Boca Benefits Consulting Group Inc.

There is a real question lingering in the benefits business. What happens to group insurance in 2014? Will the proscribing of medical underwriting cause a wholesale migration of young healthy people into individual policies and leave the group books of business in what for years has been called by health underwriters “the death spiral” as these books of business have increasingly higher morbidity rates?

Many employers feel confident that it will be a matter of economics. If they subsidize the group plan only, then the relative cost to the employee will be higher if they attempt to go on their own to buy individual coverage.

However, many employers do not subsidize family coverage in a meaningful way, if at all. Young healthy families might begin to feel that individual health plans have more stability in the post-PPACA environment and are no more expensive. This may be especially true in employer groups that have sizeable aging populations and have relatively high group rates as a result (i.e., where the young healthy employees actually subsidize the higher utilizing older employees).  If an age/sex adjusted individual rate for a young healthy family is 25% less than the group plan, any employer subsidy may become a negligible consideration. 

It should be noted that many of the major group carriers are betting on the latter. There is a clear strategic shift underway on the part of those carriers to be positioned in the individual healthcare marketplace. Whereas, in the past major group carriers were willing to allow this niche to be exploited by a handful of specialty carriers, they are now gearing up like never before and urging group brokers to refocus their perspective on individual sales.

Pondering here how one might offset the effects of the “death spiral” once started, BBCG has no good solution. Once the young healthy claim base is outside the group experience, it cannot be brought back in. Group rates will get progressively higher and the “death spiral” will accelerate. At some point, if taken to its most logical ultimate conclusion, only the older, sicker employees will remain in the group plan. Simultaneously, the traditional recruitment and retention tool, the group plan, has gone to virtually zero value.

The employer question arises “If this is going to happen anyway, should I fight it or find a way to use it?”  Embracing an HRA approach as a defensive strategy may be the best option.

Assume:

1. Your competitors for talent will use their best effort at recruitment and retention as group approaches show vulnerability. That will mean offering some form of tax-advantaged purchase of individual health plans to young valuable employees. If you don’t do it, costs of purchasing an individual policy will be 20-30% higher by an employee  at your firm versus theirs.
2. You likely will not be able to fight the “death spiral” once started.
3. You can structure your HRA plan with employer contributions that are similar in nature to what you now pay out in group contributions.
4. None of your employees will be disenfranchised as of 2014 when medical underwriting of individual policies will be eliminated. [Note: this may require some additional research in terms of how to provide incrementally higher contributions  to employees forced into “high risk” pools at substantially higher rates.]
5. Going out on a limb here, we at BBCG are projecting COBRA to be repealed in 2014 or shortly thereafter.

You can see our other posts here regarding the mechanics of HRA’s.  We feel strongly that employers cannot fulfill all the compliance requirements of an arms-length relationship relative to the employee purchase (n.b., employer cannot be involved in any way with the product purchase) unless a specialty administrator is utilized. Please click here to access more technical information on the concept.


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