Article contributions by Joseph Torella, HUB Insurance
For many hospitality businesses, downsizing due to impacts of the pandemic, has been unavoidable. In fact, almost four in 10 of all the U.S. jobs lost since February of last year haven been in the leisure & hospitality industry, according to a 2021 Department of Labor (DOL) national jobs report—triple the number of the next-hardest-hit industry and accounting for 39%1 of all jobs lost to pandemic.
Not only is this a serious concern for business owner but layoffs, which have long been a time-tested means of reducing organizational cost, are typically a chosen strategy when there is an adequate planning window to consider all the options, balance the positives and negatives, and ultimately take the appropriate action.
However, the pandemic didn’t provide employers, especially those in the hospitality industry, the required lead time to assess layoffs as a strategy; rather, layoffs became a natural reaction to a cataclysmic event – a self-preservation strategy that offered the necessary tactical response. However, now, as we return to a “new normal” and recognize that the benefits world will continue to evolve, we must embrace change and take a more strategic view of the road ahead.
So, what should we do collectively, and just as important a question, individually?
- First and foremost, we can expect that the dramatic decrease in staff may have had more than a ripple effect on our employee benefits options –and therefore, the strategies we must now apply to optimize our results. Reducing staff, without question, had an immediate and substantial impact. However, there are longer-term implications that are equally concerning.
- For some employers, the layoffs and change in employee base may have completely changed the complexion of how your organization chooses benefits and the options from which those choices can be made. Managing your employee benefits program may have taken a very wide turn – at least when it comes to the medical plan options.
- Managing your health care insurance program may be very different than it was 15 months ago. From an employee perspective, latent demand is likely to exist if you haven’t adjusted benefits in the past 15 months. For those operations that have moved from qualifying as a large employer to now operating as a small group, there are several benefits considerations to be aware of. The Affordable Care Act’s Employer Mandate (which became effective on January 1, 2016) requires businesses to offer every employee health insurance and will now identify organizations with 50 to 99 lives as “small businesses.” Please keep in mind that each state can operate very differently in terms of the definition of large or small group, how plans are rated and how benefits are impacted by mandates (e.g. in NY, the line of differentiation is 100 eligible employees).
- Keep in mind that whether the line of demarcation is 50 or 100 employees, small groups typically have little to no underwriting flexibility – the rate is the rate; the ability for a customer to begin ‘enjoying’ such flexibility (known as experience rating) typically begins when an employer steps over the threshold into the large group market. That flexibility increases as the size of the employer increases.
In addition to size, there are other levers available for the employer to pull. And, while we could list several, one of the more significant strategies is improving the health of employee population. The healthier the group, the less claim cost – and ultimately a lower premium cost. This can serve as a strong motivator for keeping employees healthy. Additionally, since prices aren’t fixed with large group coverage, your insurance broker or third-party administrator (TPA) can use the full range of levers to negotiate premium prices down.
When talking health insurance plans for businesses, the size of the business matters. The difference between the large and small group classifications is very important because premiums and plan design flexibility vary significantly based on this binary categorization of a business’ size.
So, what do you face as a small group employer? For small group insurance, federal and state regulations define all the factors that establish insurance pricing. Premiums for small businesses (again, state-by-state comparatives) are generally determined using standard “manual” rates rather than taking into consideration their own industry code or claims history. Some state regulators believe that it’s important to include demographic or other risk-based factors in more appropriately aligning the cost of a plan with the risk factors that impact those costs. Some carriers, in several (but not all) states can offer self-insured options. Be certain you know what options are available to you.
In short, small group insurance rates can only be based on the location of the business, family size, the ages of enrollees, and in some cases, tobacco usage among enrollees. The result? Employers that were once large enough to qualify for large group Underwriting, and no longer eligible for the same programs may be frustrated by the available options; or more precisely, the premiums charged for those options. One might find the solution by introducing rate scalability and other advantages that a PEO offers for the right-fit employer.
The easier part of this discussion is with respect to the voluntary and ancillary coverage options (ID Theft, College Debt Financing, Critical Illness, etc.) where a change in the employee base may have a small impact on the options you can choose from.
If you were a large group but you’re now small group, don’t fret and continue to focus on building your business. Be sure to engage the right insurance advisor, someone who knows what your objectives are and how to optimize your options. Think about downplaying your core medical and focusing on other benefits that are becoming more critical to your employees – ancillary and voluntary options. The pandemic may have landed you in small group by accident, but you can face off to those challenges by being more strategic than ever – the right partner(s) will both accelerate and accentuate the positive.
Joseph Torella is the Employee Benefits President of HUB International’s Northeast and East Regions, responsible for the overall management of the Employee Benefits operations and serves as a member of the Executive Management Team. Mr. Torella holds over three decades of insurance industry experience. During this time, he has been a continuing education instructor and is a distinguished speaker/editorial contributor on many topics including consumer-driven healthcare, transparency, managed care and related health care trends. He can be reached at 212-338-2111 or joe.torella@hubinternational.com.
