On July 7, 2014 Governor Jerry Brown signed SB 1446 allowing businesses with fewer than 50 employees to continue offering group health plans that are not PPACA compliant through 2015. There are some details that you need to be familiar with.
SB 1446 affects policies that:
- Were in effect on December 31, 2013
- Are still in place as of July 7th, 2014
- Do not qualify as a “grandfathered” plan under PPACA (plans in effect in September 2010)
- The Insurance carrier continues to offer (The insurance company is not required to continue to offer the plan you are on)
These plans are tentatively known as “grandmothered” not “grandfathered since they are only allowed through 2015. Nice play on words.
Exemptions under SB 1446
Companies with “grandmothered” plans are exempt through 2015 for the following Federal and California provisions:
- Covering the 10 essential health benefits
- pre-existing conditions limitations
- Discrimination based on health status
- Limits on annual out of pocket expenses
- Rates tied to only age, geographic area and the modified community rating
The end result is that premiums in 2015 should be lower non-compliant plans than for compliant plans. If your plan is more expensive to renew than a complain plan then you can simply switch to a compliant plan.
But what happens on January 1st, 2016?
Well on this date your small group plan will need to be PPACA compliant and rates will be what they are. The expectation is that premiums will increase.
An Alternative for 2016 and Maybe even 2015
The landscape for health insurance is changing, whether its today on in 18 months, premiums are expected to rise. Putting together an affordable benefits plan means that you may need to get creative to continue offering the level of benefits you currently offer while constraining costs.
One option that is gaining traction for businesses with as few as 25 employees is Self Funding. The easiest way to differentiate between a traditional health plan and a self funding plan is to compare it to how you pay for cable TV (costs are fixed regardless of use like with a Traditional health plan) and your electric bill (costs are dependent upon utilization like a self-funded plan).
How Does a Self Funded Plan Work
Self Funded plans consist of two types of costs: Fixed and Claims (whereas a Traditional health plan is made up of 100% Fixed costs).
- Fixed Costs: Like a Traditional plan, Self Funded plans include costs such as Taxes, Commissions, and Admin Charges. In addition there is a cost for Stop-Loss insurance (we’ll explain this more below). On the positive side they don’t contain Pooling charges and Profit to an insurance carrier.
- Variable Costs: Claims and Reserves (these are included in the fixed costs of a traditional plan)
In a traditional plan you pay a fixed monthly amount and claims are paid per the policy. The cost for your next year of coverage is fixed, only changing if you add or remove employees.
In a self funded plan you pay your Fixed costs (which are lower than fixed costs of a traditional plan). Plus depending upon your claims experience, you pay an additional amount to cover claims. If claims are lower than expected you save money. If claims are higher than expected you theoretically could pay more, but this is where having a stop-loss plan comes into play.
Your stop-loss plan is used to manage risk setting a max amount you would need to cover per employee and per aggregate policy. You choose the amount of your stop-loss coverage based on your risk tolerance.
How Self Funded Plans Provide Savings Opportunities
- Taxes: On traditional plans your health insurance taxes are based on the total cost of the health plan. With a Self Funded plan your taxes are based only on the cost of the stop-loss coverage. Less taxes = savings.
- Mandated Benefits: With a traditional plan you are required to provide benefits mandated by the Federal Government and State. Self Funded plans are exempt from many of these mandated benefits. Fewer mandated benefits = Savings.
- Claims: Your traditional plan cost is partially based on expected claims utilization. There are no savings opportunities because even if claims are lower than expected you pay the same amount. With a Self funded plan decreases in claims directly reduce the cost to the company. Integrating wellness initiatives can have a direct impact on your bottom line. And remember that even in a worse case scenario, your stop-loss plan is in place to limit claims related costs. Fewer claims = Savings.
This graphic helps show the differences between a Traditional plan and a Self Funded plan.
Additional Self Funded Advantage
One final advantage is that most Self Funded plans are exempt from most State Mandated benefits allowing you to offer the same coverage to employees across state lines. This allows for a more consistent and easier administration of your benefits. Wrap Up Health coverage related costs are likely to continue to increase once all plans are required to be PPACA compliant. Self-Funded plans are a long term strategy that helps your company contain costs and manage your benefits more consistently.
Have questions about Self Funded plans? Contact us at 310-414-9524, via email at info@johnrileyinsurance.com, or by completing our Fast Form below.