Why clients and advisers should be upfront with workers about self-funding
I’m always enchanted when someone shows me the obvious, hiding in plain sight. For example, I’ll never forget when my college professor shared that E.T. the Extra-Terrestrial was Steven Spielberg’s way of telling the Wizard of Oz story from the eyes of the lion, scarecrow and tin man. He reinforced this point by displaying the famous image of Elliott and E.T. flying their bike across the twilight sky. He asked, “Does this image remind of you anything?”
“Yes, it does. Good grief, how could I have missed that?”
My friends who work for large companies have a similar reaction when I tell them that their health plans don’t have health insurers, only health plan administrators. The knowledge that their employers are paying the claims of the plans dramatically changes their entire outlook on their health benefits and total compensation.
For example, in response to an essay I wrote last year on this topic, my friend dropped me this note:
“When I tell people at work that [our employer] is paying all our claims with cash, people look at me like some wild conspiracy theorist. But the evidence is all there – they want us to be cost-conscious: the health fund incentives, the biometric screenings, the surveys. It’s just odd that [the plan being self-funded] is not discussed openly. Both sides, it would seem, would benefit from information sharing here.”
And, a human resources executive shared this comment:
“This is such a good point! I am always surprised when the "average worker" does not know if their plan is self-funded or the impact that has. When I share with them why it matters, you see the lights come on.”
As benefits professionals, we know that most Americans receiving health benefits through group health plans are covered by a self-funded plan. Per the 2015 Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits Annual Survey:
- 63% of all covered workers are covered by a self-funded plan
- 83% of covered workers employed by a firm with 200 or more workers are covered by a self-funded plan
However, are those of us sponsoring self-funded plans effectively communicating to our employees that the plan is self-funded and explaining why that matters?
One of the strongest headwinds in communicating this point is our society’s habit of calling health plan administrators “health insurers.” Even I’m guilty of this from time to time. Thus, employees covered by self-funded plans are constantly hearing the terms “health insurance company” and “health insurer.”
Why are the terms health insurance company and health insurer so pervasive?
1. Many health insurers in the individual and small-group market (e.g., Aetna, Anthem, CIGNA, UnitedHealthcare) also offer claims administration and network services to self-funded medical plans. We tend to associate these brands and their logos with health insurance companies.
2. Policymakers and the media often don’t distinguish in their communications between an insured health plan and a self-funded plan. For example, have you heard a presidential candidate in this election cycle cite that for most American workers, the employer, not an insurance company, is paying the health claims? I haven’t.
So how can an employer sponsoring a self-funded health plan effectively communicate to its employees that the plan is self-funded and explain why that’s important?
1. First, eliminate the terms health insurance company and health insurer from the employee communication materials and strive to eliminate the terms from the company vocabulary.
2. Next, explain the basics of how the self-funded plan works. For example, communicate that the network secures discounts from physicians and hospitals, the health plan administrator adjudicates claims, and the care-management nurses help coordinate and improve the quality of care. Underscore that the employer is paying all of the claims, except, generally, for those above a certain catastrophic level.
3. Then, explain why employee stewardship of the health plan financially benefits all parties. For example, point out that total compensation consists of cash wages plus benefits compensation. Emphasize that increases to benefits compensation generally reduce increases to cash wages. As a visual tool, use Slide 4 of the 2015 Kaiser Family Foundation and HRET Employer Health Benefits Annual Survey’s Chart Pack.
The graph demonstrates that since 1999, health plan costs have increased 203%, and cash earnings have increased 56%. You could also share your own history of health plan increases vs. cash compensation increases. Of course, this argument falls apart quickly if a company treats cash compensation and benefits compensation as uncorrelated budget silos.
Once employees begin to understand why smaller increases in health plan costs will raise cash compensation levels, ask for their help. For example:
1. Ask for their ideas and feedback on how to improve workplace health.
2. Ask them to support the wellness initiatives you are investing in and to provide ideas to improve and expand those programs.
3. Ask them to take the phone call from the health plan’s care-management nurse.
Finally, consider developing an incentive plan that rewards employees if the plan’s performance runs better than expected (ask your ERISA attorney and benefits consultant about the permitted incentives).
If we all do our part in this communication, I’m hopeful that stronger employer/employee health plan partnerships will form, self-funded health-plan cost increases will ebb, and my friend’s colleagues will cease deeming him a conspiracy theorist.
Do you have experience in implementing these strategies? If so, please consider sharing what you’ve learned via the below comment section or via Twitter @zpace_benefits. We would all benefit from learning from your experience.
Epilogue: After proofreading this essay last week, a colleague pointed out another correlation hiding in plain sight – in the Brothers Grimm’s Hansel and Gretel, the stepmother and the witch are one and the same! How did I miss that?