A key feature of The Affordable Care Act is that individuals and small groups (2-50 employees) can enroll for health insurance without regard to pre-existing conditions.
Insurers unable
to ask medical questions are left to guess at the probable risk; i.e., premiums are higher to cover the unknown.
I ended last week’s Tip suggesting there’s a remedy to higher ACA rates.
Consider “self-funding.” (Good luck explaining in 30 Seconds!)
- Self-funding is a misnomer; there is an element of (stop loss) insurance. For small groups, "level funding” caps monthly risk, while providing an option for refunds at the end of a good claims year
- ERISA based plans operate under a different set of rules. Most notably, insurers get to underwrite and rate accordingly; e.g., healthy younger groups pay less. Sick groups may
be declined or renewed based on the claims experience of a very small population.
Employers gambling they’ll have low claims can expect to win that bet 3 out of every 4 years. When the wheels fall off, they can go back to a guaranteed issue ACA plan.
There are two schools of thought on this strategy:
- Self-funding allows even small
businesses to manage their health care spend. Done effectively, that could lower costs.
- Cherry picking the fully insured pool over decades is how we got The ACA.
Arguably, a case of damned if you do, damned if you don’t!
