Virginia small businesses seeking health care coverage get new option

Small employers who have felt shut out of the market for health coverage for employees because of cost could have an option that promises to be more affordable, now that the State Corporation Commission has adopted regulations for the new approach.

With those regulations in hand, the Virginia Chamber of Commerce is on track to offer the coverage, through a program to be called Wise Choice Health Alliance, in the third or fourth quarter of this year, chamber president and CEO Barry DuVal said.

"This is transformational for small business," he said. "They'll be able to offer health coverage at competitive prices, the same kind of coverage that large firms offer … that's important for hiring and retaining people."

The approach is called a self-funded Multiple Employer Welfare Association. The basic idea is for small employers to club together under the umbrella of an existing association, to use the same basic financing technique and take advantage of the same kind of volume discounts that large employers do.

The financing technique is self-insurance – that is, instead of buying an insurance policy, an entity assumes the risk and pays out of its own pocket any claims.

This approach is almost always backed by an insurance policy that kicks in when a claim exceeds a trigger. Usually, employers hire an insurance firm to administer such a self-insured health benefit. That's how the state government covers its employees.

The volume discount comes not only from the amount of coverage acquired but from the peculiar economics of insurance. When more people are insured, the odds shrink that anyone will have a claim that the whole group's premiums can't cover.

"This is a game changer," said state Sen. Monty Mason, D-Williamsburg, who has pushed for years to get clearance for such coverage.

Mason has been working closely with chambers of commerce – DuVal's been pushing for the approach for five years - who see such self-funded approaches as filling a real need for members. The Farm Bureau and other business associations have also joined in.

"This initiative will answer that call for many of our smaller members and, potentially, many new members," said Bob McKenna, president of the Virginia Peninsula Chamber of Commerce. "I'm very optimistic."

Like Obamacare policies, a self-funded Multiple Employer Welfare Association has to cover emergency services, hospital care, outpatient care, maternity and newborn care, mental health and substance abuse treatment, prescription drugs, rehabilitation services, laboratory fees, preventive and chronic disease care and pediatric care.

In Virginia, that translates to 54 specific services, from hospital stays to doctors' office visits to transplants to mental health and substance abuse treatment to dental care for children.

A self-funded MEWA will have to offer coverage at least as good as a "bronze" Obamacare policy.

Like Obamacare, it can't limit or exclude coverage for an individual because of a preexisting condition, and can't charge people extra if their health is poor.

And the MEWA has to renew if the covered employer wants to, unless it hasn't been paying into the pool, or if there's been any fraud or failing to comply with the Multiple Employer Welfare Association's rules.

To make sure the association can keep its promises to cover claims, the SCC said it needs to maintain a net worth – excess of assets over liabilities – of at least $4 million. It also must have reserves that meet actuaries' standards that they are sufficient to pay claims, as well as adequate backstop insurance to kick in for large claims. As protection against insolvency, it has to deposit at least $50,000 of high quality securities with the state treasurer, too.

It would have to meet the basic financial tests that health insurance companies and managed care organizations do. It must also arrange for one or more guarantees or standby letters of credit – basically a credit card – that would guarantee payment of claims, not covered by any backup insurance policy.

That letter of credit is something insurance companies don't have to acquire, said Donald C Beatty, deputy commissioner of the Bureau of Insurance.

On top of that, a Multiple Employer Welfare Association will have the power to make and collect special assessments against members – that is, to require additional payments if it needs the money to keep on top of claims, he said.

"This is truly self-funded," Beatty said. "Nobody is getting away with something."

The association will have to submit a feasibility plan for the Bureau of Insurance to review that includes enrollment projections, details of how it will set premium rates for its first three years of operation, and projected balance sheets and cash flow statements. In addition, it must provide details of how it will market its coverage and sources of funding.

The bureau will examine such Multiple Employer Welfare Associations in the same way it does insurance companies.

"We'll be watching very closely, beyond the three years," Beatty said. "We'll have full examination power."

Those bureau examinations empower it to direct insurers to correct problems with the way they pay claims or charge customers. When an insurer's finances are weak, the bureau can to put it into receivership.

Mason said the idea is that a Multiple Employer Welfare Association would set a basic rate, subject to Bureau of Insurance approval, but that participating employers' actual experience might mean what they pay is adjusted up or down.

But because that adjustment would be pegged to a rate based on a large number of people, Mason said it would be lower than what small groups or individuals could get on their own.

Arguing for the new approach has been a challenge, but Mason convinced bipartisan majorities in the state Senate and House of Delegates to approve the approach in 2020, only to see it vetoed by then-Gov. Ralph Northam.

Northam said he was concerned that the approach "addressed the health care cost concerns of only a segment of Virginians," possibly at the cost of other Virginians.

He said Virginians who enroll in such plans might be disproportionately healthy when they enroll, leading to higher premiums for others.

But Mason said that while such associations could let small employers take advantage of the insurance "law of large numbers" – that risk spreading that holds down costs for each person in a group – the total number of Virginians who could be covered through a MEWA was tiny in comparison to the rest of the insurance market.

Basically, the impact Northam was concerned with is essentially the same as when someone covered by an Obamacare policy gets a job with a big firm that has a large group coverage.

Gov. Glenn Youngkin has praised the legislation as a bipartisan effort to boost access to health care.