I wish that I had a dollar for each time I have been asked to quote a health insurance case, where the instructions were to duplicate the current plan design. I would be wealthy today, because it happens virtually every time!
If the current design worked so well, why ask for a quote? There is no magic to carrier rates and, with few exceptions, carrier “A” rates will be very similar to carrier “B”, for the same or a similar plan design, and if there is a large rate differential, be wary of someone “buying” the relationship. However, if you have received the dreaded unfair or unaffordable carrier rate increase, the fact is that the current plan design is likely not working, so why attempt to replicate it? Face the facts! Annually comparing “apples with apples” rarely justifies the time spent in the process, so why not consider a pineapple this year?
I am a benefit oncologist, not an agent. When someone brings me a cancerous case, I carefully examine the symptoms in order to diagnose the illness and then attempt to craft a treatment plan that will result in a cure. Rarely, if ever, does the cure involve perpetuating the current plan design, and if your current agent can only see apples, find one that can see pineapples.
Insurance carrier’s product offerings must be approved by the State of Florida and group health insurance offered to groups with 50 or fewer employees is governed by Small Group Health Reform. Small Group Reform significantly limits the carriers ability to take claims experience into consideration when developing their rates. As a result, small group products are fairly limited in creative design options, but there are still enough to create a few pineapples. Let’s consider a few:
- Health Savings Accounts: These tax advantaged accounts allow participants to begin to become better consumers of health care services through the creation of lower cost, high deductible health plans. Usually, both the employer and employee contribute into the HSA, and any contribution is tax deductible, vested and portable. The theory behind the HSA is that people will spend “their” money more wisely and overall health related expenditures will be reduced. They work best when the employer contributes to the HSA. Otherwise, it’s simply a cost shift to the participant. However, HSA plans are now a dime a dozen!
- The Pineapple occurs when you are smart enough to take advantage of the plan design opportunities which are created by the insured marketplace at any given time. Why not consider increasing your current $500 deductible plan to an HSA eligible deductible of $2500. This will yield about a 30% or greater reduction in premiums. Use that premium savings to self insure all or a portion of the $2000 deductible difference. For example, the annual premium of the $500 deductible plan was $200,000 for a 25 life group, whereas the reduced premium for the $2500 deductible was only $140,000. Self insuring 80% of the $2000 difference is $1600 and even if all 25 employees spent the $1600, (which is very unlikely) the plan saves $20,000 per year. The plan could incorporate Rx expenses into the self insured component or purchase a standalone Rx benefit.
- Health Reimbursement Arrangements: These programs are similar to an HSA, but participants may not contribute to the HRA and the accounts are owned by the employer. However, they can be designed with vesting schedules and portability, and are much more flexible than an HSA. Nevertheless, the HSA financial example also applies to the HRA and the $20,000 savings will also apply.
- Combining a Wellness HRA with an HSA: For those employers that wish to contribute towards the HSA plan, but have high employee turnover and are fearful of the immediate vesting and portability of employer contributions in an HSA, a stacked HRA/HSA is a really creative pineapple. Employer contributions are directed to the wellness HRA, which may be reimbursed at 100%, not invalidating the HSA. Any remaining balances in the wellness HRA at year end remain with the employer. Naturally, any employee contributions into the HSA remain their property, and roll over, tax free.
Even though self funding is normally available to somewhat larger employers, all of the previous examples of pineapples would be available to any sized employer, even with as few as just a handful of employees. However, partial self funding, generally affords more opportunities to be creative than insurance because self funded plans are governed by ERISA, a federal law, rather than state insurance regulations.
- Partial Self Funding: When you pay a premium to a health insurer, the premium is guaranteed for a period of twelve months. At the end of that time, if your claims and expenses, plus any reserves, are less than the premium paid, the carrier is allowed to keep the surplus as profit. If the sum of expenses, claims and reserves are more than your premium, the carrier will be responsible for any excess, but will generally raise your premiums upon renewal in the expectation that your excess claims and expenses will continue to increase. For smaller groups, the amount of any increase due to poor claims experience will be limited to no more than 15%. However, for groups with more than 50 employees, carriers can consider all of their claims experience when developing a renewal rate.Self funding treats claims as expenses, so if claims are less than anticipated, the surplus is retained by the employer, not the carrier. In addition, expenses, such as risk charges, premium taxes, administrative fees and profit margins, are considerably lower under a self funded arrangement. Reserves are as critical under a self funded plan as under an insured plan. The difference, however, is that the reserves are held by the employer and not the insurer, and any interest earned is retained by the employer to reduce plan expenses.Self funding is really a misnomer. All but the very largest employers purchase catastrophic protection offered through more than 40 stoploss outlets in North America. Coverage is provided against singularly large individual claims as well as aggregate coverage, to protect against catastrophic frequency. Newer forms of catastrophic policies have been introduced for employers with as few as 15 covered employees and combine both types of catastrophic protection into a single aggregate policy, which operates much like insurance.Partial self funding levels the financial playing field. However, it also allows for the freedom of creating plan designs specifically designed for the needs of the employer, rather than having to purchase off the shelf carrier products. While there so very many great plan designs possible in a self funded plan, I favor those that aggressively engage the participant in the process. Without engaging the participant in the process, we will never control the escalating costs of healthcare.
- Wellness: Irrespective of the size of the group, claims costs are the primary driver of premium rates. All too often, we attempt to control premiums by increasing participant deductibles, out of pocket expenses and contributions. However, these are cost shifts and do nothing to impact “cause”, the actual claims.A self funded wellness plan design could allow for an increase of the current $500 deductible to $2500, for example, and allow participants to earn back parts of the deductible based upon the results of a physical exam. One standard design would tie blood pressure, cholesterol, weight and smoking habits to $500 credits so that a person satisfying each of these markers could earn back the full $2000 deductible increase.While this type of wellness program engages participants and causes them to take a genuine interest in their health and controlling claims costs, we have to be very careful about not violating HIPAA discrimination regulations. The Department of Labor has issued very specific guidelines regarding the viability of wellness plans and done properly, this plan design would be valid.
I love Pineapples, because I am only limited by my own creativity, and I can be pretty creative! While I have only listed a few, if things like Monthly Family Deductibles, MERPS, Carve Outs and Primary Care Plans sound interesting to you, meet with your agent and discuss your renewal strategy. Don’t accept another “apples to apples” comparison. Demand a pineapple and perhaps you will get a fruit salad!