Small-group self-insured plans seem harmless, but they’re not, and they’re growing quickly, according to new figures from the Connecticut Department of Insurance. These plans save some small businesses money, but they carry serious risks. State policymakers are trying to create a safer option, within the confines of federal rules. It’s a bit complicated but stay with me. I will guide you through this; there will be no numbers.
Connecticut’s small businesses are struggling. Inflation, COVID and labor shortages pose serious challenges, but rising health care costs are crushing them. Premiums are expected to increase by 7.4% on average next year. Small business owners who want to do the right thing and offer health benefits to their workers are desperate for affordable options. Self-funded health plans for small businesses offer relief to some businesses if their workers are generally healthy. But groups including older workers, people with disabilities and communities of color could be left behind.
In traditional fully insured plans, insurers receive regular premiums from employers and workers. If medical costs exceed the premiums paid, insurers must cover the excess and cannot increase the group’s premiums next year to make up the difference. But in self-funded plans, employers directly pay the medical bills of all their workers; insurance companies simply administer the plan for the employer. Insurance companies collect premiums from employees to cover the medical expenses expected of small business workers. If premiums don’t cover the bills, the company pays the price. In a large company with many workers, a cancer diagnosis or serious accident would not have a big impact on the healthcare costs of the entire company. But one person’s medical bills could bankrupt a small business. Until recently, small business owners would have been crazy to take this risk, and very few did.
Under federal law, self-funded plans operate outside of protections included in the Affordable Care Act (ACA) or state laws and regulations. Self-funded plans may refuse to cover pre-existing conditions and are not required to cover essential medical services.
However, in 2019, insurers began selling cheaper tiered plans to small businesses, in Connecticut and across the United States. These are self-funded plans that keep premiums stable throughout the year by incorporating stop-loss insurance (also called reinsurance) to cover high medical bills above a certain threshold. This helps keep costs stable during years when nothing bad happens. But if a costly medical problem arises, prices rise sharply the following year.
Policymakers worry that level-funding plans will drive healthier groups away from the rest of the small-group market. This could exclude small businesses that hire workers with more health care needs, including those who are elderly, disabled, or from communities of color, thereby increasing costs in the fully insured market they rely on.
The other problem with level-funded plans is that they simply shift financial risk. They do nothing to address the causes of rising health care costs for all plans, high prices for drugs and services in huge monopolistic health systems.
Despite the risks, Connecticut small businesses have signed up in droves to these level-funding plans, growing from 3 percent to 24.4 percent of small group enrollments in just three years. Experts expect this growth to continue, potentially threatening the integrity of Connecticut’s overall small group health plan market.
Some lawmakers and business groups are working to find a better option. Legislation to create a more secure funding regime was debated last year. Initial concerns about the new association health plans were being negotiated among lawmakers, consumer and business advocates. The new plans would offer small businesses an option that includes the flexibility and financial benefits of self-funding, but would offer members certain ACA guarantees that make coverage meaningful. Additional protections included requiring plans to cover all essential benefits under state and federal law, limiting variation in their rates, and subjecting them to state regulation.
The bill died last year amid opposition from patient groups who worried that the expensive care they need would not be covered by those plans, or by AccessHealthCT, the Connecticut health insurance exchange that does not. ‘offers only the most expensive fully funded plans. But as more small employers flock to leveled capital plans, it’s likely the legislation will return next session.
Association health plans are not perfect, but they are better than the Wild West of current tier-funded plans. And in the meantime, we all need to get serious about reducing the high prices that drive up health care costs for small businesses and everyone.
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