Tag Archive: small employers

Newly enacted legislation could help stabilize individual health insurance market

The 21st Century Cures Act, an omnibus health care measure signed into law this week by President Obama, contains a provision that could help stabilize the individual health insurance market segment. It does so by paving the way for employers of 49 or fewer employees that do not offer group coverage to subsidize employee purchases of individual plans starting January 1, 2017.

Section 18001 of the measure authorizes tax deductible Qualified Small Employer Health Reimbursement Arrangements (HRAs), allowing small employers to fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members. The reimbursement must be offered to all full time, permanent employees age 25 and older with at least 90 days of service and may not be offset by employee salary reduction contributions.

Previously, guidance issued by the federal government disallowed employer subsidies of employee individual coverage. Since the subsidies are paid by employers, they trigger requirements governing employer group plans, the guidance stated, drawing a bright line between individual and employer group health benefits.

If a significant number of small employers — many of which are feeling pressure from rising small group health insurance premiums — subsidize employee purchases of individual coverage under this provision, it could help improve the spread of risk and age diversity of state individual risk pools. Individual health plan issuers are concerned over the quality of the individual risk pool and many have significantly increased premium rates for plan year 2017.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

SHOPs unlikely to stem erosion of small group health coverage

To restore functionality to the troubled individual health insurance market, the Patient Protection and Affordable Care Act operates to force sellers and buyers together. On the sell side, it does so by requiring individual health plan issuers to accept all applicants without medical underwriting. On the buy side, it creates incentive for people not covered by employer-sponsored or government plans to sign up for coverage or pay a tax penalty. In addition, advance tax credit premium subsidies are available to those with low and moderate incomes.

The small group health insurance market segment — coverage sold to small employers – lacks this mix of sticks and carrots. The sole incentive is for small employers with 25 or fewer low wage employees, who can receive tax credits if they offer coverage to their employees and pay at least half the premium. The credits are available for 2014-16 and for plans purchased through the Small Business Health Options Program (SHOP) of the state health benefit exchange marketplace.

SHOPs are grounded in the Affordable Care Act’s philosophical underpinnings that recognize most working age Americans obtain health coverage though their employers. Rather than incentives, the idea behind the SHOPs is to strengthen the small group market by pooling the buying power of small employers. The SHOPs are designed to act like a small employer health insurance purchasing cooperative, giving small employers collective negotiating leverage with health plans, thus in theory helping to drive down premiums and making small group coverage more affordable to even the smallest employers.

As The New York Times reports, however, multiple stumbling blocks impede the rollout of the SHOPs that may ultimately make it impossible for them to build critical mass and achieve the pooled purchasing power they were intended to provide:

Experts say it remains an open question whether the program, known as SHOP for Small-Business Health Options Program, will eventually work. “I think it will take a number of years, if it succeeds,” said Jon Gabel, a policy expert at NORC at the University of Chicago. There remains strong opposition from brokers and some insurers, he said, who view it as a threat to their existing business.

That is leading to the classic chicken and egg problem. If too few small employers opt for SHOP coverage, they will have little buying clout with health plan issuers and thus SHOPs won’t be able to help hold down premium rates. That will encourage more small employers to stop offering coverage to their employees on the grounds that it’s not affordable, which in turn reduces the potential market of the SHOPs.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

ACA individual, small group market reforms curb underwriting in hopes of restoring risk spreading function

Since the individual and small group market reforms of the Patient Protection and Affordable Care will become effective in less than two months, many Americans and especially those who buy their own health plans or who work for small enterprises are now becoming much more aware of them.

Many do not however understand what brought them about.

Insurance is based on two essential functions: risk spreading and underwriting. Insurers spread the risk of losses across a large number of people or enterprises. Underwriting is selecting those that will be offered coverage and on what terms.

The ACA reforms came about because in recent years health plans experienced increasing difficulty spreading the risk of claims for medical services. Without adequate spread of risk, insurance simply doesn’t work anymore than, for example, fire insurance if the insurance company insures 100 homes and several are on fire while many others are firetraps.

Since risk spreading was no longer working very well, plans relied more on selective underwriting to ensure they were covering individuals and small employers the least likely to incur high medical costs. But that presented a Catch 22. The more they tightened medical underwriting standards, the fewer individuals and small employers could qualify for or afford coverage. That generated fewer insureds to share medical costs for the plan though their premiums and membership fees. Plans were collapsing in on themselves in a process known as adverse selection.

The ACA hopes to restore these market segments by significantly paring back the role of underwriting in determining who gets coverage and under what price and conditions. Beginning January 1, 2014 health plans must accept all individuals who apply for coverage and cannot base premiums on the health status of a small enterprise’s employees. Underwriting factors are limited to age, residence, and family status and in states that permit it, tobacco use.

The idea is by limiting the use of underwriting, the risk spreading function can be restored to health by getting more individuals and small employers into the risk pool. To enhance the spread of risk, the ACA also puts all individuals and small employers into two separate, single statewide risk pools.

Whether these reforms will achieve adequate spread of risk and restore these market segments to healthy functioning won’t be known for at least several years since they represent a radical rejiggering of how these markets have operated for decades.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

California limits stop loss coverage for self-insuring small employers

After legislation in the previous legislative session limiting the use of medical stop loss insurance by self-insured small employers failed to advance to the governor’s desk, a measure that would do so was signed into law this week by California Gov. Jerry Brown.

SB 161 bars stop loss policies issued or renewed on or after January 1, 2014, and prior to January 1, 2016 that cover losses with attachment points of $35,000 or less for any individual employee or losses for all employees exceeding $5,000 times the number of employees, 120 percent of expected claims or which provide direct rather than excess of loss coverage.  After January 1, 2016, the measure outlaws stop loss policies having aggregate or total limits of less than $40,000. The bill grandfathers policies in effect as of September 1, 2013 provided the stop loss limits of those in-force policies remain unchanged.

SB 161 sparked division within the insurance industry and business groups. Supporters including Blue Shield of California, Kaiser Permanente and Health Access California see the measure as necessary in order to give the Patient Protection and Affordable Care Act’s and state small group rules including a single statewide small group risk pool and exchange marketplace, the Small Business Health Options Program (SHOP), a chance to work. Otherwise, they argue, it would be too easy for small employers with relatively younger and healthier workforces to retain their own risk for employee health coverage with the safety of relatively accessible stop loss coverage with low attachment points. Also of concern is by making self-insurance a more viable option, small employers could more easily move between self-insurance and the insured market based on their claims experience, potentially producing adverse selection against the small group insurance market and the SHOP exchange marketplace.

Opponents of the bill including CIGNA Life and Health Insurance Company, the National Federation of Independent Business and brokers view self-insurance as a useful market option for small employers struggling with high insurance premiums. However one opponent, the American Association of Preferred Provider Organizations, contends SB 161’s attachment points (which were about three times higher in the original version of the bill) are “unaffordable for small businesses who already take on the calculated risk in administering a complex stop-loss self-insurance program,” according to a Senate analysis of the bill.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Stop loss coverage for small self-insured employers getting attention again in 2013

About a year ago, this blog noted concern among policymakers over small employers opting out of small group health insurance by self-insuring and buying stop loss insurance to defray the cost of major claims.  The concern is stop loss coverage that kicks in when a claim reaches as little as $10,000 to $20,000 could adversely affect the Small Business Health Options Program (SHOP) of state health benefit exchanges by making self-insurance a more appealing option than usual for small employers who typically don’t self-insure.

SHOPs function as marketplaces for small employers to purchase health insurance, aggregating their purchasing power into a single risk pool to enable them to get better premium rates than they could otherwise obtain on their own.  The issue was covered this week by Kaiser Health News (KHN).  The KHN story quoted a stop loss consultant describing the bulk of small employers interested in self-insurance paired with stop loss coverage as having 25 to 30 workers – right in the sweet spot for SHOPs that like California’s that will serve employers with up to 50 employees.

In California, legislation that would have increased the minimum attachment point of stop loss coverage to make it less palatable for most small employers died in committee last year.  The legislation has been recycled in the current session as Senate Bill 161, which would outlaw stop loss coverage with an attachment point of $95,000 per employee, $19,000 times the total number of covered employees and dependents, or 120 percent of expected claims – whichever is greater.

Undermining demand in the SHOP market isn’t the only concern. Some fear adverse selection in the small group insured market as a whole if small employers with mostly younger workers self-insure their workforces for medical risk, leaving insurers to cover older, higher cost workers.  Michael Ferguson, chief operating officer at the Self-Insurance Institute of America, downplays the prospect, telling KHN small employers can also face large claims from younger employees.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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