Finding the ‘just right’ insurance coverage fit

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Everyone knows the story of Goldilocks and the three bears. Goldilocks gets lost in the woods, finds a house and, like every good fairytale character, decides to walk in and make herself at home. She tries sitting in a chair but the first is too big, the second was too small, and the third one is just right. Similarly, she tests the porridge and the beds until she finds the option that works for her.

The story of Goldilocks and her penchant for figuring out what’s just right can be applied to the employee benefits world. Like most things, the fit truly matters. What works for one may not work for the next person.

When it comes to finding the right method for insuring your employees, the same rules apply. Whether your company is a two-life startup or a Fortune 500 conglomerate, you have options. And just like our trespassing friend Goldilocks, the key is finding the benefit plan that is just right. Here are three options for employers to consider.

Too small — or just right for some businesses

For many small business owners, the employee benefits market is a scary place. Plans are expensive and options are limited. Add to that the additional administrative burdens and risks, such as handling eligibility, HIPAA, COBRA and new laws related to the Affordable Care Act, and many small business owners may wonder if it is worth it to offer benefits at all.

One solution that’s just right for some small businesses is a Professional Employer Organization. PEOs provide rich benefit packages similar to those of Fortune 500 companies, along with HR, compliance and administrative services. A PEO is a right-sized option for many employers who do not have a dedicated HR department. PEOs usually offer better, more cost-effective and competitive health & welfare benefit plans by underwriting smaller groups together, providing rates lower than they would normally find in the community rating pool. They also handle HR functions like plan management, administration, payroll, taxes, unemployment, workers’ compensation and disability.

But company size isn’t the only factor that plays into whether a PEO is a good fit. Even for some small businesses, a PEO might not work if you have low employee benefits participation, unfavorable demographics or an unattractive industry code.

Too large

It’s easy to assume that a large, Fortune 500 corporate benefit plan would be self-funded. For many businesses, self-funding is a way to take full control of a plan — and even closely manage parts of it. In a self-insured program, instead of relying on a carrier to build the plan and tell you what works, you can be your own architect.

Creative plan designs can help meet the needs of specific employees, and separately shopping networks, stop-loss carriers and pharmacy benefit vendors provide the leverage and flexibility to build the perfect plan at the right cost. Self-funding also allows employers to save on administration costs, carrier fees and taxes. Self-funding means that employers may have better cash flow because claims are paid when due, instead of paying premiums in advance. And then there’s all that data that self-funded employers can access and use to better predict what’s going to happen moving forward.

However, self-funding is not for the risk-averse. The smaller the group, the less credible estimates and prior year claims can be. A few large claims can tip the scales, causing claims and cash flow to vary from month to month.

Just right — for many businesses

For the majority of employers who are too large for a PEO and too small or risk-averse to self-fund (admittedly, this is a shrinking number), the fully insured market is just right. With fully insured benefits, groups are rated and priced individually based on their demographics and, in many situations, some calculation of their claims as well.

While fully insured plans might not allow the same flexibility as self-funding, there are still ways to contain cost and get creative with plan designs, like adding health savings accounts or health reimbursement arrangements, or potentially carving out pharmacy benefits if the plan is large enough.

Next renewal season, when you’re looking at the same renewal rate and the same alternative options for the umpteenth time, try channeling your inner Goldilocks. Leave your comfort zone and go exploring. In the benefits realm there are a lot of option out there; alternative funding mechanisms is just one of them.

Consider all of your options to find the funding options and benefits package that are just right.

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