Self-Insured Health Benefit Plans
A new benefits solution shows promise for cutting costs and making employees happy
In our modern times, with the dawning of what will surely be a complicated transition into The Patient Protection and Affordable Care Act (also known as Obamacare) and many Americans feeling ultimately failed by the insurance industry, employers are looking for viable solutions to what many feel is a fundamentally flawed system.
In response to these sentiments, one potential solution has emerged: Self-insured health benefits plans—but what are they, and how do they work?
Ron McCurry, founder of Alaska Employee Benefit Specialists, is all too eager to tell everything about self-insured benefit plans. As a former electrical contractor who ran his own business for 10 years, McCurry has sat on the opposite side of desks such as his.
“I have a clear understanding of cash flow,” he says, “and understand what happens when that seizes up. I understand that we need to keep employees happy, but we can’t break the bank to get that done.”
AEBS deals almost exclusively with employee health benefit plans—mainly medical, dental, vision and disability—and McCurry emphasizes that it is his job to figure out the most cost-effective way to get these products into the hands of the client.
“Self-funding is simply the same type of coverage—medical, dental, vision—unbundled from the fully-insured components, and set out there in component pieces,” McCurry explains. “Inside any given premium would be things known as margin—that’s the insurance company’s profit—administration, retention and claims… In the self-funded world, I eliminate some of those. I don’t have margin and retention that I have to deal with. We simply have administrative costs,” which are handled by a third-party administrator of the client’s choice.
There is, logically, an insurance component in self-insured plans: Specific stop-loss insurance, which equates to a deductible for the employer (the larger the employer, the larger the deductible can be), and aggregate stop-loss insurance, which protects the employer and the plan in the event that there are huge “runs on the bank” in smaller claims over a 12-month period.
“We come up with what would be known in the self-funded world as a maximum liability: What is the most that this employer could pay for those benefits in a year if everything went really, really bad? Then we compare that to a fully insured rate.”
This naturally puts the company’s emphasis on the overall wellness of its employees.
“If you had a miracle year, where none of your employees had any claims, on the self-funded side, I would never have sent my money out the door, aside from administrative fees,” McCurry says. “To the fully-insured carrier, I would have sent them the full amount of money. The carrier is not going to write me a big fat check and tell me what a great guy I am—they’re going to keep the money, probably raise the rates anyway, and move on.”
The end result, according to McCurry, is that the employer will consistently pay 25 to 30 percent less than a fully insured rate.
Sound too good to be true? McCurry goes on to explain how self-insured benefits plans work well for some of his larger clients who operate globally with thousands of employees as well as smaller local companies with as few as 30.
What’s in it for Me?
Self-insured benefit plans boast many advantages for employers, including better customer service.
McCurry says that on average, self-insured benefits packages provide better customer service than fully insured carriers because the client deals with far fewer people, and deals with the third party administrators of their choosing.
Another boon to self-insured clients is the symbiotic combination of customization and control over the components as well as the “whole look” of their benefits plans in order to satisfy both employer and employee.
“In the self-funded world,” you can pick your partners,” McCurry says. “We get to pick first in class management and utilization review companies. We can choose our own prescription benefit manager. We can pick our own stop loss carriers. We can pick our own administrators. So you can go out and build your team that’s going to successfully and soundly operate your plan.”
Furthermore, in a self-insured plan, the employer gets the data—and according to McCurry, data is power.
“You can analyze what’s going on inside your own plan, and you can dissect that from any given direction and say what is working, what’s not working. Unless you have a couple hundred employees, on most fully insured plans you will never get that kind of data. They just will not disclose it,” McCurry says.
For example, “We can tell at a glance that only 2 percent of our population is using preventive care,” McCurry says. “So now we know that we have to go out with some educational pieces to say ‘look, we’re paying these claims at 100 percent. Why aren’t you using this? Why are we not detecting problems early and fixing them before they get to be a great big claim?’ And data would support that you would see that. From an operating point of view, having that data is critical: Now we can make decisions about our benefits plan that make sense.”
Last but not least, there is the advantage of not having to comply with state insurance policy mandates, which may be of particular interest to companies that operate in various states.
“Fully insured plans have to operate predominantly under state jurisdiction so they have to comply with state mandates which can add costs: They have state filings, lots of government regulation they have to operate with.”
Self-funded plans, however, need only comply with minimum standards for retirement, health and other benefit welfare plans as mandated by Employee Retirement Income Security Act of 1974 (ERISA) and the encroaching Obamacare. Thus, self-funded plans can “reduce cost by an average 2 percent premium tax that does not apply to self-funded plans,” McCurry says. “We can drop off most all state mandates across the country.”
What’s in it for Them?
As expected, savings for the employer equates for savings to the employee. McCurry finds that employees who have a sense of control over how much they can save on their insurance premiums will use that to their advantage and that of their employers, and will often work as a team to keep costs down. Wellness, prevention, fitness programs, smoking cessation, chiropractic care, nutrition classes, weight loss programs and other incentives can all be written into a company’s self-insured plan.
“Fully-insured plans are not in the habit of doing weight loss programs, for example,” McCurry says, including gastric bypass and lap band procedures. “But we see self-funded plans where we are building those in because we understand the long-term cost of not doing something with weight control. It’s going to lead to diabetes . It’s going to lead to heart problems. And so forward thinking employers have the ability to say ‘we will pay for these procedures.’”
Is a Self-Insured Plan Right for You?
According to McCurry, although the rule of thumb in the brokerage world says you can’t self-insure for less than 100 employees, he is writing plans down to 30 employees, with great success.
“It’s just a matter of finding stop-loss carriers that will write that deductible down to a smaller amount, so it’s got a bigger insurance component than the larger employers—but they still get to take advantage of claims that were never incurred, and that money stays in the bank as opposed to going to the insurance company.”
“In a self-funded plan, you’re going to get data sent to you on a weekly basis that says how much your claims were that week, and you’re only going to send that much to the insurance carrier, which in this case would be a third party administrator. But that’s the only amount you’re sending. Then once a month you will get a bill from the TPA and for the administration and stop loss premiums. That’s it!”
Another consideration: According to McCurry, data shows that blue collar workers generate fewer claims than white collar workers. Although not certain as to why, he admits that it may be due to physical activity level or less of an ability to leave work to go to a doctor, which may ultimately help companies who employ either type of worker develop a plan that benefits both employee and employer.
MCurry also admits that there is risk: “We’re not going to be able to stop the million dollar preemie baby, or prevent the heart attack in many cases. But with the stop-loss insurance component, we can mitigate and address that risk for each company.”
McCurry believes that this is the “Golden Era” of self-insured benefit plans. His industry is seeing a shift towards self-insured plans because of flexibility and cost-effectiveness, and is confident this trend will continue to extend down to smaller companies.
“Odds are, year after year you will run lower costs if you’re self-funded than if you’re fully insured,” McCurry says. “My question to a client is, why isn’t this your benefit plan and not the insurance company’s plan?”
Mari Gallion is Associate Editor at Alaska Business Monthly.