This Summer, the U.S. Supreme Court upheld most provisions of the Patient Protection and Affordable Care Act (PPACA) that Congress passed in 2010. PPACA, affectionately known as “Obama Care”, contains multiple provisions that will increase costs for many employers. It also contains the contentious provision that will require most Americans to purchase health insurance beginning in 2014 or face fines and penalties (redefined and upheld as “taxes” by the Supreme Court).
CIC Services, LLC recently attended a presentation by the Ratliff Law Firm on Obama Care and its impending impact on businesses. CIC Services, LLC partners with experts like the Ratliff Law firm to stay abreast of shifting trends, strategies and regulations in the risk management and captive insurance industry.
PPACA essentially divides employers into 2 groups; Those with 50 or more full-time equivalent employees, which we’ll call “large”, and those with less than 50 full time equivalent employees, which we’ll call “small.” PPACA applies different rules to both “large” and “small” employers and will cause significant cost challenges for many.
Let’s start with “large” employers. Large employers that choose to offer health insurance coverage (and those that don’t will pay penalty taxes) must offer their employees “Minimum Essential Coverage.” This means that the coverage can’t be too limited and must offer certain government-mandated benefits. But oddly, the coverage can’t be too expansive either (i.e., so-called “Cadillac” plans are taxed additionally). It seems that the underlying goal of Obama Care is to force insurance plans to offer very similar coverage so that they have to compete on price and not benefits or features. But providing the minimum required benefits under Obama Care will cost most large employers more money.
Small employers, by contrast, are required to offer “Essential Benefits.” “Essential Benefits” are not as extensive as the Minimum Essential Coverage that large employers must provide, but will include things like maternity care, children’s vision, emergency and laboratory services. Again, this will raise cost for some small employers.
One way to avoid the inflexibility and additional costs imposed upon employers by Obama Care is to use self-insurance arrangements. Companies that self-insure their health care plan will be allowed much greater flexibility in plan design. Group health plans in 2014 will tend to be uniform and offer more benefits than large applicable employers currently offer. Greater flexibility for companies that self- insure would enable them to offer “Major Medical” or custom craft their own health insurance and health benefits plans to provide meaningful but affordable coverage to their employees. Also, small employers that self-insure are exempted from the “Essential Benefits” requirement of Obama Care because the “Essential Benefit” rules apply to all small group health plans only.
But informally self-insuring health benefits can be inefficient and risky. However, formally self- insuring health benefits through a captive insurance company reduces (or in some cases eliminates) the downside of self-insuring health care benefits.
What is a captive insurance company? A “captive” is simply an insurance company with the same or related ownership as the primary companies it insures. In recent years, competition between domiciles (states and off-shore) has significantly driven down the cost to establish and operate a captive insurance company.
Formally self-insuring health insurance risk through a captive insurance company can provide these benefits:
- Flexibility in health care plan design.
- Elimination of the requirement to book a liability on the employer’s books to account for expected health care claims.
- Establishment of reserves or a sinking fund that lessens the cost of stop-loss coverage in the future.
- Avoidance of state imposed premium taxes.
- The possibility of realizing substantial profits that currently accrue to the benefit of third party insurers.
As can be seen, both large and small employers can likely benefit from self-insuring and utilizing a captive insurance company to provide health benefits to their employees. Provisions of Obama Care are already beginning to take effect, and 2014 is looming.
While the changes described above begin in 2014, classification and other regulations will be based on the structure of the business and its health plan in 2013. To prepare for 2014, businesses need to adopt the optimal structure in 2013 or else face potential added regulation in 2014. Contact our office if you’d like us to analyze how a captive insurance company might help you manage the costs of Obama Care.
Phone – 865- 386-4920
E-Mail – Tom@CICServicesLLC.com
Web – www.CICServicesLLC.com