Health insurance choices for small business

Provided, that is, Zimmerman paid double the previous premium: 100.4 percent more, to be exact.

That wasn't going to happen, vice president Joan Stoner said.

'Obviously, we needed to look at other plans,' she said.

Zimmerman has 28 employees, within the Affordable Care Act's 'small group' category, defined as employers with up to 50 workers.

The Ephrata-based company builds cement mixers. Its products stem from ideas first developed and patented in the 1960s by Harold Zimmerman, Stoner's father.

About half of Zimmerman's staff is over 45, and despite the firm's quit-smoking programs, some still light up, Stoner said.

The company knew those factors would affect its rates, but it still didn't expect such a big jump, she said.

In central Pennsylvania, small groups have seen premium increases of 20 percent to 100 percent, according to Bill Tell, president of Lancaster-based benefits consulting firm NTI Group.

Many previously allocated more costs to their employees, via higher deductibles or premium shares, and don't have much leeway for further such shifts.

Nor can companies choose to offer bare-bones plans with minimal coverage. The ACA mandates 10 'essential health benefits' that plans must provide.

Since the federal government is allowing it, some firms are renewing the plans they had before the ACA took full effect.

Renewed plans need not fully comply with the ACA coverage requirements.

In theory, that could keep their premiums down, but so far, that has only happened for some firms, Tell said. It's too early to say definitively how many firms may benefit, he said.

Other companies have stopped offering insurance and shifted their employees to the ACA's individual marketplaces. (See last Sunday's story: 'Small business and affordable care.')

Zimmerman Industries chose yet another option: self-funding.

The basic idea couldn't be simpler: A company or group of companies just pays employees' health costs out of pocket. A third-party administrator handles the details.

Normally, self-insuring companies also buy stop-loss insurance to guard against truly catastrophic costs.

Before choosing to self-insure, Zimmerman looked at ending its plan and shifting employees to the exchanges.

However, the premiums weren't much cheaper, and employees lost the tax advantages of employer-provided insurance, Stoner said.

'We just didn't see the savings in doing it that way,' she said.

Zimmerman doesn't know exactly how much it will pay under self-funding. There's a minimum and maximum, but the exact amount will depend on its employees' medical costs.

The min-max spread amounts to about 25 percent of the overall policy cost, Stoner said.

At the top end, the company could pay up to 35 percent to 40 percent more compared with last year, Stoner said.

That's not great, but it's a worst-case scenario, and Zimmerman still comes out ahead compared with a guaranteed 100-percent hike.

'It definitely made sense for us,' she said.

For companies with 50 or fewer employees, self-funding is truly 'a new world,' said Jim Schmucker, executive director of the Lancaster County Business Group on Health.

Historically, self-funding was mostly an option for large companies. Nationwide, 80 percent of companies with more than 1,000 employees offered self-insured plans in 2010, compared with just 8 percent of firms with 2 to 49 employees, according to the Rand Corp.

Until recently, traditional insurance was cheaper for small companies than self-funding, said Joe Lapi, president of Denver-based brokerage Harding-Yost Insurance.

Now, as the cost of small-group insurance surges, 'we are seeing a migration ... toward self-funding,' said Matthew Kirk, president of the benefits administration and consulting company Benecon.

Last year, Pittsburgh-based insurer Highmark began offering a self-funding program with stop-loss insurance to companies with at least 25 employees.

'Highmark sees this as an alternative, creative solution to control costs,' though so far only a few companies have signed up, spokesman Leilyn Perri said.

Capital Blue Cross has a self-funded insurance offering for firms with as few as 20 employees, spokesman Joe Butera said.

Benecon, based in Lititz, has been a leader for years in self-funding, creating health benefit purchasing consortiums in the private sector and cooperatives in the public sector.

There are more than 60 organizations enrolled in Veris Benefits Consortium, the program Zimmerman joined, and more than 7,000 employees insured, said Brintan Madonna, Benecon's director of producer relations.

There's no cost-sharing between companies in Veris - each pay its own way - but Benecon can market the participants as a block to stop-loss insurers and get better rates, Madonna said.

Veris began in 1991, but only recently has Benecon been able to open it to companies below 50 employees, he said.

That's because Aetna is now willing to provide stop-loss insurance to that segment, he said.

Lapi said he likes the transparency of self-funding: Companies see their claims and expenses so 'you know where the money is going,' he said.

As more small companies explore self-funding, 'our activity in that space will increase,' Kirk predicted.

One reason that might happen: Plans offered by self-insured companies are exempt from the ACA's 'essential health benefits' mandate.

In theory, companies could take advantage of that to lower their costs, Schmucker said.

Such considerations did not drive Zimmerman's decision, Stoner said. The company simply wanted to maintain its employees' existing benefits package while containing costs, she said.

The main potential downside to self-funding is risk. A self-funding company isn't handing over responsibility for its medical costs to a large, well-funded insurer; it's undertaking to pay them itself.

Its risks are limited by its stop-loss policy. But stop-loss is 'a very unregulated and volatile market,' Schmucker said.

If a company incurs large claims, its stop-loss insurer can cancel, he said.

'Now you're left there by yourself,' he said.

That's not an issue for Benecon clients, Madonna said. All its stop-loss contracts are guaranteed renewable - another benefit of shopping the program participants as a block.

Premium hikes are moderate, he said. In 2013, typical renewal increases averaged 9 percent and the biggest increase was 17.1 percent, he said.

Zimmerman's self-funded program took effect May 1. To employees, little has changed, Stoner said: From their point of view, it looks like a regular policy.

'We do still need to provide insurance' to stay competitive, she said, but any further increase in premiums or out-of-pocket expenses would have been a hardship for employees.

So self-funding it was.

'I really didn't have anything to lose,' she said.