A growing number of smaller companies — those with between 100 and1,000 employees — have begun to adopt self-funded employee benefit plans to help curb escalating costs. Your clients could also benefit from this trend if you can successfully articulate the benefits and advantages of self-funded plans.
To help owners or HR managers truly understand the advantages of this strategy, you can frame your statements in the following ways:
- “Self-funded plans are customized to meet the specific health care needs of your workforce rather than the standard ‘one-size-fits-all’ insurance policy. As a bonus, these plans are exempt from state mandates and can maintain consistent benefits in multiple states or locations.”
- “Your control over the design of the health plan design helps maximize cash flow and float that would otherwise be realized by an insurance carrier through the investment of premium dollars.”
- “This coverage is not pre-paid; premium taxes don’t apply; you don’t pay for the insurers’ overhead, profits or risk margins; and you, the employer, set and hold reserves — including excess reserves — instead of the insurer.”
In terms of the risks associated with self-funding, you should know that risk is capped at the individual member level and at the aggregate plan level. To be able to establish a fund for incurred claims up to a certain level — with the rest of the risk being insured — client companies need reasonable cash flow upfront. They should also have access to some basic numbers such as claims, claims history (in dollars) over the past two to five years, and claims categories such as catastrophic conditions, chronic conditions, one-time incidences or “normal” claims.
Where should advisors recommend employers go to access these basic data? They should ask their carrier. Also, brokers should encourage employers to ask themselves important questions like: What was the percentage increase for the last two to five annual renewals? What percentage of renewals was based on actual claims experience and what percent was based on a “pool” of similarly sized employers? What are the employee demographics? This should include average age, number of males and females, the number of employees with single coverage, two-person coverage, parent/child(ren) coverage, full family coverage and average family size.
By purchasing stop-loss insurance, companies can mitigate risk for claims above a specified dollar level to limit claims risk. “Stop-loss” insurance defines the maximum dollar amount that employers must pay for their claims during a specified time period.
There are two main types of stop-loss insurance:
- Specific stop-loss insurance protects the plan against an individual who reaches a certain level of claims incurred and paid.
- Aggregate stop-loss insurance covers claims incurred and paid that exceed a given amount for the entire covered group.
Controlling Risk Associated with Self-Funding
The simplest approach for helping companies control risk is to suggest that they partner with a health management firm that utilizes data analytics. This provides employers access to comprehensive health data. An experienced firm with specialized expertise can also assist in claims adjudication and payment while providing services such as access to preferred provider networks, prescription drug card programs, utilization review and the stop-loss insurance market.
Health data can be parsed and analyzed in a number of ways: pharmaceutical utilization, lab results, inpatient/outpatient days, doctor visits, etc., and potentially disability, workers’ comp, absenteeism and presenteeism.
Armed with these data, your client can take action and provide optimal prevention and wellness programs. Brokers interested in setting up a wellness program can visit the Center for Disease Control and Prevention’s website, where information is abundant. Employees who have been identified as having low-to-moderate potential for impact may require less attention, and health managers can simply decide to send prevention and wellness messages through direct mail. Meanwhile, high-risk employees are better served through a direct interaction with a health coach. This direct outreach goes a long way toward improving the individual’s health, as well as the cost of care.
What to Look for in a Health Plan Management Partner:
- Sophisticated data analytics
- Complete data analysis
- Access to a broad provider network
- Predictive modeling analyses
- Member outreach programs
- Integrated solutions that include claims adjudication, eligibility management and client/customer service.
In the long run, self-funding, combined with aggressive and meaningful health management strategies, can be less expensive than offering fully insured benefits to employees through traditional health plans. A top-notch data analytics tool is designed to provide a platform for developing a wellness strategy for each specific at-risk member to help members improve their health and reduce costs. Members should be encouraged to proactively address their health issues and use their medical benefits to the fullest extent. Ultimately, this approach contributes to individual health, productivity, company ROI and the goals of health care reform.
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