The word on the street is that companies will face in excess of 20% increases in health care over the next two years. This has started a look into alternate health care options. When I worked for a school district several years ago we were self funded. This options has returned as something to check into. Does anyone have any feedback who currently uses Self Funded health care?
Self Insured Healthcare
Answers
When I worked for a large bank, we self-funded our health-care. But there is a very large
If you started off risk based pricing the healthcare for each participant (very unpopular), self-funding would not be as risky. You will have full knowledge of what you are getting into.
I am sure you could add a reinsurance piece to it and hire a full-time analyst to manage the trust, but then your savings is going elsewhere.
If your organization has less than 1,000 employees, I would not touch it. But I am very conservative.
I know of a couple of entities, both public and private that have moved to a policy of providing $X per employee for health care funding and having their employees go through the ACA exchange to obtain their own coverage.
They didn't do this because they thought they would be saving money. They did it to limit their exposure to ever increasing health care premiums over the long run.
At 200 employees, we considered a partial (ie. reinsured) self-funding option this year. Our broker was able to provide fully insured and self insured quotes. The reinsurance would limit our maximum exposure so we were able to make an economic decision based on our risk tolerance. For us (at least this year), the economics led us to stay fully insured but it was a worthwhile process to ensure we were making an informed decision and I expect to run a similar analysis with our next renewal.
I have had three agents propose self funded programs and we only have 70 employees. Regis, curious why you say you wouldn't touch it for less than 1,000 employees? Now let me add, we have excellent rate history; typically a younger work force, which could be why.
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I recommend you go back to the three insurance agents and ask them to quantify the maximum risk you are assuming, i.e. potential highest out of pocket claim costs. Once you have those numbers, it becomes a risk reward question. The economics work best with a larger employee base. While it does nothing to offset the probability/frequency of sickness, it increases the number of individuals that pay into the system that will never need services, i.e. healthy pay for sick.
Insurance companies will always have an advantage as they have the statistics. You may look at the data related to 70 individuals and it looks good. But Insurance companies look at the data of millions…“Big data” at its best. The probability of a situation that causes a claim will be based on several factors, with the biggest being sex, age, occupation. Experience, which is valuable, is a lagging indicator.
If your insurance broker says your maximum risk is $x, but that assumes a severity rate of y%, “which will never happen,” be concerned.
We have 65 employees and have a partially self funded plan through Cigna. We just started our second year and have no complaints.
If you are concerned about a large cost increase have you considered using the new exchanges provided under the ACA? My understanding is that they are available to small employers even if your state does not have an exchange. Maybe 70 employees is to large for this?
We are self funded and it works well for us. We do have re-insurance when a dollar amount is incurred on a given case.
I would suggest that as long as claims are not too high, there is no complaint for a self-funded plan. But I would agree that less than 100 employees on a plan increases the risks of a self-funded option. It may be cheaper, but only until the first large claim. If there is a way to re-insure, I would highly recommend it. I would also negotiate the administration fees as some can go as high as 30% which I consider way too high.
We moved to a self funded model in 2014. We are about 75 employees and we do have high risk individuals and even after running metrics on "worst case scenarios" we are still coming out better than taking the 30% increase Anthem tried to put on us at renewal last year. YES you read the 30% correctly! We also have a great third party administrator (GPA) who has a "cost-plus" piece to their program for facility claims - this is where our major savings are coming from. GPA has a legal arm of their organization called ELAP - anytime one of our participants has a facility claim, that claim is paid on a "cost plus" basis which is Medicare plus 20% or the actual cost plus 12%. What many facilities don't want you to know is that they are federally mandated to publish the costs of their services and when GPA did studies on costs vs. what they were charging the mark-ups were shocking. This whole process for us has been so empowering. We had a facility claim this year already that originally billed at $132k, through the audit process, the plan ended up paying $36k - that is a discount of $95k through the cost plus method. You would compare this to the negotiated discount you would get if you were fully insured - if you think about it, getting a 40% discount on a service that is marked up by 400% it is really not a great deal. The downside to the cost plus/ELAP process is that it may require the participant to pick up the phone and call ELAP if they receive a balance bill from the facility, but in my opinion we need everyone to be good consumers of health care if we are ever going to get control of this crisis in healthcare.
We also have stop-loss insurance so we do cap our risk per individual and at an aggregate level knowing that the rates of this insurance will increase in years where we hit those limits.
We also have healthy amount of cash on our balance sheet. You will definitely need to be able to fund the claims especially when you first move to this model before the premiums in the plan can build up. If you are strapped for cash, this would not be a good model for your company.
We had the same great cost-saving experience with self-insurance as Lindsey's company had. The key is to limit exposure to high-risk claims with stop-loss insurance.
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We have been self insured since 1981. We started with 50 employees and now have 175 employees in the plan. In the 32 years we have been self insured we have had four years we would consider bad years. Even these four bad years costed out to be similar, cost per employee, to a fully insured plan. Each time we have priced a fully insured plan we have been told the initial premium is the lowest cost we will ever have. We can expect premiums to only go up unless we continue to cut benefits. We have an individual stop loss reinsurance plan that pays all claims for any employee when those claims exceed $110,000. We use a third party administrator to administer the plan. We do not use any of the large insurance companies as our third party administrator but a locally owned company. This keeps the administration costs down. We have been pleased with our results.
All great points and sounds like a win/win. It makes me wonder if self-insured companies would favor hiring younger employees.
This is an extremely enlightening thread. I first want to thank everyone for their contributions.
Question: would those of you who have gone the route of self insurance say the options of which doctors can be seen more limited or less limited? Employees seem to be most fixated on being able to see "their" physician/specialist at reasonable cost.
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The doctor choices are usually less limiting, as you can rent the network you desire, some exceptions exist but many can be fixed. The beauty of self funding is you can create your plan design as you want it or need it and your network of doctors. For example, you can't rent the Kaiser network which exists in the western states, but if your group is large enough you could offer a Kaiser slice for those small group of your employees that are insistent they have to have a particular doc in Kaiser. However, the goal of self funding is to bring a long term solution to managing health cost, so it is better to have as many of your people and yes the healthy ones on the self funded plan. Self funding works but ONLY if the company is equally committed to improving health of its population, sick people always cost a lot self funded or fully insured. An important part is to always look at all the options, they can included, fully insured, self funded, captives, HRA/HSA, open Unions, restructuring of agents contracts, pharmacy restructuring, plan design, etc. The key to good pricing is competition of options. Bottom line is health insurance cost is manageable and it does not have to come with a 10%-20% rate increase every year, if you think it does your working with the wrong people
Great points and yes we talked reinsurance as a must to protect ourselves from casualty. One cool suggestion was fund every employee the first $1,000 and promote it as we're giving you $1,000 to be used for Dr. visits, prescriptions etc. Once that $1,000 is gone the next $2500 is out of pocket. The thoughts are people may go to the Dr less because they don't want to spend all of their $1,000 and have to start paying out of pocket. I thought it was a cool concept to consider.
Ken, In my opinion I think it will cause people to see their family doctor versus urgent care because urgent care will cost more. Especially if we choose the "bucket" option above.
Anon, I can tell you from experience younger males are the best for insurance rating purposes.
We are a smaller firm with about 75 employees. We have explored the possibility of self funding to manage the risk of higher healthcare premiums, but found the trade off with re-insurance not to be a cost effective risk / reward scenario. Fortunately, we were able to manage our current year premium increase to only 13% this year by going to market.
Follow up question - has anyone explored the captive insurance markets??
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Lou, the captive markets are also a great option that can help you as well and are unlike what most people think of a captive in the property casualty world. Some under 100 employee firms are candidates some are not you basically just have to run the numbers and see. One of the most important items is you really need an agent/broker that is committed to all the health options out there and knows how to negotiate the terms and various add-ons. We interview tons of agents all the time, most say they offer self funded or captives options but when asked detailed questions we find that many know very little or even who the players are in the market place, these include large national firms as well as regional agent/brokerage firms. You should find an agent who brings you ALL options, self funded, captive, fully insured. If the agents results show most options declined, self funded, captive & fully insured be highly suspect it usually means the agent didn't really pursue them.
Partially self funding can start to make sense with as little at 150 employees. Fully self-funding is a better choice for companies with 2,000+ employees. I would always encourage proper stop-loss coverage no matter your size. A competent broker should be able to provide you more advice. Self-funding will be more work for your finance team but it can save significant money.
We are receiving quite a few inbound offerings this year relating to group captives that appear to be very well structured to address the unsustainable economics of the fully insured plans. The design, features, and
Christie,
You have received some great responses. All are true. Self-funding works well when you have a large population of insureds, and not so well when the population gets under 500. One sick individual can send the plan into a tailspin, so you have to understand your risk pool.
The bottom line is that healthcare is a commodity. In these uncertain times, due in large part to the new law, some groups will experience unreasonably large increases.
I ran across a product that companies around here are using when their premiums are going up, and they have to get into the cycle of raising the deductibles and changing carriers. Colonial Life, a subsidiary of UNUM, the largest disability carrier in the US, came out with a Medical Bridge which covers hospitalization, outpatient surgery and diagnostic care (and other areas) on an indemnity basis. It is inexpensive enough to use in conjunction with your major medical coverage to keep the net benefit intact. Use it with the increased deductible plan to get your premium increase down from 20% to, maybe, 7-8%.
Self funded works well if you have a young healthy workforce, but the Administrative fees charged by the Third Party Admins are enormous. One company, about 100M in annual sales was paying roughly 100K to 130K per month to have the claims processed, about 1000 employees. Get a handle on the fees first for all the benefits offered there are ladders of fees involved and I like to think about the fees as the hidden cost no one talks about because they are discussed at per employee, but if you multiply it out the cost is unbelievable for the very little service provided.
Understand what Stop Loss protection is. Even if you have a generally young workforce there are always people who have critically ill relatives, parents, etc that can cost you millions in care at end of life. 1 person can cost roughly $3M in care near the end of a catastrophic illness.
Plan Plan Plan. And don't believe the sales people until you see the numbers.
The risk implied in self-funding is great and what is missing in this discussion is how to actually manage the risk. Not through wellness plans, not necessarily via cost shifting to employees, but what I recommend is aligning with a direct care provider.
Contracting on a pmpm basis, where the practice is sharing risk/gain through a value based arrangement is best. They will assume responsibility for managing lab, imaging, pharmacy, ER visits and patient satisfaction in order to truly manage your risk. Utilizing new technologies such as telemedicine, integrated personal health data, cost estimators and open scheduling, the practice can provide a much more convenient, cost effective healthcare experience.
Thoughts as a doctor and business owner, TPMD
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