Access, Affordability Define Shrinking Small Business Healthcare Options
State lawmakers heard a largely grim outlook for Connecticut’s small business health insurance marketplace at a special July 29 forum in Hartford.
The legislature’s Insurance and Real Estate Committee hosted the informational forum, which focused on the state of the fully insured small group market in Connecticut.
Paul Lombardo, director of the Connecticut Insurance Department’s Life and Health Division, shared the history of the small group market from the regulator’s perspective.
Lombardo reported that membership in the fully insured small group market has declined considerably since 2015, when the market had 201,500 enrolled lives.
Today, just under 76,000 lives remain, a 62% decline in less than 10 years.
Mandates
Lombardo also documented the series of insurer exits from the market over the past seven years.
Since 2017, HealthyCT, Inc., Harvard Pilgrim Health Care, ConnectiCare, Cigna, and Aetna all withdrew from the market. Only United Healthcare and Anthem remain.
Health Benefits Institute executive director J.P. Wieske told the forum the small group market faced challenges across the country dating back to the 1990s.
“The small group market has a unique set of problems.”
Health Benefits Institute’s J.P. Wieske
He added that passage of the Affordable Care Act in 2010 hastened the market’s decline with the imposition of additional costly legislative and regulatory mandates.
“The small group market has a unique set of problems,” he said. “All the rules of the individual market with no subsidies apply, and this creates significant issues in this market.
“From the standpoint of Connecticut insurers, they face high medical costs, and as you know there are fewer and fewer insurers in this market, which indicates concerns about the risk.”
‘Shrinking Market’
Anthem Blue Cross and Blue Shield president Lou Gianquinto detailing a series of challenges while assuring legislators the company was committed to supporting the market.
“It is a shrinking market and that creates a few problems from the aspect of trying to re-establish the needs of our clients in the small group space, as well as how we re-evaluate our risk on a year over year basis as we have a shrinking number of potential small group members,” he said.
“Affordability is another problem. How can we bring an affordable product to our clients in the small group space?”
“How can we bring an affordable product to our clients in the small group space?”
Anthem Blue Cross and Blue Shield’s Lou Gianquinto
Gianquinto also noted that state and federal government mandates have a significant impact on health insurance costs.
Cigna actuarial director Zach Moon told lawmakers that over the past three years, the insurer had “consistently seen losses in that space, and do not see a consistent future to eventually break even.”
“We’ve consistently seen increases in the small group market in Connecticut, in both unit costs and utilization and mix over the last couple of years, especially following the global pandemic in 2020,” he said.
Market Migration
Due to excessive costs in the fully insured market, many small and middle market employers have migrated to the self-funded market.
The self-funded market is the primary source of health insurance innovation, quality improvements, and cost savings creation for patients and employers and other plan sponsors.
Under a level-funded plan, an employer pays a fixed monthly fee, which covers maximum claims liability, administrative fees, and stop-loss insurance to protect against unexpectedly large claims and high utilization.
Due to excessive costs, many small and middle market employers have migrated to the self-funded market.
With these plans, if the costs of individual or aggregate medical claims exceed the plan’s maximum, the plan covers the difference.
Employers in this market tend to have better access to their claims data, more flexibility in plan design, access to shared savings, and more robust benefits than fully insured plans.
According to the Kaiser Family Foundation’s 2023 Employer Health Benefits Survey, 65% of all workers with employer-sponsored coverage are in self-funded plans, while 35% of covered workers at small firms are enrolled in a level-funded plan.
Cost Drivers
There was consensus at the forum that large number of health benefit mandates imposed on small groups in Connecticut and millions of dollars in marketplace assessments and taxes leave the market at a distinct disadvantage.
For example, small employers and individuals in the fully insured market exclusively pay three different fees:
- Premium tax ($97 million annually)
- Exchange fund assessment ($32 million annually)
- Insurance fund assessment ($20 million annually)
These fees and assessments collectively add approximately $1,136 to a family of four’s annual health insurance policy.
Mandates
Connecticut small group employers also are subject to more than 60 state health benefit mandates, in addition to the 10 essential health benefits mandated by the ACA.
Self-funded plans are not subject to any of these requirements.
Health benefit mandates drive up small business health insurance costs because with each new requirement, insurers must expand coverage to include additional services or devices.
Connecticut small group employers are subject to more than 60 state health benefit mandates, in addition to the 10 ACA mandates.
This increases the cost of health insurance premiums, and those increases are passed directly onto enrollees.
Despite health benefit mandates being a significant cost driver for those enrolled in fully insured plans, the General Assembly continues to pass legislation enabling new mandates despite having no cost-benefit information before doing so.
Connecticut is one of a handful of states in the country that does not require a cost-benefit analysis to be conducted on pending mandate legislation.
For example, in Massachusetts, state statute requires the joint committees on ways and means to include a review and evaluation conducted by the Center of Health Information and Analysis before health benefit mandate legislation can be favorably reported.
Tax Credits, Subsidies
Experiencing similar falling enrollment numbers, states like New Mexico recently started offering tax credits to lower small group employer premiums by more than 10%.
The Small Business Health Insurance Premium Relief Initiative began in 2022 and is funded by state appropriation via the Health Care Affordability Fund.
Experiencing similar falling enrollment numbers, states like New Mexico recently started offering tax credits.
In Connecticut, the only tax credits available to small employers are through the state-run SHOP exchange through the Small Business Health Care Tax Credit.
Very few employers can take advantage of the tax credit due to its narrow criteria and exclusive availability for on-exchange small group plans.
The vast majority of small employers receive coverage off-exchange, not through the SHOP exchange.
Competing with Large Employers
Based on the Kaiser Foundation’s benefits survey, firms with less than 25 workers paid 7% more in premium for single coverage than employers with between 25-199 workers.
And firms with more than 5,000 or more workers paid 12% less in premiums than those with less than 25 workers for single coverage.
Large employers generally have the scale to offer robust self-funded benefits at a lower price point than smaller employers.
With this scale, large employers have the ability to directly contract with providers, implement value-based insurance design, negotiate full pass-through PBM benefits, implement care navigation, and much more.
A transformational, bipartisan Connecticut bill was raised in each of the past two legislative sessions that allowed qualifying chambers of commerce and trade associations to aggregate their respective memberships and offer robustly self-funded health benefit arrangements.
However, the legislature failed to act on the measure in both years, with CBIA president and CEO Chris DiPentima noting the negative influence of a small number of special interest groups.
“Healthcare costs are a major challenge for small businesses and we had a broadly negotiated solution that is a game changer for small employers,” DiPentima said.
“Despite the negotiated agreement among all stakeholders, this bill was unfortunately compromised by a deliberate campaign of misinformation and falsehoods.”
For more information, contact CBIA’s Wyatt Bosworth (860.244.1155) | @WyattBosworthCT.
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