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Wednesday, 29 April 2015 11:33

Four More Reasons to Consider Partial Self Funding

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We often talk to small and mid-sized employers about the advantages of a Partially Self Funded plan, which most large employers already use.  These include the avoidance of most premium tax, more control over plan design, and access to data that you can use to lower future renewals.

But two forces are coming together to bring more focus on partial self funding.  First, for groups under 50 employees, the end of transition relief that had allowed some smaller plans to avoid the new community rating rules means the four impacts below are hitting those groups this fall. Second, for groups with 51-99 employees, all four of these factors go into effect with your first renewal in 2016:

  • Limited Age Rating: Rates for younger groups may go up once they switch to the new rating. Insurance companies today typically charge 5 to 7 times as much for the oldest enrollees compared to the youngest. Under the ACA, they’re limited to 3 times as much.  This is good news for groups with an older population, but if most of your employees are younger than age 40, this may result in higher rates at the point you switch to a community-rated plan (this Fall for many groups under 50)
  • No Industry Rating: Employers who are in industries generally considered to be healthy get lower rates today to reflect this. Since January of 2014, the ACA no longer allows industry rating for groups under 50, and it’s disallowed in 2016 for groups 51-99, so many smaller plans who may see a bump at their next renewal when they move to an ACA-compliant plan
  • No Rating for Health Status: Groups under 50 employees in Colorado haven’t been rated by health status in a number of years, but small groups in most other states were. Discounts for healthy groups went away in all states for groups under 50 in 2014, and they disappear for all groups up to 100 employees in 2016
  • Age-Rating:  Most employers with 10 or more employees are accustomed to composite rates, where there is a single set of 4 tier rates for all employees.  This structure changes on ACA-compliant small group plans to having a different rate for every single age, as well as separate rates for each dependent.  This requires much more administration work, especially if you don’t have an online enrollment system, which we would highly recommend

Small groups under 50 employees who had used transition relief to put off joining an ACA-compliant plan will have some planning to do to avoid potential unpleasant surprises at their next renewal.  Similarly, groups between 50 and 100 employees will face a major rating change, and partially self funding can be a great way to avoid those changes permanently.  There is some talk of a delay of this rating change for groups of 51-99, but until we see something more concrete we’re encouraging groups to prepare as if it were going into effect on schedule in 2016.

If you are an employer with a relatively healthy population, you may wish to strongly consider a partially self funded plan with your next renewal.  We are helping some of our clients evaluate this strategy now so they can plan ahead of their anniversary date. Kristen will also be giving a number of seminars on partial self funding this year at the Mountain States Benefit Update Conference and also the CO-SHRM conference in Keystone. 

Please This email address is being protected from spambots. You need JavaScript enabled to view it. or give us a call at (303) 369-3200 if you would like some tips on how to approach this important decision.

Read 7692 times Last modified on Monday, 14 September 2020 20:15
Kristen Russell

Kristen founded Fall River Employee Benefits as the culmination of her insurance industry career as an actuary, underwriting executive & consultant. As an Assistant Vice President at Great-West Healthcare (now part of CIGNA), she managed a $1 Billion block of health insurance. She also worked as a Senior Consultant at Reden & Anders, consulting to insurance companies and large employers throughout the country. Ms. Russell received a Bachelor of Science, Business Administration in Actuarial Science, is a member of the American Academy of Actuaries and achieved Fellowship in the Society of Actuaries through a rigorous nine-year series of exams.

Kristen grew up in Iowa but has lived in Colorado since 1993, currently living near our office in the Lower Highlands neighborhood near downtown Denver.  She enjoys bicycling, hiking, traveling and has a special passion for non-profit volunteering. She is married to an incredibly talented photojournalist, has two adult stepdaughters and an adorable Border Collie/Lab mix named Chaco.