[spb_text_block pb_margin_bottom=”no” pb_border_bottom=”no” width=”3/4″ el_position=”first”]

How Association Health plans work

 

Anthem has been offering Association health plans in Kentucky since the 1970’s.  Recently, other carriers have entered this market as a way to allow small businesses to bypass the high costs of the Affordable Care Act (ACA) / Obamacare.

 

What is an association health plan

 

Association health plans are a means for small businesses of some similar commonality (industry, location, etc) to be pooled together in a separate pool than a carrier’s normal small group pool and obtain insurance based on that pool’s performance.

 

How does an Association Health Plan save a small business money?

 

When you have a fully insured health plan, the carrier looks at your claims, then comes up with your premiums based on some sort of weighting vs. the pool for which you are benchmarked.  In a post-Obamacare world, insurance carriers have 3 standard pools:

1. 1-50 (individuals and small group)
2. 51-99
3. 100+ (large group)

Carriers generally want to see 300+ employees before they will consider a group to be “credible”.  So, if your business has claims less than the pool, the carrier will weight most of your renewal toward the pool (maybe 70/30 or 80/20 pool/your claims) because you are “not a credible group”.  Unfortunately, if your group has higher claims than the pool, the carriers will flip that ratio and weight most of your renewal toward your claims.  No, this isn’t fair, it’s fully insured health insurance.

 

An association plan just gives you a different pool to be benchmarked against.  Years ago when I worked at the largest brokerage in Kentucky, we had one association that performed about 7% better than Anthem’s small group pool.  Add the administrative savings and reduced broker compensation and a healthy group could save 10% or more by moving to the association plan.

 

Simplified Actuarial Example:

$250,000 Expected claims for the year

$300,000 small group pool average expected claims for your group for the year

25% weight toward your claims

75% weight toward the pool’s average

 

$62,500 Your Claims

+$225,000 Pool Claims

_________________

$287,500 underwritten claims for your group

+$75,000 administrative costs, profits, and broker compensation

__________________

$362,500 premiums due for the year

 

By moving to the Association plan, you will be weighted against the Association plan’s pool.  In our example above, if the administrative costs are the same, the Association plan will need to produce less than $300,000 in claims for your to benefit from leaving the pool.

 

However, if the Association can reduce the administrative costs to $65,000 for the year, the Association plan can reduce your premiums as long as their pool performs at a $313,333.33 level.

 

Association plans should be able to reduce admin costs by at least 5% just because of the legal claims ratio requirement issued by the ACA where groups with less than 50 employees must pay out 80% of claims and groups with over 50 employees must pay out at least 85% of claims.

 

 

Closing Thoughts

For years, Association brokers have oversold Association plans as being great for employers because “you’re part of a bigger pool”.  Association pools are drastically smaller than the standard carrier pools.  As illustrated above, if the pool is sick, the Association plan may not reduce your premiums at all.  It’s truly a case-by-case scenario.

 

Please feel free to contact me if you have questions, would like a better explanation of how Association Health Plans work, or would like a no-obligation review your current Association plan.  I’d be happy to review these programs with you in greater detail and answer any questions.

[/spb_text_block] [spb_text_block pb_margin_bottom=”no” pb_border_bottom=”no” width=”1/4″ el_position=”last”]

Like this article?

Register for our newsletter:

[contact-form-7 id=”12552″ title=”Newsletter Signup”] [/spb_text_block]