Obamacare now set to attack self-funding for small businesses
As businesses prepare for the great “premium rate” unknown, medical rate fluctuations beginning in 2014, consulting firms like WGA are spending a significant amount of time and energy on strategies to keep the premium pricing appropriate and FAIR. Like businesses of all sizes across the US, our clients are evaluating every aspect of the new law, from plan design to wellness incentives, contribution strategy to funding risk. Likewise, carriers who have been vilified by the administration during this process, are working feverishly to develop plan design and risk sharing options, to help their clients who would otherwise be hit with unjustified rate spikes due to the mind numbing disarray of new pricing regulations. I have blogged about the unfair pricing model coming to your state here.
As the date draws closer and the picture clearer, I am convinced that in order for companies to continue to offer health care to their employees at fair or at least appropriate price, they will need to engage their employees in clinical wellness, get more creative with plan offerings, and look at shared risk programs like captives and self funding. This last point of shared risk is more familiar traditionally to companies with at least 300-500 employees. But as small group Obamacare pricing adds higher unjustified rates on businesses from 50-300 employees, that group, with professional guidance, will move toward these popular shared risk programs. It only makes sense. If a company can work hard on their benefits plan, engage to help make their employees healthy and keep costs lower, they shouldn’t be forced to pay the static premiums of a sicker less engaged population. Companies today can choose to take some risk, self fund, or join a group of like-minded companies in a health care captive.
Not so fast.
In the Friday September 13, Op-ed “The Attack on Self-insurance” the Wall Street Journal highlights new aggressive efforts to block mid-sized companies from self insuring their programs. A 2012 Urban Institute found that as much as 60% of small businesses may self fund as a result of excessive Obamacare pricing. The administration and their think tanks are now referring to the 1974 law called ERISA as a “loophole” and a threat. The concern it appears, is that if companies who work hard to keep a healthy workforce aren’t there to subsidize the other companies in the Obamacare pool, rates will spike.
The philosophy reminds me of then Senator Obama’s 2008 conversation with Joe the Plumber in which he defended his tax increase plan with his now famous “when you spread the wealth around its good for everybody” comments. Joe, who was working 10-12 hour days to build his business and didn’t want his tax rate to increase, disagreed. If a company spends say $1 million a year on healthcare because they worked hard to design a plan that engaged employees, and keep premiums down, that company does not want to pay $1.3 for million of claims to subsidize those companies that don’t. With self-insurance, that company pays their $1m of claims, a risk charge and an administrative fee; under Obamacare, they pay what everyone else pays. It doesn’t matter if they worked hard to keep claims down. There will be no incentive for small businesses or their employees to take any personal accountability to control health care costs. What’s the point, we are “spreading the cost around”, it will be bad for everybody.
Companies with good consultants, good loss ratios, and a strategy for wellness may be the latest victim in this law.
About the Author
Christopher Nadeau is a Principal at William Gallagher Associates and head of the Employee Benefits Group. Mr. Nadeau counsels his department to develop and redesign employee benefits programs to match the corporate philosophy, long-term needs and objectives of their clients. He is also an industry leader on Healthcare reform and the cost impact and administrative burden on employers.