The association health plan created by two trade groups representing small businesses in Michigan offers a new option for employers to consider for their employee health benefits.
TranscendAHP offers fully insured large-group policies from Blue Cross Blue Shield of Michigan and HMO subsidiary Blue Care Network.
The plan’s founders believe “with some confidence” that it will cost 3 percent to 5 percent less in the first year than what small businesses now pay in the small-group market, said Rob Fowler, the CEO of the Small Business Association of Michigan.
“We think by virtue of having better buying power and a better negotiating position, in the longer term, we’ll be able to negotiate on behalf of a very, very large group and rates will be based upon the experience of the group,” Fowler said. “So in the second, third and fourth year — if we have a good experience, and we think we can — we’ll be able to save even more than that.”
SBAM partnered with the Warren-based Michigan Business and Professional Association, also known as MichBusiness, to create the nonprofit TranscendAHP. The two organizations collectively have about 50,000 small business members.
Sole proprietors and small businesses with 50 or fewer employees can apply for coverage that begins Jan. 1, 2019. Insurance agents could begin requesting quotes for clients this week, Fowler said.
U.S. Department of Labor rules issued this past summer to implement an October 2017 executive order by President Trump broadened the ability of small businesses to unite to form association health plans.
Association health plans allow similar employers — those in the same trade, industry, or profession, or based in the same area geographically — to come together to form a large risk pool of employees to insure. By doing so, they avoid some of the taxes, fees, regulations and mandates in the federal Affordable Care Act that apply to small businesses, including requirements to offer 10 essential benefits in their health plans.
“It reverses a lot of the negative impact on small employers that the ACA had,” said MichBusiness President Jennifer Kluge.
The large-group Blue Cross Blue Shield plans that TranscendAHP offers, for example, do not use member-level rating “that is just kind of universally despised by the small business community,” according to SBAM Senior Vice President Scott Lyon.
In member-level rating, every person covered by a health policy — including employees’ spouses and children — has a different rate, creating an “administrative nightmare” for small businesses, Lyon said.
The policies also have a different “age slope” than the ACA, which limits health insurers from charging higher-risk, generally older adults premiums that are no more than three times the rates for lower-risk enrollees — typically the younger, healthier people. In the early days of the ACA, that provision in the law contributed to large premium increases for small businesses, as rates for the lower-risk enrollees came up to stay within the three-to-one ratio.
The Blue Cross Blue Shield policies for TranscendAHP have a five-to-one rate ratio, Lyon said.
A small employer’s location in the state, the gender composition of its workforce, industry type and group size also matter in setting rates, according to Lyon.
“The rates will be much more precise to that individual company making that application,” he said.
SBAM and MichBusiness designed TranscendAHP to allow other business groups and chambers of commerce across the state to participate, which would create an even larger risk pool of employees to insure.
“If volume matters — and we believe it does in this — we’re better served to have one large AHP than a bunch of small ones,” Fowler said.
The groups formed TranscendAHP during a period of stabilization in small business health insurance rates in Michigan.
Rates proposed last summer to state regulators for 2019 policies equate to a statewide average decrease of 0.2 percent. Seven of the 17 health insurance carriers in Michigan’s small group market for employers with 50 or fewer employees proposed lower rates for next year, according to a summary of 2019 rate proposals filed with the state Department of Insurance and Financial Services.
Grand Rapids-based Priority Health proposes an average statewide rate decrease of 2.6 percent for HMO and point-of-service plans that begin Jan. 1, and a 0.8-percent decrease in rates for PPO plans sold by subsidiary Priority Health Insurance Co.
Blue Cross Blue Shield of Michigan would lower small group rates an average of 0.1 percent statewide. The insurer’s HMO subsidiary, Blue Care Network, proposed a decrease of 2.7 percent.
Regulatory approval of the rate proposals remains pending.
The rate stabilization of the last few years follows a period of volatility for small group rates after the implementation of the ACA. Benefit mandates and other rules, combined with changes in how rates are set, contributed to double-digit annual rate increases for some small businesses in the years immediately following the law’s passage.
Despite the stability of late, SBAM and MichBusiness saw a need for an AHP that could provide further rate relief in a tight labor market with low unemployment. The cost of health insurance has consistently been a top issue for small businesses for years, Fowler said.
Since the president’s executive order a year ago, MichBusiness has heard from members asking about association health plans, Kluge said.
“Given the labor market and the need for talent, any relief that we can provide to the small business community is really merited right now,” she said. “Our members are always asking, ‘How can you help? What can you do for us?’ They’re always looking for relief related to health care.”
TranscendAHP will not replace the health insurance both SBAM and MichBusiness now market to their members, “but will be an added feature,” she added.
Fowler believes TranscendAHP could enable some small businesses that do not presently offer health benefits to begin doing so. Health coverage has become crucial for employers in recruiting and retaining employees in the tight labor market, he said.
“One of the big trends that we’re seeing right now is people who haven’t offered health insurance (are now) offering it in the tight labor market. They’re finding that in order to compete, you must provide health insurance,” Fowler said. “Depending on the industry you’re in, you really have to if you’re competing against larger companies who offer health insurance.”
Fowler expects enrollees in TranscendAHP to come evenly from small businesses that presently offer employees coverage and are seeking to lower their costs, and those that have not previously provided health benefits.
About 40 percent to 45 percent of small businesses offer employee health benefits, Lyon said. The smaller the company, the less likely they are to offer coverage, he said.