Dave Matey, Vice President of Employee Benefits for ECBM
Employee Health Insurance continues to outpace inflation and is becoming increasingly unaffordable for employers and employees. For employers, healthcare has reduced profits and growth. For employees is has eroded or replaced salary increases and retirement savings.
Why would employers continue with Fully Insured benefits plans?
Despite these facts, many employers continue to offer fully insured health plans to their employees. With a fully insured plan, healthcare companies hold all the cards. They set the rates, provide little to no claims data and raise the rates every year based on medical trend which is basically their own profits. In addition, most employers do not even understand that they are still taking on all the risk. Insurance companies determine how much risk a group will take and then provide a pooling point (similar to specific stop loss coverage). Insurance companies then charge employers for the pooling charge and bundle a group of companies together and sell the remainder of the risk to a reinsurer. Since 2009 major insurance company profits are up from 500% to 1,000%. Insurance companies have no incentive to lower medical costs. Their #1 priority is to raise profits/reserves.
What Should Employers Be Opting For Instead?
In order to gain control over healthcare costs, employers are moving to self-funding.
The advantages of self-funding include:
Improved Cash Flow – rather than paying a set premium each month based on the number of employees enrolled (fully insured), with self-funding employers only pay for the claims that actually happen.
Elimination of most premium taxes – Employers save between 1.5% - 3% in premium taxes.
Eliminate insurance carrier profit and risk charges – Employers save between 3% - 5% annually.
Control of plan design – Ability to customize plan design and eliminate state mandates.
Access to data – Employers gain fully access to claims data and the ability to target the cost drivers in their plan.
The basic components (fixed costs) for a self-funded health plan include:
Administrator – Typically an insurance carrier (ASO) or a third party administrator (TPA).
Stop Loss – Specific (for individuals) and Aggregate (group) coverage which acts like an umbrella policy and caps the claims limit for a particular time period. Stop loss coverage can be provided by a reinsurance company or a captive.
Provider network – Self-funded plans will typically rent a Preferred Provider Organization (PPO) for employers to access providers.
For larger employers (250+ employees) fixed cost will be approximately 20%-30% of total costs. For smaller employers (25 to 250) that will increase to 30%-40%. In either case, the most important part of any self-funded plan to have full access and transparency into the claims. There has never been a better time for employers to consider self-funding their health plan.
If you have questions or would like to discuss the opportunity of Building a better plan for your company, contact me here:
