Interest in self-funding has moved down market to medium- and small-size employers, all of whom are looking for new ways to manage the costs of employee health insurance.
Doug Gosney, AVP stop-loss market manager at Sun Life, addressed during a recent webinar the carrier’s employer insight study’s finding that 36% of employers with 50-250 employees are considering switching to a self-funded health plan, while 46% of employers with 250-1,000 employees were also considering switching to a self-funded health plan.
“That averages out to nearly 40% of employers considering self-funding,” Gosney says. “We can see that [add up to] nearly 35,000 potential new self-funded employers by 2020 and that’s why we are focusing the discussion on what we can all do to help employers who are interested in learning more and deciding if self-funding is right for them.”
Bill Laughlin, VP and manager of data analytics at benefits consultancy Conner Strong & Buckelew, says there are numerous points to explore when identifying the right candidates for self-funding. “Understanding a client’s risk tolerance, appetite for self-funding, cost containment initiatives, cash flow concerns, historical performance of claims experience and identifying key cost drivers are all elements that help employers identify which candidates are right for self-funding.”
Fellow adviser Shay Cowan, principal at brokerage Katz/Pierz, says he looks for any employer who is suffering from pain from a fully insured plan. “They look at their plan and know they have no control, they wait 90 to 60 days out [from renewal] and they get hit with something they have no idea how to react to, whether it is a change in contribution or plan designs,” Cowan says. “My spectrum of employers or prospects are those who are just absolutely tired of the wheel of every 12 months going through that and surprised with a fully insured increase and having no control of what is delivered to them.”
Starting the discussion
Once the broker has identified the right candidates for self-funding, Gosney says it is time to begin having initial conversations with clients to begin the transition from a fully insured plan into a self-funded plan.
Employers who are considering a self-funded plan without talking to a broker languish over the decision for six months to two or more years, while those who talk to a broker switch within one year, according to Sun Life’s employer insight study.
Employers are not only looking at the straight cost savings, but also seek ways to have more control over medical plans and premiums. “Fully insured means carriers who are out to try to make a profit,” Cowan says. “Being self-funded means the client is unbundling all of those extra taxes and fees and looking at the data to make informed decisions.”
Once the client is committed to a strategy appropriate for their company’s needs and affordability, Laughlin and Cowan both recommend utilizing a financial model that can help identify potential outcomes and reduce the risk of an employer taking a big financial hit from a costly claim.
“A client can visualize savings, but what is more important is that they continue their financial modeling to incorporate the stop-loss aspects so they can offset the cash flow concerns a client might have,” Laughlin says. “In doing that, you model out stop-loss deductibles of various sizes, you share with them the impact of those deductibles. You can save money on premium; however as the deductible goes up the premium comes down.”
Selecting the right plans and features
When the ideal financial model is put in place for the client, Cowan says a broker can begin to breakdown the plans and features a client can offer and reinforce the level of responsibility an employer has when managing cost and affordability of their self-funded plan.
“People are nervous about jumping into self-insured because today with fully insured plans there is one easy button. And when they hear self-insured now there are multiple buttons,” Cowan says. “Now the broker’s objective is to really take the process out by explaining what a third-party administrator is, explain the levels of insurance and explain to them the networks that are available to them in their marketplace and who works best with them.”
Cowan adds that the best possible route for a smooth transition for a client from fully-insured to self-funded is to try and make the self-funded plan as similar as the fully-insured plan was, so there are no losses along the way.
“Essentially the plan is to really sit down on their level, build those blocks in a really simple form and not overwhelm them,” Cowan says.
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