Underwriting

[Guest andysj]

A company with 108 employees and some severe medical problems was directed by an agent to split the company into 3 groups utilizing 3 exsisting FEIN's. This was to avoid underwriting - 3 groups all less than 50. The insurance company put all 3 groups on.

What are the implications for the agent that did this and for the company that now has two healthy groups and one group with many health problems?

[mroberts]

I'm surpirsed this worked to your advantage. Even groups under 50 lives are usually required to fill out a group medical questionnaire that asks about all the company's employees and if there are any known health conditions. If information provided on this questionnaire was false, then there could be some very serious problems once the carrier finds out what happened.

As far as long-term implications go, it's really hard to say. It depends on how the insurance company is going to underwrite the group during future renewals. If this group is truly going to be community-rated and the experience will not be looked at, financially this could potentially save money. The problem you have now is no future renewal leverage. Not that you had a ton when you had 108 lives, but groups under 50 usualy have very little say in plan design (other than here are a couple options) and the renewals tend to be higher all the way around. And this will hold true for the two healthy groups. Only time will tell if this helps you out financially or not.

From an agent perspective, I tend to think nothing was done that was either unethical or illegal unless information was either falsified or intentionally supressed. Maximum rates are designed to protect those companies that would not be able to afford insurance if there was no cap in place.

[Guest llerner]

It would depend upon state mandated handling of under 50 groups. In California, for example, if the corp. has 3 separate DE-6 (quarterly workers comp statement), separate payroll and EIN then they would be considered separate entities under AB1672 as guaranteed issue. In California, the carrier would not simply put them on with the EINs and are very careful in making sure that groups submit substantiation, including (depending upon carrier), articles of incorporation or tax records, if something looks susupicious. They would not simply just accept it like in years past.

The health questionnaire is only to determine where they fall rate wise, 3 categories - preferred 10% which is below the standard filed rate for each county or zipcode, standard rate or 10% above the standard rate. The carrier must accept all regardless of health status. There would be no need to falsify health information and if so many of one groups' EEs are unhealthy, then they are getting their money's worth at only 10% of the standard filed book rates.

Before the broker made this change, did the employer have an insurance carrier prior to either acquiring separate entities or prior to changing corporate structure? If so, in either case, what the broker recommended was the way to go.

If they were three separate groups all along, then the group could have legitimately utilized the guaranteed issue route previously if financially advantageous.

In the over 50 market in CA the carrier can decline to quote on a new group If the group was just initiating group coverage or wanting to switch carriers, they may have encountered problems finding a carrier to accept them at over 50. If they were renewing with an existing carrier, perhaps the rates went through the roof and they wanted to switch carriers and the broker knew that carriers would decline to quote based on health questionnaires and conditions.

If they have separate payroll and EINs, it would also seem to make sense to track health care expenses for each group separately for accounting purposes.

Here 108 employees will not warrant customized plans, in general little if any leverage under current market conditions and some carriers even have the same plans as small group until the group has over 150 or 250. At 108 EEs, it really depends on trends and the health of the group, georgraphic location, age/sex/type of business carrier contracts in their area at renewal. In general, the small group market also is more lenient in other ways, such as Kaiser particpation percentages permitted.

[mroberts]

Most states, however, do not simply have a 10% maximum they can load on rates. Many states allow loads of up to 100%. Additionally, when it comes to plan designs, there can be very distinct differences between the under 50 market and the over 50 market. While the plan selected still has to comply with what the insurance carrier has filed with the state, groups over 50 are usually allowed to select richer plan designs and are not typically "forced" to change current plan designs (although with experience being as bad as it sounds in this example they may have been). For example, here in Rochester, NY, Aetna has come into the market and offered groups under 50 lives plans that have additional hospital deductibles and are less attractive to what the other carriers are offering. It is priced accordingly, however, this is a plan most employers are not going to even consider offering since the perception is that the benefits are worse than what they can get from BCBS.

[Guest andysj]

The state is Florida. The group had one large plan with 108 lives on it and the agent split the group into 3 seperate groups to reduce premiums and to avoid underwriting. The group had a plan in place for many years but were getting hit with a major increase in premium. I didn't write this business, I lost the business to an agent that did. It seemed extremely shady at best to use 3 FEINS that hadn't been used for awhile simply to avoid underwriting.

[GBurns]

The post does not make sense to me.

I have never heard or seen of any small group carrier in Florida that would not require 2 Quarters UCT-6 to be submitted with the application. The UCT-6 is the state Unemployment Compensation form. It is used instead of the IRS Form 941 (which some carriers also require) because it lists (or requires periodically) the names of each employee.

If these FEINs have not been used for a while, the UCT-6 would also not have been used, How could these employers provide the filed forms for the immediate past 2 Quarters if none were ever filed because these employers had no employees or transacted any business (the post said the FEINs had not been used for a while) ?

[mroberts]

The group probably wasn't using the FEIN's for medical insurance, but was most likely using them for other facets of the business. GBurns brings up some good points that an employer can't just dust off an old FEIN and bring it into play. How does the new carrier underwrite business for groups under 50 lives in Florida? Is there a maximum increase underwriting can impose based on individual health questionnaires?

[GBurns]

Whether the FEINs were being used for any business or not does not affect the 941 and UCT6 (or other state's equivalent). If you have no employees you have to file for a waiver of regular filing otherwise you have to file forms with zeros (or pay the penalty and then file). So there must be either a filing or a formal waiver of filing. Therefore the employer cannot suddenly have had employees appearing on the last 2 Quarters because those quarters would already have had either a zero form or a waiver already filed.

The medical info is used for renewal not issue. Initial rates are as filed and renewals are capped regardless of experience. This is from memory, I really need to look it up to verify so do not hold me to it as yet.