to be around 250 eligible employees to self fund benefits effectively. Recently, new carriers are beginning to offer self funded small group arrangements. Well, it is called self funded but in all actuality it is more similar to minimum premium. Here is basically how it works….
The self funded carrier uses a health form to evaluate all the employees participating in the group health plan. With the information obtained on the health form, they are able to provide a premium rate to the group that is to be effective for 12 months. If the group has a relatively healthy population, the rate will come in about 15% below the equivalent community rate plan options. Plans designs look similar to your normal run of the mill community rated offering. The group is also given an aggregate and specific stop loss based on the calculated premium, they are also provided with detailed monthly claim reporting which shows them how much is being spent on medical claims relative to the premium they are paying. At the end of the year, the renewal is calculated based off the loss ratio(premium vs. claims) that the group has for the year. Logically, if the loss ratio is low, they can expect a very small rate increase or even a “no change” for the year. (They may also be reimbursed premium if the loss ratio was very low) If the loss ration is high they can expect a large rate increase at renewal. There is no liability on the groups side so they can always walk away from the deal at renewal and will not need to pay off any overage on claims payment.
It makes sense for an employer to test the market to see how much they can lower premium with a self funded arrangement. The worst case scenario is that the self funded carrier may determine they are too much of a risk and decide not not offer a competitive rate. If they are provided a strong rate, they can save money on monthly premium with the opportunity for a reimbursement at the end of the year. If they do recieve a high renewal increase, they can always go back to the community pool.