For employers with 51-100 employees, a provision in the Affordable Care Act (ACA) is generating questions and anxiety.
As of January 1, 2016, for purposes of purchasing health insurance, an employer with between 51-100 employees will be categorized as a “small” employer and will become subject to the rules of ACA health benefit requirements. That could potentially make it more expensive for some employers in this category to purchase health insurance.
That’s because currently these employers are considered “large” employers and can purchase health insurance based on the health history of their employees. That means an employer with lower medical claims could get a better premium than an employer with more expensive medical claims.
Starting next year, these midsize employers would need to purchase ACA qualified health plans. ACA small group plans must charge the same premium no matter what the medical claims history of the employees. That could be an advantage to some employers, and could mean higher premiums for others.
A number of state insurance commissioners, including Wisconsin, are letting employers choose whether or not they want to be treated as a small employer — at least for the next year or two. Wisconsin’s Office of the Commissioner of Insurance (OCI) has issued guidance that lets an employer with 51-100 employees retain their large group size if they renew their policies before October 1, 2016.
An employer renewing their plan before October 1, 2016 will be allowed to keep their group size status at least through the end of their plan year in 2017. An employer is not required to take advantage of this rule, but could choose to do so.
Employers with 51-100 employees should consult with their health insurance company or with their benefits consultant for further details.
The Allure of Self-Funding
For some employers that purchase health insurance coverage, self-funding has always been an intriguing option. Lately though, developments in the health care marketplace have spurred greater interest in self-funding.
Self-funding refers to an arrangement where an employer opts to pay for health care claims directly without going through a health insurance company. This is somewhat of a misnomer, though, because in most self-funded situations, an employer will purchase additional insurance to cover medical costs above certain thresholds.
What is spurring new interest in self-funding are requirements within the Affordable Care Act (ACA) for providing health benefits to employees — the “pay or play” rule. At the same time there have been a number of developments within the self-funded market that make it easier for smaller employers to consider self-funding.
But just because it’s easier for small and midsize employers to self-fund their health benefits with new market products doesn’t always mean the employer should do it.
Generally, self-funding makes sense for larger employers — say with 150 or more employees. There are advantages to being a bigger group. For one, the employer is likely to have access to greater funds for paying claims. A large employer can also set money aside — a sort of a reserve fund — for its medical claims.
And, more importantly, as the size of the employee group increases, an employer can estimate with greater accuracy what it’s likely to face for medical costs, including very large medical claims. This allows the employer to hedge its risks by purchasing appropriate levels of backup insurance or stop loss.
For smaller employers, some of these decisions require careful assessment and planning. As an example, if an employer ever wants to leave self-funding and purchase a health insurance plan, the employer needs to have a certain amount of funds to be able to pay claims for a period of time, in some cases, as long as three or four months.
While self-funding has advantages, smaller and midsize employers need to weigh the risks and rewards carefully before venturing into it.