For years, health insurance rates have increased sharply, even for companies with very low utilization. Companies have been forced to shell out more and more cash—usually for less coverage, and with so much uncertainty around the future of healthcare, business owners are looking for change.

All told, the cost of providing health benefits has cut into business owners’ profits, putting them in a tough place. They have been forced to make a difficult choice: Pay higher premiums year after year for traditional major medical plans; or offset premium increases by cutting coverage, passing more of the costs to employees; or reduce their workforce.

Given these options, it’s no surprise the healthcare dilemma has created a culture of aggravation and cynicism among employers. No matter what the future holds for the Affordable Care Act (ACA), business owners know they must provide healthcare if they want a recruiting advantage. If traditional insurance rates continue to rise, the problem will only persist—ACA or otherwise.

The situation is clearly shaky, but there may be a solution. We have an alternative that has solved many issues for our clients, and may do so for you: self-insurance.

What is self-insurance?

Simply stated, employers who self-insure create their own benefit plan for their employees, pay health claims directly or through a third-party administrator (TPA), and buy stop-loss insurance to limit their liability. This process allows much more creativity in designing a plan that addresses the specific needs of the employer and employees.

Self-funded benefits can include medical and prescription drugs, among other things. Costs vary from month to month depending on workers’ use of healthcare services. For employees, the health plan may look and operate exactly the same.

The administrative responsibilities, such as enrollment, claims processing, and provider networks, may be handled internally, but often are outsourced to a TPA. Some companies also retain a TPA to help employees navigate the healthcare system, direct them to the right level of care, and steer them toward high-value, low-cost services and facilities. Stop-loss insurance is put in place for catastrophic illnesses and accidents, protecting companies from unexpected financial loss by covering health claims that exceed a certain threshold.

Reducing costs

Generally speaking, expenses for self-funded plans are lower than fully funded insurance because self-funding does not include marketing costs or profit margins of traditional insurance. The Self-Insurance Educational Foundation estimates these cost savings at 10 to 25% in non-claims expenses. Self-funded plans also are exempt from state insurance regulations and premium taxes under the federal Employee Retirement and Income Security Act, and are not subject to many of the provisions of the ACA.

Managing care delivery, either in-house or in conjunction with a TPA, is also a major factor in reducing healthcare expenses. For example, many medical expenses are needlessly incurred in hospitals. MRIs, X-rays, blood tests, and other common procedures may cost 5 to 20 times more than the exact same services performed in an offsite imaging center, lab, or independent doctor’s office. A partner organization can serve as a healthcare concierge, directing employees to seek treatment at lower-cost (but equally effective) sites of service.

Owning the data

Companies with self-funded healthcare have access to every claim, from prescription medications and primary care visits to emergency room usage and specialists. As their data grows, companies can benchmark against industry norms and address red flags among their workforce. Moreover, in this age of powerful data mining and analytics, the claims information may provide insights into how companies can best manage benefits and control costs.

Strategic plan design

Self-insurance might just be the best kept secret in healthcare. A smart, strategic plan should include these three components:

  • Everyday care that most employees need: Many of today’s traditional health insurance plans offer stripped-down benefits that do not cover routine services. Other plans, including Minimum Essential Care (MEC) coverage, are heavy on diagnostics and light on treatment. MEC-only plans do not address employees’ ongoing medical needs. A smart self-insured plan should include primary and injury care, rehabilitation and chiropractic care, labs, immunizations, generic medications, and preventive services at little or no out-of-pocket cost.
  • Stop-loss insurance: To supplement the self-insured plan, companies can purchase stop-loss insurance to cover the most expensive types of healthcare—chronic illnesses, catastrophic diagnoses, or accidents—and ensure the business meets Minimum Value Plan requirements.
  • Streamlined care delivery: Companies may elect to hire a partner organization to manage the care delivery and logistics process; help employees navigate the system; and eliminate the waste, administration, and overpricing that is rampant in today’s healthcare industry.

As the nation’s lawmakers decide what will replace ACA, small- to medium-sized business owners may want to strongly consider what larger corporations have done for years.

Interested in learning more? Contact Cory Friedman at [email protected] or Brent Rosen at [email protected].

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