Monday, February 10, 2014

Self Funding and Community Rating

The early results look very promising for self funding: if you are among the 80% of groups that were average or good health looking at a bad renewal under ACA, self funding rates are providing some relief.

Not all is smelling roses though; while worst case self funded is coming in better than ACA rates, they are not as low as current rates before the ACA renewal. While only 3% or so of groups with Agg have that worse year, employers are still having to get comfortable taking on risk and potential cost higher than a normal renewal.

They are also having to quickly learn the basics of self funding and be aware of some tricky fine print. Many of the self funded products offering to protect small groups from ACA have some traps of their own. They return only a portion of the savings, often as a credit only after renewal.

This means if they come in $60,000 lower then worst case, and what the group funded, they only get $40,000 back. That $40,000 credit also requires they renew with the carrier regardless if they feel the renewal offer is fair. There were carriers in the past that knew they could stick groups with a bad renewal because the cost to leave them was so exorbitant. For example, assume a 40 employee group came in $120,000 under max and thus was entitled to a $80,000 credit. If another carrier beat the current carrier by $60,000 on the renewal rates it would cost the employer $20,000 to change due to the lost credit. The in-force carrier obviously knows this, so they can pad the renewals for any case that had meaningful savings.

Still better than paying guaranteed higher ACA rates but some unlucky employers are going to lose a lot of savings if they aren't careful what self funded solution they go with....out of the pot and into the frying pan!
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