Is it time to make the change to a self-insured health plan model?
Before you answer, time for some Self-Insurance 101!
By David Roosa, Senior Vice President of Sales
Over the past several years, there has been a steady increase in interest from brokers and employer groups in self-insured health benefits models. Some employers are just now exploring the possibilities available to them. Others are already self-insured and are looking for ways to improve the benefits they provide to their employees, the outcomes their employees experience, and the additional savings that may be available to them. As more clients are evaluating their plan design, make sure they understand the fundamentals of self-insurance.
What’s the difference between self-insured and fully-insured?
Employers who want to offer health insurance to their workers generally have two options – a self-insured plan or a fully-insured plan.
If the employer chooses to fully insure, the employer purchases health insurance coverage from a commercial insurer for a set premium amount and the insurance company takes on the risk associated with employees’ claims. If the plan has a good year with no extraordinary claims or if there are multiple high-cost claims, the employer continues to pay the same flat monthly rate for the term of the plan, usually one to three years, with the carrier keeping the margin.
With a self-insured plan, employers use their own money to cover employee’s claims and assume all risks for covering the cost of those claims. If the plan has a good claim year and spends less on covered medical services than budgeted, the company keeps the margin. On the other hand, if the plan has a bad claim year, the company must pay the increased claims. If those claims get too high, self-insured plans generally have backup protection in the form of high deductible insurance coverage, called re-insurance or stop loss coverage, to protect against catastrophic claims.
Why are more employers choosing to self-insure?
One of the major reasons an employer chooses self-funding is the reporting and data. Fully insured plans offer little to no data - so Employers have no idea how their plan is running, what benefits are being used or what risk factors are in the member pool. This makes it very difficult to manage or make educated plan design changes to offset increased utilization.
That’s just the beginning. According to the Health Care Administrators Association, there are several other reasons why employers may choose to self-insure:
- The ability to customize the plan to meet the specific needs of its workforce, rather than purchase a “one-size-fits-all” health insurance policy.
- The ability to maintain control over the health plan reserves, enabling maximization of interest income.
- No need to pre-pay for coverage, thereby improving cash flow.
- The employer is not subject to conflicting state health insurance regulations/benefit mandates because self-insured health plans are regulated under federal law (ERISA), not the individual states it operates in.
- The self-insured plan is not subject to state health insurance premium taxes, which are generally two to three percent of the premium’s dollar value.
- The ability to contract with the providers or provider network best suited to meet the health care needs of its employees.
The number of Americans now covered by self-insured plans is significant. In fact, The Kaiser Family Foundation’s twenty-third Employer Health Benefits Survey (EHBS) for 2021, reports almost 155 million nonelderly people are covered by employer-sponsored plans. This represents 64% of covered workers – including 21% of covered workers in small firms and 82% in large firms – are enrolled in plans that are self-insured. In addition to the drivers listed above, employers see self-insuring as a way to address increasing healthcare costs, with the average premium for family coverage increasing 22 percent over the last five years and 47 percent over the last ten years.
What’s the downside to self-insuring?
Choosing to self-insure is a serious business decision for employers. There are several significant implications that must be considered before pursuing the self-insured path:
When is the right time to self-insure?
- Is the employee group large enough to justify the potential benefits of self-insuring? One thing to consider is that it is easier to accurately predict health claims for large populations versus smaller populations. Employers with more than 200 employees usually find that size group is large enough over which risk can be spread. In today’s marketplace, however, some smaller employee groups are also finding it advantageous to self-insure, as TPAs in particular are developing creative and flexible health plan designs.
- Does the employer have large enough financial reserves to accept all the risk for paying employee claims?
- Does the additional cost of stop-loss insurance to mitigate the financial impact of catastrophic claims make sense? Stop-loss insurance covers major losses that exceed certain thresholds. The coverage can help with a single member with extremely high claims or against the cost of a group of members whose aggregate claims meet or exceed the threshold. This can be the difference in preventing financial ruin for a self-insured employer.
Deciding to move from fully insured to self-insured requires an employer to ask specific strategic business questions:
Partnering with a TPA
- What is the organization’s risk tolerance of paying all employee health claims?
- Is the company strong enough financially to pay all employee health claims?
- What’s the overall health status of the member pool? Do chronic illnesses like diabetes or heart disease affect a certain number of employees? How does the health of your employees and the health challenges they face vary by age groups? Will your employees embrace wellness incentives and health care education?
- Does purchasing stop loss insurance make sense for the organization’s bottom line? Do the stop loss premiums make sense for the overall plan’s budget?
- Has the organization identified a trusted, knowledgeable TPA who can provide claims administration and other services that will assure effectiveness, efficiency, and member satisfaction? Can that TPA partner provide cost containment services that reduce the risk of catastrophic claims?
- Would the transition be disruptive to members undergoing treatment for serious medical conditions?
- If currently fully-insured, is the plan meeting the needs of both the employees and the organization? Do the potential financial advantages and tax implications provide significant benefits to moving to self-insured? Is it time for a change?
Rather than administering claims payment themselves, most self-insured plans partner with a Third Party Administrator (TPA) to process or adjudicate member claims. This is one of the most critical functions that will determine the success of your plan. A TPA may provide additional services, directly or through strategic partnerships, including pharmacy benefits management, medical management, stop-loss, employee and provider portal access, contracting with providers for PPO discounts, utilization review of claims, and more.
Here are some questions you may want to ask your potential TPA partner before making your final selection:
Why HealthSmart should be your TPA partner
- Which services do you provide in-house, and which do you outsource?
- Are you able to provide comprehensive services or will I need to partner with multiple service providers?
- Do you provide reporting?
- Do you support compliance with recent transparency and No Surprises Act legislation?
- What vendor partners can you offer to enhance my plan’s savings, member health and well-being, quality outcomes, and member satisfaction?
- How long have you been in business?
- Can you provide references?
- How do approach working with a client health plan – as a partner or as a vendor?
- What is your financial reporting and breakdown of claims structure? Is it detailed and flexible?
- What services are included in your administration fees?
- Do you work exclusively with one stop loss insurance carrier, or am I free to choose an insurance carrier?
- Do you work with independent insurance brokers?
- Is your customer support staff trained and able to solve problems on my plan members’ behalf efficiently and quickly?
- Do you provide a written agreement that details all financial terms, services, and fees?
HealthSmart is one of the largest TPAs in the country and is the premier provider of customizable and scalable health plan solutions for self-funded employers. We partner with our health plan clients to help reduce costs and improve outcomes, all while helping them manage their members with dignity and respect.
- We protect our clients by managing risk and reducing financial exposure.
- We are a one-stop shop, providing everything a plan sponsor needs for a successful, flexible health plan design.
- Our health benefit plans and solutions provide worry-free, self-funded plan administration, quality coverage, and innovative care.
- We partner with several major stop loss national carriers
- We work with selected group of top-rated Managing General Underwriters (MGUs) and carriers who provide access to the best stop loss Policies available for self-funding.
- We have a Reinsurance Team dedicated to delivering a seamless reinsurance claims process for all self-funded groups with stop loss coverage.
- We help members get healthier and avoid future complications and unnecessary expenses with our care management programs that identify risks, measure results and help you plan for the future.
- Our HealthSmartRx Solutions team delivers extremely attractive pharmacy benefits with an Rx discount program, and an innovative program – Smart RxAssist – to significantly reduce the high costs of specialty drugs.
- Our Network Solutions group saves plan dollars through our proprietary PPO networks, nationwide network partnerships and effective non-network negotiations.
- We have extensive experience with plans covering populations with special needs, like retiree medical plans, university students and tribal organizations.
- We offer business intelligence and web-based reporting. Plus, we offer a variety of health and wellness initiatives and even onsite employer clinics.
In short, HealthSmart delivers value to our clients by improving health and lower spending by providing access to the highest quality providers at the lowest cost. With proven expertise paired with creative, innovative thinking, we deliver tailored solutions that solve specific problems for our clients. We’ve done this for hundreds of clients, and we can do it for you.
For more information about how to start a self-funded health plan, or how to transition from a fully insured health plan to a self funded plan, contact us at email@example.com
. Meanwhile, learn more about the ins-and-outs of going self insured-- Self Insurance 201
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.