A Brief History
Already under scrutiny, when the Studebaker Car Manufacturing company closed and couldn’t fulfill its pension promises to its thousands of employees during the 1960s, the event was a catalyst for citizens and politicians alike to demand pension reform. Enacted and signed into law by President Ford on Labor Day 1974, the Employee Retirement Income Savings Act (ERISA) (generally speaking) continues to regulate “the operation of pension and health benefits plans once they’ve been established by an employer.” Since its enactment, there have been significant historical amendments made to ERISA with regard to health benefits all with the intention of protecting individuals – particularly those with preexisting health conditions, from discrimination or being refused coverage.
Third-Party Health Insurance
Traditionally employers who opt to offer their employee(s) health benefits enroll with a health insurance company who assumes all the financial risks associated with paying for employees’ medical, dental and vision needs as well as protecting their income in the event of a short term or long term disability. In exchange, employees are required to pay monthly premiums for the benefit which is deducted from their paycheck each pay period. Rising costs in health care plan premiums have led employers to seek new options to help mitigate the increasing cost of health insurance.
Self-Funded Health Plans
Where in a traditional plan the insurance company bears full responsibility for cost and determining eligibility of a claim, in a self-funded health care plan (aka administrative services only – ASO), the employer takes on all the financial and fiduciary risks and makes all health claim payments from their own asset accounts. The pros of this type of health insurance plan are rooted in the premise that “less is more.” Meaning health benefits are tailored to specific employee bases. This offers flexibility and customization of benefits and also keeps the employer’s health-spend theoretically lower. The cons, if the employee base is not very healthy, this option becomes expensive. As well, given its nature, this health benefit doesn’t make good sense for SMBs. In the event of a catastrophic event the company’s stop-loss insurance kicks in to cover additional expense.
Level-Funded Health Plans
A level-funded plan is only partially self-funded so while it’s considered an ASO, the monthly costs are fixed making budgeting much easier for employers. Constant premiums are paid over a ‘coverage period’ and if the group ends up with a surplus – in that they don’t claim the estimated amount for that coverage period, they all enjoy their collective good health in the form of a refund. In the shared interest of promoting good health, employers can promote preventative care, suggest using in-network providers, encourage using health insurance resources such as remote nursing services and possibly incorporate ‘workplace wellness programs’.
Health Insurance for Small and Midsize Companies
Attracting and retaining quality talent is becoming increasingly challenging. Employers are relying on their group benefits to help leverage their position against their competitors. As such, SMBs with 2 – 50 employees are putting pressure on insurance companies (and subsequently on their group benefit brokers) to construct cost effective alternatives to traditional group health insurance plans. They need flexible, affordable health care options to stay competitive and keep their employees healthy and happy.
A new trend is emerging. Business and trade organizations are creating alliances with health insurance companies and in doing so are changing the game. By making partially self-funded health plans affordable to SMBs with < 50 employees, the fixed premiums lead to less assumed risk and the entire company – employer and employee, benefit.
This article is intended for information purposes only and does not constitute legal advice. Always seek council of a lawyer, tax and/or other professional advisor prior to making any health insurance decisions.
Healthcare is complicated. We are here to help.
As a benefits and health insurance broker for small to midsized companies, Group Benefits Northwest leverages over 35 years of business, management and group benefits experience to provide the very best healthcare plans available to meet employer and employee needs. Based in Mount Vernon, they are family owned and operated and have proudly served Seattle and surrounding Northwest region, since 1982.
Disclaimer: The above content is intended only as general information. Always consult the advice of the appropriate professional service provider such as a benefits broker before making any health insurance and employee benefit decisions.