Two trade groups debuted a new association health plan for Michigan small businesses as employers prepare to enter the annual open enrollment period for 2019 health insurance policies.
Formed by the Small Business Association of Michigan and the Warren-based Michigan Business and Professional Association (MichBusiness), TranscendAHP intends to offer 10 to 20 fully insured large-group policies from Blue Cross Blue Shield of Michigan and HMO subsidiary Blue Care Network.
Insurance agents can seek quotes on behalf of sole proprietors and employers with 50 or fewer employees for policies that begin Jan. 1.
Shannon Enders, managing partner at Lakeshore Employee Benefits in Norton Shores, expects clients to have high interest in the new plan, once they learn about it.
“We are definitely reaching out to all of our clients that we think it will be a fit for,” Enders said. “I think there’s going to be a lot of interest and there’s going to be spots where it fits.”
TranscendAHP’s founders believe “with some confidence” that its plans will cost 3 percent to 5 percent less in the first year than what small businesses now pay in the small-group market, said SBAM CEO Rob Fowler. Additional savings could come as TranscendAHP negotiates rates for subsequent years.
The savings would come from participating employers moving out of the small-group insurance market and into the large-group market with a plan that has a broader collective risk pool. 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 plans from Blue Cross Blue Shield that TranscendAHP offers, for example, do not use a 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.
‘A MORE PRECISE RATE’
The policies also have a different “age slope” than small-group ACA plans, 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, Lyon said. 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 of its employees, its industry type and group size also matter in setting rates.
“These are really bringing back things that underwriting used to use,” Enders said. “Each (employer) group is going to get a more precise rate for their own company when they enroll.”
Jerry Konal, a senior consultant in health and benefits at Willis Towers Watson PLC’s Southfield office, believes TranscendAHP will generate some market interest, although he doesn’t see small employers moving in large numbers in the first year. TranscendAHP will have to overcome a learning curve among small employers, Konal said.
Interest will grow as company owners gain a better understanding of how association health plans work “and the value they may derive from it,” he said.
“I just don’t think there is going to be a huge migration initially,” Konal said. “I think people are still trying to figure it out. Right now, they just don’t know a lot about it. It’s really going to take time and education.”
Still, Konal welcomes TranscendAHP’s introduction and the offering of a product that gets a small employer into large-group policies exempt from the ACA mandates.
“This is a good play to be able to go after this large-group solution,” he 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.
The 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.
SBAM and MichBusiness formed TranscendAHP during a period of rate stabilization for small business health insurance 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 would lower small group rates an average of 0.1 percent statewide. Blue Care Network proposed a decrease of 2.7 percent.
Regulatory approval of the rate proposals remains pending.
Even with the rate moderation of late, small employers keep looking for new options to the “very cookie-cutter” products now available in the small group market, said Bob Hughes, principal of Advantage Benefits Group Inc. in Grand Rapids. The 3 percent to 5 percent savings TranscendAHP promises in the first year are “just enough to maybe interest some people,” Hughes said.
“The small player, they’ve just been asking about anything,” he said.
Hughes does have concerns about the long-term viability of the association health plan’s risk pool. If employers with a generally healthy workforce opt out of TranscendAHP after the first year or two because they find better options, that could adversely affect the plan’s risk pool and drive up rates, he said. Likewise, employers with older, unhealthier workforces could skew the risk pool in later years when they enroll.
“It might work for a couple of years, but I’m skeptical about the long term just because of (questions over) who are you going to get in the group and who’s going to stay,” Hughes said.
MORE TO COME?
Blue Cross Blue Shield agreed to partner with SBAM and MichBusiness for TranscendAHP because it creates “one more solution we can introduce to the market,” said Aaron MacDonald, the insurer’s director of regional sales distribution. He could not say how many enrollees the insurer expects TranscendAHP to attract in the first year, although it should surpass 1,000 covered lives “fairly quickly.”
Part of the unknown is how many small employers are willing to disrupt their existing employee health coverage and switch to a new carrier, especially with small-group rates stable for now.
“A lot of employers take the ‘if something isn’t broke, don’t fix it’ approach,” MacDonald said. “That could affect interest.”
TranscendAHP is the first association health plan formed in Michigan under the new federal guidelines.
MacDonald expects more to follow TranscendAHP into the market.
“We’ve had some interested parties already,” he said. “We expect there will be more of these set up.”
Becoming part of TranscendAHP is an option for other trade groups considering the formation of their own association health plans.
SBAM and MichBusiness designed TranscendAHP to allow participation from business groups and chambers of commerce across the state, 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,” SBAM’s Fowler said.