Sick people and company benefits?
November 1, 2005 7:55 PM   Subscribe

In a small company health care plan, are the premiums and yearly renewal of the plan affected by a person covered by the plan who has a lot of expensive claims?

I am asking this for a friend...he is about to take a job at a small company (12 people). He has some pretty major health problems...not that it infringes on his work but is a lot of claims per month on the insurance. He's worried he is going to send the premiums through the roof and/or cause it to be cancelled for everyone. Are these things affected by that or once a company is on a plan, it can't be cancelled for one person and the premiums go up each year anyway? I'd appreciate any input from HR/benefits people, esp. Thanks.
posted by aacheson to Work & Money (8 answers total)
It's my understanding that having a huge claim definitely can make the company premium go up. In a small company, the rates are negotiated on a yearly basis. The insurance company looks at the prior year's claims to figure out how much to charge for the coming year.
posted by reverendX at 8:05 PM on November 1, 2005

Best answer: Almost certainly not. Virtually all small employers (less than 50 employees) will have a fully-insured contract with the health insurer and the rates will be based exclusively on the demographics of the population: the age, gender, and geographic distribution of the plan members, plus the physical location and industry of the employer. The claims experience of the group is in no way credible and is not a factor at all in determining renewal premiums. In fact, in most states small group insured rates are filed with the state division of insurance and insurance companies have no leeway whatsoever in what the renewal or new group premium will be. As an insurance broker who has handled hundreds of small group renewals for clients in many states, I can tell you that the claims experience of the employer has never been a financial factor in the rating of a group.

There is a small (practically negligable) possibility that the group is self-insured, and then a single large claim will affect the costs for the group. I've never seen a 12 person company be self-insured, but it's technically possible. I have seen self-insured products marketed to that size employer, but I can't imagine anyone dumb enough to be interested.

Your friend's medical condition will not send the group's rates through the roof (unless, in addition to his medical condition, he was born in 1902 -- that is, his addition to the plan will affect the rate at renewal, but only according to how his demographic info affects the group).

As a side note, your friend *should* make sure that his doctors are in the company's insurer's network and make sure that the plan provides adequate coverage for the services he knows he's going to be using.
posted by MarkAnd at 8:38 PM on November 1, 2005

Response by poster: Thank you, MarkAnd. I will pass that along. He knows that the company is NOT self insured. However, they just started providing insurance 1 month ago for employees. Is there a revolking time frame where the insurance company can say "nevermind?"
posted by aacheson at 8:50 PM on November 1, 2005

However, they just started providing insurance 1 month ago for employees. Is there a revolking time frame where the insurance company can say "nevermind?"

I wouldn't worry about this. I'm not a lawyer, but if an insurer ever did this to one of my groups based on the medical condition of one of the members, I would tell the employer to contact an attorney immediately. My suspicion is that there are a whole lot of insurance statutes and a big pile of case law preventing insurers from doing anything like this.
posted by MarkAnd at 8:59 PM on November 1, 2005

MarkAnd: Of course the medical histories of group members matter. If not, why do insurance carriers ask for medical information to give a group a final rate? Past claims experience isn't a factor, but you bet your bottom that insurance carriers will rate a group higher due to the current medical conditions of group members!

Some states regulate rates by capping the maximum amount a carrier can increase rates per year: the max rate hike in our state is 67.7% above base rates. The base rate is determined by demographics of the group and future possible claims based upon the current medical conditions of all insured in the group, including their covered family members.

Example: a 12 person group, with one covered employee or family member who has hepatitis C, would max rate the group, thus putting their rates at 167.7% above filed rates. That means everyone in the group has to pay for the increase in premiums.

We've worked with hundreds of small groups over many years to provide group benefits, and to say a group member with major health problems doesn't increase the premiums for that group, especially a small group like aacheson's example, is flat irresponsible.

aacheson: the answer to your final question about the 'nevermind' period is no. Once your friend is insured, under HIPAA rules he cannot be excluded from the group and the insurance company cannot drop the group for reasons other than nonpayment of premium. If he lives in an employment-at-will state, however, he can be fired for almost any other reason, and those reasons can be... creative.
posted by lambchop1 at 9:18 PM on November 1, 2005

I should have been more specific and specified that all states are different, which is why lambchop called me irresponsible. In every state I've worked in (MA, NH, ME, VT, CT, NY, NY, CA), health insurers do not ask health questions of employees/do not use claims experience to rate the group at inception of plan or renewal. I assumed the person was in CA, like aacheson.

What you'll find is that answers on this stuff tend to be regional. If you have specific info on the insurer and the plan, I can be more specific.
posted by MarkAnd at 10:34 PM on November 1, 2005

If not, why do insurance carriers ask for medical information to give a group a final rate?

And in case my answer wasn't clear enough. In every state I've ever worked, they DON'T.
posted by MarkAnd at 10:36 PM on November 1, 2005

Well, no surprise here, but my initial answer wasn't nuanced enough. I checked CA small group insurance laws this morning and it appears that there is some very slight leeway where insurers can increase rates based on adverse claims experience. It's only a rate band of 10% over their filed "standard" rates, so it can't have much of an impact (there's no fear of 67% increase or whatever in CA). More information here (PDF).
posted by MarkAnd at 6:03 AM on November 2, 2005

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