by John Harman, CEO and Founder, Integra Insurance Solutions
When deciding whether to switch from a client-sponsored plan (CSP) to a master medical plan, there are many factors a PEO should consider. First, why do it? Most switch for administrative ease—one renewal instead of many. A second reason is to streamline plan design offerings versus countless options in the open market. Large group pricing is typically more favorable than Affordable Care Act (ACA) coverage, with average savings of 6 to 8 percent and the ability to evaluate or review. These are all good reasons to make the move, but unfortunately getting a master medical plan isn’t always easy. This leaves many PEOs to ask, “How do we best position ourselves for success?”
Sins of the Past
In “The Seven Habits of Highly Effective People,” Stephen Covey writes, “Seek first to understand and then to be understood.” To understand why carriers are reluctant to write master plans for PEOs, let’s look at industry history. In the early to mid-1990s, PEO health plans were more prevalent and had little structure. Many PEOs had little or no risk management and offered only a single set of composite rates. For these PEOs, risk grew and rates increased over time. Eventually, many PEOs were only attracting or retaining high-risk groups. Consequently, plans went into a death spiral of increasing rates and higher risk groups, many times leaving the carrier with large claims. In response, carriers shied away from writing new risk and began carefully managing the risk they already had on their books. By the early 2000s, many PEOs moved to a tiered composite set of rates and began using models that improved performance. Still, carriers were wary of the past and cautious with new business opportunities. To address this, many carriers established dedicated PEO teams and criteria to measure risk for those seeking master medical plans. So, what are those criteria and how do you make your PEO stand out?
When the ACA passed in 2010, many speculated how it would affect group medical insurance for the small groups PEOs serve. [Please click "Read More" to continue reading]
Once most provisions were in force by 2014, it seemed PEOs with master or consolidated health plans would be major beneficiaries of the ACA. Small employers sought alternatives to the ACA community-rated pools and a PEO master was just such an alternative. As a result, most carriers that offered PEO master health plans experienced significant growth over the last four years, with some even doubling their blocks of business. With this type of growth, one would expect carriers to eagerly write more PEO master health plans. Despite the rapid growth under the ACA, carriers are still reluctant to offer new medical master plans to PEOs. Oftentimes, carriers are not interested in offering master plans to PEOs that don’t already have one. It’s a catch-22 that frustrates many PEOs with client-sponsored plans that seek to consolidate and gain efficiencies. While there is no silver bullet to getting a carrier to offer a master health plan, there are things you can do to better position your PEO for the conversation.
All the Right Stuff
In general, most PEOs take the stance that their group health plans are not multiple-employer welfare arrangements (MEWAs). This limits the carriers that can be considered. Several national and regional carriers offer such plans, but most prefer to take over existing plans and are not interested in writing new start-up plans. However, there are a few exceptions. If you currently offer client-sponsored plans (each worksite employer has its own plan and renewal) but are seeking to move to a master plan (policy is issued to the PEO with a limited set of plan designs), how do you put yourself in the best possible position with the carrier to consider you for a master plan? It’s important to know what carriers are looking for in a PEO partner and the information they will request.
First, carriers want to know the PEO is financially stable. Under fully insured arrangements, the carrier is responsible for claims that exceed the premiums collected. Carriers want a PEO partner that can effectively manage the potential block of business, balancing premiums and claims. Financial stability is a key indicator of the PEO’s ability to manage risk. Without a strong balance sheet, a carrier is unlikely to enter into a long-term partnership with a PEO. Your PEO should be prepared to share two years of audited financials to demonstrate financial stability to carriers.
Second, carriers want information about the groups and markets your PEO serves. What is your unique value proposition? What are the characteristics of the groups that will be offered medical and how many currently provide group medical benefits? What effective date are you seeking? A detailed census helps define the opportunity for the carrier. The census should include a breakdown of current client-sponsored plans by carrier, plan design, and unique client number.
Another carrier consideration is your PEO’s delivery model. Do you have a captive sales force or do you use brokers, and if so, what type (PEO, property and casualty, employee benefits)? Is it managed by one broker and, if so, is that broker in an agency controlled by the PEO? It’s helpful if the PEO controls the block of business through an affiliate agency because working with several agents to move the business to a master is a more complex process and could mean less adoption in the master plan.
Fourth, carriers value sound risk management practices from PEOs. How will you evaluate and manage the plan? Carriers want to ensure sound practices are in place to minimize your pool’s adverse risk. Third parties approved by carriers are willing to write a PEO that can provide risk management guidance. Working with these organizations can improve your standing with a potential carrier.
Finally, carriers are seeking firmly established and committed PEO partners. What’s your PEO’s level of commitment to a master plan? Are you willing to commit to it and make it your primary offering? Your PEO must decide whether monetary tradeoffs for greater efficiency is a strategy to which you can commit prior to moving to a master plan. What is your PEO’s value proposition? What makes you different from other PEOs that have master plans or those seeking one? Be prepared to demonstrate your PEO’s value and what makes it stand out. What do you do differently that sets you apart? Are you in a geographic area where a carrier wants to expand? Is your PEO selling in a vertical that offers good risk or new opportunities for the carrier? Demonstrating your PEO’s advantages will make you stand out to carriers. While it’s not easy for PEOs to get master medical plans, opportunities exist for those that can attract carrier attention by articulating a sound strategy, providing sound financials, and demonstrating a commitment to the master plan delivery model.