Why self-insurance strategies are out of whack and other realities for advisers

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Look, I get it. The benefits business has changed immensely in the past decade and advisers are perpetually under pressure to show value to their clients. Actively seeking cost reduction in employer healthcare spend is a natural place to focus, and a vital one. The rising tide of advisers tackling the high cost of healthcare is not just highly commendable, it’s necessary.

But…the way it’s happening is whacko.

Here is the basic strategy for what the more hyperbolic advisers are calling a “revolution” in advising: Convert employers to a self-insured model; attack costs on multiple fronts by designing plans that make it easier to address high-cost usage patterns; go hard after wasteful PBM and carrier/provider network arrangements; promote healthcare consumerism and old-is-new-again strategies like direct primary care, and continually monitor and audit claims data to see where next attack high costs and waste.

But this approach isn’t so much a revolution as the way our business should have worked all along. Unfortunately, wasteful practices have embedded themselves so thoroughly that our methods for backing ourselves out of them only make sense inside the reality that is the U.S. healthcare system.

First, there’s the obvious distinction that the U.S. system is heavily reliant upon private employers and private, albeit highly regulated, market factors. This isn’t a subtle plug for single-payer, but rather a statement that we just don’t do things the way the rest of the world does and our unique ways have resulted in major waste. Going after that waste requires, very literally, taking ownership of the strategy.

And that means driving employers to convert to self-insurance, which in the context of our whack system is perfectly sensible. Employers who spend millions on healthcare every year should “own” their data. Duh. As the most active new-breed advisers say to their clients and prospects, “Whether you like it or not, you’re in the healthcare business.”

From micro to macro
But once you go from micro to macro, the logic of this approach starts looking nuts. First, self-insurance requires stop-loss insurance, because one bad diagnosis could bankrupt a mid-sized employer and their employee. Employers must get insurance on their insurance. It’s all necessary—and it’s completely out of whack.

Second, the “self” part of self-insurance means employers are, by definition, going it relatively alone. If you’re a smart adviser that leverages your full book of business, then your clients will see fantastic results. If you’re not, they won’t. As a student of history, this approach reminds me of the old European feudal system, where thousands of fiefdoms went it alone and saw most communities outside of their own as hostile to their own interests. Some became the kingdoms that led to the countries we know today. Others lived in fear of being conquered or killed—until they were conquered or killed.

The lesson? A big sector of the largest healthcare system in the world largely relies on a small-time, adversarial approach used during the literal Dark Ages. Ugh.

In our ecosystem, where the carriers, providers and pharmaceutical interests (pharma companies, retail pharmacies, PBM’s) are largely painted as enemies by advisers (not without reason, mind you), who do you ultimately think will survive and who will not?

Third, going self-insured is a lot of work. A recent Employee Benefit Adviser article had the headline “Reducing clients’ health spend by taking an axe to claims.” The benefits experts interviewed offered up a litany of tasks to control costs—and we know that that list just scratches the surface. Going self-insured means plenty of work for advisers—which is good—but also plenty of work for the advised—which usually is not.

That’s at the heart of why this is so whacky. When the base economics of a system are unsound, any strategy relies on that system is also unsound. If one morning, employers wake up and decide it’s too expensive and difficult to be in the healthcare business and there are better options available, then that’s it; the movement dies—or at least shifts so profoundly that it is no longer recognizable.

Such a shift, once seemingly impossible due to societal and regulatory hurdles, could realistically come via a new generation of association health plans or expanded freedom to use HRA funds for individually underwritten insurance (more on that in a future column).

Does that mean that it’s all pointless and you should go back to just selling insurance? Not at all. Yes, there is much about the system that doesn’t make sense, but we must work with the system we have to get to the system we want. Employers need your help now more than ever, but they also need the kind of help that will lead beyond a few short-term wins to something that is sustainable—and not just for their little fiefdom but for our kingdom as a whole.

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