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:
1. Self-funding allows even small businesses to manage their health care spend. Done effectively, that could lower costs.
2. 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!