Human Resources |
Article by Leah Thayer
From the November/December 2014 Net Assets magazine.
Butch Nosko never underestimates the changes a new year might bring to the health benefits plan he oversees at The Delphian School, and 2015 is no exception. As in past years, rates will likely climb, even though plan participants have been healthy, and even after the usual negotiating by the school’s insurance broker. Moreover, there may be new headaches associated with the Affordable Care Act. The plan meets all relevant ACA requirements, including the employer mandate that takes effect in 2016 for employers of Delphian’s size (50–99 employees). However, the school is considering modifications to the plan that could remove some grandfathered ACA exemptions. “Honestly, the ACA is so complex there could be requirements that I’m not yet aware of,” he says.
For us, the partially self-insured plan has been just fantastic. Our group seems to be very health conscious, and that’s definitely a contributing factor in our performance.
Butch NoskoThe Delphian School
Despite these realities, Nosko, CFO at the K–12 boarding/day school in Sheridan, Oregon, is approaching 2015 with somewhat less dread than most independent school business officers. That’s because Delphian’s health benefits plan is partially self-insured, a strategy that has saved the school hundreds of thousands of dollars and limited its cost increases to an average of 5.4 percent over the last four years—far less than the double-digit hikes many schools see. (Premiums for employer-sponsored health coverage overall have increased 80 percent since 2003, according to the Kaiser Family Foundation.)
“For us, the partially self-insured plan has been just fantastic,” Nosko says. “Our group seems to be very health conscious, and that’s definitely a contributing factor in our performance.” Plus, with a healthy insured population, “you have more room to negotiate.”
Such strengths make Delphian’s health plan a relative standout among independent schools. “For every school, it’s a roller coaster ride during insurance renewals,” says David Wright, finance director at University School, itself a standout as a member of a health benefits consortium (see page 25). “You’re holding your breath. In a good year, you might get a 5 to 10 percent increase. Then you have a couple of serious medical issues”—say, a cancer case or a premature baby who spends weeks in NICU—“and you’re into the double-digits.”
Renewal increases are only one challenge ahead. New federal regulations—those involving the ACA as well as the IRS—will bring more fees, reporting and other requirements. Additional burdens may exist at the state level. “It’s very, very difficult to be working in this environment,” says John Manion, a benefits consultant with Armstrong, Doyle & Carroll. Independent schools are already under “tremendous financial duress,” and the health care situation isn’t likely to help matters.
Effective January 1, 2014, all employers with 100 or more full-time equivalent workers (1,560 or more hours annually) must provide those employees with health coverage meeting requirements of the Affordable Care Act (ACA) or risk federal penalties for noncompliance. Under this much-anticipated “employer mandate,” plans must be available to dependents up to age 26, coverage may not have lifetime limits and premiums may cost no more than 9.5 percent of an employee’s salary, among other requirements. The law takes effect January 1, 2016, for employers with 50 to 99 workers
The ACA has countless nuances, but “the most important piece for schools is to pin down how many FTE employees they have,” and therefore when (or whether) the mandate will affect them, explains Harry Atlas, a partner with Venable LLP. The answer may not be as black and white as it appears, given the truncated school year and the many employees who work unusual hours, such as coaches and auxiliary staff. Moreover, the ACA has special “school rules,” Atlas says, adding that independent schools should work with their insurance broker or legal counsel to determine their actual number of FTE staff-and then determine a means of tracking their hours.
To the latter end, an entire “cottage industry is springing up to help,” says insurance broker John Manion of Armstrong, Doyle & Carroll. “A lot of payroll companies and other vendors are jumping into that space and rolling out tools to track hours and the like.”
Here are two broad strategies schools are rolling out to mitigate the pain.
With a traditional “fully insured” health benefits plan, the employer contracts with an insurance company to pay a per-employee premium, and the insurer assumes the risk of providing health coverage for medical care and other insured events. Most independent schools and other small employers participate in this kind of plan.
In a self-insured (or self-funded) plan, by contrast, the employer tailors the benefits, collects the premiums from enrollees and assumes the risk for their claims. In plans that are “fully” self-insured, this risk is for all claims, however high they may go. To that point, because the sky is almost the limit, most small employers choose to be “partially” self-insured and buy stop-loss insurance (individual and aggregate) to reimburse them for claims above a specified dollar level. Although self-insured plans may be fully self-administered, most contract with third-party administrators for provider networks, claims processing and other services.
Still relatively unusual among small employers, self-insured health plans are gaining ground in part because large insurers such as Cigna, UnitedHealth Group, Aetna and Humana have begun extending the option to small employers in some markets. They also have an inherent appeal to employers whose employees are educated and relatively healthy, as teachers and other staff of independent schools tend to be. Perhaps most enticingly, self-insured plans are often exempt from certain aspects of the ACA, including the “community rating” that will place small and medium-sized employers in broad tiers of ratings expected to lead to higher costs for healthy workers.
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Those and other factors make self-insurance work for Delphian. To employees and their dependents, the plan looks like any other: They pay premiums, copays and deductibles, and have access to a wide network of providers and products. On the back end, however, the plan has three cost components. First, the school pays Cigna a fixed administrative fee (about $175 per employee per month) to cover services such as billing, negotiating with providers and appealing claims. It also pays Cigna for two separate stop-loss policies: one limiting its liability for individual claims to $45,000 a year, and a “plan maximum” capped at $700,000 for all enrollees.
“You take on a bit more risk, and in a disastrous year could end up paying more,” Nosko says. “But on the flip side, in a year of good performance you can save a substantial amount compared to a traditional plan.” In the Delphian plan’s 10 years, actual expenses have averaged only 76 percent of Cigna’s “expected” costs for a plan of its size, despite the handful of major claims the school experiences most years. This has led to savings of hundreds of thousands of dollars over that period, he adds.
In Atlanta, The Westminster Schools have been self-insured since the mid-1990s, according to Wendy Barnhart, director of business and finance at the K–12 day school. Westminster pays Blue Cross and Blue Shield of Georgia a small per-person fee to administer the plan. The school then pays directly for annual claims up to a fixed amount per employee, and no more than a higher fixed value for all employees combined. For the remainder of risk, the school reinsures with another provider.
Like growing numbers of other health plans, Westminster’s is also “consumer-driven,” in that it incentivizes employees to be healthy. This effort was stepped up two years ago, motivated by the coming ACA changes “and the need to move employees along as better consumers of their own health care,” says Barnhart. A moderate out-of-pocket limit ($2,000 per employee) instead of deductibles or copays facilitates wellness visits, as does a “wellness discount” for employees who get an annual physical and biometric screening—both of which, along with many other services, are available in the free health clinic the school opened on its campus.
Sources: National Association of Insurance Commissioners, Healthcare.gov, Inc.
Last year, University School saved an estimated $200,000 by providing health coverage to its 190 employees through membership in the Independent School Benefits Consortium (ISBC). The K–12 day school, in Hunting Valley, Ohio, is a charter member of the self-funded consortium, which since 2003 has expanded from 24 schools in Ohio to 46 schools in Ohio plus Georgia, Missouri, Texas, Oklahoma, New York, North Carolina and Arizona. “We are actively marketing in many other states as well,” says Kurt Meinberg, an insurance broker with Oswald Companies, which manages the plan.
In its multi-state presence and other ways (see box below), ISBC is an outlier among health benefits consortiums—which themselves remain fairly unusual among independent schools. In essence, these groups are health care plans with multiple members. Some are self-funded, others are fully insured. They are structured in many ways, in terms of entity type, pricing tiers, provider network, plan design options, wellness incentives and governance. But they are almost universally predicated on the basic notion of collective strength through multi-school membership, in matters such as leveraging lower rates, negotiating better contract terms and more successfully withstanding difficult experiences.
To those goals, the results speak volumes. “That small school becomes a big school” when it joins forces with others, says Meinberg. He says all ISBC member schools have saved money and enjoyed below-market renewals since joining ISBC. Likewise, members of the 142-school PAISBOA (Philadelphia Area Independent School Business Officer Association) Health Benefit Trust will see their costs rise a modest 5.35 percent in the upcoming school year (1.86 percent for health benefits and 19.44 percent for drugs). Bob Mueller, CFO of PAISBOA member Delaware Valley Friends School, notes that the consortium also lets his school secure far better coverage than it could secure alone. “Anything that we could buy, I would expect it to be 25 to 30 percent more expensive,” he estimates.
On January 1 of 2014, the Independent School Benefits Consortium (ISBC) transitioned from a fully insured health plan for member schools to a “self-funded stop loss captive” plan. According to its 2014 executive summary, the captive model lets ISBC avoid the community rating and other ACA-related requirements, while also allowing for “underwriting and benefit design flexibility, complete data transparency” and the “opportunity to stabilize or reduce the cost of health insurance plans over the long term.”
A “captive” plan differs from other self-funded plans in that participating schools share in the outcome of the total group’s underwriting performance, with the potential to experience a financial upside if the group does well. In ISBC’s case, all schools have individual deductibles of $20,000 to $30,000, aggregate deductibles that limit maximum claim liability and administrative fees. The captive risk fund pays claims above those amounts but under $500,000. The reinsurance carrier (Nationwide Insurance) pays claims over $500,000.
Unlike most other health benefits consortiums, ISBC is a national program. The broker managing ISBC, Oswald Companies, works with Assurex Global to partner with independently owned insurance brokers nationwide.
A far smaller consortium is the ISAS (Independent Schools Association of the Southwest) Group Benefits Trust, with 21 member schools. Its overall renewals are projected at 5 percent in 2015, but costs for at least one of its plans actually declined in 2014 due to the addition of a new lower-cost plan, according to Don Graham, the trust’s executive director. Melissa Orth, CFO of member school Greenhill School, in Addison, Texas, believes the consortium is “better than self-insurance because it spreads the risk” while providing access to a broad network of providers, in this case through UnitedHealthcare and Delta Dental.
Pricing leverage aside, consortium membership may also lead to fewer compliance headaches under certain circumstances. For instance, schools belonging to consortiums that are self-funded are generally exempt from certain ACA requirements, including community ratings and reinsurance and insured carrier fees.
Some schools see drawbacks in consortiums. One insurmountable obstacle is that most (with the exception of ISBC) limit membership geographically, due usually to restrictions of the regional association that operates it or the insurance carrier with which it contracts. For instance, PAISBOA contracts with Independence Blue Cross, which covers only parts of Southeastern Pennsylvania. The ISAS Group Benefits Trust is available only to ISAS member schools that are in Texas and Oklahoma. (The association also has member schools in other states, but in sufficiently small numbers that it’s not “worthwhile for the Trust to pursue the regulatory hurdles” in those states, says Graham.)
Another potential drawback of consortiums is that some schools just don’t want to give up the broker relationships or model they already have.
If I’ve got 100 people in my plan, one cancer case can rock me, but with 23,000 people I’ll be okay. The bigger the boat, the better it can withstand those waves.
John ManionArmstrong, Doyle & Carroll
And then there’s governance. Basically, everybody must work together. “It takes a lot of coordination and planning,” says Orth. “It’s not always easy to find a group of like-minded schools that have similar philosophies and reasons for existing, and want to offer similar benefits.” Harry Atlas, a partner with Venable LLP, agrees. “It’s a collective arrangement with plan-based rules and procedures,” he says. “You surrender some autonomy.”
But maybe that tradeoff isn’t a bad thing. “Independent schools all think they’re smarter than the others, and they value their independence more than they should,” says Mueller. In reality, even “big” schools are tiny in the eyes of insurance of insurance companies. “In terms of having leverage, you don’t even begin until you have 1,000 employees,” he adds.
John Manion, the Armstrong, Doyle & Carroll broker who represents PAISBOA, agrees. “I’m an absolutely diehard proponent. If I’ve got 100 people in my plan, one cancer case can rock me,” he observes. But with 23,000 people—in PAISBOA’s case, 11,000 employees, plus 12,000 dependents, “I’ll be okay. The bigger the boat, the better it can withstand those waves.”
Look for a feature on educating employees about their health care options in the September/October 2017 Net Assets.
NBOA 2014 Annual Meeting presentation "The Affordable Care Act and a Changing Health Insurance Marketplace" by David Wright, University School and Kurt Meinberg, Oswald Companies
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