Refresher on Underwritten
vs. Affordable Care Act Plans for Small Businesses

Two health insurance cards sitting on top of a calculator

One of the things that we continue to educate employers on, nearly eight years after the ACA has gone into effect, are the different options available for purchasing health plans in small groups. As we approach the end of the year, many businesses have a January renewal date, so we want to remind everyone of the options and their differences. Unfortunately, even eight years after the ACA passed, many employers with less than fifty full-time employees still think the only options are the ACA fully insured, which is NOT the case. The fully insured ACA plans and the underwritten more traditional health insurance markets each have their advantages and disadvantages. It entirely depends on the company’s demographics, health status, and willingness to dig in and take a risk-based approach vs. being bundled in with the entire region. In our experience, typically, after due diligence has been done, there’s usually an obvious path that an employer should take, and one option will make much more sense financially. Most just aren’t exploring both markets. Let’s dive in further and discuss.

ACA Market Overview

When the ACA passed, it created a hybrid health insurance market where the insurance companies could no longer base the prices off their programs on expected risk. Everyone had to be treated the same. Now some may think this is great, and don’t get me wrong, this helps many people, but it also hurt many people financially. When you think of car insurance, pricing is based on your driving history and the type of car you drive. Homeowners insurance is based on where you live, claims filed, etc. Small group and individual health insurance PRIOR to the Affordable Care Act would ask health questions, and your pricing would be based on the health history and expected claims. You could opt to include or exclude maternity benefits. You could buy dental insurance if you wanted to but didn’t have to. You could purchase individual plans whenever you wanted.

A lot of this changed since the ACA passed. Here are some of the significant differences in the individual and small group in the post-Affordable Care Act market:

  1. A majority of insurance companies who participated in small group and individual markets left the space.
  2. Health evaluations are no longer done for pricing.
  3. Maternity is covered and embedded into all plans, just like pediatric dental.
  4. You can now only purchase individual plans once a year or if you experience what the government considers a “special enrollment period.”
  5. Almost all individual plans are now HMOs. There are very few (if any) preferred provider organizations (PPOs) left in the space. This means more restrictions on who you can see, where you can have surgeries, and makes most plans only available in the state in which they are sold.
  6. In some cases, pricing for people with expensive health conditions has gone down.
  7. Pricing has gone up for overall healthy people who do not want maternity coverage or do not want pediatric dental plan coverage on their health plan.
  8. There is government assistance for people who qualify as low-income earners that helps pay for and sometimes offset deductibles and out-of-pocket costs on health plans.

From our standpoint as an agency, the two biggest benefits of the ACA are;

  1. It allows some employers in the small group segment with less than healthy populations to have better pricing while preventing them from being max rated since there is no underwriting.
  2. On the individual side, which we do not work in, there are advantages for some lower-income individuals.

Here, there is assistance available for pricing offsets with lower deductibles and out-of-pocket costs for those who qualify. Another huge benefit in this area is that if the company is a legit business and is running payroll on the employees, etc., plans are guaranteed and cannot be declined due to health status. You have to be a small employer in the 1 – 50 size segment, but you cannot be denied. A couple of criteria like participation and contribution have to be met, but as long as all the boxes are checked, you cannot be declined coverage, especially not for health reasons. No health questions are ever asked in this space. You are also guaranteed renewal as long as the company remains in business, and you still meet all the participation and contribution requirements.

There are negatives that I don’t want to harp on too much, but I want to be transparent. When the ACA passed, it changed the pricing methodology for individual and small group fully insured plans. While this did help some, for most, this change caused individual and small group plans to more than double. It also pushed a significant number of insurance providers out of the individual and small group space. The promise from the administration that said you could keep your doctor and plan…that didn’t pan out too well. Most of the insurance providers are gone from the space. Of those that remain, only one insurance company here in Dallas still operates the pre-ACA platform and has people on the older plans. There are also MANY doctors and hospitals now that don’t take individual plans that previously did when there were PPO’s available.

Underwritten Market Overview

Now, let’s switch gears and talk about some positives in the small group, underwritten space. First is the pricing. For a relatively healthy group and when there are not many expected claims, pricing tends to be around 25 – 30% better than comparable ACA, non-underwritten plans. There are also a lot more options in this space. As a small group, you can access all major medical carrier networks and a host of other regional players. On the fully insured side, you’ve really only got two that are competitive, typically coupled with one local hospital-based program. In this space, you also can get your hands on a lot more data. With most providers, you get access to monthly claims and utilization reports where you can really see where your spend is going. You can only get the data on the fully insured side twice a year, and it’s not readily available. Most providers make you get a written signed request, you send it in and then have to wait for up to 30 days. The carriers in this space only release what they are required to by the state. Last but not least, in this space, if the plan runs better than expected, you are eligible to get at least 50% of the claims surplus returned with most contracts. Some companies even offer contracts with a 100% return of claims surplus provision. You are certainly not guaranteed anything as a few hospital visits can typically go through the allocated claims reserve pretty quickly. This is a nice bonus for companies who have plans in place for protection or recruiting and retention reasons, but the employees aren’t using a lot of health insurance on a day-to-day basis.

Some negatives of this space are that you have to fill out health questionnaires for most businesses to get a firm offer. We use software internally that completes questionnaires electronically and in a secure environment, but they still have to be conducted. That is something that many employers are not used to doing, and some are not comfortable going through that process. Second, you are not guaranteed coverage in this space. It is a risk-based approach, so if it looks like there’s too much risk for the insurer, they can simply decline to make an offer. Also, along those lines, you aren’t guaranteed a renewal either, it doesn’t happen often, but if something drastically changes over the course of the year from a claims/risk standpoint, you could get a renewal that is so expensive that you want to leave OR you can be non-renewed. Usually, when this happens, it is time to get back to fully insured for a year or two until the claims clear up, and then you can try again.

I hope this info is helpful and serves as a good refresher for most of you. Please reach out to us if any of this seems absolutely foreign to you and you’d like to explore some options that you didn’t know existed. Here at Holloway Benefit Concepts, we’re always happy to help!

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