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For Employers With 25 to 500 Employees - Change Your Plan

Navigating the switch to a partially self-insured plan

Switching to a partially self-insured, fully funded, health care plan with healthcare cost management strategies can significantly reduce your delivered cost of healthcare and increase the “Quality of Life” of all your insureds. Unlike your fully insured health care plan, the savings stay within your business, not your insurance company. We know because we've done this for businesses, Unions, Governments and more. We provide measurable results within your client’s group plan.

Choosing to self-fund an additional deductible that is on top of the deductible your employees already have, is a simple concept and potentially create up to a 40% savings in healthcare costs. The employer funds Doctor Visits, pharmacy and the additional deductible after that employee has a claim that goes beyond their current deductible. The employer has much more control and full transparency in their plan. We're experts at managing healthcare costs associated with plan participant’s diagnoses, compliance with treatment and delivering health management directives.

But first, we have to navigate the switch from a fully insured plan to the partially self-funded plan. The process includes risk identification, risk management, implementing a new philosophy of benefit design and identifying necessary insurance to transfer major risk to the insurance company.

Get Accurate Quotes

If financial benefits are illustrated by switching, this strategy becomes an easier sell, but businesses should fully understand that the goals are; increasing the “Quality of Life” for the insureds, increasing productivity and flattening the renewal cost. You must carefully weigh the benefits against the potential higher first-year cost that comes with achieving disease treatment compliance which comes in before the savings in delivered healthcare after compliance is achieved.

Study the data from your current carrier, especially the difference between claim history and premiums or the cost between fully insured and partially self-insured. Stay fully insured if the cost for partially self-insured is more than the fully insured cost. Remember that a premium refund is made to the business for all un-spent premium dollars at the end of the policy year. After completing the risk identification, an immediate financial reward may not be there.

Brokers and TPA’s Have an Important Roll

Unless your prospect has an in-house benefits team or specialist, a health insurance broker is a must. You have the opportunity to become the broker they trust, which has their company's best interests at heart. Evaluate the options they have and service our product that you implement. Be suspicious of other Broker options that cannot provide documented treatment compliance of all of the plan participants along with evidence of ROI for the prospect.

The Certified Broker and third-party administrator, or TPA, is the crux of a successful partially self-insured health plan. When making your presentation, be sure to assess:

• Physical infrastructures. Meet the people who will be handling the claims, from the nurse case manager to the biller. Look for a sense of calm and workflow organization as work is being accomplished.
• Technical infrastructures. Investigate how their systems are maintained and the level of redundancy in their applications. Ensure a viable disaster recovery plan is in place.
• Payment cycles. Ask if they will alter their payment cycle to meet your needs; many will. Your client’s employees should not have to sort through bills from their health care providers that are "insurance pending."
• Explanation of benefits. Evaluate samples for clarity. Make sure the explanations are accurate.
• Communication methods. Employees need access to information outside of work hours. Ask about evening and weekend call-center operations. Look for self-service functions such as address changes, identification card requests, and claims history on the customer Web site.
• Call center service. Expect the highest quality of service but do not rely on the TPA alone for verification.
• Review the reports that claim diagnosis treatment compliance, the action that is taken to achieve disease treatment compliance, how
• ROI is accomplished and reported. Most all insurance companies and TPA’s claim effective case management, predictive modeling and ROI. Ask to see proof of the action they take that will create measurable results for your prospect.

Educate Yourself on Integrated Stop-Loss Insurance

Stop-loss insurance does just what the name implies; it stops the financial losses of a claim. Partially self-funded companies need to buy integrated stop loss or specific and aggregate forms of this "reinsurance." Purchasing additional insurance to eliminate claim lasers and either fully funding the plan monthly or adding a “cash flow” and terminal liability protection is necessary.

Specific stop-loss insurance sets the dollar value the company pays for claims on each individual person. Aggregate stop-loss sets the sum for the plan as a whole. A higher stop-loss deductible will lower the premium while increasing the risk the company assumes. Understanding the ins and outs of stop-loss will ensure you are making an informed decision when setting the deductible amounts -- not a decision made on price point alone.

Fully Fund the Plan

Fully funding a partially self-insured plan can provide a cash refund at the renewal to a company. Claim expenses are paid only if they occur, rather than in set monthly premiums to a traditional insurance contract. Create a separate account and transfer renewal refunds to it to create reserves annually.

Mismanaging these funds can eliminate the potential to reduce benefit costs for your plan participants.

Let the funds accumulate in this account, for at least two to three years. By the third year, your client will have enough data to understand their benefit needs and costs, so that adjustments to the benefit-cost to their employees can be evaluated.

Educate All Plan Participants as Consumers

The correct strategy will create employee responsibility. Turn plan penalties into incentives so that disease treatment compliance becomes 100%. Determine “root cause” of each individual’s non-compliance before acting. Communicate early and often for success.

Be upfront with employees about impending changes. Include the reasons for implementing a health management strategy-increasing their quality of life. Switching to a partially self-funded health plan and what the new plan will entail. Take as many opportunities as possible to educate employees on how their actions affect them, the company, and the plan. Create an understanding that if their quality of life increases, the company will be more productive and delivered healthcare costs within their group will stabilize which saves everyone money.

Employees need to understand how their lifestyle choices drive healthcare cost and are educated on how small changes that they can make saves money for them and increases their “Quality of Life”. The “Health to Wealth” module illustrates their benefits from the savings through disease treatment compliance, company profit sharing, and a new corporate health management program.

The company, without reducing the richness of the plan, should be able to achieve flat renewals for several years.

Continue to work to creatively drive behavior change with plan participants. Be compassionate with employee interaction while moving toward 100% disease compliance. There will be bad claim years; however, that is when you need our technology the most. Research says companies will have high claims one out of every five years. Our technology excels at forecasting disease progression and delivering health management directives to the plan participants that are identified through risk stratification and helping them to reduce their disease progression so that the next event/expenses are diminished.

Is Your Organization Ready to Commit to a Self-Funded Medical Plan?

By Dan Cunningham

Because of our experience in the insurance carrier risk side of self-funding, we are often asked to analyze whether or not a client is a good candidate for moving their organization from fully insured carrier-provided health insurance coverage to self-funding. Our company is highly experienced in the insurance carrier risk side of self-funding.

As most employers know when investigating self-funding, there is insurance carrier coverage known as stop-loss insurance, which is used to protect a self-funded medical plan in case of a single catastrophic employee medical claim or multiple catastrophic medical claims.

When our company has presented a case, the scenario goes something like this: “Dan, we’ve received a thirty percent rate increase on our medical plan renewal. Can you give us a self-funded option? ” Our answer is always the same: That depends.

There are three main points employers should consider before taking the step to self-funding:

• Unlike jumping from carrier to carrier, it’s a long-term commitment to take over management of a health plan yourself, because it takes some planning and commitment to the process.
• It’s all about your group and whether or not you’re better than the pool of businesses you’re leaving.
• Do you have the commitment to running your own insurance company—which is basically what you’re doing, because self-funding is about managing your plan, not just bidding it.

A stop-loss insurance carrier analyzes and underwrites a client’s risk exposure. However, a carrier is not the only one who should be underwriting the company’s risk level. An employer moving from fully insured to self-funding should also be underwriting themselves and deciding if self-funding is a good long-term option for their organization. How do you accomplish this?

Obtaining proper employee medical information is the only way to really know if your organization is a good candidate for a self-funded medical plan. The common frustration we encounter when we start talking about data accumulation to prospective self-funded organizations is that the insurance carriers won’t release data to the client.

However, let’s be clear on this issue, as it’s not a universally true statement. Generally, carriers won’t supply data on accounts with an employee population of fewer than five hundred employees. If you’re above the five hundred employee level and not getting data, you’re not trying hard enough.

You do have options to obtain the data you need from the insurance carrier.

Threaten to switch carriers unless data is produced, or request from your insurance carrier some type of cash-flow product line option.
It gets more complicated if you have fewer than five hundred employees. For the most part, you will probably be stonewalled when requesting monthly total claims (aggregate claims) and individual large claims (specific claims).

Without any really good employee medical claim data to base your decision on as to whether to move from fully insured to self-funded, we recommend you don’t move. What we do recommend, however, is to open an underwriting file on yourself. An employer can take the first step to self-funding by changing their plan to a high deductible program, using health savings accounts (HSA) and health reimbursement arrangement (HRA) products to cover first-dollar claims.
It’s the safest way to take some extra risk without taking on too much exposure. Will doing this save you from your thirty percent rate increase? Possibly and possibly not.

What it will do is the following:

It will set up a system whereby, next year, you can figure out why you do or don’t deserve a high rate increase. The large single claim, or continuing claim, that the insurance company paid should be finished. It probably wasn’t just a whim by the insurance company to increase your premium by thirty percent. There was probably a driver. Large claims over the past ten years have increased fifty-fold because there are a lot of costly medical procedures out there.

It will get you used to funding mechanisms other than the traditional one, which is to pay the insurance company.

It will help you get an understanding of how many total claims are within the initial higher deductible area versus how much the insurance company is charging for handling the balance costs of the plan.

With that basis of knowledge, you’re on your way. You then can utilize a number of developmental techniques to build your knowledge base. For example, the human resources department will know who is on disability, sick leave, and medical leave. There are medical management organizations that can produce predictive models of member illness potential costs. Brought together, the puzzle pieces produce a picture of your organization’s comprehensive health status.

At that point, decisions can be quantitatively measured. A self-funding support model can be organized, and the proper third-party administrator and network of providers can be chosen. Stop loss cost models and rate equivalencies can be calculated. Rate equivalencies are the actuarially developed single/family cost projections that you would compare to your single/family insurance carrier renewal rate offering.

At that point, the decision of staying within the carrier relationship or moving to the self-funding alternative can be made. There will be a lot of questions that your program consultant or broker will need to address. For example, here’s a few we would expect to be brought up:

Will my doctor be in the plan?

Am I too small for self-funding?

What if we have a very large claim and the stop loss company loses a lot of money and raises my rates?

There are a lot of changes to come in the near future. What won’t change, however, is the need to reduce costs by any method within the healthcare arena. Self-funding can help a lot of employers, but you have to cut through the barriers to information to help yourself.

A candid personal health reform insight from SPBA President Fred Hunt

I first forecasted the probable restrictions on health insurance companies plus ramifications on employers who buy fully-insured employee health coverage. Since then, I have received requests from employers, agents, brokers, TPAs, and others to give a speech to explain the future for fully-insured health plans compared to self-funding. Please consider this a “virtual speech.”

I predict health insurance companies will withdraw from the US market within a year or two. Sadly, insurance companies became the political scapegoat of health reform, and so, many of the reforms spotlight insurance companies for limitations & requirements that are guaranteed losers. It simply will not make sense to insurance companies and their investors & owners to lose hundreds of millions of dollars.

For example, the Median Loss Ratio (MLR) requirements will limit insurers to only 15% of premium dollars for non-medical expenses (20% for individual policies). That pretty much cuts out brokers & agents and many of the top-heavy operations of insurance companies…unless those insurers do like airlines and start adding all sorts of separate add-on costs. However, employers will resent the extra costs as simply more expensive.

Meanwhile, States are being given millions of health reform dollars to beef up their capacity to second-guess and deny premium levels. In most cases, the level of premiums that will be approved or rejected will be influenced by politics, not actuarial or market costs. One state official described the result for insurance companies as being “a train wreck.” So, insurance companies will not be able to set premiums at levels their actuaries say are needed.
Insurers will be able to participate in state exchanges. However, Massachusetts’ existing program is the model, and the major insurance companies in that program each lost tens of millions of dollars just in the first quarter of 2010. What insurance company wants to stay in a market where they are losing tens of millions of dollars every few months?

Sadly, there are more and more restrictions & disincentives for health insurance companies in health reform and the emerging regulations. It becomes an unsustainable no-win marketplace for insurance companies to continue to sell employee benefit health coverage.

What is going on is sad and unfair…but it is now entrenched, and health insurance will disappear just as many car companies found it too hard to compete in the marketplace, and their product disappeared. On the brighter side, about a year ago, several insurance companies foresaw the possibility of the market in the US for fully-insured health policies & plans disappearing for whatever reasons. Those insurance companies began to research alternative markets if they withdrew from the US market. That research has yielded promising results in several Asian & European countries, where citizens are impatient with their government-run health coverage and are willing to buy their own coverage. Insurers expect little or no government interference, such as premium amounts, HIPAA, COBRA, etc. etc. in these foreign countries. So, fully-insured health plans will survive, just not in this country.

What about self-funding? By definition, self-funded plans have no profits and most have fiduciary protections, so the punitive restrictions forced on health insurance companies do not apply. Also, there is much more control & flexibility for employers to design and administer their plans for the wants & needs of each particular workforce. So, the kinds of controls, limits and governmental second-guessing are not involved.
Don’t get me wrong, everything involved in health is going to be a bureaucratic hassle and intrusive for medical providers, health payers, employers, and workers. Self-funding is no exception, and there will be several new added required or desired administrative services for employers to pay. However, think of health reform as an obstacle course for self-funding, but a deadly minefield for insurance companies.
Insurance companies had already been delving into offering self-funded plans and providing administrative services only (ASO). They can continue in that market, although, the increase in the quantity and sophistication of administration and added services is going to require re-tooling from the very different thinking & laws of insurance law to the very different employee benefits & ERISA law.

What about grandfathering and the President’s frequent promise “if you like the coverage you have now, you can keep it?" Grandfathering is an illusion. It is temporary and does not protect from the most demanding requirements. Also, it is very delicate. Many logical or necessary changes to a plan will terminate grandfather status. So, no one should be under the illusion that grandfather status is worth much or will protect for very long. So, grandfathering should not be the decisive factor of anyone’s benefits planning.

Fred Hunt
SPBA President

I began my employee benefits career as a young eyewitness when ERISA was being drafted and shaped in 1974. At that time, almost everyone forecasts that ERISA would spell the end of employee benefits, which is why insurers and others worked hard to avoid inclusion. I did not feel that it was the end. That lesson has taught me not to declare drastic outcomes of every major health reform & mandate since. This insight about the future of health insurance companies is my first dire forecast and is mostly based on dollars & cents business survival factors for insurers. No business can afford the endless hundreds of millions of dollars of losses being forced on insurers. This is not gloating. This is a sad situation.

SPBA is the national association of Third Party Administrators (TPAs) who provide comprehensive ongoing services to client employee benefit plans & employers. It is estimated that 52-55% of US covered employees are in plans using some degree of services from such TPAs. SPBA also achieves unique perspective, because clients include every size & format of employment, and every form of funding (self-funding, insured, HMO, CDHP) is provided by some SPBA members, so there is no us-versus-them slant. We are simply seeing a sad historical event as an era ends.