Godfather, The Cat’s Out of The Bag!
An aggressive insurance agent with relationships with school districts can make a lot of money by taking advantage of the Small Group definition by forming a cooperative for school districts as an alternative to TRS ActiveCare.
By Bill Rusteberg
With the passage of Senate Bill 1444 (SB 1444) Texas public school districts may elect to exit the TRS ActiveCare (TRSAC) program effective September 1, 2022.
A Poison Pill is crafted in the legislation requiring districts to give notice of termination by no later than December 2021 for an exit date of September 1, 2022. Districts who terminate will not know what their options will be nine months out from an effective date. Insurance companies will not bind coverage that far in advance.
As a result, some districts, out of fear of the unknown, will elect to continue with TRS ActiveCare as a safe bet against the possibility of not obtaining replacement coverage at a competitive cost basis.
In an earlier post we described what we believe are three options districts have should they terminate membership in TRS ActiveCare. For the purposes of this post we will focus on one of those options that few are aware of but which provides districts with a safe harbor for guaranteed coverage at competitive commercial rates.
Under the Texas Insurance Code 1501 Texas school districts may elect to be a Small Group for the purposes of acquiring fully insured group health insurance from all admitted carriers in the small group market.
- Texas Insurance Code 1501 Sec. 1501.009. SCHOOL DISTRICT ELECTION. (a) An independent school district may elect to participate as a small employer without regard to the number of employees in the district. An independent school district that makes the election is treated as a small employer under this chapter for all purposes.
Under Texas Small Group regulations any small employer group (<50 employees) that apply for group health insurance coverage cannot be turned down regardless of risk factors within the group population.
Base rates may be adjusted based on the risk characteristics of each group however rate adjustment are limited by statute. Renewal rate increases cannot exceed 15%.
Texas Department of Insurance bulletin on Uniform Underwriting Practices can be reviewed here – tdi.texas.gov/bulletins/2004/documents/b-0043-04.pdf. Composite rating calculation can be found here – www.tdi.texas.gov/health/documents/compositeprem.docx
Geographic Rating Areas – The Market Rules and Rate Review Final Rule (45 CFR Part 147) provides that each state will have a set number of geographic rating areas that all issuers in the state must uniformly use as part of their rate setting. This page contains information on the specific geographic rating areas being used by each state. Here is the Texas Geographic Rating Areas: Including State Specific Geographic Divisions | CMS
Small groups (including school districts regardless of size) may band together in a cooperative for even greater rate stability as a single entity.
An aggressive insurance agent with relationships with school districts can make a lot of money by taking advantage of the Small Group definition by forming a cooperative for school districts as an alternative to TRS ActiveCare.
The average age of school district employees is 44. Aggregate composite individual employee only rate would be in the $350-$450 range. A cooperative of 15,000 employee lives would earn the agent a minimum of $3.2 million.
We would not be surprised if First Financial, FBS and others active in the school market latch onto this opportunity with gusto. Not only is the revenue to be earned enormous, there is no risk to their clients and little work needed to “service” the membership – the carrier does that.
What will be interesting is whether Blue Cross, the current administrator of TRS ActiveCare, will decline to quote school districts due to a potential non-compete with TRS. That could be a problem for Blue Cross since we suppose the Texas Insurance Code takes precedence.
Below is information which may be of interest to those districts seeking more information on options available to them outside TRS ActiveCare:
SOURCE: Cooperatives and Coalitions (texas.gov)
Cooperatives are groups of large or small employers or in some cases, a combination of both, that join together to obtain health coverage for the cooperative as a single entity. The larger the cooperative, the more clout it has to negotiate favorable prices and coverage.
Texas law allows two or more employers to form a non-profit private cooperative for the purchase of small or large employer health benefit plans. One type of cooperative, the Health Group Cooperative, can be formed by any person, but it must have ten or more participating employers to be eligible to exercise its rights under law.
SOURCE: Joining a Private Purchasing Cooperative (texas.gov)
“Small employers interested in joining a cooperative should also remember that, as individual employers, they are guaranteed issuance of coverage from an insurance company or HMO that offers coverage to small employers. Similarly, a small employer must be allowed to join a health group cooperative and purchase coverage during the next annual open enrollment period.”
SOURCE: Types of Cooperatives (texas.gov)
Types of Cooperatives
The Texas Legislature has enacted three bills that allow employers to form cooperatives for the purchase of employer health benefit plans in Texas. All three types of cooperatives are private purchasing cooperatives under law. Texas Insurance Code Chapter 1501, Subchapter B provides for the formation of Purchasing Cooperatives. Two of the three have special characteristics; for clarity, we will refer to the broader category as “private purchasing cooperatives.”
Small Employer Health Coalition
- HB 897, enacted by the 78th Texas Legislature (2003), created this special type of private purchasing cooperative made up of only small employers.
- A small employer health coalition may limit its membership for a variety of reasons, but it may not do so due to the health status or experience of an employer or employee.
- A small employer health coalition that meets the statutory definition of a small employer (2-50 employees) is treated as a single small employer. This means that the small employer health coalition is guaranteed issuance of coverage and will be rated as a single small employer rather than each employer member of the coalition being rated separately.
- Small employers with fewer employees may experience savings as a result of the coalition’s larger group size factor.
- For more information on forming or joining a small employer health coalition, please choose the appropriate link: Joining – Forming.
