My Renewal Is A Shocking Surprise! Now What?

by Holley Maher

For any business owner, receiving a group health insurance renewal with a higher-than-expected price tag is an unsettling experience. After all, surprises that impact your businesses cash flow are never pleasant. But you are not alone. More than one-half (58%) of firms offering health benefits reported shopping for a new health plan or new insurance carrier in the past year (Kaiser Family Foundation, 2014 Employer Health Benefits Survey).

That being said, if your group health insurance renewal is effective Jan. 1, 2015, you have roughly 45 to 60 days to make changes and control costs. So, how do you most quickly understand and evaluate your options?

First, I suggest you answer the following questions to clearly define your circumstances:
• How many full-time employees (FTEs) do you have? 50 or more, or 50 or fewer? This is a critical determinant of potential options.
• What type of health plan do you currently offer? Is it fully insured? What is the deductible? Was it grandfathered? Do you offer a health savings account (HSA) or health reimbursement arrangement (HRA)?
• What is your “funding strategy”? I.e., How do you decide what amount of money your firm pays toward the group health insurance plan? Are you paying a flat percentage of the total cost each year, with your employees paying the remainder?
Second, give thought to your business and the strategic importance of the group health insurance plan:
• Will continuing to offer group health insurance coverage assist you in attracting and retaining the types of employees you need to make your business successful?
• Does your group health insurance plan need to meet or exceed those offered by your competitors?
• What percentage of employees currently participate? How many buy spouse or family coverage?
• If you chose to terminate your group health insurance plan, how would your employees react? What impact would this have on your business operation?

After answering these basic questions, you will have a very good understanding of your current health plan as well as its strategic importance to your business. This will help you evaluate which option, or options, will enable you to achieve your desired goal of controlling benefit costs.  

As you consider options, it is wise to consult an insurance broker or insurance adviser who understands your business and can make informed recommendations.

For our small-business clients, these are some of the strategies we most frequently evaluate:

1. Eliminate the group health insurance plan. Legally, this is an option only for employers with fewer than 50 employees. However, even if you employ fewer than 50 employees, this may not be an appropriate solution if the health insurance plan is of strategic importance to your hiring and retention strategy. For many employers, the potential negative consequences of eliminating the group health insurance plan outweigh the potential cost savings. Given the questions you answered above, you should be able to quickly decide whether this is a viable option for your business.
2. Change the funding strategy. If you historically have paid a flat percentage of the group health insurance premium, you may want to re-evaluate this approach going forward. With this approach, the employer’s out-of-pocket commitment is not controllable and increases as benefit costs increase. In contrast, a “defined-contribution” funding strategy allows an employer to fix the funding commitment, improving budgeting and cost control.
Through defined contribution, the employer contribution is converted from a percentage to a set dollar amount.  Employees then use the money allocated to select a plan of their choosing.  Large employers have used defined contribution for years with great success, so the concept is not new. Small and midsized businesses simply did not have the ability to use this type of funding strategy until the advent of health care reform. Today small businesses are able to take advantage of defined-contribution plans through private exchange platforms. This may be a realistic solution for a firm facing an aggressively priced Jan. 1, 2015, renewal.
3. Move to a self-funded health plan. Historically, self-funding was an option only for very large employers; however, there are now options suited to small and midsized employers. For those employers faced with a Jan. 1 renewal, 45 to 60 days may not be sufficient time to structure a self-funded arrangement. You may seek a stop-gap solution for the near-term renewal and target the rollout of a self-funded plan for 2016.

In summary, use a systematic evaluation process to guide your decision making. Your benefits adviser should be proactively facilitating this kind of dialogue to ensure that health plan strategies appropriately meet both business needs and budget.  At MRCT we employ a variety of strategies to assist our clients with their major benefits decisions and expenditures. If you are unsure which direction is best for your firm, contact the MRCT team for help evaluating your options.

Holley Maher (hmaher@SmartBenefitsPlus.com) is a Partner at Maher, Rosenheim, Comfort and Tabash LLC, specializing in group benefits.