Why Now is a Perfect Time to Consider Self-funding Your Employee Benefit Plan
Healthcare costs are rising and employers are being forced to raise deductibles, raise their employees’ share of premium and limit overall coverage. These changes directly impact employees, and in this new age of HR, the “employee experience” is priority one. Employers are finding it harder and harder to not only attract top talent but keep the valuable employees they have.
Employers struggle to look for creative ways to reduce their overall human capital spend, which is typically one of the the top three expenditures on their P&L. Employers currently offering a fully-funded benefit plan are limited in what they can do to manage these increasing costs.
In a fully funded insurance plan, employers pay a pre-determined premium to an insurance carrier, who shoulders the majority of the financial risk and manages claims for employees. The employer is bound by the coverage in the plans and has little plan design control. If the employees are generally healthy and the healthcare plan is not utilized, the employer still pays the same amount. If there is a surplus of unused premiums and at the end of the year, the employers generally will not see any of it. For some employers, the loss of unused money is negligible when compared to what they perceive as a daunting task – moving to a self-funded platform.
When you move to a traditional self-funded platform, the financial risk shifts to the employer but so does the financial benefits. Self-funded groups still select an insurance carrier and TPA (Third Party Administrator) to partner with. While the carriers manage the tangible plan details and the TPA partner manages the claims, employers control the funds, budget how they see fit and have greater control of the plan design. Instead of paying premiums to insurance carriers and allowing them to keep the surplus, the employer is now able to manage claims, pay less out and ultimately save money. This is great when an employer has healthy employees and minimal claims but what happens if they have a bad claim year?
That is where reinsurance, or “stop-loss” insurance comes in to play. Stop-loss insurance shifts the financial risk back to the insurance company if costs rise above a specified amount (deductible). Although excess risk is covered, these stop-loss insurance plans have a cost involved as well, making the trade off between money saved and stop-loss insurance cost another deciding factor for employers.
Companies moving to a self-funded platform inherently run the risk of having a bad year. Statistics show that with a 100-250 person group, you are likely to have a bad claims year every 5 years or so. That can be terrifying! It is not until you start to reach the 10,000 employee mark that your risk reduces to almost zero and you have the vast buying power of the “big dogs”. So, does it even make sense for a smaller group to move to a self-funded platform?
Now it does.
How does a smaller company, in the 50-1,000 employee range, get all the benefits of being self-funded, but have the protection and buying power of a much larger company? It is simply summed up in one word: Coalition.
At first glance, a coalition may seem like some “benefit fad of the day”, a self-funded plan at its core, wrapped in a pretty bow, but too good to be true. That is simply not the case. Coalitions are built on strong foundations of experience, shared reinsurance pools and a hefty toolbox of education and services. Employers are groomed to become healthcare cost cutting engines, where employees are engaged and advocates of their own healthcare spend.
Imagine a world where you control your spend, your employees are educated advocates of your health plan, you have a wealth of tools and programs available to you, your costs decrease and at the end of the plan year you enjoy a return of your investment!
Why is this so different?
Coalitions tackle reducing healthcare costs from all angles. Let’s take a look specifically at the Automation Alley Healthcare Coalition, a proprietary Coalition of BenePro, Inc. This coalition joins a larger coalition out of the Boston area. The combined coalition currently has 3 groups of almost 10,000 lives each and growing.
Members are required to go through a feasibility study to determine their eligibility for the Coalition. Joining the Coalition is a process, where companies are evaluated based on their level of experience and rating. They move down a carefully designed path to get their claims managed and changes to plan designs are slowly put in place to prepare them for membership.
Areas such as culture, employee health, well-being and productivity are all evaluated. Once organizations are able to move into the Coalition, they join a large purchasing pool which shares a common reinsurance market. The system is flexible and allows employers to remain independent as to the plans they choose.
Then they address further reduction of costs. Pharmacy carve-out (variable specialty co-payment, international sourcing, manufacturers assistance programs, etc.), population health management, targeted wellness programs, nurse management, predictive modeling and direct contracting are just some of the tools available.
Now that the 50-1,000 person group is part of a 10,000+ Coalition, they have bulk purchase power, stability and predictability. As part of the larger group, the chances of a bad claims year fall to less than 1%.
The best part of all? Everyone in the Coalition is individually, a cost-cutting engine. This cost-cutting causes the estimated annual pooled premium usage to reduce and at the end of the plan year you actually see a refund! In what other healthcare platform do you get paid for just being a member?
All this may seem too good to be true. Reduce costs, increase employee engagement AND get money back at the end of year, all with the option of keeping the plan you have? We know it works because it is working and has been for the last 11 years. We have a vast amount of data and metrics to support cost stability, running at 73% on average of fully funded plans. In simple terms, what could your company do with an extra $4000 on average per person per year?
If you have ever thought about self-funding and wondered if it was right for you or thought you might not be large enough to have it make sense, now is the perfect time to make a move.
Visit our Coalition webpage for more information.