The ACA's small group market (2-50 employees) was built on a simple idea: put every employer in the same pool, spread the risk, and stabilize premiums. The healthy subsidize the sick. Small businesses get protection from the unpredictable cost of a single cancer diagnosis or premature birth.
Sound logic. But it didn't account for what the industry would build next: Level-funded plans.
Level-funded plans sit outside the ACA community rating rules. That means carriers can underwrite your employee population by evaluating your group’s health data before offering a quote. Healthy groups will qualify for level-funded plans, saving them 20-50% in premiums, and in turn, causing them to leave the fully insured market. The carriers want them. The savings are real. The decision is rational.
The only reason this works is the fully insured market still has guaranteed issuance. Meaning any group is accepted, no questions asked. That guarantee was the point of ACA, but it created an unintended consequence: a guaranteed option for level-funded employers who have a bad claims year (a transplant, a NICU stay, an oncology case) to re-enter through the revolving door when their rate increase goes up 50 to 100%.
Bottom line is, healthy groups flow out. Sick groups flow in or never leave.The result is two separate rating pools where the chasm continues to grow.
Pool One: Level funded. Preferred risk. Healthy workforces, clean claims history. Savings are real and growing.
Pool Two: Fully insured ACA. Impaired risk. Employers with chronic conditions, recent high-cost claims, or demographics that make underwriting unattractive. No alternative. Stuck.
Fully insured renewals are now running 12-25% per year in most markets. Using the rule of 72, at 18% renewal rates, premiums double in four years. It's not always because your employees got sicker; it's because all the healthy groups are leaving the fully insured market for level-funding, just to re-enter it after a year of high claims. Could we realistically be looking at $6,000+ family rates in a few years?
There is no clean fix. Level funding is legal, rational, and genuinely valuable for groups that qualify, but the original vision of one shared pool is gone. The only fix would be to close the revolving door, which would take an act of Congress (which does not seem likely to happen any time soon).
If you're a small employer still in the fully insured market, and have never heard of level-funded, feel free to reach out to see if this could be a viable option for your company.
Whether you're shopping for group benefits for your team, turning 65 and sorting out Medicare, or looking at life insurance for the first time, we are happy to spend some time walking you through it.
