Emerging Health Insurance Exchange Models: The Intersection of Public and Private Exchanges
A second alternative to traditional group insurance may be the use of the health reimbursement arrangement (HRA) on the front end of individually owned policies. Whether individual products purchased through these ERISA arrangements will be subject to group insurance regulation under HIPAA and the ACA remains to be seen. Legal precedent would suggest this is likely,19 although common large group market practices related to retiree plans are headed in the opposite direction. If group insurance regulations do not apply to individual products purchased with HRA funds, the “golden handcuffs” advantage sought by many employers can be maintained to some degree while accessing individual products by using the HRA funding mechanism. To date, this approach has not been permissible in most states due to HIPAA discrimination issues. In most states today, employees may get varying rate offers for commercial individual coverage, or no offer at all, based on health conditions. Guaranteed issue and adjusted community rating for all individual products beginning in 2014 will remove this obstacle in every state. The string attached to this approach will be the 105(h) discrimination regulations; employers using these plans will likely be required to benefit most employees in comparable fashion.20 It is unlikely that pre-tax HRA funding will be permitted for policies purchased in the AHBE, considering that the budgetary intent of the ACA appears to lean toward post-tax funding for individual premiums in the AHBE.21 Small employers weighing individual product solutions may consider the HRA route for control, or the section 125 route for simplicity, or a combination of both. In either case, it seems clear that the continued appeal of small group products will depend heavily on pricing differentials between community rated individual plans and community rated small group plans.
Small Group Experimentation in Self-Funding In addition to the non-group alternatives described above for small The continued appeal of employers, some healthier-than-average small groups may small group products will experiment with self-funding to get around the pricing restrictions of the fully insured community rate. Self-funding will also appeal depend heavily on pricing based on the exemption of self-funded plans and large group differentials between plans from the requirement to offer “essential health benefits”22 and certain actuarial levels of coverage (“metal” groupings), community rated individual which will allow self-funded plans to offer less expensive benefit plans and community rated designs. Further, self-funded plans are exempt from participation in risk adjustment which is mandatory for fully insured individual small group plans. and small group plans.23 Industry experts and federal officials are speculating about how much traction self-funded arrangements will get among small employers. In theory, if a small group purchases relatively low limits for aggregate and specific stoploss coverage, the group may run little catastrophic risk since the group would have the option to cancel the self-funded arrangement and flee to the guaranteed issue fully insured market if the risk becomes too great. Only employers with strong cash flow, healthy people, and an appetite for risk will likely consider this option. Another possibility for beating the small group community rate may be engagement with a professional employer organization (PEO). The PEO co-employment arrangement can allow small employers to join a larger risk pool. Technically, the employees of a smaller firm become part of a larger employer, which offers the possibility of lower rates if the risk pool of the large employer is more favorable than a community rated small group risk pool. PEO health plans may be fully insured or self-funded. Under current practice, some PEOs medically underwrite the prospective client prior to accepting the employer as a client, which can allow the PEO to reject groups with poor risk, which in turn keeps the risk pool cleaner and lower in cost. ACA rules prohibit group health plans (including self-funded plans) from engaging in medical underwriting beginning in 2014, although PEOs may argue that medically screening a prospective client prior to accepting the client relationship does not constitute medical underwriting on the part of the health plan. If “de facto” medical underwriting continues to be allowed in the PEO market after 2014, some healthy small employer groups may move toward PEOs to obtain better health plan rates.
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