🔒ICHRAs try to fill void left by carriers leaving CT’s small business health insurance market

Health insurance options for small businesses in Connecticut continue to shrink — so much, in fact, that many observers believe the market is in a “death spiral.”

The latest blow was Farmington-based ConnectiCare’s decision to discontinue all of its self- and level-funded business in the state beginning in July.

That announcement came nearly three years after ConnectiCare, now owned by California-based Molina Healthcare, exited the state’s small group fully insured health insurance market, which has experienced a significant decline.

In addition to ConnectiCare, Aetna, Cigna/Oscar Health and nonprofit Harvard Pilgrim HealthCare have all exited the state’s small group market since 2022.

That’s left just two carriers — Anthem and UnitedHealthcare — providing fully insured plans to small employers, which has contributed to higher costs for companies with 50 or fewer workers, experts say.

Meantime, some new insurance options have become available to try to fill the void.

Last September, for example, the Connecticut Business & Industry Association (CBIA) launched a new self-funded health insurance program for small and midsize companies that allows enrollees to tap into a national network of providers.

Self-funded insurance is a type of plan in which an employer takes on most or all of the cost of benefit claims.

And starting in July, Access Health CT, the state’s Affordable Care Act health insurance exchange, will debut a new platform offering ICHRAs, or Individual Coverage Health Reimbursement Arrangements.

Created by the Trump administration in 2019, ICHRAs offer small businesses another way to provide health insurance benefits to their employees. Whether they are a good alternative for employers and workers, though, depends on whom you ask.

Fewer carriers, higher premiums

According to an analysis released in April by health benefits tech company Take Command, the share of Connecticut small businesses offering health insurance to their employees has fallen nearly 25% since 2009, the largest decline in the nation.

The analysis cited “a combination of structural and policy factors” for the decline.

“Northeastern states generally had higher small business coverage rates to begin with, leaving more room for declines,” the study states. “Employers in the region also face some of the nation’s highest healthcare and business costs, which can make offering coverage more challenging to sustain.”

Health insurance costs can increase for a variety of reasons, including lack of competition.

David Richman, who owns and operates Richman Business Brokers & Insurance LLC in Simsbury, said the negative effect of the small group market’s decline is exacerbated by the fact that, in Connecticut, the majority of employers have 50 or fewer workers, he said.

“Fewer carriers means higher premiums,” Richman said.

Another issue is that many employers shifted to self-funded plans, but couldn’t handle the financial ups and downs associated with them. That led to the development of so-called level-funded plans, for which businesses pay a fixed monthly fee to a health carrier.

Employers with staff filing a lot of claims, however, found it increasingly difficult to get their plans underwritten when compared to employers with healthier employees.

“It’s just very tough on these small employers when you see what they are paying for their health insurance costs,” Richman said. “So, in our industry, it’s called ‘the death spiral.’ And we’re watching it right in front of our eyes.”

‘A group feel’

John Carbone, director of broker support, small business and product development for Access Health CT, hopes his organization can help address the small employer coverage gap in the state.

He says the exchange began investigating health insurance alternatives for small businesses about three years ago because of the declining options.

What they found was ICHRAs, which allow employers to provide employees with pretax dollars to help cover their health insurance premiums and qualified medical expenses.

Instead of choosing from the limited options typically offered by employers through a small group plan, employees can select health insurance coverage on the individual market that fits their specific needs.

Access Health has developed its own online platform to help small business owners decide if an ICHRA is the right fit for their employees.

“As of 7/1, we are going to be rolling out this platform, which we call Access Health BusinessPlus,” Carbone said.

According to Carbone, small employers typically offer their workers one or two health insurance plans. By offering ICHRA through the exchange, employers can provide a lump sum to each employee, who then can choose from among the 22 plans available on the exchange.

“Our business platform is going to help that employer evaluate,” their health insurance options, he said. “Should they be contributing to an affordable coverage, or should they allow the member to go to the individual market? Our platform is built to give them those options and that creativity.”

Onus on the employee

While ICHRAs potentially can save small businesses money, some observers say they aren’t a great solution.

Richman said his experience has been that ICHRAs are not saving much money for employers or employees in the state.

“In Connecticut, there’s not a huge difference between the individual premiums and the group premiums,” he said. “In other states, there’s a larger spread of savings for the individual versus the group. In Connecticut, there’s not, and we don’t know why.”

Grace Brangwynne, a lobbyist with the CBIA, said while ICHRAs provide a viable option for small businesses, especially those with 10 or fewer employees, they place more responsibility on the employee.

“Employees have to shop around and compare plans and enroll,” Brangwynne said. “My question is, is the onus to enroll in these health plans going to be on the employer to help their employees navigate this space, or is it going to be up to the employees themselves?”

CBIA President and CEO Chris DiPentima said ICHRAs also remove the employer from the relationship between the employee and the insurer, which could increase insurance costs.

“Right now, employers are working with employees to try to bend the cost curve,” he said. “So, how do you bring down the cost of care? … Now it’s just the employee out there on their own. So, are they going to think about what’s the lowest-cost MRI? What’s the best choice for getting a certain procedure at the best value? No, they’re just going to pay the deductible or their co-pay.”

In addition, DiPentima said, the exchange is heavily subsidized, “which means we, as taxpayers, are paying for it.”

Observers also note there are tax implications with ICHRAs for employees or employers.

Employers, for example, can deduct ICHRA contributions as a business expense, reducing their taxable income.

‘Unsustainable’ increases

Whether anything can be done to lure carriers back to Connecticut’s small group market remains to be seen.

DiPentima is not optimistic.

“Until you get to the cost of care, we’re just going to continue to have increases — whether you’re on an ICHRA, fully funded, self-insured — you’re going to have increases year over year that are unsustainable,” he said.

He and Brangwynne both pointed to legislation (Senate Bill 11) being debated during the current legislative session that would only make employer health insurance more expensive.

Essentially the bill, among other things, would require employers offering self-funded health plans to cover more of the costs of benefit claims (up to $250,000 instead of the current $20,000 level) before stop-loss insurance kicks in.

Branwynne noted that, “half of the state right now uses or provides self-funded health plans to their employees.”

“Policy drives behavior,” DiPentima added, “and SB 11 is going to drive a behavior that will continue this ‘death spiral,’ where fewer and fewer businesses will offer health insurance.”

Sen. Matthew Lesser (D-Bridgeport), co-chair of the legislature’s Human Services Committee, which raised SB 11, spoke in defense of the bill, saying one reason carriers have left the small group insurance market is that so many businesses now self-insure.

“When you self-insure, you’re not in the market,” he said. “So, that is part of the death spiral that we’ve experienced in small group coverage.”

Lesser believes the legislature must address the issue.

“We have to find a series of ‘carrots’ and other policy solutions to keep them from exiting the small group market, because the fewer people that are in it, the more expensive it gets,” he said. “So, you’ve got to get folks back in.”

Some states, like Massachusetts, Lesser added, “have merged the individual and small group market to try to create some additional mass. We could do that.”