WSJ Article on Self Funding Small Groups

[somarco]

Previously, moving to a traditional plan would have come at a shockingly high premium, but Obamacare took care of that for small groups.

Much has changed in the self funded market in the last 20 years or so, but I do believe the market will grow, especially for smaller employers.

When I was active in the stop loss market there were a handful of MGU's and TPA's that wrote a fair amount of small (down to 10 lives) self funded groups. The MGU I worked with wrote down to 25 lives.

We had several groups on the books for 3 - 5 years . . . longer than most stayed with the same carrier on a fully insured basis.

Those who say self funding small groups really don't understand the market. The self funded market exploded in some states, notably FL in the 70's due to all the mandates required for fully insured cases.

This is different in some ways because you are dealing with federal mandated benefits but things like MLR do not impact self funded plans.

The only real question is, how many small groups will survive under GI for individuals?

 

[Joeinmaryland]

Late to this discussion, but I would love to give my 2 cents. The State of Maryland has had Full Community Rated Small Group Guaranteed Issue coverage with no preexisting conditions, no industry ratings and no gender ratings with mandated benefits similar to PPACA for almost 20 years now. We have had partial self-funding as an option for the last 15 years. I am familiar with the approach and have had a couple of 50+ clients who are going that route.

In the past 15 years I have shown Partial Self-funding as an option for my small group clients and only one has gone that route. In the end thay got jerked around in the underwriting side of things and the plan blew up. They may consider going back to PSF with PPACA for reasons unrelated to this posting. The bottom line is that the 10 to 15% cost savings may not be worth it given the potential risk and exposure. The argument for Self funding under PPACA is that your claims are high, you can always go back to the risk pool. I don't know about you, but most of employers don't want to go into a plan knowing full well that they may bail out in one year for a 10 to 15% savings. Much easier to save the money using a plan with a low acturial value than going self-funding. Now if the cost savings is 30 to 40%, that is a different story---I don't see it based on my experience.

Even the pre-packaged Partial Self Funded arrangements that Humana and UHC may consider can't account for the much larger admin costs that a self-funded plan entails. You get around PPACA requirements but at the end of the day the cost savings may not be worth the ERISA Fiduciary exposure. If an employee has a claim problem, their recourse is to sue the employer, not file a complaint against an insurance company--try explaining that to an employer on why they should go PSF.

The argument for self-funding does get a lift from PPACA in one other operational concern. In MD and DC (I don't know about other states). The initial rate filings are member level rates and not composite rates. A total disaster for a 20+ group, especially if you want to offer more than one plan. I can more easily make the argument for going self-funding because of the cost savings AND an operational necessity rather than just for cost savings purposes.

 

[stuy119]

I don't know about other states, but composite rates are done here in IL for small group business.

 

[Joeinmaryland]

We have always had composite rates. Maryland has disclosed carrier rates under HCR effective 1/1/2014 and they all are going to member level rates. A total nightmare. A 20 person group bill has gone from a one line item showing rates for each coverage level is now 2 pages with 3 columns of bill detail showing the actual rate for each employee.

 

[LGilmore]

well posted joey. I've sold self funded plans for many years to larger groups, but I have found underwriting completely tears up small group for self insured to the point where I probably won't offer it anymore. In the past few years the self funded small group stuff quotes out 25-40% less, then when we hit underwriting comes in a push or 5-10% higher. One person with a middle of the road medical experience just can blow the premium up.

 

[Joeinmaryland]

On a separate note, while the article does make some good points, the examples are pretty horrible. They talk about Humana and United going into partially self-funded for groups down to 10 lives because of HCR. They then give examples of an 85 person group and a 60 person group who will not impacted by HCR small group rules until their renewal in 2016.

The one valid example they give is a Colorado group with 40 employees, where United has already projected that their renewal will come in at 30% under Healthcare reform (even though HCR doesn't apply to them until their next renewal in June, 2014). It will be really funny when they have 2 shock claims that blow up the plan and they go onto a mandated plan in June 2014. They would have been better off moving their renewal to 12/2013 and then evaluating their options in the 3rd quarter 2014.

 

[leevena]

All good comments. A couple of things to keep in mind. The first is that self-funding of small groups is not for every group. Since you are looking for groups that have a better than average risk (i.e., lower than the fully-insured costs) it means that only half of the groups in your market will meet that requirement. After that you then need to find a group that has the appetite for this.

The second is that each state treats this differently and as a consequense the experiences in one state (Texas) may not apply to another (NC). There are 5 states that do not even allow self-funding under-51 lives. Then there are a few states that require the carriers to follow a certain set of guidelines/rules that their costs become uncompetitive. So someone in Texas may be having great experience selling and running small group self-funded groups while someone in NC may not.

The third is the how the carrier structures the costs. Some have higher fixed costs, some keep a portion of the claim fund for themselves.

All I am saying is that small group self-funding can be an attractive alternative to some groups in some states.

 

[Joeinmaryland]

Leevena,

Great Post and I agree with everything you are saying. The problem with an article like this is clients read it and presume that Partial Self Funding is the panacea that will allow them to get around Obamacare. I have already had one client e-mail me the article and another one has directed thirr HR staff to respond to it.

For clients predosed to doing whatever they can to get "around" the law a lot of stupid decisions will be made. Whether it is a 10 person group going partial self funded, a 50+ group implementing a mini-med plan thinking it is compliant or an employer making all hourly staff 28 hour a week part time and then inadvertantly giving overtime and going over the 130 hour month threshold on a massive scale.

Business necessity and operations should drive these decisions and not the desire to "get around" the law. We should not be the tail waging the dog.

 

[Ann H]

Welcome to the forum, Joeinmaryland. You express yourself well, and I can tell by the context of your writing that you have valid experience in this business. We like posters like that! Welcome.

 

[Yagents]

He took a spelling and grammar class at Tater university