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Company Size, Enrollment, And Pricing in the California Group Health Insurance Market

Jul 31, 2008
Questions often arise in the California health insurance acquisition process concerning size of the company and available benefits for small businesses and the effect the size of a company may have on the premiums and the products available.

Companies 2-5 employees

The minimum size required in California to qualify small for Small Business coverage is to show 2 eligible employees minimum. Both eligible employees do not usually have to enroll in the plan if one is able to waive the plan offer due to alternate group coverage through spouse or employment. Companies with size 2-5 employee will see rates assigned typically at the highest allowable rate adjustment factor of 1.1 which includes the 10% additional cost above standard rate book price. You can review our guide on rate adjustment factor R.A.F here. This isn't always an automatic health premium assignment. Some carriers will allow detailed health statements to be completed and offer discounting off the maximum number.

Companies 6-10 employees

Once the 6-10 employee size is attained the California health insurance plans begin to offer discounting. Options also open up frequently for multiple plan options and combinations for employees to choose personal plan of choice. Note: over the last few years these options have become more and more prevalent at the 2-5 company size as well. Another impact of reaching the ten employee threshold is the option of a company enrolling as a carve out can be available. Carve out enrollments, as we discussed in our alternate section is the practice of splitting out a class or population within a company to offer a specific group of employees coverage, excluding the rest. Each employee is likely to be required to complete an employee health questionnaire, sometimes called an employee health statement, which asks the employees to disclose personal health information regarding employee and dependent health history, treatment, and current condition. This information is used to assign pricing.

Companies 10-49 employees

At the 10-25 employee size range rate adjustment factor assignments can be guaranteed. Promotional pricing with stipulations on prior health, enrollment size, and current R.A.F levels can qualify a business for guaranteed pricing offers. Individual health statements are often not mandatory at this level, so underwriting becomes simplified for the consumer. To receive better pricing a group often will, however, complete employee health questionnaires. With many California carriers this is handled on an Employer level health questionnaire as opposed to the Employee level. Best pricing rate adjustment factor number is now the best allowable .90 or minus 10% off standard premium price.

Split Carrier Options

The health insurance carrier will commonly allow a 'split carrier' option usually with the stipulation the majority of the employees enroll with the host carrier. Most carriers have a requirement to split employee enrollment with another health insurance carrier to maintain both a minimum employee enrollment amount and a percentage level. For example, one major health insurance carrier requires a minimum of 5 people enrolled and 75% employee participation whichever is greater. The one California health insurance carrier which is most frequently split with is Kaiser Permanente, as they will accept down to one employee enrolled on their side with no percentage rule.

Composite Rates

Beyond the 50 Employee level the market commonly switches to composite rates, which means instead of age banded pricing a company will receive cost figures based strictly on employee family type. This means that each single employee enrollment receives the same price regardless if they are 25 or 75 years old. This can be an advantage or disadvantage to the particular employee. The 25 year old employee, for example, may receive higher pricing versus an age banded rate schedule if they are enrolled with a company with 90% of their employee base averaging ages over 50. Conversely, the 60 year old employee may receive a better price using composite pricing if the composite price is based on company population which averages in the 20's and 30's.
About the Author
Dennis Jarvis is a licensed California group health insurance broker with extensive knowledge of the Small Group health market in California.
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