Fear of the unknown.
More than anything else, that’s what’s keeping employers from shifting their workforce out of a traditional group health plan into a self-funded plan.
Their concerns include a) taking on more risk than they think they can handle and b) the potential of upsetting employees who fear they’ll somehow be stuck with lower-quality care.
The good news is that there are ways to manage “a,” and that “b” is easily proved as baseless.
Larger employers have been adopting self-funding for years, but smaller companies are beginning to follow suit in greater numbers.
In fact, you might be surprised to learn that 67% of covered workers already are in a self-insured health plan. Of these covered workers, 23% work for small firms and 84% work for large employers.
Some of the nervousness about making the switch is related to the idea of walking away from the big insurance carriers.
Funny thing is, all of those household names – including Blue Cross, Aetna and the others – have for years been offering themselves up as administrators for companies taking the self-funding route.
Unlike traditional health insurance, in which a company pays premiums to a carrier that bears the risks and pays the claims, a self-insured company assumes the risk itself and creates a fund with which to pay health claims. Money in the fund is usually invested until it is needed to pay the claims.
That might sound like a lot, until you stop to understand how to manage a self-funded plan and begin to see the advantages. What follows is a quick list of what we feel are the top six reasons you’ll want to give self-funding a closer look:
1. Stop-loss coverage offsets the risk
A worker who gets seriously sick or hurt can expose a self-funded company to hundreds of thousands of dollars — or more — in medical bills. But to protect itself, the business can buy back-up, or stop loss, insurance that reimburses it when claims exceed a certain, agreed-upon level. Moreover, carriers have created a mechanism called level funding that smooths the payments into equal monthly installments. (If claims are low and the company overpays, the carrier reimburses it at the end of the year.) In other words, self-funding allows companies to determine their total healthcare costs with near-absolute certainty year after year.
2. Reduced insurance overhead costs
Carriers tack on what’s known as a risk charge for insured policies that amounts to approximately 2 percent a year. Depending on the size of your workforce, this charge can range from thousands of dollars to potentially millions. A self-insured company never has to pay this cost.
3. Reduced state premium taxes
Self-insured programs, unlike insured policies, are not subject to state premium taxes. The premium tax savings is about 2 to 3 percent of the premium dollar value. Again, we’re talking about potentially savings many thousands of dollars annually, if not more.
4. Fewer restrictions
Many of the Affordable Care Act’s reforms, including coverage requirements known as essential health benefits, do not apply to self-funded plans. Self-insured plans are subject only to the Employment Retirement Income Security Act (ERISA). Self-funded plans, in other words, can choose whatever benefits they want to offer their employees.
5. Improved cash flow
Self-insured employers do not have to pre-pay for coverage (that’s the premium), and claims are paid only as they become due.
6. Choice of claim administrator
A traditional group policy can be administered only by the insurance carrier that issues it. A self-insured plan, however, can be administered by the company itself, an insurance company or independent third-party administrator, giving the employer greater choice and flexibility.
Look, we get it. It can be easier to stick with what you know, even if you’re unhappy with year after year of rising premiums and out of control healthcare costs. But that’s not working, not for employees stuck with ever-climbing deductibles and copays and certainly not for your bottom line.
Self-funding isn’t the leap of faith it once might have seemed. Indeed, surveys nowadays find that more companies are interested in learning about self-funding, and that includes employers with fewer than 100 employees.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. Ready to make a change that will have a positive impact on your workforce and your finances? Contact us online or call 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.