Helping small groups overcome the barriers to self-insurance
Self-insuring the company benefits plan has traditionally been an option only for very large employers. Historically, many stop-loss carriers would not work with small groups, and fully-insured rates were often more competitive than taking on the risk of a self-funded plan.
But this is changing. Stop-loss and reinsurance carriers have begun working with smaller employers, and their rates are increasingly competitive vis-a’-vis fully-insured premiums.
Here are three challenges that have prevented smaller groups from self-insuring and how advisers can help their clients overcome them.
1. Affording stop loss or reinsurance coverage
Even just a few years ago, stop loss and reinsurance carriers would not cover individual employees below a $50,000 or even $100,000 threshold. Most small groups would hear that, envision spending $100,000 on a single employee before stop loss coverage kicked in, and quickly decide that self-insuring was too risky.
Today, many carriers will insure down to $25,000 per employee and will work with groups as small as 25 covered lives. And while this has happened, fully-insured premiums have skyrocketed for most employers during the past few years, rising much rise faster than inflation. All this makes option of self-insuring much more attractive.
2. Sidestepping employee lasering
Another practice that poses challenges for small self-insured groups is the lasering of high claim enrollees out of the stop loss coverage at renewal. Traditionally, many carriers carve out these employees from the coverage or set higher coverage thresholds for them than the rest of the employee population. So, despite lower coverage thresholds, employee lasering keeps the risk of self-insuring too high for many small groups.
However, there is at least one self-funding group—the Benecon Group of Lititz, PA—that doesn’t laser, because its VERIS self-funded program aggregates its stop-loss risk pool. There may be other carriers that offer a similar solution.
3. Finding local expertise
It is also difficult for small employers to find a broker with true self-insurance experience and expertise.
Frequently, brokers who work with small groups are less familiar with self-insurance than brokers who serve the large employer market. This stands to reason, since few, if any, of their clients have ever self-insured.
But soaring premiums and the growing interest in self-insuring among smaller employers is prompting small-group brokers to develop self-insurance strategies, and a number have declared that it is now their goal to at least familiarize all their small employer clients with the self-funding option.
As employer frustration with fully-insured premium increases continues to rise, those small-group advisers who haven’t already immersed themselves in the self-insurance market may find compelling reasons to do so.