Health benefits trends leveling the playing field

Now that we’re nearly halfway into the 2024 health benefits plan year, it’s time for employers to begin meeting with their benefits consultants to start planning for the next open enrollment period. For small and midsize firms in particular, this process can feel a little like the Hunger Games, where they are forced to compete in the same arena with much larger employers who have more armor and weapons to help them combat rising healthcare costs and dwindling benefits.

For many employers, this means dropping out of the benefits game altogether. In fact, according to the Council for Affordable Health Coverage, the number of small businesses offering health benefits has decreased by more than 16% between 2020 and 2023. In a year when experts are predicting increases of 10% to 13% in insurance premiums, it’s fair to presume that even more small and midsize businesses will follow suit.

But they don’t need to. Thanks to two tailwinds gaining steam in the employer-sponsored market, smaller firms finally might be able to emerge more victorious than in past open enrollment seasons.

Less risk, more reward with level-funded health plans

The first tailwind is the increasing availability of level-funded health plans. Most businesses are familiar only with fully funded and self-funded health plans—the former meaning the insurer accepts all risk (and charges more for it) and the latter where employers assume the risk in a pay-claims-as-you-go setting.

With level-funded plans, businesses and insurers share the risk and set a limit on employers’ financial responsibility through stop-loss coverage. This gives employers the security of knowing exactly what their annual health benefit costs will be, with the potential for a refund at the end of the plan year if the premiums they set aside exceed the benefits claims their group of employees.

Pair the financial advantages of lower risk charges and premium taxes of level-funded plans with their emphasis on more flexible plan designs, and it’s clear why nearly 40% of small firms are turning to a level-funding solution.

Perhaps you’ve never heard of this term. That’s because legacy carriers and some benefits consultants have become complacent with the standard choices of fully funded and self-funded plans. But thanks to emerging health benefits companies focused on enhancing options for small and midsize businesses, change is brewing. And the more employers demonstrate a demand for level-funded health plans, the more legacy carriers will catch on and get in the game.

Rising popularity of ICHRA

The other tailwind that smaller firms should consider this year is the advent of individual coverage health reimbursement arrangements. Introduced through an executive order in 2020, ICHRA is frequently referred to as the 401(k) of health benefits since it allows employers to make pretax defined contributions to their employees for the express purpose of buying the individual health plan of their choice. This approach often creates a win-win for both employer and employee, who respectively enjoy cost predictability and personal choice. A group-like product in the individual market, ICHRA might just be the health benefits love child we never knew we needed.

And employers are paying attention. The HRA Council reports that the number of businesses offering ICHRA has increased by 350% since 2020, and most of these businesses are small and midsize, although ICHRAs are available to employers of all sizes. But in a group marketplace where group size often dictates available plan designs and cost-sharing structures, smaller firms have felt the pull of ICHRAs most profoundly.

If you’re a benefits consultant – or you are an employer – and are not considering level funding or ICHRA, you’re already entering open enrollment at a disadvantage. But it’s not too late to pay closer attention. Here are a few steps you can take right now:

1. Don’t wait for renewals to come in. Become familiar with the mechanics of both so you can compare and contrast options adequately and begin the transition process early and with eyes wide open.
2. Understand your data. Complete an analysis of your group’s underwriting so you can fully evaluate how a move to level funding or ICHRA could affect your bottom line.
3. Survey employees on what is most important to them in their health benefits package. Get to know what trade-offs they are willing to make.
4. If you are considering ICHRA, choose a partner who will administer the program carefully. The support provided to employees is critical, and not all players are equal in this regard.

For too long, smaller firms have entered open enrollment from a position of weakness, but change is knocking on the door. It’s time to let it in.

Kevin Kickhaefer is chief revenue officer and president of commercial markets with Gravie. Contact him at [email protected].

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