Today, many small business clients are canceling group health insurance coverage. And it's not because they don't want to offer employee health benefits. Small businesses are canceling group health coverage because of cost, participation, and administrative hassle - or simply because their employees can get cheaper and better coverage on the individual health insurance exchanges.
This shift in the small group market is happening now, and will only accelerate in years to come.
As a health insurance professional, this is tough to swallow.
When a business cancels group health coverage, employees not only lose their health insurance, but they also lose the tax advantages associated with employer-based premium contributions. And you (their broker or agent) are losing their business. At least this was the case in the past.
As more and more small businesses cancel group health coverage, there is a way to still offer a formal health benefit - and a way for you to keep your client's business. The solution is a "pure" Defined Contribution Health Plan.
Here are two steps to help a company cancel group health coverage in 2014 - while retaining their business.
Step 1: Cancel Group Health Coverage
When a company cancels its health insurance plan, it needs to call a customer representative with the insurance company. By calling, an insurance representative can confirm the steps the company must take to successfully cancel the group health insurance policy. For instance, some insurance companies may require that a fax or letter be sent confirming the cancellation. Correspondence via email only may result in the company being obligated to pay for next month’s premium.
Most group health insurance plans are "unilateral contracts". This means that companies can cancel a group health insurance plan at any point during the year. While most carriers “request” 30 days notice, this is not always required.
Step 2: Establish a Defined Contribution Health Plan
Defined contribution health plans are an affordable alternative to group health coverage. Rather than paying the costs to provide a specific group health plan benefit (a "defined benefit"), your client can fix their costs on a monthly basis by establishing a defined contribution health plan.
"Pure" Defined Contribution Health Plan
The general concept of a "pure" defined contribution health plan is that a company gives each employee a fixed dollar amount (a "defined contribution") that the employees choose how to spend (on any qualified health insurance plan).
With a pure defined contribution health plan, employees purchase health insurance and then submit documentation for reimbursement in accordance with the rules of the specific plan document. Employees can work with a broker to select and enroll in a health insurance plan, and can access federal premium tax subsidies if eligible.
Defined Contribution with a Private Health Insurance Exchange
Another version of defined contribution is to offer an allowance alongside a private health insurance exchange. With a private exchange, health plans and carriers must meet certain criteria defined by the exchange management. Private exchanges often include online eligibility verification, and mechanisms for allowing employers who connect their employees with exchanges to offer defined contributions.
Defined Contribution as a Client Retention and Lead Generation ToolFor health insurance professionals, defined contribution is a client retention and policy sales lead generation tool.
By offering defined contribution you have a solution for small businesses canceling group health coverage. This concept is taking off. If you don't offer this solution, they will likely find another broker or agent who does. It is also an attractive solution for the 2.3 million U.S. small businesses who do not currently offer health insurance.
Defined contribution becomes a lead generation tool for policy sales. Current and new employees are directed to you (and/or your website) for the selection and purchase of individual and voluntary health insurance.
What questions do you have about how to help a client cancel group health coverage, and retain their business with defined contribution? Leave a comment.