Rick Rosenquist 2013-03-06 00:24:47
Will PPACA Lead More Firms to Self-Insure Rick Rosenquist is an employee benefit consultant. He has been instrumental in developing VIP programs for the Association of Legal Administrators through broker/consultant partners. He can be reached at 480-659-1533 office, 602-320-9093 cell or via email at email@example.com. When speaking to many of my colleagues, the conversation inevitably turns to the Patient Protection and Affordable Care Act (PPACA), the provisions it contains, and how it may cause shifts in the marketplace of employee benefits. Many of us agree that many smaller employers, those with less than 100 employees, may be encouraged to consider a move from fully insured to the self-insured marketplace. In Arizona, the current system for fully insured allows for a “risk adjustment factor” that can vary by firm size and experience. As PPACA is implemented in 2014, firms with less than 100 employees cannot have their health risk allowed in the calculation of their rate. Rates will be based on age, tobacco use, family composition and geographic location. This will result in firms with poor claims experience being pooled with those with favorable experience, and they will each pay the same rate regardless of their claims experience. A firm that has had good claims experience will not benefit from the processes in place that resulted in lower premiums. Therefore, the “modified community rating” provision of PPACA will benefit some and not others. Therefore, self insuring may become a better value than fully insured plans for small firms with good historical experience and a good risk profile (younger and healthier employees). So what is an employer self funded health insurance benefit plan and how could it help a firm? Instead of paying premium to an insurance company or health plan, the firm would take the risk and place those dollars into a separate account. Expenses paid from this account are premiums for stop loss insurance, fees for administrative services and medical claims for plan participants. The medical claims is the component that has had many firms shy away from this type of funding. The larger the firm, the more predictable the medical claims, plus an inflation factor, from year to year. However in smaller firms, they do not have the “law of large numbers” and may have been too small for actuarial assumptions to be valid. Therefore, stop loss carriers would price their products accordingly, making the price and the risk too much for firms. However, now there are ever increasingly competitive markets for stop-loss insurance and TPA services which makes self-insurance more attractive, particularly to firms with 100 or fewer employees. Currently, only 13 percent of employers with less than 100 employees are in a self funded arrangement. Are there other reasons a firm would consider self funded? Self insured employer plans are explicitly exempted from some PPACA requirements, such as: -Not required to provide coverage with minimum essential benefits -Not required to participate in risk-adjustment system -Not subject to single risk pool standards -Not subject to 3-1 age pricing compression and other rating mandates -Not subject to medical loss ratio (MLR) mandates -Not subject to review of premium increases and -Not subject to the annual insurance fee that starts in 2014 for fully insured plans The existing benefits of self insured are retained: -Not subject to state premium taxes -Not subject to state coverage mandates and -Not subject to insurance reserve requirement Previously, a major risk to firms was being tied to a self funding mechanism and not being able to return to a fully insured program. Under PPACA, if the health of a self insured group deteriorates they can then join an exchange. In the exchange, their experience is spread across all exchange participants as part of a single risk pool. This “guarantee issue” provision will make it easier for firms to “dip their toes in the water” of self funding and if their claims turn bad, go easily back to being fully insured through the exchange. This was and is a concern to state and federal regulators, wherein, employers with healthy employees opt for self insurance and leave the community rated pool, causing adverse selection, and resulting in increased rates for the employers left in the pool. Congress suspected that PPACA could cause a migration towards self funded and they included a provision requiring the Health and Human Services (HHS) to study the effect of the law. The study fell short of saying there would be a mass exodus to self funding but concluded it would greatly depend on the reinsurance market. Currently, many insurance carriers are offering stop loss insurance down to as few as 10 employees, with attachment points (specific deductibles) as low as $10,000. This makes regulators wonder if employers are really bearing any additional risk or just self insuring to avoid state insurance regulation. It is yet to be determined if states and the federal government will move to thwart small groups ability to move to self funded by increasing the financial exposure. I believe more small firms will explore self funding as an option. Firm demographics, risk tolerance and goals for self funding are the areas a firm would need to address to determine if self funding is a viable option to curb the effects of healthcare reform.
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