The Issue No Contractor wants to Discuss

It’s our experience that many contractors have a field workforce that obtains health insurance benefits through their union, often leaving a small group of owners, estimators, managers, and office staff to purchase their own small-group insurance program.  Also, many general contractors who subcontract a majority of their work often will have fewer than 50 employees, which the feeling has been makes them immune from the recordkeeping requirements for those employers who have 50+ employees on the health plan.

In a highly competitive economic environment, we’re finding there are many contractors may not be prepared for the financial and recordkeeping effects they may feel as a result of the passage of the Affordable Care Act (ACA).

Issue

On January 1 2014, “Community Rating” took effect on health insurance renewals for employers with 50 or fewer employees.  Instead of rating a group based on medical history, sex, etc., groups are now simply rated based on age and geography.  For 80% of small groups (50 or fewer employees), we saw health insurance renewal increases starting on January 1, 2014 of approximately 25% when Community Rated.  The effects of individual health insurance plans are even greater, where these plans are seeing increases of 50-100%.

While the financial burden was bad enough, contractors are increasingly finding themselves subject to the reporting requirements of those large-group employers.  While many contractors feel they’re immune from the reporting requirements associated with the Affordable Care Act by the virtue they have fewer than 50 employees on the plan (with the remainder insured through the union), in actuality all employees (Union & Non-Union) must be combined and if more than 50 full-time-equivalents, comply with Employer Shared Responsibility rules.

Short-Term Strategy

In an effort to avoid the expected pricing increases on renewal, many companies in 2014 implemented an “Early Renewal Strategy” on health insurance.  Instead of waiting to be community rated, an early renewal was done to lock in one more policy renewal based on medical underwriting.  That strategy has passed.

This early renewal strategy was fully-supported by insurance companies who are offering these two options (early and 2014 renewal) side-by-side in their renewal quotes. 

Long-Term Strategy

While the early-renewal strategy delays the effects of community rating, it did provide time to develop a longer-term strategy. 

As Health Insurance Exchanges become available, business owners will actually have new strategies they can employ to help better manage future cost increases of health care, while in many cases reducing the administrative burden on their staff.

Employers have increasingly been able to participate in newer structures for their health insurance that provide some financial incentive for superior performance.  This means that more than ever, smaller groups are looking at population health management as a means to mitigate future health insurance increases. 

It is important to start this process now though, as many construction companies have not spent much time planning for how they can manage health care costs in the long run.

Conclusion

There remains real opportunity for many businesses to delay the effects of increased pricing on health insurance plans if they start now.  But this only buys some time to develop a more appropriate long-term strategy to controlling the cost of health care.  In a very competitive construction environment where there is lots of competition for work and margins are under pressure, this could be a very significant opportunity to manage overhead.