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ACA Rule Hits California Cos. of 50-100 Employees

Health insurance broker Deric Fernandez could see it coming: An

Deric Fernandez

80-employee local manufacturing company he works with was about to face a double whammy.

The problem was a federal change redefining the company as a small group rather than a midmarket employer. It meant the company’s health insurance costs would no longer be calculated as a group but according to the age of individual workers and their dependents.

Similar companies were facing premium increases of 30 percent or more, not to mention a barrage of paperwork, because of changes instituted Jan. 1 under the federal Affordable Care Act.

Fernandez advised two things to cushion the blow. He suggested the manufacturer switch to online benefits enrollment, which would save time and work tracking the birthdays of all employees, their spouses and their dependent children. He also persuaded the company to cap its contributions to employees’ insurance at a set dollar amount rather than a percentage, as it had done in the past.

“That way you flatten out the contribution structure and simplify the payroll deductions administration,” said Fernandez, who works in San Diego for Benefit Pro Insurances Services Inc.

Even if not everyone agrees with this approach, there is consensus the ACA’s so-called small-group expansion will soon slam many companies employing between 50 and 100 people, particularly those with a relatively high proportion of workers middle-age and older.

But the change has also sparked creative thinking about how companies can manage without breaking the bank — and still provide workers the health coverage they need.

New Definitions

Most states consider companies with up to 50 workers to be small employers, while those between 51 and 100 are large employers. Under the original terms of the ACA, the categories were combined and called small groups.

Employers in the newly formed category would no longer be able to offer “composite” insurance pricing but instead have benefits with prices based on the age of the individuals insured, as well as a menu of health plans labeled by various metals, with gold being superior to silver, for example.

On Oct. 7, 2015, President Obama signed a law giving states the choice to roll back the redefinition of employer groups. Many states returned to the earlier definition of small employers; California did not.

The change took effect Jan. 1, but many employers were able to delay the change by locking in 12 months’ worth of health coverage before the start of this year. For them, the small-group expansion will have its greatest impact during open enrollment in the next few months.

“This is the biggest issue we’re running into” finding insurance for small employers, said Craig Gussin, owner of Auerbach & Gussin Insurance and Financial Services Inc.

Choices, Choices

Local insurance brokers offered several strategies for coping with the change, which they said will fall hardest on employers with more older workers than young ones.

Gussin said the first thing he does is present clients a list of options. Do they want to switch insurers? Do they want to adjust their existing plan in ways that might make it more affordable? Or do they want to try something else entirely?

It so happens he advises the opposite of Fernandez’s strategy when figuring employer contributions. Gussin said he tells companies to fix their share of costs as a percentage of total premiums — say, 65 percent — to avoid the appearance of age-discrimination.

Gussin said he may also suggest offering a “bronze” plan instead of a gold-level benefit and then add certain benefits to make up some of the loss.

No Carte Blanche

Rhonda Norton, a health insurance broker with Hughes-Norton Insurance Services Inc., said companies with 50 to 100 workers should consider selecting an “economy version” for which they will pitch in, then leave it to employees to make the choice whether to upgrade.

Workers who might want to pay extra for a more extensive package would include a pregnant woman who plans to use more services than the average employee looking for savings, she said.

“As an employer, I’m going to set a floor,” she said. “I’m not going to offer a carte blanche to the employees, because they don’t care about my bottom line.”

Run the Numbers

David C. White, a broker with Thrive in Retirement, said he, too, recommends lowering the metal tier level and offering supplemental insurance to cover the higher deductibles that often come with less expensive premiums. He also advised businesses with relatively young workers to “self-fund,” which puts employers themselves in the position of insuring their staff’s health care costs.

Fernandez said it might also be helpful for employers to look at the physicians their workers visit. If a large majority uses the same group, then the company might be able to save money by going with a health plan that contracts a narrow network of medical providers. He said that requires a hard look at numbers.

“Part of my analysis is to sit with the HR person, say let’s try to get as much data as possible,” he said.

Join a Trust

Craig Gussin

Another option he and others mentioned involves linking up with a larger group of workers — a “trust,” as it’s called in insurance — that acts like a co-op or a purchasing group, not unlike Costco’s strategy of buying bulk goods at a discount. Employers joining such an organization are able to avoid the small-group definition and instead have their insurance rates based on a large pool of workers.

CBIZ benefits consultant Xavier Serrano said his company set up a trust for educational workers in 1993 and has since set up similar groups for hospitality and restaurant workers. He estimated the savings at about 15 percent.

Fernandez had one more piece of advice for companies employing between 50 and 100 workers: Reach out to someone like him.

“A group should definitely work with an experienced broker who works in (the local) market and knows ACA compliance,” he said.

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