Reverse the Curse of the Community Rating Law

James Stovall


As we head into the cold winter months, small businesses, nonprofits and schools across New York State renewing their health insurance are collectively gasping at the sting of increased health insurance rates –a whopping 30-40% for many organizations. This news is sending a chill throughout the land, leaving many feeling powerless to do anything about it.  Most organizations are reacting by reducing healthcare benefits for employees, settling for higher rates, or living in the in-between with some weakened combination of both. But this is ultimately a story of hope. It’s not too late to escape the curse of New York’s community rating law.

It all started when New York-based companies with 50-99 employees were reclassified as a “small group”…causing big changes in small organizations.  Now, companies with 50-99 employees are mandated by the New York State Insurance Department as “community-rated” for health insurance.  This means that organizations with 50-99 employees located in New York no longer can purchase health insurance based on the organization’s own employee demographics and experience, but instead their healthcare rates are predetermined by the state.   This has caused healthcare rates for employers with 50-99 employees to skyrocket in 2016.  Previously, only New York employers with one to 49 employees were subject to community rating.  Now, employers in the state with less than 99 employees also are subject to New York’s community rated law.

In theory, community rating makes sense. The value proposition of community rating is designed to “level the playing field” and consolidate plan offerings for all “small group” companies renewing health insurance.  For example: if Company A has a young demographic group and Company B has an older demographic group, without community rating Company A’s rates for healthcare might be $70 per employee and Company B’s rates would likely be higher, say $130 per employee.

However, with community rating both companies pay the same price for healthcare (assuming they select the same healthcare plan and are within the same zip code).   Consequently, both Company A and Company B would pay $100 per employee.  Sounds like a good deal for Company B, but a terrible deal for Company A, huh?  Generally speaking, employers with younger and/or healthier employees feel the brunt of community rating.

Why We Fell Under The Spell

Health insurance benefits are already one of a business’s top three largest expenses.  But high quality health insurance benefits are also one of the top recruiting and retention tools in our talent-driven economy.  And unfortunately, community rating has made it extremely difficult for organizations with less than 99 employees to offer high quality health insurance benefits at affordable prices.

But companies, schools and nonprofits know they have to stay competitive to keep top talent.  In order attract and retain talent, many organizations are watering down healthcare plan designs to lower costs, or pushing the premium increases onto their employees.  Some organizations are “carrier-hopping” (the practice of moving from say, Aetna to United Healthcare).  And others just swallow the poisoned apple whole and absorb the increased healthcare costs caused by community rating – justifying the budget busting as simply part of the price you pay to live and play in this spectacular kingdom called New York.

But it doesn’t have to be that way!  There are alternative options for “small group” villagers to combat the big bad community rating law!

Knight in Shining Armor

Experts in the health insurance space point to PEOs (Professional Employer Organizations) as one of a few realistic options for slaying the “small group” community rating law.  A PEO is an organization that aggregates independent small businesses, schools and nonprofits onto one employee benefits policy.  In pooling multiple organizations onto one master healthcare policy with greater than 99 employees, a PEO enables an organization to escape community rating.

PEOs also help small employers in other ways, including providing organizations with advanced human resources software for benefits enrollment and payroll; mitigating legal, regulatory and compliance-related risks for small groups; and offering employees Fortune 500 level perks and wellness programs.

The best part is that you don’t have to wait around to be rescued by a PEO.  Many organizations think they are locked into their current healthcare rates until those rates expire a year after they take effect.  But you are not locked into your current healthcare plan for a full year — that’s a fairy tale (actually, that’s a nightmare!).  The truth is, you can cancel your current employee benefits policies at anytime.  Once you do, you’ll live happily ever-after knowing you are among the savvy leaders who have slayed the community law dragon.

Did you know that even if you’ve recently renewed your healthcare plan it’s not too late to switch to a new plan that can save you tens of thousands of dollars??  We understand that community rating is just one of many trolls you’re dealing with, but swallowing a 30-40% healthcare increase doesn’t have to be one of them.  Contact us today!