Small Employer Health Benefit Plan Rate Guide
(March 2011)
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Shopping for the right health care plan at the right price can be time consuming for busy employers and managers. The Texas Department of Insurance (TDI) has developed this region-specific small employer health benefit plan rate guide to help small employers shop for coverage.
State and federal law makes a distinction between small employers and large employers for insurance purposes. A business is considered to be a small employer if it has two to 50 full-time employees. A full-time employee is someone who usually works at least 30 hours per week and is not a seasonal or contract worker.
Small employers have legal protections, including a 15 percent annual cap on rate increases related to health factors and a guarantee that carriers cannot arbitrarily discontinue coverage. Small employers may pool their purchasing clout to negotiate lower insurance rates.
For employees of small businesses, the law provides several ways to maintain benefits after leaving a job and limits the waiting period before a health plan will cover pre-existing conditions.
For more detailed information about small employer health plans, read our Small Employer Health Insurance publication.
Federal Health Reform
The Patient Protection and Affordable Care Act – the federal health care reform law – requires insurance carriers to provide significant additional coverages and strengthens consumer protections beginning with health insurance policies issued or renewed after September 23, 2010. For more information and regular updates, visit TDI’s Federal Health Care Reform Resource Page at www.tdi.state.tx.us/consumer/cpmhealthcare.html.
Businesses with 25 or fewer full-time employees that pay for at least 50 percent of premiums and pay average annual wages below $50,000 may be eligible for a tax credit of up to 35 percent (25 percent for nonprofits) of the premiums the business pays. The credits increase in 2014.
Types of Health Benefit Plans
Health plans are classified as either state-mandated health benefit plans or consumer choice health benefit plans.
State-mandated health benefit plans provide certain minimum features and coverages required by law.
Consumer choice health benefit plans are developed by individual carriers and include only a few state-required benefits. Some of the state-mandated coverages that are also required for consumer choice health benefit plans are
- phenylketonuria treatment, if prescription drugs are covered
- complications of pregnancy
- minimum hospital stay after childbirth (federally mandated)
- reconstructive surgery following a mastectomy (federally mandated).
Although consumer choice plans are sometimes called "standard plans," the term should not be interpreted to mean that the coverages provided are standardized. Each carrier´s consumer choice plan may be different, and a carrier may offer several different consumer choice plans.
Consumer choice plans are also different depending on whether they are indemnity, preferred provider organization (PPO), or health maintenance organization (HMO) plans. For example, HMO consumer choice plans must pay for 20 outpatient mental health visits per enrollee per year, but that´s not a requirement in indemnity plans. In addition, unlike insurance companies, HMO consumer choice plans must include basic health care services, such as inpatient, outpatient, and preventative services. Carriers may offer optional benefits that vary widely from plan to plan.
Indemnity plans give employees the freedom of choice to use any provider. Employees pay their providers for services received and then submit a claim form to the carrier. The plan will require that the employee satisfy the deductible before it will reimburse at the stated level.
PPO plans have two levels of benefits. The plan will pay more toward the cost of care from network providers, and less for out-of-network providers. Therefore, a plan member´s out-of-pocket costs will be less for in-network care.
Carriers may offer both PPO and indemnity plans but are not required to offer both.
HMOs generally require employees to receive services from providers in the HMO´s network. Although HMOs must pay for out-of-network services that are not available from network providers, they might not pay for treatment employees obtain from out-of-network providers without prior authorization.
This rate guide contains rate information on the following types of plans:
- a carrier´s most popular indemnity state-mandated health benefit plan
- a carrier´s most popular indemnity consumer choice health benefit plan
- a carrier´s most popular PPO state-mandated health benefit plan
- a carrier´s most popular PPO consumer choice health benefit plan
- an HMO´s most popular state-mandated health benefit plan
- an HMO´s most popular consumer choice health benefit plan
Understanding Rates
Texas law requires fully insured small employer health benefit plans to comply with certain rating requirements. Although TDI does not set or approve health coverage rates, the law establishes certain limits and guidelines that carriers must use when calculating rates for small employers. These requirements do not apply to self-insured or self-funded health plans.
The rating process for a small-employer group is as a two-step process. First, a carrier determines a premium rate based on case characteristics (described below) and plan design (the amount selected for copays, deductibles, out of pocket maximums, etc.), but without regard to health status-related factors. This produces the baseline price of the policy.
Second, the carrier may adjust the rate to reflect risk characteristics of the group, including health-related factors, the duration of coverage, and any other characteristics related to the health status or experience of the group or any of its members. This risk load adjustment must apply uniformly to all members of the group and may not exceed 67 percent of the baseline price of the policy.
When an employer is first issued a policy, the risk load may be as high as 67 percent of the baseline rate of the policy. Insurance carriers can´t increase the risk load more than 15 percent per 12-month period (pro-rata for periods less than 12 months). This 15 percent maximum applies to the risk load portion only. Other factors, such as changes in plan design and changes in case characteristics, can also lead to rate increases.
Case Characteristics
Case characteristics are objective criteria that help predict the types and amounts of claims a group might file. The set of criteria a carrier chooses to use must be the same for all its small employer groups. For example, the carrier cannot use industry classification as a basis to set rates for one small employer but not use it for another.
Below is a brief discussion of each case characteristic:
- Age of employees. Older employees can reasonably be expected to have more expensive and more frequent health-related claims. Generally, the older your employees, the more your plan will cost.
- Gender. At younger ages, males typically incur lower medical costs than females, particularly during childbearing years. The variance diminishes with age until medical costs for males begin to exceed those for females as they near ages 50 and 60. If you have a younger, proportionately more female workforce, or one that is older and proportionately more male, expect to pay higher premiums.
- Number of plan participants. Carriers often base rates on group size for two reasons. As size increases, administrative costs per insured decrease. Also, smaller groups tend to buy health coverage based on the targeted needs of participants, increasing the likelihood of claims for the benefits provided. As group size increases, this custom-tailoring becomes more difficult and premiums tend to decrease. However, the highest group size factor may not exceed the lowest group size factor by more than 20 percent.
- Industry. Some industries have higher medical claims costs than others because of working conditions and the prevalence of accidents. High employee turnover in some industries can also result in higher administrative costs for the carrier. However, the highest industry factor a carrier charges may not exceed the lowest factor by more than 15 percent.
- Geographic area. Health care costs vary by region due to differences in cost of living and the number of providers in the area. Most plans use either the county or ZIP code of the employer’s business address to base rates.
A carrier may use additional criteria – other than the five the law allows – only with the prior approval of the commissioner of insurance. Currently, no carrier has requested approval to use additional case characteristics and there are no additional approved rate-setting criteria for small employer carriers.
Rate Increases
Insurance companies can change the rates they charge at renewal because of the following reasons:
- a change in the rate corresponding to a particular plan of benefits
- a change in the case characteristics of the small employer
- any adjustment due to the claims experience, health status, or duration of coverage of the employees or dependents of the small employer. The adjustment must not exceed 15 percent annually and must be adjusted pro rata for rating periods of less than one year.
Purchasing Coverage
Texas law requires small employer carriers to provide premium quotes (directly or through an authorized agent) within 10 working days of receiving both a request for a quote and the information necessary to calculate the premium. If a carrier needs more information to develop the quote, it must request it within five working days after receiving the request. A small employer carrier may not decline to provide a quote to a small employer directly or through an authorized agent. There are no exceptions to this requirement.
Who Pays and How Much?
The law doesn´t require employers to contribute toward an employee´s health benefit plan premiums. However, many carriers require employers to pay at least 50 percent of the plan´s premiums. Employers may choose to pay a higher percentage than the carrier requires.
The carrier must offer dependent coverage to all eligible employees. Generally, employers are not required to contribute toward the cost of dependent coverage. If the employer doesn´t contribute, employees may have to pay all or some of these costs themselves.
How to Use the Rate Guide
Carriers were asked to provide monthly premium rates for several hypothetical small employers. Each employer has four employees, all of the same age and gender. Rates are shown for male and female employees aged 25, 40, and 55.
In each of the rate tables, rates are shown for employees who elect employee-only coverage and for employees who elect to also cover their families. Rates are shown per employee per month.
Carriers provided sample rates for two PPO plans, two indemnity plans, and two HMO plans. The plans labeled "state-mandated plans" have all the features and benefits required by law. Plans labeled "consumer choice" are developed independently by carriers and do not include all the state-mandated benefits.
Since most carriers base rates on the geographic location of an employer, rates are listed for small employers in 11 Texas cities. To learn the rates you might expect to pay for health care coverage for your employees, use the table for your city or the city nearest you.
If a particular carrier uses industry classification as a case characteristic, the rates shown reflect the lowest industry factor the carrier uses.
Note: The rates shown are estimates given to TDI by the companies listed and are not the exact amounts you will be quoted. Your premium will vary according to your company´s individual circumstances. You can expect to pay more or less than the rates listed depending on the size of your company and the ages and gender of your employees. Carriers were asked to provide sample rates without applying any risk load. The health status and claims experience of your employees will affect your actual rates.
Although your situation will likely be different, the rate guide provides a useful way for you to compare rates in general terms among companies. The rate guide also serves to illustrate that rates often vary widely from one company to another for the same coverage. It pays to shop around.
For More Information or Assistance
For answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
1-800-252-3439
463-6515 in Austin
www.tdi.state.tx.us
You can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.
For printed copies of consumer publications, call the 24-hour Publications Order Line
1-800-599-SHOP (7467)
305-7211 in Austin
Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line
1-888-327-8818
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1-877-4FIRE45 (434-7345)
The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.
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