New health-benefits trends for California employers

The Business Journal asked area insurance experts about changes employers can expect in health insurance coverage in 2018.

Offering insights in the following discussion are Michael D. Parr, employee benefits broker, George Petersen Insurance Agency Inc. in Santa Rosa; John Fradelizio, managing director, USI Insurance Services, in Petaluma; and Jordan Shields, president of Arrow Benefits Group in Petaluma.

On Jan. 5, the Department of Labor proposed new regulations that would allow small employers to band together and provide coverage under a single Association Health Plan. Advocates say that this change make it easier for small businesses to afford better coverage for their employees. Critics point out that it is a way to get around the Affordable Care Act requirement that plans cover essential health benefits. What is your opinion?

Mike Parr: I currently have access to and provide association group health insurance plans to my clients. It is important for the broker/agent representing Association Group Health plans to make sure that even though the new Association plan costs may be lower, that the benefits being offered by the employer to their employees include the same or richer level of benefits than are currently being offered.

And that there is adequate underlying carrier network coverage for the locations of all employees. The potential consequences of allowing more association health plans is the current California small group (less than 100 employees) pool/claims experience may be negatively impacted causing further small group health insurance increases.

John Fradelizio: This regulation offers smaller employers hope that there may be alternatives to the ever-increasing costs of health care. To be clear, the ACA did very little to address the overall cost of health care as its primary focus was on providing access to all Americans.

Contrary to what some believe, the ACA is not the primary driver of rising health care costs; however, it did cause many smaller employers with healthier, younger members to experience significant rate increases due to very restrictive community rating.

In contrast, the ACA also caused older, sicker groups to benefit by rate stabilization, at the expense of the first group. This, combined with the additional requirements for coverage, left many small employers to feel that the ACA worked directly against them. These proposed regulations would allow associations to identify the good risks (i.e., younger and healthier populations), place them in a pool and offer lower rates and eliminate essential benefits.

Unfortunately, those left in the community-rated pool will see their rates increase dramatically since they’ve lost the stabilization provided by the younger and healthier groups. Any savings these employers would see from eliminating the essential benefits would be wiped out with the premium increases. Employers considering purchasing their benefits through an Association Health Plan would be well-advised to proceed with caution.

Jordan Shields: If the association is well-run there could be better rates, but historically, that has not the case. The problem is the association has to start from zero and build underlying carriers. Also, if the larger market rates start looking better than the association rates, members will start to leave. I have seen this happen over the years with poorly run associations. I for one don’t get excited about association health plans. It’s a pipe dream of the republicans for the next, better-run market.

Health benefit costs are predicted to rise by 4.3 percent in 2018, the highest since 2011, according to Mercer, a global health and benefits administrator. Cost for pharmaceuticals is also expected to rise more than 7 percent as spending on new specialty medications is expected to skyrocket. How will this affect employers?

Parr: For small groups (less than 100 employees) it can have a significant impact as their rates are based on the pool of all small group employers in California and there is little an individual employer can do. However, since the implementation of the ACA, we have seen smaller small group health insurance renewal increases overall versus years prior to the ACA.

And increased competition with new carriers entering the North Bay marketplace (Western Health Advantage, Sutter Health Plus) has helped minimize HMO increases as well. To offset the year-after-year increases, however, some employers are dropping certain benefits (i.e. dental, disability, and vision), reducing their employer contribution, implementing HRA plans, and/or increasing their group health insurance plan deductibles.

Fradelizio: Those people who know me well understand that I always try to be an optimist, but I am afraid my answer to this question would be “negatively.” In addition to the negative impact on employers, this may also portend peril for employees, as well.

The Health Care Cost Institute just reported that the cost of health care spending is up, even though Americans are actually reducing their consumption of health care services. Moreover, a recent study showed that roughly two-thirds of Americans report that the cost of health insurance is a source of stress in their household. Given the figures cited above, I do not expect any of this to improve, especially in the short term.

Shields: The 4.3 percent is a global figure. In California small and mid-sized groups are continuing to see increases between 8–10 percent for small groups and 10–15 percent for mid-size(d). The increase is going to be what it is and I’ve gotten used to it. In my 40 years in the industry there have only been two years when the rates have not gone up. But the bottom line is it will affect employees negatively.

Employers can provide extra arrangements to employee health plans, which are also tax-advantaged, that reimburse employees for out-of-pocket expenses. They can be used by the employee to pay for their portion of health care premiums, as well as qualified medical expenses such as lab fees, eye exams or prescriptions.

Last year, Congress passed a new law allowing smaller employers to use health reimbursement arrangements to pay for nongroup plan health insurance premiums, including plans purchased on health care exchanges under the ACA.

Will more employers will start offering health-reimbursement arrangements?

Parr: I see the only employers potentially implementing this type of health-reimbursement arrangement would be those who have young, healthy employees with very little turnover. It makes more sense in my opinion to offer a traditional Health Reimbursement Arrangement Group Health Insurance plan that provides a cost-sharing mechanism between the employer and the employee for deductibles, co-insurance, calendar year out-of-pocket maximums, co-pays, etc.

And traditional small-group and large-group HRA plans are most always administered by a third-party administrator who can provide the broker/agent and the employer with detailed claims information to measure performance/claims data, savings/costs, and usage trends to customize the plan design.

Fradelizio: The individual health insurance markets are in disrepair, and outside of California the situation is even worse. The notion that employers will drop group coverage and replace it with an HRA where employees purchase individual coverage assumes that there is comparable coverage available. In most markets, this is not the case.

This fact, combined with the complexity of the regulations has meant that we have not seen a lot of interest from employers in this approach to providing health care.

Shields: We’ve done studies that show that group rates are cheaper than individual rates because of underwriting for a larger pool of employees. In an individual group the network is usually narrower. Group is the way to go because of managing costs with a full provider network.

What is the current trend in benefits that employees are asking for? Flexible spending time?

Parr: Employees are interested in voluntary/employee-paid benefits such as life, disability, accident, and critical illness. Also, flexible spending accounts to provide tax-free dollars to use for medical, dental, vision, and day-care expenses along with incentive-based wellness programs.

Employers are becoming very interested in online/web-based employee benefits administration and at George Petersen Insurance Agency we provide and implement a complimentary web-based portal called EaseCentral for our clients. Some of the many features and advantages of these employee benefits administration systems include online enrollment eliminating paper forms, ACA compliance management, reporting, e-filing, and smartphone applications for employees to obtain employee benefits information.

Fradelizio: I think the answer to this question would depend, at least in part, on the demographics of the group you were looking at. For a younger group of millennials, for example, a popular new employee benefit would be student loan repayment. For a more mature workforce, there may be a demand for financial wellness and retirement planning services. We are also seeing an increased interest in identity theft protection across all of our employer groups.

Shields: Flex time for sure. We have also had employees who have moved or who live far away and work from home. Remote employees are hooked up and don’t have to be on-site. It’s a huge advantage for them not to sit in traffic with dead time for two hours a day for the same salary as someone who lives nearer to the office. Working remotely is going to be a big trend in the Bay Area because of the bad traffic situation.

CORRECTION: USI Insurance Services is not affiliated with Wells Fargo.

Cynthia Sweeney covers health care, hospitality, residential real estate, education, employment and business insurance. Reach her at Cynthia.Sweeney@busjrnl.com or call 707-521-4259.