Workers’ Compensation Capacity for Professional Employer Organizations (PEO)

Workers’ Compensation has long been a foundational pillar in the product offering of the PEO model.  Not all carriers are up to the task of offering this line of coverage to a PEO, however, mostly due to the actuaries and legislative complexities and rules that are different by State.  In no State, statute insurance regulations and actuarial rules (NCCI, WCIRB, etc.) actually integrate.  While there are added levels of complexity for carriers to administer and service PEO clients, especially with regard to master policies, there are many reasons our carrier partners have dedicated themselves to this space.  PEO workers’ compensation programs consistently enjoy lower loss ratios and shorter claims development trends that non-PEO monoline comp.  Most PEOs are sophisticated risk management and underwriting organizations with a commanding understanding of how to manage and implement a profitable workers’ compensation program.  Typically, PEOs offer robust loss control and prevention guidance to their client companies; assisting small business with attaining much safer work environments than they would otherwise be able to achieve.  They also employ internal claims management staff who are dedicated to ensuring their injured workers are treated thoroughly and expeditiously, providing the best possible outcome for all parties.  For these reasons, carriers who decide to entertain PEOs as clients are rewarded with reliable, profitable, long-term carrier/client relationships.

Recent movements

This space continues to evolve.  The last 12-18 months has borne witness to many marketplace adjustments as each carrier strives to find their ideal niche within the space.  Key Risk Insurance Company (a WR Berkley Company) is a powerful new addition to this elite club.  Having been working in the comp space for nearly 35 years, they entered the PEO arena just this year, bringing with them an impressively diversified portfolio with over $2 billion in financial prowess and an A+ (Superior) AM Best rating.

Current players

A workers’ compensation program can be structured in a few different ways, depending on the needs, client makeup and financial positioning of the PEO.  For this reason, it is very important that any given PEO has the right carrier partner at their side.  Typically, these programs can be broken up into two main categories, Guaranteed Cost and Loss Sensitive.  A Guaranteed Cost program can offer a PEO a clear and understood total liability.  Pricing is based on 100% coverage of all approved exposures and rates are understood from the onset of the policy through policy expiration.  Guaranteed Cost programs, however, can have more restrictive underwriting and jurisdictional limitations than a Loss Sensitive program.  There are many different ways to structure a Loss Sensitive program.  In general, these programs are splitting the total anticipated claims costs between the PEO and the carrier; this cost is an unknown, however our predictive pricing models have come a long way in nailing down actual program outcomes.  Benefits to this model include broader underwriting guidelines and more competitive pricing.  These programs can tie a PEO’s assets up for an extended period of time, however, as collateral is held by the carrier until all claims for a given policy term have fully matured, which can take years.  

Impacts of COVID-19 on Workers’ Compensation Market Appetite

The advent of COVID-19 has brought about major changes to the marketplace for all workers’ compensation carriers, not just PEO partners.  Many carriers have issued a moratorium on covering any healthcare exposures.  Others are now adding jurisdictional considerations to these risks, with exclusions applying specifically in presumptive states.  Some carriers have added additional underwriting requirements for industries with residential delivery exposures, such as requiring a deductible to cover smaller frequency issues such as dog bites.  Nearly all carriers have added additional pandemic screening questions to their underwriting requirements to include supplemental applications, especially for front line industries such as restaurants, nursing homes, home health and retail.  This is likely a change which will endure long after this current pandemic passes. 

These market adjustments aside, PEO carriers continue to remain engaged and enthusiastic about their PEO clients.  That being said, PEOs should look closely at their composition of clients and take care to place high risk or high exposure entities outside of their master policies as makes sense in an effort to protect their experience modification and loss sensitive positions.

Call to Action

Every PEO carrier is as different in their approach to thriving in this industry as is every PEO.  How do you know your PEO workers’ compensation program is placed with the best carrier partner to cater to your needs and methods of operations?  Thankfully, this industry has been graced with the benefit of the lifelong dedication of some really brilliant minds to help answer that question.  My mentor, Paul Hughes, for example, has successfully created 7 workers’ compensation insurance programs specific to PEO over the past 19 years.  Under his guidance, these programs have rendered nearly $2 billion in workers’ comp placements for PEOs to date, with no signs of slowing down. 

If you would like to better understand all market and program offerings available to your PEO, we would love to help.

Paul Hughes321.217.7477phughes@libertateins.com
Sharlie Reynolds305.495.5173sreynolds@libertateins.com
David Burgess321.436.8214dburgess@libertateins.com

Summary of 2020 Employer Health Benefits Survey

Each year, the Kaiser Family Foundation conducts a survey to examine employer-sponsored health benefits trends. This document summarizes the main points of the 2020 survey and suggests how they could affect employers.

Health Insurance Premiums

In 2020, the average premium rose by 4% for both single coverage and family coverage. The average premiums were $7,470 and $21,342, respectively.

However, premiums for single coverage under high deductible health plans with a savings option (HDHP/SOs) were noticeably lower than the average single coverage premium. The family coverage average between HDHP/SOs and other plans was largely the same. HDHP/SOs’ annual premiums for single and family coverage were $6,890 and $20,359, respectively.

Worker Contributions

The average worker contribution toward the premium was 17% for single coverage and 27% for family coverage. Employees at organizations with a high percentage of lower-wage workers (where at least 35% make $25,000 or less annually) made above-average contributions toward family coverage—35% vs. 24% when compared to employees at firms with a smaller share of lower-wage workers.

In terms of dollar amounts, workers contributed $1,243 and $5,588 toward their premiums for single coverage and family coverage, respectively. Workers enrolled in HDHP/SOs contributed less on average, paying $1,061 for single coverage and $4,852 for family coverage.

Plan Enrollment

The following were the most common plan types in 2020:

  • Preferred provider organizations (PPOs)—47% of workers covered
  • HDHP/SOs—31% of workers covered
  • Health maintenance organizations (HMOs)—13% of workers covered
  • Point-of-service (POS) plans—8% of workers covered

HMO enrollment has gone up and down over the last several years (enrollment was up to 19% in 2019), so it’s unclear how this will trend in the near future.

Employee Cost Sharing

Most workers must pay a share of their health care costs, and the average deductible for all workers was $1,644 in 2020. The average annual deductible has increased by 25% over the past five years and nearly 80% over the past decade. The prevalence of HDHP/SOs has contributed to the increase of deductible amounts. The percentage of covered workers with a general deductible of $2,000 or greater has increased to 26% in the last five years.

Beyond deductibles, the vast majority of workers cover some portion of the costs from their health care services. For example, 65% of covered workers have coinsurance, and 13% have a copay for hospital admissions.

In addition, nearly all workers are covered by a plan with an out-of-pocket maximum (OOPM), but the costs vary considerably. Among covered workers with single coverage, 11% have an OOPM of less than $2,000, and 18% have an OOPM of $6,000 or more.

Availability of Employer-sponsored Coverage

Similar to the last few years, 56% of employers offer health benefits to at least some workers. Only 48% of very small employers (three to nine employees) offer coverage, while nearly every large employer (1,000 or more employees) offers coverage.

Health and Wellness Promotion Programs

Wellness programs help employees improve their lifestyles and avoid unhealthy habits. Fifty-three percent of small employers and 81% of large employers offer at least one wellness program in the areas of smoking cessation, weight management and lifestyle coaching. Of these large employers, 44% offer participation incentives like gift cards or merchandise.

Telemedicine

The large majority of employers with 50 or more workers have embraced telemedicine, with 85% offering health care services through this method. Within the last year, telemedicine offerings have increased significantly, especially among employers with between 50-199 workers.

Self-funding

Twenty-three percent of workers with small employers are enrolled in plans that are either partially or entirely self-funded, compared to 84% of workers with large employers. In the past few years, level-funded plans have become more popular. Level-funded plans are health plans provided by insurers that include a nominally self-funded option for small or mid-sized employers that incorporates stop-loss insurance with relatively low attachment points.

Conclusion

This year continues a period of a stable market, characterized by relatively low-cost growth for employer-sponsored coverage. While premium growth continues to exceed earnings and inflation increases, the differences are moderately small. Additionally, while there have been some changes in terms of employer-sponsored health benefits, no trends have gained significant traction.

However, it’s still unclear how the COVID-19 pandemic will affect employer health plans in 2021. Given the economic impact, employers may need to shift more costs to employees than they have in the past. Alternatively, employers may look to other funding models to provide competitive health benefits.

What’s more, 2020 is an election year, and a Supreme Court case regarding the Affordable Care Act is scheduled for around the same period. Both of these events could significantly impact employer health plans in unforeseen ways.

Looking forward, employers should begin to identify tools and resources they can use to offset higher premiums. As costs continue to rise and possible political changes ensue, employers and employees may begin to see increased market movement.

For more information on benefits offerings or on what you can do to control your health care costs, contact Libertate Insurance today.