Unlike Wines, Health Insurance Premiums Do Not Get Better with Age (Age-Rating, That Is)

It’s that time of year again and harvest is in full swing. While the wine industry is in its busiest time of year, there is another impending challenge that many wineries will be faced with before year end. No, it’s not related to staffing for harvest or crush, or driving more sales, but it does impact your employee benefits plan.

Effective with the 2016/2017 renewal, employers with between 51-100 employees will move from “large group” status to “small group” status.

If this sounds somewhat familiar, it’s because similar changes went into effect in January 2016 for employers with between one to 50 employees. I discussed this in depth in a post I wrote last year.

So what is the potential financial impact on employers?

Experts predict that 66% of companies with between 51 and 100 employees will be faced with premium increases of 10% or more during this 2016/2017 renewal cycle, with some experiencing increases as great as 50% or more to maintain similar plans to the ones they have today.

Why the premium increase?

The premium increases would be due not only to the move from large group to small group status, but also age-rated pricing. Employers will be required to move from traditional large-group composite pricing, which takes into account a composite of all insured members in the employee’s family, to the new small group age-based rating. The age-based rating process differs in that each insured member of the employee’s family will have their own separate rate. The individual rates are added up and the total amount is the employee’s new medical premium cost.

Last year, many employers opted to renew early to stave off the pending move to the ACA plans, choosing to renew 12/1/15. This has complicated things further for wine Industry employers as the renewal process now falls right in the middle of their busiest time of year.

Although the federal regulations eased last year, reverting back to the prior definition of small group which is 50 employees or less, California has decided to keep the threshold at 100 employees or less. Experts estimate that more than 150,000 businesses will be impacted and many of those will be in the wine industry.

Composite Rate vs. Age Rate

Many wineries face the blessing and curse of having great employee retention. On one hand, keeping your key employees for a long time is a great asset to the organization. On the other hand, when it comes to the cost of medical insurance, having great retention means older employees. Older employees in an age-rated plan mean higher medical insurance premiums for both the employer and employee. In large group, the cost of an employee’s coverage, whether they are 25 or 65, is the same. However, in small group, the costs can be drastically different. For example, a 2017 Kaiser small group Silver plan would cost a 25-year old employee $292. The cost for a 65-year old employee would be $872. Add dependents and the cost for the older employee and his/her family can be $2,000 to $3,000 per month.

In addition to the confusion that an age-rated system brings, under the law of unintended consequences, it could potentially increase the risk of age discrimination in hiring practices if a company cannot afford higher premiums that come with older employees.

What’s a wine industry employer to do?

• Don’t wait to explore your options. There’s no magic formula for the best options to pursue, and your broker will be able to inform and advise you.
• Consider what we call a wine collective trust, where wine-related companies of 51 to 100 employees have the option to be pooled together for insurance and stay classified as large group employers, so they’re not impacted by upcoming changes. They also typically enjoy savings from 5% to 40%. If you have recently received your renewal for 2017 and are already classified as a large group of over 100 employees, you can still contact Woodruff Sawyer to see what your rates would look like if you join a wine collective trust. You may still be able to join and receive those discounts.

How will this new rating model impact employees and employers? Will it change hiring habits? These are all questions that remain to be seen. Having tenured, experienced employees can be vital to an organization’s success. Juggling the challenges that come with offering a robust compensation package to attract and retain talent will always be important, and a competitive benefits package is a key component of that. How your organization deals with these challenges will be critical to striking a balance for you and your staff.

For more information on the wine collective, contact Jeff Richied.