PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Navigating Obamacare: What are my options?

By at 20 March, 2014, 2:48 pm

The question most small business owners are asking:

I am lost on what to do about health coverage: What are my options?

Small business owners are confused and concerned about their ability to continue providing health insurance for their workers.  With the many changes under Obamacare, as well as ogoing changes and delays to the mandates in the law itself, what are their options?

Small business owners are confused and concerned about their ability to continue providing health insurance for their employees. With the many changes under Obamacare, as well as ogoing changes and delays to the mandates in the law itself, what are the options?

Small business owners and entrepreneurs across the country are confused and troubled by the new health care law. They are digesting all the new regulations, delays and ongoing changes, and asking – what do I do next?

Premiums have increased. Many SBE Council members renewed early to avoid major price hikes. Their collective expectation – based upon conversations with insurance agents or carriers – is that prices may increase 50 percent or more.  Here is a typical question that SBE Council receives on a daily basis:

My business situation could be better, but is generally solid. The environment remains very competitive, which puts pressure on our margins. Health care is one of our biggest challenges.

We renewed with Blue Cross/Blue Shield before the end of 2013 to avoid a huge rate hike but that is only delaying the inevitable. Our representative is anticipating a 50% increase for 2015 due to Obamacare. Since our business has under 50 employees we are not subject to all of the regulations – but I’m having to look at other options for next year since we can’t afford any more rate hikes, and certainly not a 50% increase.

We may not offer health coverage at all and have the staff sign up on the government exchange. Can you provide any guidance to help us research our options more thoroughly? I will need to make this important business decision very soon.

To answer this question, we turned to SBE Council advisory board member Victoria Braden, President & CEO of Braden Benefits Strategies.

 

Considerations for the Different Scenarios

By Victoria Braden, President/CEOBraden Benefit Strategies, Inc.

Johns Creek, GA

Before deciding on your benefits and what (if anything) you are going to offer, consider your employee value proposition.  What type of employee are you trying to attract and retain?  How important is health insurance to your employees?  What is your competition offering to their employees?  If you do not offer health insurance, but give employees a raise to purchase individual insurance, will they eventually lose sight of the pay increase and seek employment at a company offering the increased pay rate and health insurance?

We recently had a client who could not wait to get out of the health insurance business.  However, when the time came to make the decision, she determined discontinuing her health insurance would send her best sales people to a competitor and eventually cost her the business.  In the end, she decided to maintain her health insurance.

Victoria Braden, President & CEO of Braden Benefits Strategies, is helping small business owners and organizations successfully navigate the new health care law.

Victoria Braden, President & CEO of Braden Benefits Strategies, is helping small business owners and organizations successfully navigate the new health care law.

If you are considering an increase to employees’ pay and disbanding your group health insurance, there are hidden costs beyond the pay increase:

• In your calculations, did you include the increased cost of FICA and worker’s compensation, which are based on payroll?

• Individual health insurance premiums are paid with after-tax dollars and may not be deducted from an individual’s income or claimed on their tax return.

• Group coverage is an expense to the company and usually pre-taxed to the employee through Section 125 payroll deductions.

• The Affordable Care Act (ACA – the new health care law) specifically prohibits employers from paying for an individual employee’s health insurance premium.

• Increasing employees pay would also affect overtime pay.

Health insurance options for small employers

During the first week of March, President Obama announced a 2-year extension allowing employers to remain on their current plan versus adopting an ACA approved plan. We will not know how this will affect the premiums or plan options until health insurance carriers have the opportunity to evaluate and price continuing the current plans.

What we do know is the current plans are not loaded with expensive federal mandates such as pediatric dental, community rating or limited deductible options, which make current plans less expensive than the ACA requirements in new health insurance plans.  If you disbanded your group policy, employees would purchase an ACA approved individual plan, which could cost more than the increase of your group health plan.

Each State has the option to determine if they will offer the 2-year extension, some may elect to move into the ACA approved plans now and not offer the extension.

Small employers have many more ‘rules’ (which are incorporated into the carrier’s premiums) when offering health insurance.  At the same time, small employers do not have the ‘play or pay’ fine larger employers must pay if they do not offer affordable coverage. This means we do not have to offer ‘affordable’ coverage.  We can offer the least expensive plan possible, pay at least 50% of this plan and be considered an employer who offers health insurance.  In addition to a less comprehensive plan, a second and even a third plan could be offered and the employee could pay the difference between the cost of the more elaborate plan and the base plan.  By offering a base plan, the employer’s costs are contained; using a buy-up option provides employees who want a benefit rich plan the ability to purchase the coverage pre-tax.

What is a realistic renewal number?

It is possible to obtain a quote right now that will provide a company an idea of the true renewal increase.  All small group health insurance policies in a given geographic area will have the same premium cost.  There is no pre-existing conditions or demographic load.  In fact, some insurance companies are simply printing a rate sheet with each policy listing the cost of the policy by age.  Calculating the cost of one of the new policies is simply an Excel spreadsheet exercise.  Some insurance companies are adjusting their rates monthly, others quarterly so the December 2014 rates will not be exact but certainly close enough to determine if there is a need for panic.

What about a self-funded plan?

Every small business should consider a partially* ‘self-funded’ plan.  If a company’s demographics are significantly different than the general public, the community rating system required by ACA may be more expensive than the cost of a company standing on its own and medically underwritten.  Self-funded plans are not guarantee issued policies and a company can be declined. Partially self-funded plans are being offered by insurance carriers, third party administrators (TPA) and others.

What you want to look for:

  • Level premium – the premium is consistent month to month versus fluctuating based on monthly claims paid.
  • There is a cap on the claims exposure and the company is protected from a large claim or high utilization.
  • Run-out protection, claims take time to work their way through the system.  Make sure the policy covers claims incurred during the plan year and not presented for payment until after the contract ends, generally 3 or 6 months is adequate.
  • There are no additional expenses, hidden fees or balloon payments.
  • Laser – look for a contract that cannot impose a ‘laser’ or additional cost for a particular medical condition, which developed during the contract period.  A laser is an expensive medical condition that is singled out and an additional deductible added specific to this condition thus creating a greater financial exposure to the company.

 

Many of the partially self-funded plans are offering a refund or credit if claims are significantly lower than projected.  Do not let this be a driving factor, as the premium is set based on your company’s expected claims.  If there is a large refund or credit, the underwriter projected poorly and the insurance company held your money when it could have been working for you.

Partially self-funded plans are a 12-month commitment and cannot be terminated early without significant financial exposure for unpaid claims.  Taxes – by law the ‘can’t we all get along tax’ (Transitional Reinsurance Program Assessment Fee) and the PCORI tax are not included in the self-funded premiums and must be accrued and paid separately.  The cost of this is $5.25 per month per insured (not per employee) and $1.00 per year for a total of $64 per insured member per year.  An IRS form must be completed and remitted with the tax in December.

A partially self-funded contract requires an annual 5500 filing.  Ask if the insurance carrier or TPA will complete this form.

Compare the cost of a partially self-funded plan and the community rated plans.  If the benefits are the same or better and the rates are better in the self-funded policy, it is a very viable option.  Annually, when you reconsider your options compare the partially self-funded rates with the community rating plans and determine your strategy.

A knowledgeable agent is critical.  If your agent has not suggested looking at this type of policy or does not have experience in the partially self-funded arena, find a new agent.  Many small business owners have been dealing with the same agent for years.  This is a critical time for re-evaluation of the relationship in light of the changing landscape; make sure your agent continues to be qualified to offer up to date consulting in advising your business on the different health insurance options.

And remember – if the premium is too good to be true, there is probably something wrong.

Victoria Braden is President & CEO of Braden Benefits Strategies, and a member of SBE Council’s advisory board.  Visit Victoria’s website here, which provides a wealth of information about the ACA and health coverage options.  Victoria will be writing a series of articles for SBE Council to help small business owners and entrepreneurs through the uncertain and ever-changing ACA transition period. 

*Partially self-funded means a stop-loss policy is purchased to protect the company from excessive claims or an individual shock claim.  A purely self-funded policy would not purchase this protection.

Partially self-funded plans are available for companies down to 5 covered employees.  If your agent says a self-funded policy is too risky for your size business, they have not kept up with the new health insurance realities, a red flag and sign you should seek additional council.

(The reason partially self-funded plans are less expensive than fully insured plans are:

  1. State taxes are only paid on the stop-loss insurance policy as opposed to a fully funded plan where the insurance tax is paid on the total premium
  2. Premiums are determined by the demographics of each individual group versus small group community rating model
  3. The policy is NOT guarantee issue and pre-existing conditions are taken into consideration
  4. Plan designs are more flexible and not held to metal level actuarial values)
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