I frequently witness the frustration of small group employers over the inability to customize plan design or receive premiums that reflect the health of their employee population. Growing companies often look forward to hiring their 51st employee, the magical threshold where many state insurance laws allow rate negotiation and some plan design flexibility. Some states even require 101 employees to be considered a large group, adding to the aggravation.
But don’t give up hope if your company doesn’t have enough employees to get into the large group market. Health insurers are increasingly focusing on two methods that allow them to cherry pick the most favorable employee populations from the small group market and provide them with large group benefits and risk-adjusted premiums.
The first method, Professional Employer Organizations (PEOs), we have blogged about multiple times over the years: here, here and here. PEOs are prevalent in most states and give an insurer the ability to evaluate a small group’s risk and decide if they’d like to offer coverage; which by itself is a powerful tool for an insurer to wield. Although, the real power for the insurer is the ability to incentivize a healthy group of employees to enroll at rates lower than what’s available in the small group market. So, if your group represents a favorable risk to the insurer AND you are willing to agree to all terms of the PEO – voila, you’ve got your workaround.
The second method we’re talking about is less common and isn’t permitted in some states (i.e. New York), but viable nonetheless. This approach uses self-funding to free a small employer from the community-rated market. It is important to note that traditionally, self-funding a small group is rare since few stop-loss providers are willing to work in that market. But you’ll see that a growing number of traditional health insurers are moving in that direction.
Carriers such as Aetna, Cigna and UnitedHealthcare are offering self-funded products to small employers that look just like traditional, fully-insured products on the outside. These policies allow employers to share in the savings if claims are less than expected, but do not expose the employer to additional cost if claims are more than expected. If this sounds too good to be true, it’s because there’s a catch – much like the PEO, your company must qualify for coverage.
But beware – perhaps a more significant issue to note is that self-funded policies can exclude coverage for state-mandated benefits, which vary by state and can run the gamut from autism to hearing aids. If this is not understood by or communicated to your employees it could spell disaster. Additionally, self-funded plans might escape state laws requiring employers with fewer than 20 employees to offer continuation of coverage (the equivalent to COBRA for small groups in many states).
If your company fits the profile, take advantage of it – health insurers are willing to pick off your risk from the mainstream pool and break you out of the small group cage.