Why Should I concider Self-Funding or Partial Self-Funding
Rising costs and increased instability in the healthcare marketplace has prompted more employers of all types and sizes to consider self-funding (also known as self-insurance) as a solution to provide quality health beneﬁts to their workers and dependents.
This solution can offer many advantages, but like any signiﬁcant business decision it should be given due consideration, including appropriate consultations with knowledgeable business advisors, as self-insurance may or may not be the best ﬁt for an organization. This publication is intended to assist employers and brokers to familiarize themselves with what is needed to effectively evaluate the self-insurance option for one’s business.
As shown in the 2013 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2003-2013, (Exhibit A), the premium for workers and employers has increased more than 80% in the past ten years. These ﬁgures include self-funded, fully insured and other coverage options combined. These increases are not sustainable for either the worker or the employer and therefore must change. The solution for many employers today is self-funding.
Facts about Self-Funding
Self-funding is an important contributor to the ﬁnancial and physical health of America’s wellness future. Self-funding is more than processing claims and receiving premiums, it provides quality coverage and proactive healthcare management for employers of all sizes and industries.
• Organizations of all types and sizes consider self-insurance as a solution for quality health beneﬁ ts to their workers and dependents due to the rising cost of healthcare and increased instability.
• Self-insured group health plans now provide coverage to the majority of U.S. employees and dependents (KFF Survey, 2013).
Self-insured health plans are sponsored by thousands of companies, as well as many labor unions and public sector entities. Some of these companies include:
- Whole Foods®
- Wells Fargo®
- The Home Depot®
- Southwest Airlines®
Why Partial Self-Funding
- Customize benefit features for its unique workforce, helping to attract and retain the best and brightest
- Foster a positive employee culture by providing employees their most-wanted benefit at a reasonable cost
- Curtail potential losses with stop-loss insurance and other features
- Enjoy favorable claims experience with a return on investment, adding to the overall bottom line
- Earn income on invested reserves
Think Long Term
Employers prefer to create a benefits strategy and follow it year after year, but the changing landscape of health insurance can make this difficult. After all, employers sponsoring fully insured plans regularly face increasing costs, less flexible design choices and added compliance.
Community rating required
As a result of these unpleasant and costly surprises, employers small and large recognize that switching from a fully insured plan to self-funding often makes the most sense today. One byproduct of PPACA, for example, limits how insurers address the varying risks of different pools of employees. In the past, employers with a healthy employee population could purchase insurance at a lower cost than similarly sized employers with a less healthy employee population. Under the modified community rating, insurers may not rate health risk to calculate premiums for employer groups of fewer than 50 employees (increasing to 100 in 2016). The result: employers are seeing their premiums for fully insured plans rise, whether or not they attempt to encourage healthy habits and smart consumer choices. This is particularly problematic for small employers, who spend a disproportionate amount of their benefit spend on health and medical plans for employees. While premiums continue to rise, insurers are offering less flexibility and fewer choices for employers.
Carriers abandoning small businesses
This change is the consequence of PPACA’s Medical Loss Ratio (MLR) provisions, which dictate that insurers must spend at least 85 percent of the premiums they collect on medical care for groups with more than 100 employees, and at least 80 percent for smaller groups. Because this law tightly constrains insurer budgets for administrative costs, commissions and overhead, carriers have little appetite or funds to design custom coverage for small employers. Instead, they now try to fit every company into one-sizefits-all plans.
Another major provision of the new law is the guaranteed issue rule, which requires insurers to sell products to small employers with fewer than 50 employees (growing to 100 in 2016), regardless of the current health status of the workforce. While this is not a change embraced by traditional health insurers, it is potentially helpful to organizations whose self-funding costs would rise due to the poor health of their employees. With claims experience, companies can self-fund benefits to capture savings and control risk.
Lower cost, more control
One thing is certain: the healthcare landscape has forever changed. In this environment, doing the “same old, same old” is not an option as increasing government regulations drive prices higher and limit choice. Self-funding, especially on a level premium equivalent basis, gives companies a way to transition from a fully insured program, providing both control and a safety net that limits exposure.