Hi everyone, I wanted to touch real quick on what I feel is a true travesty in this industry.
Many who do what we do are simply uneducated or unwilling to educate when they are talking to businesses with less than 50 employees about their health insurance programs. Companies like UHC and BCBS of TX have some really strong, small group fully insured plans (also commonly referred to as ACA or Obamacare plans) but guess what? They are expensive, especially if your company is overall pretty healthy and doesn’t spend a ton in claims year after year, compared to the premiums that are being paid.
When the Affordable Care Act went into effect over 10 years ago now, it changed the individual and small-group health insurance markets. No longer on the fully insured side could plans underwrite. They could no longer price based on risk. All other forms of insurance have some form of risk evaluation done, then you get a price. This is not the case in the ACA small group fully insured space. This is great for payroll companies, large agencies, or even smaller, agencies. You can get quotes right off the website AND you make more money off these types of policies since they are so darn expensive. This is the approach you see payroll companies who act like brokers and large agencies that don’t really want small businesses to take. They take your business, act like they are doing you a favor, get a nice commission for doing next to nothing, and then they send you to 1-800 / generic email land never to be talked to again. Well, newsflash, that’s not how we operate and I wish there was more transparency in this industry, especially from the larger houses and payroll providers, but when you have private equity calling all the shots, it’s all about profits, not what’s best for the client.
So, all that said to say, it STILL blows my mind to this day that we run into so many employers who do not know that they have the opportunity to look at an option for underwriting if they are small and many don’t even know that they are able to see their claims data to help determine if underwriting would be a good option or not. Again, shame on all of you agents/agencies out there not telling the whole truth. We don’t have many asks, but we do know that all of our clients know that underwriting is an option, so here’s my ask for today, do you know other business owners who are handling all their benefits through a payroll provider or large agency but are getting taken to the bank, literally? We would love an intro and since you are an active business partner, we’re happy to go in and give them a complimentary analysis so they can see truly what other options are out there. We’ve written similar articles to this in the past, but this is still a huge problem in the small and mid-size employer space so here’s a new one with some additional info and the above all layered in.
Differences in Small Group Level-Funded Plans vs. Fully Insured Health Plans
As mentioned above, you really have 2 options for your health insurance in a small group. Fully insured/government-controlled non-underwritten programs OR risk-based, underwritten level funded programs. Here’s a super high-level breakdown of their key differences:
Small Group Level-Funded Plans
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Cost Predictability with Potential Savings:
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Employers pay a fixed monthly fee covering maximum claims liability, administrative fees, and stop-loss insurance.
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If actual claims are lower than expected, employers may receive a surplus refund at the end of the plan year. Normally 50% of the surplus amount..
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Risk Mitigation:
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Combines elements of self-insured and fully insured plans, offering predictability while mitigating the risks associated with self-funding (and usually about 30% more affordable for a health group).
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Stop-loss insurance protects against unexpectedly high claims.
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Data Transparency:
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Employers receive detailed monthly reports on healthcare utilization, helping them understand cost drivers and manage expenses more effectively..
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Flexibility and Customization:
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Allows for tailored benefits, such as wellness programs and telemedicine options, to meet the specific needs of the workforce.
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Transition Ease:
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Easier transition back to fully insured plans if needed, without claims history impacting future rates
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Fully Insured Health Plans
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Fixed Premiums:
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Employers pay fixed premiums to an insurance carrier, which assumes all risks and responsibilities for employee healthcare claims.
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Premiums are based on employee count, projected healthcare costs, and benefit levels and are either age-rated OR you can set composite rates which are based on the average age of your group
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Financial Predictability:
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Provides predictable monthly costs, making budgeting straightforward and reducing financial uncertainty but is normally quite a bit more expensive than an underwritten plan would be for a group that does not have high claims utilization.
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Ease of Administration:
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The insurance company handles all claims processing and benefits administration, significantly reducing the employer’s administrative burden
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Limited Flexibility:
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Offers less flexibility in plan design compared to level-funded plans. Employers have fewer options to customize benefits and fewer options as far as providers as well..
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No Refunds:
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Unlike level-funded plans, there are no surplus refunds if actual claims are lower than expected. The insurer keeps any savings.
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Choosing the Right Plan
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Consider Financial Stability:
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Level-funded plans can offer cost savings but come with some financial risk. You need to be able to lock in and maintain a contract for a full 12 months. Fully insured plans provide stability and predictability with a price. You can term at any time, which might be preferable for businesses with limited financial flexibility or business longevity concerns..
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Evaluate Administrative Capabilities:
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Fully insured plans are simpler to manage, making them ideal for businesses that prefer a hands-off approach. The insurance company handles all of the required government filings while in the underwritten space, some of those requirements do fall on the employer..
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Assess Risk Tolerance:
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Level-funded plans are suitable for businesses willing to take on some risk for potential savings. Fully insured plans are better for those seeking minimal risk.
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Pricing and Renewals
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Level-funded plans tend to be about 25 – 35% more affordable than a comparable benefit program that is fully insured. This is what drives many employers to at least consider a level-funded program.
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Level-funded renewals will be mainly based on the company’s risk profile at the end of the policy year. This can be good or bad, depending on how “healthy” the group is at that time. We’ve seen renewals that are low single digits and we’ve seen some renewals that are in the 30, 40 or 50% range. This is all mainly based on expected future risks/claims.
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Fully insured renewals are based on the rates that have been approved by the State where the company is headquartered and also the Federal government. Your initial rates are going to be much higher since there is no risk evaluation on the front end, but renewals tend to stay in the 8 – 12% range since this is an overall insurance company block of business renewal based on their losses for all of their clients.
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As we all know, choosing the right health plan depends on your business’s unique needs and circumstances. Both small group level-funded plans and fully insured health plans have their advantages and challenges. It is crucial for decision makers to understand these differences so they can make an informed decision. Unfortunately, a lot of our competitors are running and gunning and looking for a quick sale, not a long-term relationship so they aren’t even talking about level funding.
Know someone who you think is not getting the full story and their company is spending excessively? We’d love to talk to them and help them get a real idea of what their options look like.
Thanks so much for the read!!!
Ryan
