The self-insurance solution — with or without the ACA
With so much uncertainty around the future of healthcare in America, business owners nationwide are experiencing a mix of trepidation and hope. For years, health insurance rates have increased sharply, even for companies with very low utilization. Companies have been forced to shell out more and more cash — usually for less coverage and very little real “healthcare.”
All told, the cost of providing health benefits has cut deeply into business owners’ profit margins, putting them in a stranglehold. They have been forced to make a difficult choice: pay higher premiums year after year for traditional major medical plans, or offset premium increases by cutting coverage, passing more of the costs to employees, or reducing their workforce.
Given these dismal options, it’s no surprise the healthcare dilemma has created a culture of aggravation and cynicism among employers. No matter what the future holds for the Affordable Care Act, business owners know they must provide healthcare if they want a recruiting advantage. If traditional insurance rates continue their uphill climb, the problem will only persist — ACA or otherwise.
The situation is clearly shaky, but there is a solution. Brokers and employee benefit advisers can offer an alternative that may solve many issues for their clients: self-insurance.
What is self-insurance?
Simply stated, employers who self-insure create their own benefit plan for their employees, pay health claims directly or through a third-party administrator, and buy stop-loss insurance to limit their liability. This process allows much more creativity in designing a plan that addresses the specific needs of the employer and employees.
Self-funded benefits can include medical, prescription medicals, vision, dental and workers' compensation. Costs vary from month-to-month depending on workers’ use of health services. For employees, the health plan may look and operate exactly the same.
The administrative responsibilities, such as enrollment, claims processing and provider networks may be handled internally, but often are outsourced to a TPA. Some companies also retain a third-party partner to help employees navigate the healthcare system, direct them to the right level of care, and steer them toward high-value, low-cost services and facilities.
Stop-loss insurance is in place for catastrophic illnesses and accidents, protecting companies from unexpected financial loss by covering health claims that exceed a certain threshold.
Large corporations and government entities nationwide have used a self-insurance model for decades. The trend is just beginning to take hold with small- and mid-sized businesses, spurred by overwhelming cost increases, federal regulations, and a healthcare system that’s daunting to navigate. Self-insurance may be the silver bullet for companies struggling to maintain their financial solvency without cutting employee health benefits.
Generally speaking, expenses for self-funded plans are lower than fully funded insurance because self-funding does not include marketing costs or profit margins of traditional insurance. The Self Insurance Educational Foundation estimates these cost savings at 10 to 25% in non-claims expenses.
Self-funded plans also are exempt from state insurance regulations and premium taxes under the federal Employee Retirement and Income Security Act, and are not subject to many of the provisions of the ACA.
Managing care delivery, either in-house or in conjunction with a third-party partner, also is a major factor in reducing health expenses. For example, many medical expenses are needlessly incurred in hospitals. MRIs, X-rays, blood tests and other common procedures may cost five to 20 times more than the exact same services performed in an offsite imaging center, lab or independent doctor’s office. A partner organization can serve as a healthcare concierge, directing employees to seek treatment at lower-cost (but equally effective) sites of service.
Mitigating workers’ comp & decreasing E-Mod scores
Likewise, self-insuring may prove a smart solution for companies in industries with high workers’ compensation claims. Far too frequently, employees claim workers’ comp for very minor injuries that require only first aid — and workers’ comp is a high price to pay for a few stitches. In other cases, people claim workers’ comp for injuries sustained outside the workplace, simply because they don’t have other options. With a well-designed plan — combined with a clear process for guiding employees through the system — workers are more likely to seek the right care through the right channels, helping businesses keep workers’ comp claims in check.
In the same way, organizations that are subject to an Experience Modifier Rate may lower their E-Mod score through a self-funded plan with built-in care coordination services.
An edge in hiring
Self-insurance may also give companies a competitive advantage in hiring. While insurance premiums are killing business’ profitability, the cost of healthcare also is creating a hardship for individuals who don’t get benefits through their employer. Many of those people start looking for jobs with bigger companies that offer healthcare, leaving small companies at a distinct disadvantage. However, self-insurance may be a good option for businesses of all sizes — even those with just a handful of employees — and may aid them in hiring.
Owning the data
Companies with self-funded healthcare have access to every claim, from prescription medications and primary care visits to emergency room usage and specialists. As their data grows, companies can benchmark against industry norms and address red flags among their workforce. Moreover, in this age of powerful data mining and analytics, the claims information may provide insights into how companies can best manage benefits and control costs.
Strategic plan design
Self-insurance might just be the best-kept secret in healthcare. A smart, strategic plan should include these three components:
First, everyday care that most employees need: Many of today’s traditional health insurance plans offer stripped-down benefits that do not cover routine services. Other plans, including Minimum Essential Care coverage, are heavy on diagnostics and light on treatment — MEC-only plans do not address employees’ ongoing medical needs.
A smart partial self-insured plan should include primary and injury care, rehabilitation and chiropractic care, labs, immunizations, generic medications and preventive services at little or no out-of-pocket.
Second, stop-loss insurance: To supplement the partially self-insured plan, companies can purchase stop-loss insurance to cover the most expensive healthcare — chronic illnesses, catastrophic diagnoses or accidents — and to ensure the business meets Minimum Value Plan requirements.
Third, streamlined care delivery: Companies may elect to hire a partner organization to manage the care delivery and logistics process, help employees navigate the system, and eliminate the waste, administration and overpricing rampant in today’s healthcare industry.
As the nation’s lawmakers decide what will replace ACA, small to medium-sized business owners may want to strongly consider what larger corporations have done for years