Health insurance help for small business in a big-company tool

Chant Engineering Co., a Bucks County manufacturer of large-scale testing equipment, had endured years of double-digit percentage increases in health insurance costs.

But in 2014, spurred by the new regulations under the Affordable Care Act, the family-owned company in New Britain with 50 full-time employees adopted a version of self-insurance — something that historically had been used by companies with hundreds or thousands of employees.

Since moving to self-insurance, Chant has seen its annual increases fall to around 8 percent from a range of 13 percent to more than 20 percent, said Tina Alvarez, Chant's human resources director.

"We don't see ourselves switching back. That's for sure," Alvarez said.

Chant sets aside a specified amount of money each month to pay its doctor and hospital bills rather than paying a premium to an insurer such as  Independence Blue Cross, which would pay claims and keep any extra money, but also would be responsible for any shortfall. Chant's exposure to a shortfall is limited by specialty insurance that covers claims beyond a set maximum.

Chant, an early adopter of self-insurance for small businesses in the Philadelphia area, moved from a fully insured Aetna plan to a product offered by Benecon Inc. of Lititz, Pa., which still uses Aetna's network. The plan covers 39 employees.

This form of insurance is taking off in the region, brokers said. Since April 2016, Aetna, which has a major presence in Blue Bell, has signed up more than 1,000 companies in the five-county Southeastern Pennsylvania area to its version of the small-group health coverage, including a surge for this year, after companies were quoted big increases from Independence Blue Cross, according to brokers. Aetna fully insures about 2,500 small companies in the region.

The Affordable Care Act caused changes in the insurance market that drove the development of self-insurance for businesses with 50 or fewer employees. Before that landmark law, insurers could set prices based on the health of a group, which meant that healthier groups got lower prices. Plus, an employer could weaken benefits to keep price increases in check.

But the ACA mandated that the only factors insurers could use to set prices for groups were age, tobacco use, and the employer's location. In addition, rates had to be set based on the broader community, so it didn't matter how little health care a particular group used. Essential benefits and affordability requirements meant that employers could no longer reduce benefits to get a price they could afford.

Self-insurance plans offered an escape from what one broker called the "choking" costs of ACA regulations because they were exempt from many ACA rules.

That means there is also a downside from a broader societal perspective of small businesses moving to self-insurance. "You're siphoning off the good risks by letting them go self-insured, which leaves everyone else in the insured pool sicker, paying higher premiums," said Paul Fronstin, director of the health education and research program at the Employee Benefit Research Institute in Washington.

As self-insurance for small businesses gains popularity, the Trump administration is pushing for an expansion of association health plans, which would allow small businesses to band together to buy insurance that would also have a lighter regulatory burden than ACA plans, but Fronstin said he did not think that association plans would cut into the momentum of self-insurance for small business.

Such plans sold by Aetna, Benecon, Cigna, and UnitedHealthcare have not had a big impact on Independence Blue Cross, the region's largest insurer, said Thomas Cox, an employee benefits consultant and partner at iSolutions Inc. in Audubon, Montgomery County.

But that could change.

"I don't know what Blue Cross' answer will be on this, but the reality is Blue Cross doesn't want to touch this with a 10-foot pole," said Cox, a 30-year veteran of the employee benefits industry. "They're going to be basically attacking their own book of business if they offer this, because all their good risk would flip over to this."

In New Jersey, self-insurance for small business has been slower to take off, an Aetna executive said. Horizon Blue Cross Blue Shield of New Jersey said it has 55 percent of the small-group market in the state. A comparable figure was not available from IBC.

An IBC official pointed out that self-insured plans are also exempt from the ACA's health-insurer fee, which adds 4 or 5 percent onto a group's price, making fully-insured ACA plans more expensive.

Angela Meoli, Aetna's president for Pennsylvania, Delaware, and West Virginia, said Southeastern Pennsylvania has been one of the best markets for what it calls Aetna Funding Advantage, especially last year. "We had higher-than-expected volumes, which put pressure on our underwriting teams, our enrollment teams," she said.

Among the selling points of the new self-insurance plans is the possibility of getting some money back at the end of the year if claims are lower than expected. However, Lauren C. Stuart, executive vice president at Tycor Benefit Administrators Inc. in Berwyn, tamps down her clients' expectations.

"For a small company spending $500,000 on health coverage, half of that money is for administrative expense, claims adjudication, and stop-loss insurance. That money is never coming back," said Stuart. Tycor, with 20 employees, is in its second year of self-insurance with Aetna.

For small employers, there can be more to the switch than saving money.

Tom Reisch, owner of Tommy's Automotive, a repair shop in West Chester with six employees on its health plan, said he was able to add dental and vision and improve overall coverage with the money he saved by switching to Aetna Funding Advantage from IBC last June.

Reisch doesn't contribute to the newly offered dental and vision, but, even so, "the deduction from everybody's paycheck is less than it was before," he said.

Chant Engineering has taken advantage of opportunities to customize its plan and analyze usage.

"We felt like for preventive care that mammograms, including the new 3D mammograms, should be covered 100 percent," Alvarez said. "You can really determine what you want to cover, what you don't want to cover, and at what levels you want it covered."

David Alan Rech, president and CEO of Scribe Inc., which employs 50 and has offices in Philadelphia, Allentown, and Fort Lauderdale, Fla., said his company was looking at a 20 percent increase from IBC when the book producer switched to Aetna Funding Advantage last fall.

Still, the broad socio-economic implications are not lost on Rech.

"Insurance is about aggregating risk," he said. "In an ideal situation, you would aggregate the risk across the entire population. What you're doing is maintaining an imbalance by allowing this kind of thing. On the other hand, I have a business to run and I have to make payroll every two weeks and I have to be able to pay my bills every month. You have this conflict."

How Self-Insurance Works

Self-insurance is essentially traditional insurance deconstructed into its components, which are:

Additional features that make self-insurance attractive to small businesses are the possibility of getting money back if the entire claims pool is not used and the ability to make equal monthly payments, even as claims vary.