What “Repeal and Replace” Could Mean for Small Employers – Part 1

With the repeal of the Affordable Care Act (ACA) still in question, many small employers are exploring alternative methods of group health insurance.

Group Insurance without the ACA

With some Republican House leaders still seeking a form of “repeal and replace,” the door remains open for the cost of individual healthcare policies to return to pre-ACA levels that are not an option for most Americans.  This means that the burden of disseminating healthcare coverage will once again fall squarely on the shoulders of employers.

For this reason, many forward-thinking small business employers are reconsidering traditional methods of providing group health coverage to their employees as well as some newer, emerging models.  In the weeks ahead, PacFed will review a few of these options including the Self-Insured Plan, Covered California Small Business Help Option (SHOP), Professional Employer Organization, Collective Bargaining or Union, and Employer Association models.

The Self-Insured Plan Model

Large corporations and government entities nationwide have used a self-insurance model for decades.  Under a self-insured plan, the employer itself collects premiums from enrollees and takes on the responsibility of paying employees’ and dependents’ medical claims. Typically, a self-insured employer will set up a special trust fund to earmark money (corporate and employee contributions) to pay incurred claims.

Although the employer assumes the financial risk for providing health care benefits to its employees, most self-insured employers purchase what is known as stop-loss insurance to reimburse them for claims above a specified dollar level.  It’s important for companies to have the cash-flow necessary for self-insurance, as well as the ability to predict risk.

Expenses for self-funded plans are generally lower because they do not include marketing costs or profit margins of traditional insurance. Self-insured employers can either administer the claims in-house, or subcontract this service to a third-party administrator (TPA) to handle enrollment and claims processing.

For small businesses, understanding the risks and rewards for self-insurance can be difficult. Employers should consult a licensed and reputable TPA to set up their self-insured group health plans and coordinate stop-loss insurance coverage, provider network contracts and utilization review services.