I received a phone call at my agency on Friday by a client who is a friend of an attorney in Chicago who is paying $1,000 a month for individual employees on his group health insurance plan and nearly $3,000 a month for employees with dependents. And, he only has 5 employees. This phone call provided the impetus behind the following lengthy but valuable commentary.
Group health insurance provides ‘Guaranteed Insurability’ under 1996 HIPAA Portability law. This means that at the time of policy purchase – termed the ‘Initial Underwriting’ period – all applicants – regardless of their health history – must be provided ‘Guaranteed Insurability’. Meaning that the insurance company must cover each insured regardless of their medical history, height and weight, smoker status etc. And, depending on how long they have had continuous coverage prior to enrollment, the Group insurance policy either has to cover their preexisting conditions immediately – if they provide proof of continuous prior coverage of at least 18 months or more with no lapse in coverage of more than 63 days. Or, if they can not provide such proof, via a ‘Certificate of Creditable Coverage’ their preexisting conditions must be covered after a short waiting period, no longer than 12 months. That’s the pro part.
The con part is, in most states – like Illinois – the underwriter can increase the base health insurance premium required for that group by 67% based on one or more applicant’s adverse health history such as Cancer, Diabetes, Heart Attack, Heart disease etc. And, they can also increase the premiums by 1.25% each year that the employer owns that group policy. In some states like Indiana, underwriters can increase group premiums by as much as 108%. In other states, it’s as high as 300%.
Now, because all employees insured on a group health insurance policy are insured on the same policy, this 67% ‘Underwriting load’ is applied across the board to the premiums required to insure all those insured on the same group policy. Let’s say you have 5 attorneys insured on a small group policy. 4 are perfectly healthy with no adverse health history, normal height and weight and none are smokers. But, one employee is an overweight, diabetic smoker. Even though the 4 other employees are healthy. All of them will pay up to 67% more for their health insurance because they are on the same group policy as our morbidly obese smoker.
The alternative to Small Group Health insurance:
What is the alternative to this common problem experienced by small employers all across the nation?
Very simple. Consider terminating your group health insurance policy. Here’s why I recommend doing so. Since you have less than 20 employees, you are under no obligation to provide Federal COBRA continuation coverage. And, under the aforementioned 1996 HIPAA Portability law, once your employees lose their group health insurance, they are immediately qualified to purchase another “HIPAA qualified” plan elsewhere on a guaranteed issue basis. Meaning, that they can not be denied coverage regardless of the severity of their preexisting medical conditions. Since we have had High Risk Health Insurance pools or guaranteed issue individual mandates in 45 states for many years, your employees with serious preexisting conditions are automatically qualified to purchase health insurance in one of these High Risk Health Insurance Pools because they have now lost their employer sponsored group health insurance ‘to no fault of their own’.
High Risk Health insurance pools:
A high risk health insurance pool is nothing more than a pool of money that the state of Illinois requires insurers who operate in our state to contribute to in order to cover Federally eligible individuals - those who have lost Group health insurance coverage or have exhausted Federal COBRA coverage. Or, individuals who apply for an individual health insurance policy and are denied coverage due to a preexisting condition. In Illinois our high risk pool is called ICHIP. ICHIP is an acronym that stands for the “Illinois Comprehensive Health Insurance Pool” – www.chip.state.il.us
ICHIP is not Medicaid or any other federal or state entitlement program. It is instead a fully insured major medical health insurance policy issued to an individual applicant. High Risk pools are normally administered by the largest health insurance carrier in the state. In our state, that administrator is Blue Cross Blue Shield of Illinois. As such, all Illinois ICHIP policy holders carry a Blue Cross Blue Shield of Illinois insurance ID card and have access to hospitals, physicians, specialist and other Blue Cross PPO network providers. The difference is that whilst Blue Cross will apply their network PPO discounts to all claims that occur within the Blue Cross network. The ultimate payer of ICHIP policy holder claims is the state of Illinois High Risk health insurance pool - which also receives small Federal grants at certain points.
The process for enrolling in ICHIP:
In Illinois, the process involved for former Group insured applicants with adverse health histories to enroll in our state’s high risk health insurance pool is as follows:
The employer or group policy holder would write a signed ’letter of intent’ on company letterhead to ICHIP stating that is their intent to terminate their group health insurance policy for all employees as of a future date. That letter would be submitted to ICHIP along with that employee’s application. Once the employee is enrolled on ICHIP – again their enrollment is guaranteed – then the group is promptly terminated and the aforementioned ‘Certificate of Creditable Coverage” is submitted to ICHIP as proof that the former Group insured employee has had at least 18 months of prior coverage with no lapse in coverage of more than 63 days. This entitles them to immediate coverage for their preexisting conditions under the aforementioned 1996 Federal HIPAA Portability law
To view the qualification requirements for ICHIP’s Traditional, Medicare and Federally qualified plans click:
To view the ICHIP plans brochure click here:
To view the premiums required for all ICHIP plans click below and select “HIPPA” before running quotes: http://www.chip.state.il.us/rateinq.nsf/inquiry?openform
To view the Blue Cross PPO network for ICHIP plans click here:
Isolating your risk factors:
The ICHIP premiums for an individual may be similar or even higher than your current group premium for an individual insured - depending on the deductible you chose. However, the point here is that you are isolating your risk factor by insuring formerly insured group members who have adverse medical histories on ICHIP. This thereby allows you to ’free up’ other formerly insured group members and allows them to apply for individual health insurance policies which are always far less expensive because the rates are based upon the zip code demographic in which the applicant lives. This puts them into a pool of hundreds of thousands instead of only 5 people on one Small Group policy. In other words, your former employees who do not have adverse health histories will no longer be paying significantly more because they are insured on a Small group policy with an ‘underwriting load’ that is based on one person’s adverse health history.
Securing coverage for healthy employees without creating a taxable event:
One of the major problems with the American health insurance system is that we are still operating on out dated World War 2 era policies that allow employers to deduct their Group Health insurance premiums but do not allow individuals and families to do so when they purchase their own individual health insurance policy outside the Group arena. The solution to this is to put in place an FSA – Flexible Spending Account. Doing so allows the employer to pay for each employees health insurance policy premium – in whole or in part – without creating a tax liability for their employees. Doing so does not violate ERISA laws, Department of Labor laws or any insurance laws that exist now or will exist after 2014.
If you would like to begin the exploration process and find out how much premium this intelligent design option will save your company please contact me.