The majority of Texas school districts are members of the TRS ActiveCare’s (TRSAC) defined contribution government health plan representing more than 400,000 member lives.
The TRSAC is a defined contribution plan wherein the state contributes $75 per participating employee while participating districts are required to contribute a minimum of $150 per participating employee per month bringing the total minimum contribution to $225 per employee per month.
Many districts don’t contribute much more than that.
Approximately 10% of Texas public school districts have opted out of TRSAC in favor of coverage through the commercial market. These districts have adopted defined benefit plans but most maintain funding on a defined contribution basis without proper risk management considerations.
When moving from a defined contribution plan to a defined benefit plan consideration must be given to appropriate funding levels to be charged. From our perspective many districts leaving TRSAC have not taken appropriate steps in that direction.
Moving from the TRSAC defined contribution plan to a commercial defined contribution plan is best accomplished by adopting an ICHRA . By definition an ICHRA is a group plan funded through individual health insurance policies.
All risk is assumed by the insurance company and none retained by the district.
School districts may continue their current contribution level under an ICHRA. Plan members use the contribution to purchase individual health insurance through payroll deduction. Employees have the freedom to pick and choose the coverage that best fits their individual needs. They are not tied to ‘one size fits all” traditional group health plans.
A district in West Texas for example could offer employees a choice of 44 different benefit plans through four carriers all through the convenience of payroll deduction.
This approach is alien to most of us who have been raised to believe traditional group insurance is superior to individual health plans. With the passage of the Affordable Care Act that’s not necessarily true anymore. Individual plans cover pre-existing conditions immediately without a waiting period. Minimum benefit standards are government mandated on par with traditional group benefits.
To our knowledge there is not one school district in Texas that has adopted an ICHRA although we may be wrong about that. If that is true, why? We have found most Texas school districts are unaware of this option because no one has told them.
Brokers have been slow to recommend ICHRAs for several reasons. They lose control over benefits, commissions are significantly lower than what they can earn on traditional group health insurance, and they become less relevant. For these reasons and more health insurance brokers generally sell against ICHRAs.
That’s why some ICHRA administrators go direct in addition to working with brokers.
We have talked about ICHRAs with many of our clients and prospects and we generally receive the same responses:
- Employees are too dumb to understand what’s best for them and would not know how to select a plan – “It’s too complicated.”
- Individual health insurance coverage is not as good as group health insurance
- Individual health insurance is more expensive than group insurance
- The only individual health policies in our area are HMOs (HMOs are essentially narrow network plans)
- None of the individual policies in our area will cover M.D. Anderson claims
Out of all the times we have presented the ICHRA healthcare financing strategy only one employer to date has adopted it, replacing their traditional group health plan with individual policies.
Much like how Odysseus saved his crew’s lives in Greek mythology, the irresistible siren of group health insurance lures plan sponsors and plan members to the island of benefit reductions and rate increases for eternity.
ADDITIONAL READING:
ICHRAs see triple-digit growth, driving a ‘seismic shift’ in healthcare market (hrexecutive.com)
For More Information: RiskManager@RiskManagers.us
