Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
By Patrick Connole, Editor
May 13, 2013 Volume 23 Issue 17
Professional employer organizations (PEOs) are nothing new, having been around for 30 years or so, but industry operators report growing interest of late from small and medium-size businesses concerned about their ability to meet requirements of the Affordable Care Act (ACA). Among the attractions are PEOs’ ability to pool health insurance coverage to garner favorable premium rates and, even more important to some, their ability to navigate the intricacies of the health reform law, industry insiders say.
By pooling lives from many small employers, PEOs can operate like a large self-funded company with a reinsurer covering the largest claims.
PEOs provide a suite of services including the management of payroll, employee benefit programs and human resource functions and are highly regulated in most states. Revenues in the PEO industry reached $92 billion in 2012, a 14% rise since 2010, the Alexandria, Va.-based National Association of Professional Employer Organizations (NAPEO) said. PEO income is most often generated by assessing a flat monthly fee per employee or paycheck or a percentage of each client’s total payroll.
HPW took a closer look at how one of these PEOs operates: Indianapolis-based WorkSmart Systems, Inc., which pools the benefits of 190 clients. Matt Thomas, founder and president of WorkSmart, tells HPW that his company’s growth “has skyrocketed” to the point that from 2012 to the end of 2014 he expects to double the size of his client base, with the ACA “a big piece” of the reason. He says his firm’s growth will alter the local health insurer market, putting more lives in a PEO setting rather than traditional small-group coverage provided by a carrier through an agent or broker.
WorkSmart uses an outside actuary to underwrite policies for its self-funded pool based on a risk-stratification method to account for the various levels of risk. “Not everybody gets the same rates in the pool,” Thomas says.
There are two levels to risk exposure for the PEO, he says. Working with a reinsurance company, WorkSmart is obligated to pay the first $300,000 of any individual claim, with any amount over that level picked up by the reinsurer. The second level is the $20 million aggregate level for the entire pool to stay under before reinsurance kicks in. If WorkSmart can stay below the aggregate, it can buy down health insurance rates rather than spreading it across a community-rating type of model, Thomas says. He says his company has “never gotten close” to surpassing the aggregate blanket, and it is rare to go over the specific deductible of $300,000. “We hit it twice in four years,” Thomas says.
WorkSmart offers a menu of four medical options on its health plans for clients. “That’s it. We build enough choices into the global option,” Thomas says, including plans with low and high deductibles and those compatible with health savings accounts.
Exchanges Could Pull Lives From PEOs
With the start of the public exchanges under the health reform law next year, Thomas expects to lose somewhere from 8% to 10% of his member lives to the new marketplaces. It is most likely that the lost members will come from higher-cost segment of his current base. “If you look at a very small employer, with five to six employees, two of them may have significant medical conditions, [and] maybe they are a little older, 58 to 60 years old. Even if they have heart problems or, say, diabetes, both get the same rating in an exchange as a healthy person and go to the exchange. So, with the exchange we lose participation but we also lose the conditions,” he says. Currently, there are 2,500 insured in the WorkSmart health insurance pool.
Thomas estimates that because of the mandates in the ACA, like guaranteed issue and the 3:1 age-rating band, premium rates in the individual market will rise more than 100% next year and 25% to 50% in the small-group market. For the PEO, with its pooled lives, rates will remain at moderate increases. “We’ve been at 6.5% increases the last three years and will be in single digits the next two or three,” he says.
PEOs Seek to Take Away the Headaches
Pat Cleary, president of NAPEO, tells HPW the mantra for PEOs is that “you can get big business benefits for small businesses.” He contends that savings are not the biggest selling point for businesses considering a PEO, but rather the ability to eliminate administrative burdens and the security it buys the firm.
“The metaphor I use is that it is like having somebody do your taxes,” Cleary says. The tax specialist will be able to find the best possible return for you, and eliminate a lot of the risk. “The downside of getting it wrong is a big risk, be it taxes or health care. Obamacare has presented an opportunity to use [PEOs] because in a lot of ways, it is the final straw for a lot of small businesses,” he adds.
The PEO is presenting a compliance option for these businesses, not a way to avoid the reform law, Cleary says. And he expects that the heightened interest in PEOs will continue past 2014 since more provisions of the health reform law will come online in 2015 and beyond, such as a fully functioning Small Business Health Options Program (SHOP) exchange in two years. “At least from a PEO perspective, we’re in good shape and there to help small businesses navigate this law,” he says.
http://aishealth.com/archive/nhpw051313-02
No comments:
Post a Comment