Trends, the “In-Crowd,” and Health Insurance

Trends and being part of the in-crowd. Nobody wants to admit it, but we all try to be cool — no matter how old we get. Trends drive all of us whether we realize it or not.

My friends of a certain age will remember pagers, Guess jeans, and Doc Martens. Maybe you were more into Hollister, Abercrombie & Fitch, or Tommy Hilfiger. Then the trends shifted to cell phones, cars, and who you were dating.

These days I frequently hear from my kids about how “cringe” I am when I try to be trendy. Secretly, I love it — because it means they care enough to stop me from looking ridiculous. Or at least that’s what I tell myself.

What I’ve discovered as we get older and move deeper into our careers is that these dynamics never actually go away. Even in the insurance industry.

Which, honestly, surprises me.

I’ve always thought my industry was dry and boring. But when I step back and really look at it, I see something very familiar: it’s basically high school, just on a larger and slightly older scale. Everyone chasing the next trendy thing.

This year’s trends?

Level Funding, Cash Funding, and ICHRA.

Are these things really “new”? Not really. Most of these ideas have been around for a long time. Arguably the only one that feels somewhat new is the ICHRA — and even that is mostly due to how employers can fund it today.

Meanwhile, everyone seems tired of the traditional ACA small group market. It isn’t flashy. It isn’t innovative. It’s just… steady.

Reliable.

Comfortable.

And that’s exactly why many people are starting to chase alternatives.

But are those alternatives actually better?

My opinion — and since you’re reading my thoughts here, buckle up — is not necessarily.

In the small group market today, employers generally have three main paths when quoting health insurance:

1. ACA Community Rated Small Group

2. Level-Funded Plans

3. ICHRA / Individual Market Strategies

(Cash funding is starting to appear in Utah as well, though it’s not yet one of the primary structures.)

Let’s walk through them.

ACA Small Group Market

This is the option your broker is probably talking you out of unless your group has significant health risk.

Personally, I think that’s a mistake.

The ACA small group market is backed by the major carriers in each state and provides several important protections:

• Guaranteed issue and renewal

• Coverage regardless of health status

• Predictable plan structures

• Defined deductibles and out-of-pocket maximums

Premiums in this market follow community rating rules. Carriers file their own rates, but everyone with the same demographics in the same geographic rating area receives the same pricing.

Pricing is primarily based on:

• Geographic rating area

• Age of employees and dependents

• Family composition

There are no surprises because someone develops cancer, has a major claim, or becomes pregnant. Individual health conditions cannot change the group’s renewal.

There is technically a tobacco rating adjustment allowed under the ACA (up to 1.5:1), though in Utah we rarely see it applied in the small group market.

Age is also capped under the ACA, with a 3:1 ratio between a 21-year-old and a 65-year-old, creating a fairly predictable pricing curve.

So what don’t I like about this market?

It’s increasingly becoming a pool of higher utilizers as healthier groups migrate to alternative funding models. Over time, that dynamic could continue pushing premiums upward — which is a real concern.

Level-Funded Plans

Now we get into the “cool kid” territory.

Level-funded plans allow employers with a sufficient number of enrolled employees to move into a partially underwritten model. Brokers will often suggest this option if:

• The group has relatively healthy employees

• Renewal increases in the ACA market are becoming painful

And to be fair, it can absolutely make sense for certain groups. I’ve recommended it myself.

Level funding is essentially a hybrid between fully insured and self-funded coverage. Employers pay a fixed monthly amount that covers expected claims, stop-loss protection, and administrative costs.

The challenge is that this strategy often works well until it doesn’t.

These groups are typically too small to truly operate as mid-market or fully self-insured plans, which means the pricing is still sensitive to claims experience. One high-cost claimant or unexpected medical event can dramatically affect renewal pricing.

When that happens, many groups find themselves returning to the ACA market after just a few years.

ICHRA

Finally, we have ICHRA, which is currently getting a lot of attention.

An Individual Coverage Health Reimbursement Arrangement allows employers to reimburse employees — typically through payroll — for purchasing their own individual health insurance plans.

In theory, this should be a win for everyone.

But there are several important considerations employers should understand.

First, employers are still subject to market trends if they want to remain competitive with benefits. If individual premiums rise, reimbursement amounts often need to rise as well.

Second, employees generally cannot receive ACA premium subsidies if they accept an ICHRA that is considered affordable under federal rules. If the ICHRA is not affordable, employees may be able to opt out and still access subsidies.

Third, individual market networks and benefit designs can vary widely, especially when it comes to out-of-state coverage.

Finally, while it isn’t legally required, most employers work with a third-party administrator to verify employee coverage and manage reimbursements.

That said, there are real advantages.

Employees gain the flexibility to choose plans that fit their personal needs. If someone wants a specific doctor or hospital network that isn’t offered through the group plan, they can go find it.

The Real Question

Every few years, our industry falls in love with a new strategy.

Right now, level funding and ICHRA are the cool kids.

But trends come and go.

Sometimes the reliable option — the one that isn’t flashy or trendy — is still the one that works best.

The real job of a good broker isn’t chasing trends.

It’s understanding when those trends actually make sense.