Self-Insurance 201: Transitioning to a Self-Funded Health Plan
By David Roosa, Senior Vice President of Sales
In my recent
Self-Insurance 101 blog, I reviewed the basic concepts of self-insurance and its underlying features and benefits. In this blog, we’ll dive a little deeper on how employers can efficiently and effectively transition from fully insured to self-insured and the key questions employers should address before setting out on the self-insured journey.
The past few years have seen an uptick in the number of employers considering transitioning from a fully insured plan to a self-insured plan. In my experience at HealthSmart, my team and I have certainly seen a growing interest among employer sponsored plans in the potential benefits of self-insurance. In fact, about 2/3 of American workers are already covered under a self-funded plan, and that number is growing.
Helping employers provide affordable, comprehensive health benefits for their employees has always been challenging. Now, market dynamics including spiraling costs for medical services and medications, higher expectations from employees and their families, and the need for transparency and quality are placing new demands on employer sponsored health plans.
Critical considerations
Let’s quickly review the major benefits of self-insuring an employee health plan:
• One of the biggest benefits for employers who have locations in more than one state is self-insured benefits are regulated by the federal ERISA statute, as opposed to fully insured health plans that are regulated by states and subject to state health insurance premium taxes.
• The ability of the plan sponsor to customize the plan to fit its employees’ specific healthcare needs.
• The plan sponsor’s ability to maintain control over health plan reserves, allowing it to maximize interest income.
But self-insuring may not be the right approach for every employer. As employers and their brokers evaluate taking the leap into self-insurance, there are some foundational considerations you need to ponder before proceeding:
• Is the employer’s health plan financially sound enough to sustain the cost of all employee health claims?
• What is the overall health status of the employee population?
• Will employees embrace wellness incentives and health care education?
• Has a trusted, knowledgeable TPA been identified?
A comprehensive analysis of health claims will provide clues about challenges an employer will face as a self-funded plan
Conducting a deep dive into claims data will reveal the most common health issues among the employee population. Common chronic and typically expensive conditions to cover include diabetes, heart disease, cancer, and other chronic and acute health issues. This insight into the overall health of the plan sponsor’s employees will help inform the coverage purchased and the wellness benefits included in the plan design.
First things first
Based on our years of experience working with brokers and their clients, we’ve identified some basic steps critical to the successful transition from a fully insured to a self-funded model. An important part of the process of moving to self-funding is working with a broker to select the best Third Party Administrator (TPA) to manage and administer their plan. This is typically best accomplished by issuing an RFP to solicit TPA candidates. Defining and managing the RFP process is an important service brokers can provide that will be welcomed by their clients.
Once a TPA is selected, the employer oftentimes relies on the broker to collaborate with the TPA to develop their plan design. For optimal success, the TPA should be flexible and offer customizable plans tailored to the individual employer. As the employers, with their broker’s support, round out the final plan document, brokers can support plan sponsors in selecting medical management vendors and pharmacy benefit carve-out programs and settling on deductibles, out-of-pocket costs, covered benefits, and employee contribution levels. Brokers can also help their clients evaluate add-on benefits like dental, vision, and others.
Working with the broker and employer to identify specific goals and requirements for a self-funded plan will reveal the appropriate cost-savings options to pursue. For instance, is the employer open to the significant savings available from Reference Based Pricing (RBP) that uses Medicare rates as the anchor for price negotiation with providers rather than a percentage off billed charges? There are several options and plan designs for administration services, available, and identifying the RBP plan that will save it the most money while delivering top-quality care, will help the plan sponsor maximize the value of the RBP approach.
The contracted provider network the employer chooses also offers potential cost savings. Employers should consider if they are open to network options that may include a narrower network that directs members to a specific set of providers, and how much disruption to their provider network are they and their covered members willing to accept.
Finally, after the levels of benefits and scope of the provider network have been agreed upon, employers typically look to their broker to help draft and file the plan document with regulators and confirm the final rates for the plan overall.
Understanding stop-loss insurance is vital
What happens when a member has a catastrophic disease or injury? The financial burden on a self-insured health plan can be devastating. Thankfully, there’s safety net to help protect employers from potential financial ruin. Under stop loss policy coverage, the stop loss insurer becomes liable for losses that exceed certain limits. While you may be familiar with the concept of stop-loss insurance, what you may not know is there are two types of stop-loss insurance. In most cases, self-funded plans should consider purchasing both types.
Specific or individual stop loss provides protection against a high claim on any one individual. Aggregate stop loss provides a ceiling on the dollar amount of eligible expenses that an employer would pay, in total, during a contract period. Employers should also be aware of the practice of “lasering” where the stop loss carrier assigns a higher specific deductible for an individual with a known condition that is likely to exceed the specific deductible. This has an impact on the overall premium.
Stop loss coverage must be effectively integrated into the overall plan design by negotiating provisions of medical/pharmacy stop loss coverage. This is where having the right TPA partner can make a huge difference. Having processes in place to effectively help plans mitigate the risk of catastrophic claims by managing the care of members with chronic, rare or severe conditions can help reduce the cost of stop-loss premiums.
Partnering with the right TPA is critical to a self-insured health plan’s success
When an employer considers a TPA partner for their self-insured health plan, it is critical to take a very close look at the value the TPA brings to the table.
• Does the TPA provide cost containment services, including care management, to reduce the significant spend on treating members with severe, rare or high-cost chronic conditions and pharmacy benefit management services to protect plans from the exorbitant costs of specialty pharmacy medications? If not provided by the TPA partner, these types of services should be purchased separately as a risk mitigation plan.
• Is the TPA offering other solutions including captives, HRAs, HSAs, minimum essential coverage, and concierge services? For example, one of the most valued services we at HealthSmart provide to our clients is our white-glove Concierge Desk. This service provides members a high-touch, single point of contact for all service and benefit questions. Our Concierge Advisors direct members to the most cost-effective, high-quality providers and our concierge specialists work directly with providers to confirm reimbursement amounts and answer associated questions. Does the TPA provide transparency and reporting data to its clients? Reporting from the TPA is critical to helping employers gain insight into cost and utilization trends as well as what’s working and what isn’t for its members. Additionally, if the TPA provides reporting data, are the reports comprehensive, flexible, and ultimately useful?
• Is the TPA willing to stand behind their sales promises with performance guarantees? Is implementation – including a summary plan design, member ID cards and contracts – completed on time? Are claims processed timely and are they accurate? Are member phone calls answered quickly? Is standard reporting delivered in a timely manner? Employers should expect best-in-class service from the TPA’s implementation and client support teams.
• Finally, will you be able to develop a partner relationship with the TPA, versus strictly a vendor relationship?
As one of the largest TPAs in America, having served hundreds of clients over the past 20+ years, HealthSmart knows a win-win relationship is built on trust and delivered results. Our mission is simple. We work with our clients to reduce healthcare costs leveraging our innovative solutions with a flexible, personalized approach, and to improve the health of our clients’ members while treating them with dignity and respect.
In customer satisfaction surveys, we’ve heard from our clients that they appreciate the variety of products and services we offer beyond plan benefit administration, including care management, pharmacy benefit management and national provider networks. Brokers and plan sponsors alike look to us to be their one-stop source for their health plan needs while receiving best-in-class service, support and intelligence.
Partnering with a robust TPA puts you ahead of the game
Perhaps the most important aspect of choosing self-insurance is finding a TPA that delivers outstanding service and a comprehensive suite of services to meet every need of a self-insured plan sponsor. That’s why HealthSmart is the ideal TPA choice to help your clients transition to self-insurance. Here’s why:
•
High customer satisfaction – More than 90 percent of clients report being satisfied or highly satisfied with our TPA services.
•
Industry-leading “likely to recommend” Net Promoter Score (NPS) – NPS measures customer experience loyalty, and satisfaction based on the likelihood the customer will recommend HealthSmart to others. Our NPS of 71 places us in the “excellent” category. For health plans, that is in the top 1%!
•
Cost Savings- Over the past three years, HealthSmart’s medical plan trend costs have only risen a cumulative 6.7 percent, as compared with 19.7 percent for the market as a whole (source: National Medical Cost Trend- PwC Medical Cost Trend: Behind the Numbers 2022).
•
Best-in-class service – Our clients tell us our staff is one of the top reasons they continue to choose HealthSmart as their TPA.
•
Availability of RBP Concierge support – HealthSmart’s concierge support helps members when Reference Based Pricing is incorporated into the plan design. With our
SmartDecision™ RBP program, we negotiate with health systems before the scheduled episode of care to ensure provider acceptance and to prevent surprise bills.
•
Scalable solutions for health plans of all sizes – From less than 200 members to thousands of members, we offer the flexibility and creativity that large carriers can’t. We develop the right plan for each plan sponsor based on their specific needs.
• High-quality, cost-effective
provider networks with national coverage.
•
Pharmacy services,
including Pharmacy Benefits Management and high-cost specialty drug programs – HealthSmartRx Solutions (HSRx) provides services that reduce prescription drug spend while providing access to 67,000 retail pharmacies nationwide, plus a
variable copay assistance program for high-cost specialty drugs that can deliver a 10-15% reduction in a plan sponsor’s specialty drug cost.
•
Care Management Solutions – HealthSmart offers in-house
Utilization Management,
Case Management and
Disease Management/Predictive Modeling designed to deliver the absolute best care without unnecessary financial burdens.
•
Integrated Care – When plan sponsors choose HealthSmart Care Management, Benefit Solutions and HSRx Solutions, member data is shared to provide an integrated, holistic approach to manage all aspects of the member’s healthcare resulting in better outcomes and lower ovarall costs.
•
Deep experience with stop-loss placement managing more than $1 billion in premiums.
• We manage compliance with
transparency regulations so clients don’t have to worry about them
We have the experience and expertise to help you and your clients make the transition to self- funding. To learn more about why HealthSmart is the TPA partner for your clients’ self-funded health plan, email us at
sales@healthsmart.com.
About the Author
David Roosa is Senior Vice President of Sales for HealthSmart. With more than 20 years of sales experience, David oversees HealthSmart’s sales team, providing specialized solutions to manage benefit costs, healthcare reform strategic planning, benefits administration and onsite medical centers to HealthSmart clients.
Prior to joining HealthSmart, David worked with Gallagher Benefit Services (GBS) as the Area Vice President as well as with Cigna, where he held the position of Vice President of Sales. During his time at Cigna, he was responsible for managing an 88 million dollar healthcare plan, covering four states and 25,000 customers. David also spent nine years as a Senior Sales Representative for Great West Healthcare, specializing in self-funded plans.
David graduated from Florida State University with a double major in Marketing and Management.