Level-funded health plans are making inroads in the small-group segment as the design appeals to price-sensitive businesses seeking the certainty of a set monthly premium like under a fully funded plan, while at the same time allowing business owners to take more control of benefits and costs, as would happen under a self-insured scheme.
According to the CEO of a carrier that offers level-funded plans, and a longtime health insurance broker, the appeal of self-funding is that it allows companies to operate in a pre-Affordable Care Act (ACA) world, with age-ratings and other underwriting permitted. While larger carriers like Cigna Corp. and Aetna Inc. have such offerings, industry sources say smaller carriers that offer only self-funded plans are seeing the most market penetration, though how deep this goes is up for debate.
In fact, some states like California have banned the sale of stop-loss insurance for groups under 100 (effectively eliminating the market), citing concerns about catastrophic medical losses for smaller companies and macro-scale issues like the possible distortion of the group space if too many healthy lives go the level-funded route. Self-funding appeals mostly to employers that don’t have staff suffering from higher-cost chronic conditions, industry sources said, and is not seen as some sort of panacea for the general marketplace.
Broker Rick Bailey, president of Rick Bailey & Company, Inc., based in Woodstock, Ga., tells HPW that level-funded plans are exempt from many ACA regulations that apply only to fully insured plans. “They can use underwriting based on health conditions, 6-to-1 age ratio, industry loads and gender-based rating,” he says. “The plan looks like a fully insured plan, where the monthly premiums are guaranteed, and they have different refund features to the employers, if the loss ratio is at certain targets.”
In his experience, carriers offering level-funded plans first started offering down to 25 employees, then they moved down to 10 employees with a couple of small insurers even down to five employees. “Most of the major insurance companies have been very conservative and they have sold very few. The small companies have been fairly aggressive and they have written quite a bit,” Bailey says. “I have been to a couple of meetings with major carriers recently and they want to have about 20% of their 2-to-50 employee block in the level funded product, in the next two years.”
WellNet Charts Sizable Growth
Business is going gangbusters, according to Keith Lemer, CEO of The Wellnet Healthcare Plan, Bethesda, Md., which offers level-funded health plans, in addition to wellness, disease management and PBM solutions. “We started off as a PBM and then migrated to being a wellness and disease management company,” he says. “We thought we wanted to become a TPA [third-party administrator] and realized there is not a whole lot of value in starting a TPA. So we said the heck with that, let’s put our money into technology and we created a new company called Health Care Interactive, a separate entity from WellNet.” From there, WellNet became Health Care’s first customer. “So we took in essence our experience in managing pharmacy benefits for groups under, let’s say, 10,000 in size and then our insight into engaging members at both high and moderate risk, and now we have access to national networks [from major carriers]. We put together those three items and created a competitive, less-cost, level-funded health plan — or shall we say a health plan on steroids,” Lemer says.
Active in 25 markets across the country through a network of brokers and consultants, he says WellNet’s typical groups are 25 to 500, with the “sweet spot” about 100 to 300. The company administers benefits for 300,000 lives, has seen 42% percent year-over-year growth and has hired or promoted 20 people in the first half of 2016.
“I’d say it is growing like an absolute weed, and really the space that we sit in is giving business owners and their brokers and consultants the ability to take back control of health plan costs, removing profits of large insurance companies,” Lemer says. With margins running around 6% to 8% for his business, he attributes the growth to the persistent cost pressures of rising premiums for businesses. In addition, after the ACA was enacted, small groups did not want to send employees into the public exchanges nor take part in the small business on-exchange niche where it existed because of limited, narrow provider networks, very high deductibles and more limited benefits.
Lemer cites a small group that is charged, for example, $1 million by a fully insured carrier over the course of a year. The WellNet opening is to come in and say “you spend $900,000 with us — and if you really only spend $800,000, at the end of the year we will refund you back in full what you have not spent.”