Small Group Health Insurance Plans are in Jeopardy
by Richard S. Bernstein on Jan 19, 2018
We often hear about the failing individual health insurance market, but we rarely hear about small group health insurance. This is likely due to the fact that the individual healthcare market is in complete disarray, but the small group health insurance market, under 50 lives, is starting to fall apart as well.
Imagine this. You’re an employer who has approximately 35 employees. Your company’s current health insurance is based on an older, pre-Obamacare plan that is significantly cheaper than an Obamacare standard plan. You’ve been allowed to keep this plan because of transitional rules that have year-by-year been extended to allow small groups to keep these plans. This was done so with the expectation that these groups will upgrade to Obamacare compliant plans at some point. These small groups though, year-after-year, have not upgraded to Obamacare compliant plans because upgrading would be fiscally prohibitive for the small groups.
Now, your insurance agent calls you one day, and he or she has some bad news. That the cheaper, pre-Obamacare plan that your company currently uses will expire next year, and you’ll have to go on an Obamacare approved plan. So instead of seeing a normal rate increase, you’re facing the higher Obamacare rating formula, which can be nearly three times as high as the older ones.
So, as an employer, responsible for the 35 employees in your company, how do you reconcile this issue? Well, you essentially have four options.
One, you can take the brunt of the cost increase yourself, as the employer. This is most likely fiscally prohibitive from a company’s financial health perspective.
Two, you can place the onus on the employees. This is also, most likely, prohibitive from a company moral perspective and fiscally for the individual employees.
Third, you can split the difference with the employees. This would take some delicate negotiating, but can be done in a company that collectively agrees to upgrade to an Obamacare compliant plan.
Fourth, the company can switch to a “skinny” health insurance plan, which would keep similar premiums, but would have significantly reduced benefits in the form of higher deductibles and out of pocket costs. This would essentially be placing most of the financial cost to change onto employees with high medical costs.
As of right now, there is no good solution to this dilemma, and hopefully, the powers at be will extend the “transitional” rules another year, or better yet change them from transitional rules to permanent ones. One can look to the GOP’s tax plan, with its lower pass-through entity tax rate, which might free up some cash for employers to help pay for an increased health insurance bill.
If President Trump took a look at this issue the next time the government addresses healthcare, he could help many of these small groups the same way his tax bill is helping the middle class.
Some recommendations to fix this issue are:
- Change the standards from a three bracket aging rating system to the previous eight bracket rating system.
- Remove the obligatory unlimited rehabilitation clause for a more encompassing catastrophic coverage, so it cannot be abused.
- Implement a requirement that prescription drugs sold in America are sold at the lowest price they are sold globally. This would ensure that prescription drug users in America are not subsidizing the costs of drugs in other countries.
- Raise Healthcare Savings Account (HSA) limits to meet the current level of the policyholder’s deductible and over the counter drugs and medical supplies.
- Or simply allow small groups to keep their pre-Obama plans.
My company represents many small groups, and we’ve seen that if some of these recommendations were implemented, small groups could see a 30-50% savings over the post Obamacare plans. Ultimately, this is a bubble waiting to burst if action isn’t taken to prevent small groups from being forced onto the expensive post Obamacare plans.