How Community Rating Could be Affecting Your Business
If you’re a small to mid-sized business (SMB), you’ve likely heard the term “community rating” as it relates to health insurance. It’s also likely that you’ve been unfairly penalized by this system. For those unfamiliar, community rating refers to the way health insurance companies calculate health insurance rates for businesses with up to 50 employees. (In several states, this includes businesses with up to 100 employees).
With a community rated plan, the rate a business pays for health insurance is based on the collective, average health of businesses within their given territory, rather than the actual health of their employees. With a community rated plan, all businesses within a community pay the same price for health insurance regardless of their employees’ health status.
While some businesses may favor this approach, other businesses with a healthy employee population are paying more than they should. Community rated plans are also not cost effective for SMBs with a large population of young employees. Insurance companies inflate the rates for young people in order to balance the risk of others within the pool, meaning that younger-than-average businesses often pay more for health insurance than they actually cost to insure.
A Better Option for Your Healthy Business
In the past, SMBs have had limited options when it comes to employee health benefits. Traditional self-funding is usually too costly, sending employees to the individual market can be difficult to administer, and most SMBs aren’t eligible to take advantage of the non-community rated, fully funded group plans that large businesses typically offer. What many SMBs don’t know is that now there’s another option—an option that can be especially cost effective for businesses with a healthy or young employee population.
Level-funding is an approach to health insurance that combines the cost savings and customization of self-funding, with the financial security and predictability of fully funded plans. Level-funded health insurance plans are becoming popular among SMBs for several reasons:
- Rates are based on the health and ages of a business’s employee population. Businesses with healthy and/or young employees will experience lower rates than they would with a community rated plan.
- Employers pay a predetermined fee each month without any additional liability allowing them to control costs.
- There is far more flexibility with plan design. With Gravie, employees get access to ten plan options and they get to choose the one that fits their unique health needs, lifestyle, and budget.
- At the end of the year, if the amount an employer paid in premiums exceeded the amount they paid in claims, they may be eligible for a claims refund.
- Employers get access to utilization reporting which can influence plan design, such as claims information, unit cost of healthcare statistics, utilization frequency, and prescription data.
- This approach offers a way for SMBs to provide better, more affordable health insurance the way large businesses are able to, leveling the playing field when it comes to recruiting and retaining talent.