Braden Benefit Strategies, Inc. is a health and consulting insurance agency specializing in small companies up to 300 employees. The information in this article about group health insurance cost is specific to Georgia law. However, much of the information presented is germane to the health insurance industry in general. Even if you are a company headquartered outside of Georgia, this article can still provide a good place to start when working with an agent or health insurance company.
What does health insurance cost?
There are several different options available to smaller companies. To determine the right one for you and your company, educate yourself, then find a good agent to partner with you as an educator and consultant. My goal is to provide you with the basics, which in turn, will allow you to evaluate your employee benefits package objectively and achieve the best-desired outcomes for your company.
We have created four different sections to make this information easier to navigate and understand.
SECTION I: GENERAL INFORMATION
How are my company’s health insurance premiums calculated?
That depends on your group segment:
Fully Insured – less than 50 employees – Premiums are determined by those in your geographical area, not just your company, who are enrolled in the same plan at the same insurance carrier. The only consideration is age. As can see in Exhibit I, the cost of the insurance is calculated by age. Therefore, everyone the same age, on the same plan from the same insurance carrier, will pay the same price. Annually, the premiums increase by age. Some of your company’s annual renewal increase will be from your employees becoming another year older.
Fully Insured – more than 50 employees – Premiums are calculated specifically to your insured employee population, based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
Level funded employer’s premiums are also calculated specifically to your insured employee population, based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
Groups with more than 100 employees are calculated the same as companies with more than 50 employees. Rates are specific to your insured employee population, based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
A person cannot be excluded from a group medical policy for medical conditions. The health insurance must either accept the entire group or decline the entire group. They cannot single out a person or persons.
An employer with less than 50 employees using a fully-funded health insurance plan, cannot be declined, period.
Carriers have required participation rates based on a ratio of the number of insured employees to the total number of eligible employees. This ratio is specific to each insurance carrier and should be discussed with your health insurance agent.
How do I know if the premium my company is paying is more or less than the cost of medical care for my employees?
Companies with less than 100 employees on a plan will not know. The company will not receive claims data or information on how much your company paid in premiums versus how much was paid in claims.
Fully insured companies with less than 50 employees, your company is pooled with all the other companies in your location to determine the cost per age on a specific policy. Let me say this another way, everyone in your geographic area (in any company) on the same insurance plan will pay the same price based on the age of the employees and dependents on the policy.
Fully insured employers or employers using a level-funded health insurance product can request data on your specific loss ratio.
How are premiums in companies with more than 50 employees or level-funded plans determined?
The premium is based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
How do I know if I am overpaying for my company’s health insurance? Or if the medical claims are less than we are paying in premium?
You don’t. On fully insured medical plans, with less than 100 enrolled employees, health insurance companies are not required to provide this information. Without this information, it is hard to know what to expect at renewal.
If an employer has more than 50 employees and is using a fully insured plan, the insurance carrier must pay 85% of the premium dollars collected to claims incurred by the participants of this particular health insurance plan. If the carrier pays only 80%, your company along with all other participating employers in the geographic area on the same plan will be refunded the 5% ‘overcharge’.
However, on level-funded plans, which are available to all size groups, a claims report is generated, some as often as monthly, providing information on the premium paid versus claims paid. Using this information can be valuable in structuring your benefits package and should be used as a budgeting tool. Having access to claims data tells you if you underpaid or overpaid the insurance carrier.
In a level-funded plan, if there were more claims than the premium paid in, stop loss insurance will cover the loss. You, the employer have no liability. If you paid more premium than was paid out in claims, you are due a refund. However, each carrier has specific pay-out formulas. Some will not pay your company a check, instead they will credit the overage to the next years premiums if you remain on their insurance. There are also different payout percentages. One insurance carrier may offer a 50/50 split with the insurance carrier keeping 50% of the overage and refunding the other 50% to the employer. There is also run-out, a period of time after the policy year has ended, used to pay all the claims incurred during the policy year but not paid by the end of the policy. The run-out will be calculated prior to determining your premium credit.
How are pre-existing conditions calculated into the cost of the health insurance?
For companies using a fully insured health insurance policy with less than 50 employees, they are not a factor. In fact, questions about your employee’s health should not be asked. Employers who have employees with high healthcare costs or an older population often find fully insured health insurance to be their best option.
For employers with more than 50 employees and those using a level-funded plan, premiums are calculated specifically to your insured employee population, based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
Again, no employee or dependent can be excluded from a group medical policy for medical conditions. The health insurance must either accept the entire group or decline the entire group. They cannot single out a person or persons.
My company got a refund from the insurance company last year, we must have had a really good year.
First, you must have a fully insured plan to have received a refund.
No, the refund is determined by the amount of premium the insurance carrier collected from all the companies in your geographical area using the same specific policy your company is using. If you are offering your employees more than one policy to choose from, there is a good chance one of those policies had a refund while the other did not.
By law, for companies with 50 or less employees, an insurance company must payout 80% of the premium they collect in claims and 85% for companies with more than 50 employees. This measurement is based on claims incurred by the people insured under each specific policy. Each individual plan design from each insurance carrier stands alone in determining the percentage of claims paid. If the insurance carrier, on one of their plans, paid 78% in claims, they must return the 2% difference to the companies on that insurance plan. While the 80% is calculated across all employees and their dependents on a particular plan, there is no consideration for the healthcare costs of each group.
(Fully insured groups with 50 or less employees, the insurance carrier is required to pay at least 80% of the premiums collected in claims and 85% in claims for groups 50+)
Example: We had a fully insured employer with more than 50 employees who had been on the plan 3 months when the refund was calculated (MLR – Marginal Loss Ratio). During the 3 months, an employee had a kidney transplant at a cost of several hundred thousand dollars. Yes, this employer received a refund. The health insurance plan they had selected paid less than 80% in claims, therefore the difference had to be refunded to all companies proportionately based on their census. The cost of claims or anticipated claims for any one company is not part of the equation when determining the refund for employers with more than 50 employees.
How can I control the cost of my company’s health insurance, it seems to increase every year?
All plans have an age factor in determining premiums. Generally, your company will age one year across the board. And, as you can see in Exhibit I, there are certain age thresholds where the premiums increase dramatically compared to others. While the Exhibit is specific to a fully insured plan with less than 50 employees, the age bands are relevant across all insurance plans.
Controlling premiums is a simple formula for employers with 50 or more employees and those using level-funded health insurance. Control the claims and you control the cost.
If your company has a fully insured plan with less than 50 employees, your premium increases are dictated by age, the cost the insurance carrier requires, and the Georgia Department of Insurance approval.
How can my company control claims, since claims are a major part in the cost of my policy?
The answer is you cannot – employers with less than 100 employees are not provided claims data. Consequently, you do not know what type of education your employees would benefit from or how to structure your benefits to provide services that would be helpful to employees with medical conditions, such as diabetes, etc. Providing good healthcare is critical to maintaining ongoing sustainable rates.
Many of the health insurance carriers offer wellness programs. One even offers a reduction in premium if your employees participate in their wellness program. Others offer different incentives which have, at times, included a Fitbit or Apple Watch, gift cards and prizes.
All health insurance carriers, by law, provide no cost annual wellness checks. Employers should encourage employees to have annual physicals. Conditions caught early are generally much less expensive.
What employers can do to control claims is use the information gained through underwriting applications to structure the health insurance coverage in a way that provides the best coverage for the needs of your specific employees with medical conditions. As we are all aware, a person with a medical condition who takes good care of themselves will spend much less on healthcare.
How do you design a health insurance plan and educate employees if you do not know employee’s medical conditions?
You are correct, you cannot know the medical conditions of your employees. Your agent and one person in your company, who does not have the authority to hire or terminate employees, can know this information. That being said, you will trust these two individuals to provide the best recommendations to design an affordable program and control costs including consideration for employees with medical conditions.
Example: If a person is an asthmatic and they do not see a doctor regularly or cannot afford their inhaler, they most likely will go to the emergency room at least 1 time a year if not more. However, if they do go to the doctor and regularly take their medicine, they and your company will avoid a large claim.
Remember, your health insurance is not the only way to pay for healthcare. With the help of your agent, you can develop specific coverage for employees outside of your health insurance. Think of it this way. If you bump another car, the damage is minimal. You decide, rather than turn the claim over to your insurance company, to pay the claim out of your pocket. By doing this your insurance premium is not increased and you do not have a three-year notation on your insurance record. Plus, if you have a policy with accident forgiveness, you will not lose the forgiveness over a very minor incident. Your company’s group health insurance has the same parameters.
Generally, when you offer a fully insured plan for a company with less than 100 employees, it is a ‘canned’ plan. Meaning, the health insurance carrier has created several different health insurance plan designs for you to choose. You and your agent cannot change these policies to make them address your employee’s specific needs. However, you can be creative within the plans available to provide the best coverage at the least cost.
Strategy: Looking at your employee base, you realize one maybe two people on your policy will use any part of their deductible. Rather than provide a $3,000 deductible plan, use a $6,500 deductible plan and ask the employee to pay the first $3,000 and your company picks up any cost over $3,000. If the calculated premium savings is more than the anticipated deductible exposure of $7,000, you have saved money.
A good agent will use the medical underwriting information, within HIPAA mandates, to educate employees on where and how to get the best care at the lowest prices.
Example: We have an employer with more than 50 employees using a fully insured health insurance plan. One of the employees needed an MRI. The cost of an MRI at a hospital is upwards of $1,800. If the employees uses the hospital, chances are the employee will pay most of the MRI because it will hit their deductible. However, if they are educated and have a resource to guide them on where they can get a high-quality MRI at a reasonable price, the cost will be around $400. Much better for the employee and a lower cost should these types of services move into your companies claims.
Won’t this strategy of providing more coverage result in higher Premiums?
Not necessarily. It depends on the plan and how your employees are educated, how involved your agent is and how the resources provided by the health insurance company are incorporated.
What if one of my employees has a maintenance medication that costs around $60,000 a year? Will this increase the cost of our health insurance premiums?
No, if you are using a fully insured health insurance product and have less than 50 employees (not on the insurance, in your company), medical conditions are not considered in determining premiums. Again, the question of the physical and medical conditions of your employees should not be asked.
Yes – Fully insured plans with more than 50 employees and level-funded policies. The insurance company will calculate the cost of this drug into the premium they need to cover claims. Think of it like this – $60,000 divided by 12 months divided by 55 employees = $90 per employee per month. The cost of healthcare is directly related to the cost of health insurance.
Strategy: Use a policy that does not cover these expensive drugs. Drug manufactures have programs for individuals when their medications are not covered by their insurance carrier. Again, you will need to work with your insurance agent to make sure an alternative resource is available to employees. What we do not want is someone not taking their medication because they cannot afford it. This leads to large and unnecessary claims.
Why does the insurance carrier require employers to pay at least 50% of the premium?
Paying 50% of the individual employee’s health insurance premium is the minimum an insurance carrier wants employers to pay. The insurance company wants to make sure your employees enroll in the health insurance. The more people enrolled; the more money is collected to pay claims. If only the sick people enroll, the cost of the claims could be much higher than the total premiums collected.
What is the average amount of premium – cost share – most employer’s pay of their employee’s premium?
Remember 50% is the floor. In determining what benefits you offer and the structure of your health insurance plans, look at your company objectives. All company objectives include the make-up of your workforce.
- What will it take for you to attract and retain your ideal employee?
- Are you going to offer dental, vision, disability, cancer or accident coverage?
- Will you offer your employees the option to purchase life insurance for themselves and their dependents?
- What benefits do your competitors offer?
- What is expected in your industry?
- What are like professions offering?
Strategy: Thinking you cannot afford to offer a cafeteria plan of benefits? There are creative ways to cost share these benefits. If your company pays a flat amount that employees can apply to medical, vision, and dental insurance, it allows them to determine what is most important to them and their family. If you also offer more than one health insurance plan for them to choose from, they may decide they do not need an extensive medical policy but do want the dental plan to assure all members of their family have their teeth cleaned twice a year. (Studies show good dental health is directly related to your total health.)
- I would NOT recommend allowing funds provided by the employer to be used on voluntary products such as cancer, accident, hospital supplements. Focus your company’s investment on the base benefits.
How does the insurance distribution model work? We have agents and then the insurance company, yet the agent is not an employee of the insurance company.
Think of it like a manufacture’s rep model. Insurance carriers’ contract with insurance agents/agencies to sell their product. An agent can decide to work with one insurance carrier or all insurance carriers. The agent can decide to be a ‘specialist’ in one area, such as group health insurance or individual health insurance or Medicare. Or they can be a generalist and sell all three products and more.
How are insurance agents compensated?
The agent/agency is paid a commission from the insurance carrier based on the product they sell and often the volume their agency produces. Each carrier pays agents differently. Some pay based on the number of employees insured and may pay $35 or $40 per employee per month. Others may pay a percent of the total premium collected usually 6 to 7%.
On fully insured small companies with less than 50 employees, the commissions are firm. However, an agent can adjust their commission up or down on level-funded policies or fully insured policies with more than 50 employees.
However, if an agent ‘rebates’ part of their commission to a client, including gifts or other incentives or shares a bonus, or other compensation, they are violating the law. The Georgia Department of Insurance has prosecuted many agents/agencies over the years.
Still in question is the actions of some banks and payroll companies. Banks through the years have been said to offer savings on banking services if the employer uses their insurance products. Payroll companies often offer discounted payroll services if an employer will use their health insurance agency.
Why do different agents show me spreadsheets with different prices?
If the same plan from the same insurance agency is presented by two different agencies, the price should be exactly the same. Any difference in price is usually due to a difference in census. Or, recently, we have seen plan designs that have the same deductible, doctor copays, and out-of-pocket maximum, but looking deeper, there were other differences in the plan designs.
Example: One policy has no copays for children under the age of 19 for a primary care physician visit. On another plan, if the employee uses a hospital facility for an MRI there is an additional copay plus the deductible, whereas at a non-hospital facility, the cost is only the deductible. This is why agents use spreadsheets. However, it is up to you to make sure these spreadsheets are accurately comparing the same benefits.
If you always follow the least expensive premium, you will be at the mercy of your agent and the insurance carriers. In a good partnership, you can trust your insurance agent to provide the best plans to meet your company objectives, including price, plan design, quality of the insurance company, the network and long-term sustainability. If the agent is working only in his or her best interest, they may push you towards a specific insurance company and plan. If you find your company consistently being directed towards changing insurance carriers, or chasing price, you might want to evaluate your company objectives. Are you working with a salesperson who is compensated based on the plans they sell; a consultant who is working for you and being paid by the insurance carrier; or ideally, is your agent a consultant and educator who is a teacher to both you and your employees?
This is the only industry I know of where employers purchase a product and have no idea where their premium dollars are being spent. ALWAYS ask your agent what they are being paid AND are there any additional incentives to recommending one health insurance company/plan over another.
Example: As we go into the ‘renewal season’, generally thought to be December and January every year, different insurance carriers give agents, in addition to their regular commission, bonus’ if they sell a particular product the insurance carrier wants to promote. You need to know this to assure you are making a good decision that is in the best interest of your company and employees.
Note: Agents are paid very little on what is referred to as ‘baby groups’ (2 to 4 participating employees), often $5 to $10 per employee per month. Agents have found they cannot afford to work for this amount. Many are therefore charging a consulting fee. This allows smaller groups to receive the expertise they need and affords the agent the resources necessary to provide this expertise.
Can one agent or agency get a better price than another?
No. On fully insured products, the premium is based on the money the health insurance carrier believes they need, calculated by age, to provide the healthcare for each of the carrier’s health insurance plans. Once the insurance carrier establishes the premium, they must ‘file’ the rates with the Georgia Department of Insurance (DOI). The DOI must approve the rates before the health insurance carrier can offer the product to the public.
Why would one agent recommend one type of insurance product while another a different insurance product?
We are talking here about fully insured health insurance in companies with less than 50 employees. There is also level-funded, self-insured, and reference-based pricing products to consider. Each with different pros and cons. The make-up and needs of your employees and the company objectives you provided the health insurance agent will dictate what products and plan designs they recommend.
With the advent of ACA, the landscape has changed in terms of health insurance options. Prior to 2010, insurance agents servicing smaller companies with less than 300 employees, were told level and self-funded products were not available. It was said the cost of administration was too expensive and therefore made the cost prohibitive for smaller companies. In addition, if an agent did not understand how a level or self-funded policy was calculated, they had a fear of large financial exposure to their client. All of this has changed in the last 10 years.
Today health insurance carriers are different and constantly reinventing their products. It may be an agent is more comfortable with one health insurance carrier than another. Some of the health insurance plans are a little more complicated than others and therefore harder for the agent to teach employees how to use. If the agent has not fully educated him/herself, there could be a misunderstanding that could cost the employee more money than the employee expected.
In addition, with the rise in the use of level-funded products, insurance carriers outside the big 5 and third-party administrators have entered the market. It is generally thought, with less overhead than the insurance giants, the pricing is more competitive. We use several smaller insurance carriers as well as established third party administrators to create affordable policies designed to our client’s specific needs.
What is required to get a quote from the different insurance carriers?
The health insurance carriers need to know who is going to be insured. Generally, this is done by submitting a census. After the census is submitted, you and your agent can decide if you want employees to complete health questions. You would only consider health questionnaires if you are a small employer on a fully insured plan. (Health questionnaires are generally completed online. FormFire and EasyApps are the two most commonly used programs. Electronic data collection protects you, the employer, from knowing health information on your employees, creating a possible HIPAA violation. It also provides the most accurate quotes.
Many of the health insurance carriers will accept GRx. This is a software program that takes the information from your company’s census and matches it to the prescription drugs being taken by the employees and dependents on your company’s census. This is a very quick process. However, it is not always accurate. Because it is not totally accurate, your renewal may be higher than expected as, throughout the year, the health insurance carrier learns the true cost of providing healthcare to your employees. Currently, health insurance carriers are providing incentives to agents if they provide medical underwriting as opposed to using GRx.
As in all health insurance quotes, if the census changes, the quote will change.
SECTION II: Under 50 Employees – Fully Insured Health Insurance Plans
Under a fully insured plan the employer pays the health insurance carrier a monthly premium and the health insurance carrier pays the healthcare claims of your employees and their dependents.
How are the monthly premiums determined?
- Age of those to be insured
- The specific product (i.e. deductible, copays, etc.) purchased
The calculation does not take into consideration:
- Medical underwriting
- M/F factor (it is unisex pricing)
Premiums are determined by law for employers with less than 50 employees who are using a fully insured health insurance product, In Georgia, this means the only consideration in determining a company’s monthly premium is the location of the company and employee your employees, age, and the product purchased.
The medical conditions or the number of males versus females is not a factor in determining the premium.
However, the plan design chosen greatly affects the monthly premium.
- The lower the deductible, doctor visit copays, and maximum out-of-pocket, the higher the premium.
To obtain a quote, you provide a census with the information required by the insurance companies to determine your premium.
However, if the census changes at enrollment, the premiums will also be adjusted.
In Georgia, more than 90% of policies for groups with less than 300 employees are sold through agents. Our insurance companies are not structured to work directly with employers.
SECTION III: Over 50 Employees – Fully Insured Health Insurance Plans
If your company has 51 or more full-time equivalent employees, the entire pricing landscape changes. Now your company’s health insurance premiums are calculated specifically to your insured employee population. Premiums are a calculation based on the age, sex, location (zip code), and medical conditions (expected healthcare costs) of your participating employees and their dependents.
What is a ‘Street Quote’?
It is a quote based on your company’s census. However, it has not been underwritten. It is simply the base rate created by factoring the age, M/F, and location on your census. I have never seen final rates match a street quote.
Why would anyone use a ‘Street Quote’?
I really don’t know. It is not accurate. I have never seen a ‘street quote’ be the actual rates. It does look promising when presented as it is generally much lower than the final rates. We do not use street quotes for this reason. You may get a street quote if the agent is pressured to bring quotes to you as soon as possible? Or the agent knows you are looking at competing agents and using price to determine agent selection.
What if we drop below 50 employees?
Each carrier handles this differently. Your agent needs to consider how your pricing is affected. Is it better for you to be in a fully insured plan for small employers or even a level-funded plan? This can only be determined by considering the specific circumstances and goals of your health insurance benefit.
SECTION IV: Level Funded Health Insurance Plans
Level funded health insurance plans are a spin-off of self-insured plans. However, the plans are designed with financial protections not found in a pure self-funded plan. These protections include the same monthly premium payment, thus the name level-funded.
When ACA was passed, fully insured plans increased in price due to increased taxes hidden in the plan premiums and additional benefit requirements. The pricing structure for companies with less than 50 fulltime equivalent employees changed. The employer’s premiums were no longer calculated on the individual company but became community rates based on geographical location and the age of your employees.
If your employee base consisted of young healthy males, your rates probably increased as you migrated into the new community rated products. Employers were looking for anything that would help maintain lower rates. In fact, community rates actually decreased the cost of healthcare for employers whose employee base was older and/or sickly. The cost of the high claims was not taken into consideration. In other words, healthy companies are subsidizing companies with high healthcare costs.
Enter level funding, a health insurance product created to act, look, and feel like a fully insured products except the premiums are based on age, M/F, location, and medical conditions. The internal financial structure of these policies create a plan that is not subject to many of the ACA taxes or State mandates, a cost reduction versus fully insured plans.
Many agents and employers shutter at the words, self-funded. These words bring back the concern that should your company have a large claim, you will be left with the financial obligation to pay the claim or claims. At one time this was true, however, the new plan designs protect employers by using stop loss insurance which covers claims over the claims fund established when the plan was created.
Example: We became the agent of record for a company’s group health insurance before ACA and the employer felt the insurance company was holding him hostage – and they were. His health insurance policy was structured in such a way that it was ‘trued up’ at the end of every year. If the policy had a surplus of claims dollars, the insurance carrier would apply the surplus to the next year, thus reducing the premiums. However, if the policy had a claims fund deficit, the deficit would be added to the next year’s policy and the premium increased to pay for the deficit. This client had year after year of deficits in his claim’s fund. To get out of this self-funded health insurance policy, this particular client wrote the insurance company a check for more than $60,000 to cover the claims deficit. Fortunately, this type of policy, to the best of my knowledge, does not exist today.
A true level-funded policy looks at your company’s demographics, age, M/F, location, and medical conditions to determine the amount of claims dollars expected to cover your employee’s healthcare cost over the next year. The cost of a reinsurance policy (insurance purchased to protect your company should there be a large claim) and administrative costs, including the agents’ commission, are added calculate the monthly premium.
During the year, you and your agent should receive regular claims information. This will include a monthly breakout of premium dollars paid into your claims fund and the actual cost of claims paid to healthcare providers used by your employees and/or their dependents.
At the end of the year, the difference between these two numbers will determine your future premiums as well as if your company will receive a ‘rebate’ if there is money remaining in the claims fund.
Controlling the claims controls the increase in future premiums.
What is Reference Based Pricing?
Most insurance carriers use a provider network. These are physicians and medical facilities where the insurance carrier has negotiated set prices for the services provided. We often think of this as being in-network.
Reference based pricing (RBP) policies do not have a network. The fee is negotiated at the time the service is performed or pre-certified. Often times, the insurance carrier will pay a percentage of Medicare allowable charges, anywhere from 125% to 175%. This is generally less, often significantly less, than the negotiated in-network pricing.
In the Atlanta market, physicians are not able to process negotiated pricing. For this reason, insurance companies specializing in RBP will pair a network for physician services with the RBP model for facility services.
RBP is used with level-funded and self-funded products. It is not available in the fully insured market.
What is the difference between a level-funded policy and a self-insured policy?
Level funded policies have protections built into the policy to protect the employer from owing claim money (or any other policy cost) at the end of the plan year.
Self-funded is much more open. Generally, the cost of claims is paid by the employer monthly. And the employer determines the amount of risk they want to absorb and may only purchase a stop-loss policy (a policy that pays for large claims) up to a million dollars. This means any claims in excess of $1m would be paid by the employer. The larger the employee population, the more predictable the claims which allow actuaries to accurately project the cost of claims.
Most companies with less than 300 employees do not use these types of insurance plans.
I sincerely hope this white paper provided answers to your questions and took the mystery of health insurance pricing out of your equation.