If you were renting a house, would you invest $30,000 in a kitchen renovation? Of course not. The investment would only benefit the owner who still has complete control over the future of the home. In the world of insurance, the fully insured model is just pouring money into a rental.
Employers pay insurance companies to provide benefits to workers that are usually not ideal. They have little say in the health-care benefits provided, control over their investment or insight into rising premiums. Plus, traditional insurance plans do not share information on the collective health of employees. It’s like investing money in a kitchen remodel only to find out the foundation is rotten and the rent is going to skyrocket next year.
Wouldn’t it be great if you could provide your clients with more control over their insurance...and their bank account? Self-funded insurance lets you offer this option.
It’s a model that’s been used by large corporations for years, often to reduce the hassle and expense of having to follow a variety of state health laws. With increasing uncertainty surrounding the future of the Affordable Care Act, small to medium-sized business owners are beginning to consider the option as well. In fact, the Employee Benefits Research Institute reports the percentages of establishments offering self-insured plans increased by 19% for midsized companies and 7% for small companies from 2013 to 2015.
Still, there are plenty of misconceptions about self-funding:
It’s too risky
It’s too complex
It takes up time human resources doesn’t have
In reality, self-funding uses third-party administrators to pay claims and manage eligibility, and the service team handles day-to-day issues, allowing HR to concentrate on other, more critical tasks. It also means employers owns the risk, but with stop-loss insurance in place, the risk is capped. Being self-funded with stop-loss provides better cash flow, reduces premium taxes, and gives employers ownership over their data so they can clearly see the health of their plan and population.
But before you dive in, there are a few questions and qualifications to consider. Let’s take a look.
1. WHAT IS THEIR RISK TOLERANCE?
The traditional insurance model appeals to many because of the perception that the carrier, rather than the employer, owns the risk. Self-funded insurance alters the risk profile to put more risk in the hands of the employer.
While self-funding insurance does provide employers with greater control over healthcare decisions while lowering premium taxes, it also means catastrophic injury or disease could severely impact the group. A fear of the unknown in this case can cause risk-averse employers to steer away from self-funding.
One option for mitigating the risk of unexpected expenses is for employers to add stop-loss insurance to a self-funded plan. Stop-loss insurance protects companies from unexpected financial loss by covering health claims that exceed a certain threshold. Employees still pay premiums and deductibles and the employer still covers all claims up to a certain dollar amount. However, when a claim goes beyond an employer’s maximum, stop-loss insurance kicks in to reimburse the employer, making self-funding less of a risk.
2. HOW STABLE IS THEIR EMPLOYEE POPULATION?
The current makeup of your client’s workforce should not necessarily be a leading indicator of whether they should self-fund their plan.
If your client’s workforce is made up of healthy 20-somethings, you might assume self-funding insurance is a good choice because the chance of catastrophic disease and serious health issues will be minimal. However, small employers in the U.S. commonly have high turnover rates (about a third a year), which may disrupt the ability to create a successful self-funded benefit plan. High turnover limits employee engagement and the amount of data available to properly create a self-funded plan that targets the specific needs of employees.
One of the key attributes of self-funded insurance is having the ability to access claims data to identify what health issues are driving a company’s claims costs. Combining this data with information gathered from health assessments allows employers to customize their self-funded insurance plan in a way that keeps costs low and employees healthy.
3. HOW STEADY IS THEIR CASH FLOW?
A self-insured employer assumes the risk for paying the health care claim costs for its employees. To manage this risk, an employer must have the financial resources (cash flow) to meet a variety of healthcare bills and claims. Employers with poor cash flow may find the cash reserves necessary for self-funded insurance intimidating or not possible. To mitigate potential problems, self-funding employers should have the resources to set up a special reserve account with money set aside to pay claims as they occur. An experienced broker can help an employer group set budgets that will build reserves and enable them to manage through the ups and downs of claims utilization.
4. IS THERE A DESIRE FOR MORE CONTROL OVER THEIR HEALTH PLAN?
Self-funding is not a good option for companies who want someone else to run their plan for them. Your clients need to be willing to take on the responsibility of being very engaged from the HR department to the Finance department.
One option to provide more control with less work is to harness a predictive modeling engine to forecast a company’s overall healthcare spending, identify at-risk employees, and uncover costs that will occur in the future. Using the right data can help employers meet the specific health care needs of their workforce, as opposed to purchasing a 'one-size-fits-all' insurance policy.
5. ARE THEY LOOKING FOR A PROACTIVE OR REACTIVE APPROACH?
The insurance industry has been conditioned to react to renewal rates on an annual basis instead of proactively planning for the future. When done correctly, self-funded insurance should be a multi-year plan in which employers utilize transparent reporting tools to make decisions.
While the ability to customize a plan is a great benefit for employers, many still feel overwhelmed by the choices available to them. No employer wants to risk exposing themselves to costs or claims that can negatively impact their bottom line. However, a knowledgeable broker can assist by explaining the pros and cons of self-funding insurance and help determine what insurance plan is the best fit.
Apta Health empowers employers to get the most out of their health benefit plans. Our extraordinary program combines the best solutions in the industry with cutting-edge technology to reduce wasteful spending and drastically bend the trend of rising healthcare costs.
Care coordination and navigation is at the heart of this program. Through care coordination, we prioritize independence, transparency and expertise. Contact us to discuss how to proactively manage your clients’ group health plan and reduce wasteful spending.