Small business owners and HR teams know that a competitive benefits program can be a difference maker when recruiting top new hires or attempting to retain homegrown talent. But limited resources often leave small businesses frustrated and fighting for attention from advisors or cobbling together their own plans. Fortunately, a proposed rule modification for Association Health Plans (AHPs) is about to completely reverse this dynamic.
Traditionally, small businesses have few options when it comes to providing affordable healthcare benefits for their employees. The cost per employee is prohibitive – especially compared to larger organizations – and managing these benefits can be more complicated and time consuming.
As a result, employer-sponsored benefits for small businesses have dropped by 25% since 2010, and a recent Wall Street Journal editorial noted that roughly 11 million small business employees do not have access to employer-sponsored benefits. This leaves many workers to source coverage for themselves on the individual market or through state and federal exchanges.
Fortunately, there is an effort underway at the Labor Department that could throw a lifeline to small businesses and their employees. By changing the definition of “common business interests” in the current Employee Retirement Income Security Act (ERISA) and broadening its applications, the government is loosening restrictions on who can pursue collective benefits sourcing programs. An amended rule would make it possible for more small businesses, franchises and small associations with less stringent industry, geographic or professional affiliations to form an AHP.
For these businesses, the benefits would be tremendous. Employer-sponsored benefits will now be within their reach because health benefits that are group purchased can typically deliver 10-30% savings compared to individual small employer purchasing. It will also widen the pool of available benefits to employers and employees, and can reduce their administrative overhead. Instead of being the small client for a broker, forming an AHP will make them a much bigger fish with access to greater professional management, consulting, oversight and advocacy resources.
These new plans can then return the competitive advantage to some businesses and organizations. As Jack Calabrese from our AHP client, NAPA Insurance Center explained: “Offering benefits gives our NAPA owners a competitive edge when trying to hire and hold on to great employees. The NAPA Insurance Center helps our owners offer benefits to their employee at lower rates than the owners could source themselves.”
Small business owners and HR managers should begin preparing now to maximize these advantages and to take advantage of the rule change as soon as possible. Fortunately, a proven playbook already exists for how best to deliver these association style benefits. This playbook will need to expand to a broader qualified set of small business over time as the Department of Labor regulations are released towards the end of 2018 or early 2019.
Today, an AHP or Trust can be sponsored by a group member association and overseen by members of this organization. The AHP’s job is to aggregate and manage member needs to secure coverage on behalf of its members. The AHP often contracts with a broker specializing in small business and program management to create a benefits portfolio for the members, negotiate with insurers on its behalf, and provide program management. The goal is a turnkey solution for the collective sourcing of small business benefits.
An AHP can be set up using three different structures for medical and other benefits:
- Fully Insured Medical: This is the easiest plan to administer and communicate. It requires no initial capital reserves and does not share risk among the members. Instead, the insurer takes on all risk with little or no financial outlay from the AHP at startup.
- Self-Funded Medical: Insurers prefer this approach because it requires the AHP to fund some initial capital or financial reserves. This means the association assumes a collective financial risk for providing health care benefits to its members through an earmarked fund to pay claims. The advantage to the AHP is group-wide savings if the collective group has good claims experience over time.
- Hybrid Medical: Also called a Minimum Premium Program, this approach blends risk for all parties and allows dividends or gain sharing for members based on good loss performance.
We have found that more than 90% of our association customers at Decisely opt for Self-Funded Medical plans because even though it brings with it some upfront costs, the potential savings over time are much greater. That cost-benefit calculation will vary for associations, so members should be thoughtful about their choice.
In general, benefits leaders should plan for roughly 6 months from contracting with a program creator/administrator, through insurer negotiations, to the final launch of any group purchasing plan. This will include formalizing the association’s intended structure, including the formation of an AHP if one does not already exist. A qualified ERISA attorney can guide this formation process to ensure proper compliance and governance.
Next, the association should consider sourcing an external program manager to help collect the appropriate data for underwriting AHP members, develop the benefits offering, negotiate with insurers, and initiate the marketing and administration of the AHP program. Once this plan is finalized, the program administrator can begin activating the strategies, tactics and program management required by AHP members, including call centers, website, reporting, enrollment, and administration. At this point, the new AHP is ready for launch for members and employees.
Ultimately, broader requirements of existing regulations will expand the universe of employers that can offer company-sponsored benefits plans. Small business, franchise, and association benefits teams should be planning now to ensure they are leading this wave of change and making the most of the AHP opportunity.
 As the CEO of Decisely, Kevin Dunn is building Decisely as the new standard in the benefits technology and brokerage insurance space. Decisely is a trusted advisor and turnkey SaaS technology for small business in the US. Kevin joined Decisely from Mercer, where he created and implemented the strategy and marketing for Mercer Health & Benefits private exchange technology. He graduated with a B.B.A. in economics and a MBA from Georgia State University. Kevin also serves on the board of directors at Innovative Student Loans Solutions, a private equity backed firm in Cleveland, Ohio. |