By David Slepak, Redirect Health
Businesses are paying more and more money each year – typically for fewer benefits – and many companies are forced to pass the costs to their employees. Other companies simply can’t afford to offer a good health plan. All this impacts employers’ ability to recruit and retain key staff, creating a catch 22 that puts their businesses at risk.
It’s a familiar cautionary tale – one that’s been told countless times over the past decade – yet nothing has improved. Insurance companies continue to ratchet up their rates, and business owners are trapped between a rock and hard place, anxious to offer competitive packages without killing the bottom line.
But a solution is emerging – and it’s making all the difference for business owners and their staff.
The Big Picture
Healthcare pricing is shrouded in mystery. No one really understands the actual costs of services performed by providers and hospitals – yet these are the central drivers of medical insurance rates. Insurance premiums rise every year, and with no other information to go on, consumers and employers panic. Companies and legislators attempt to develop solutions focusing on healthcare insurance, but their premise is faulty, so the solutions fail.
A Real Solution
Self-insurance was borne out of employers’ frustrations over traditional insurance. Every year, premiums go up – even when their utilization goes down. This is because businesses are all lumped together in risk pools, so companies’ efforts to manage their own healthcare claims are just a drop in the risk pool bucket.
Moreover, employers got wise to insurers’ profit margins. They no longer wanted to pay the markup for healthcare services. The wanted simple, straightforward, transparent healthcare.
The Self-Funding Model
Self-insurance is almost universal among large employers, but in recent years, it has begun to take hold among businesses of all types and sizes – especially in manufacturing and industrial companies with large support-level workforces that typically haven’t received robust health benefits in the past. These companies see the advantages of self-funding, understand the power of offering competitive benefits in retaining and recruiting key staff, and have learned how to modulate the perceived risks.
Simply stated, employers who self-fund 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 for catastrophic illnesses and accidents. This process allows much more creativity in designing a plan that addresses the specific needs of the business.
Businesses can choose from a wide variety of plan designs, including partially-self funded and level-funded insurance plans. Benefits can include medical, dental, vision, prescription medications and workers’ compensation, and costs vary each month depending on workers’ use of health services. For employees, the health plan may look and operate exactly the same.
Advantages to Self-Funding
- Customization: Self-funding allows employers to tailor benefits to meet the needs of staff. For example, industrial companies may want more coverage for injury and chiropractic care, while a company with a young workforce may choose to offer family-planning benefits. Major medical plans aren’t as flexible.
- Transparency: Unlike traditional insurance, self-funded plans give employers complete transparency in healthcare spending. They have access to every claim, from prescriptions and primary care visits to ER usage and specialists. This allows them to address red flags and determine how best to manage benefits and control costs.
- Plan reserves: Employers who self-fund retain the health plan reserves, giving them the option to invest the money and earn interest on the reserves. With a fully insured plan, those dollars simply line the pockets of the insurer.
- Cash flow: With self-insurance, employers don’t pre-pay for coverage. Cash flow is improved because businesses only pay when claims are incurred. Moreover, businesses aren’t on the hook for insurance companies’ marketing costs or profit margins. The Self Insurance Educational Foundation estimates these cost savings at 10-25 percent in non-claims expenses.
- Tax exemption: Self-insured plans are regulated under federal law (ERISA), so employers are not subject to state-specific health insurance regulations and benefit mandates. As a result, companies have more flexibility in designing their benefits. Additionally, self-funded plans are exempt from state health insurance premium taxes. This translates to a savings of up to three percent of the total premium dollar value of a traditional plan.
- Stop loss: To manage costs, self-funded companies often purchase a stop-loss insurance policy for catastrophic illnesses and accidents. With this coverage, the business pays employees’ health claims up to a certain dollar amount. This sort of policy allows them to modulate their risk and protects them from unexpected financial loss.
- Streamlined Care Delivery: Companies may choose to hire a third-party partner to help employees navigate the healthcare system and direct them to high-quality, cost-effective facilities. Many common procedures are needlessly performed in hospitals, where costs are five to 20 times higher than in an independent imaging center, lab or 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. This is a key aspect of decreasing costs through self-insurance.
Self-insurance might just be the best-kept secret in healthcare. A well-designed plan provides companies and their employees with real benefits without breaking the bank.
David Slepak is Director of Business Development for Redirect Health, which helps small and midsized companies build healthcare plans using a self-insurance model. More at redirecthealth.com.