The last time we looked at the challenges of member-level rating, we considered the possible impact it might have on a group's premium invoice--the bill. This time, we take a look at another challenge: bringing new employees onboard mid-year.
This is, in fact, similar to the issue we discussed last time of an employee adding a new baby to their family coverage and the employer's overall bill going up. Member-level rating, in this case, means that, even after a group has purchased their plan or plans for a benefit year, the amount each employee pays for coverage is not fixed--it depends upon the make-up of their family.
How It Works Today
Today, an employer typically shops for insurance before the benefit year begins and then locks in rates for either all his or her employees or, in a large company, for all employees in a certain category of employment, such as full-time, non-union employees.
Say, for instance, that an employer buys a PPO plan with a $750 monthly premium for family coverage and an HMO with a $625 monthly premium. He or she decides to contribute $300 a month for the premium. Any employee who is hired mid-year and wants to enroll in one of the plans will have the difference ($450 for the PPO and $325 for the HMO), deducted from his or her paycheck.
The conversation is pretty simple for employer explaining the benefits options to the employee: "Joe, you can get the PPO for $450 or the HMO for $325". He or she probably has that printed up on a little one- or two-page sheet in the benefits handbook and shares that sheet with job candidates, too.
How It Will Work in the Future
That conversation won't be so easy in the future, at least not in small companies with fewer than 50 employees (to which member-level rating applies). Imagine the HR administrator at a 30-employee company explaining the benefit options to a job candidate, Joe, who is considering an offer with the firm.
Joe: "What about health insurance?"
HR Rep: "We have a very generous package. We have an HMO and a PPO, both very good plans."
Joe: "How much do they cost?"
HR Rep: "Well, that depends . . ."
And here the HR Rep is in a bit of a pickle. You aren't supposed to ask a candidate about marital status, whether they have children, etc. during the interview process. But, to be able to tell Joe how much coverage is going to cost, the HR Rep needs to know if he is going to cover a spouse and children or other dependents, and not only that but the age and tobacco-use status of each of those dependents.
Even if the HR Rep happens to know these things (say, when explaining the plan to Joe after he has already started work and can freely chat about his family situation), how would he or she be able to explain to Joe what he is going to have to pay? Does the insurer or broker provide them (like life insurance companies do) with a look-up table so the HR Rep can look up the cost for each family member, add them up, and tell Joe the rate?
It's already complicated enough just understanding the difference between HMOs and PPOs, much less High-Deductible Health Plans and Health Savings Accounts. The HR Rep's job has just gotten a lot harder.
Now, there's an alternate wrinkle where an employer could reverse the patten. Instead of covering $300 for each employee and letting the employee pick up the rest, make all employees pay a fixed amount (say, $450) for the PPO out their weekly checks and, as the employer, pick up whatever the difference is. But, that not only means uncertainty of benefits cost for the employer but create an undesired incentive for age discrimination, since it would cost much less to insure a younger employee than an older one.
Fortunately, member-level rating applies only to the small group market, so companies with more than 50 employees don't have to worry about this wrinkle, but it makes things even more challenging in an already challenging small group market.
Implications for Insurance Carriers
This is a lot to think about for a health insurance company, but here are a few implications and considerations.
1. Effective constituent communications to the sales and broker channels and the existing employer customer base is key to explain the changes that are coming and to provide tools and materials to help brokers and employers be ready to communicate with their employees.
2. Follow the patterns established by life and disability insurance companies, for whom this sort of age-banded coverage is common.
3. Provide easy tools (like an online employee rate quote calculator) that makes it easy for a broker, employer, or HR rep to quickly look up the cost for an employee and run a report that can become part of that new employee welcome kit or job offer documentation.
This is, in fact, similar to the issue we discussed last time of an employee adding a new baby to their family coverage and the employer's overall bill going up. Member-level rating, in this case, means that, even after a group has purchased their plan or plans for a benefit year, the amount each employee pays for coverage is not fixed--it depends upon the make-up of their family.
How It Works Today
Today, an employer typically shops for insurance before the benefit year begins and then locks in rates for either all his or her employees or, in a large company, for all employees in a certain category of employment, such as full-time, non-union employees.
Say, for instance, that an employer buys a PPO plan with a $750 monthly premium for family coverage and an HMO with a $625 monthly premium. He or she decides to contribute $300 a month for the premium. Any employee who is hired mid-year and wants to enroll in one of the plans will have the difference ($450 for the PPO and $325 for the HMO), deducted from his or her paycheck.
The conversation is pretty simple for employer explaining the benefits options to the employee: "Joe, you can get the PPO for $450 or the HMO for $325". He or she probably has that printed up on a little one- or two-page sheet in the benefits handbook and shares that sheet with job candidates, too.
How It Will Work in the Future
That conversation won't be so easy in the future, at least not in small companies with fewer than 50 employees (to which member-level rating applies). Imagine the HR administrator at a 30-employee company explaining the benefit options to a job candidate, Joe, who is considering an offer with the firm.
Joe: "What about health insurance?"
HR Rep: "We have a very generous package. We have an HMO and a PPO, both very good plans."
Joe: "How much do they cost?"
HR Rep: "Well, that depends . . ."
And here the HR Rep is in a bit of a pickle. You aren't supposed to ask a candidate about marital status, whether they have children, etc. during the interview process. But, to be able to tell Joe how much coverage is going to cost, the HR Rep needs to know if he is going to cover a spouse and children or other dependents, and not only that but the age and tobacco-use status of each of those dependents.
Even if the HR Rep happens to know these things (say, when explaining the plan to Joe after he has already started work and can freely chat about his family situation), how would he or she be able to explain to Joe what he is going to have to pay? Does the insurer or broker provide them (like life insurance companies do) with a look-up table so the HR Rep can look up the cost for each family member, add them up, and tell Joe the rate?
It's already complicated enough just understanding the difference between HMOs and PPOs, much less High-Deductible Health Plans and Health Savings Accounts. The HR Rep's job has just gotten a lot harder.
Now, there's an alternate wrinkle where an employer could reverse the patten. Instead of covering $300 for each employee and letting the employee pick up the rest, make all employees pay a fixed amount (say, $450) for the PPO out their weekly checks and, as the employer, pick up whatever the difference is. But, that not only means uncertainty of benefits cost for the employer but create an undesired incentive for age discrimination, since it would cost much less to insure a younger employee than an older one.
Fortunately, member-level rating applies only to the small group market, so companies with more than 50 employees don't have to worry about this wrinkle, but it makes things even more challenging in an already challenging small group market.
Implications for Insurance Carriers
This is a lot to think about for a health insurance company, but here are a few implications and considerations.
1. Effective constituent communications to the sales and broker channels and the existing employer customer base is key to explain the changes that are coming and to provide tools and materials to help brokers and employers be ready to communicate with their employees.
2. Follow the patterns established by life and disability insurance companies, for whom this sort of age-banded coverage is common.
3. Provide easy tools (like an online employee rate quote calculator) that makes it easy for a broker, employer, or HR rep to quickly look up the cost for an employee and run a report that can become part of that new employee welcome kit or job offer documentation.
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