A lot of small businesses are under the impression that purchasing insurance is an expensive but relatively straightforward transaction. They think that all you need to do is analyze your company’s needs, shop the marketplace for health insurance plans, and choose one that works best for your company and employees.
In reality, however, paying for insurance has become one of the biggest concerns for most employers and traditional insurance products are becoming undesirable and affordable for many, but, there’s good news: purchasing a plan from a health insurance carrier isn’t the only option you have. Self-insurance is an excellent alternative that can help you take control of your costs, manage claims effectively, and protect your organization from market changes.
Self-insurance is a strategy by which employers take share some of the risk of health claims and in return spend less overall. It works by putting aside funds to cover events up to a certain amount and then buying insurance that covers the rest, let’s say anything above $50,000.
One of the great things about self-insurance (besides the significant degree of independence it provides) is that it can be more economical than purchasing health insurance from a third party. Moreover, it can be a useful financial tool regardless of the state of the economy. Perhaps these are some of the reasons why more and more organizations are opting for self-insurance programs instead of commercially insured plans. According to one study, about 60% of employees in the private sector utilized self-insured plans.
Many organizations are not aware of the benefits of self-insurance and see it as a complicated, risky financial program. Learning more about it usually eases those fears and although self-insurance is far from being a perfect system, the strategy can come with big rewards.
Let’s take a look at some of the reasons self-insurance can be an excellent option for your organization.
1. Cut Down Your Costs
Let’s face it: when it comes to health insurance, the prospects are pretty bad. Health care costs have risen by 10% or more for each of the last 10 years. Both employers and employees have dealt with increased premiums for coverage with higher deductibles.
One of the most obvious ways to gain control over your cost is to cut middleman from the process. Instead of paying an insurance carrier to take risks on health costs, you assume the risks yourself and pay the bills directly.
It might sound counter-intuitive, but here’s how self-insurance can help you cut down your costs.
Your premiums take into account the estimated costs of potential claims, administration fees, taxes, profits, and so on. With a self-insured plan, you don’t have to support any of these costs.
Sure, there are some risks, such as employees going to the emergency room for non-emergency situations or choosing the most expensive hospitals for routine check-ups. But, with proper education and the right plan you can reduce your costs significantly in the long run.
2. Control Cash Flow
Another significant advantage of self-insurance programs is that you pay bills as they come, instead of pre-funding them in the form of premiums. With proper plan design and incentives the costs you pay for services can be vastly less than what insurance companies paid for the same services, the result can be vastly reduced spending. Not every employer will achieve the same results, but most experience a significant increase in the flow of outgoing payments and reserves.
3. Operating Efficiently Through Customized Services
Traditional insurance plans are subjected to tremendous federal and state health insurance regulation and benefit mandates. Self-insured organizations, on the other hand, fall under fewer regulations and have greater flexibility. allowing them to customize their plan according to the needs of their employees and organization.
For example, if a company notices that a significant percentage of their employees suffer from diabetes, they can design a policy that covers the costs of medical services for this disease. The benefits are easy to see, not only does the company gain control over a major medical cost (treatment of uncontrolled diabetes), but it can also help to promote a healthier workforce which can translate into increased productivity, morale and attendance.
Another benefit of self-insurance programs is that you can choose the health service providers that make the most sense for you instead of being forced to purchase a “one-size-fits-all” plan.
This type of personalization and control can help you increase operating efficiency. Self-insured organizations typically enjoy reduced operating costs as compared to the increasing expenditures associated with fully-funded plans. That’s because self-insurance plans allow you to cut a variety of expenses like premium taxes, solvency funds, acquisition costs, and others.
4. Mentality Shift
Successful implementation of a self-insurance plan requires education and engagement of employees in order to attain maximum results. There needs to be a shift to a “we’re in it together” mentality where employees realize their impact on medical costs and therefore their shared cost of benefits. One way to assure this shift is to provide transparent shopping solutions that inform employees of the cost of services before they buy.
Management and administrative partners pay closer attention to controlling health care costs because their effectiveness in assisting with controlling costs will be both obvious and of tremendous impact to the bottom line of their customer, the employer.
They may also monitor claim trends more carefully to identify common ailments and develop plans that will benefit not only employees but the company as well. This preventative model is paramount for the success of self-funded companies. Current data and expert analysis can show an organization where their health dollars are going and what trends they can expect to see in the future.
5. Immediate Cost Savings
By assuming the role of the insurer, self-funded companies can generate up to 3% in immediate cost savings just through the elimination of state taxes. More than that, because when you can design a healthcare plan that suits your employees’ needs, you eliminate the costs associated with unnecessary programs.
With a traditional insurance plan, on the other hand, it can take months or even years to see positive results in your premium fees. But, by paying only for the claims your employees make, you could save up to 20% per year.
Here’s an example to help you understand how much you can save through a self-insurance plan.
Imagine a company that is fully insured and pays $1.7 million annually for its health insurance plans. At the end of the year, the company only uses $1.1 million in claims and administration costs, meaning that the carrier keeps $600,000 in profits.
Now, imagine a self-insured company that works with an innovative TPA that offers a direct contract option, such as Access HealthNet to further control their costs. They connect self-funded plans to providers offering discounted, flat rate and bundled services which drive savings of an additional 7-12%.
Although self-insured companies save money by not paying profits to carriers, third party companies are not completely out of the equation. You still need a plan administrator (TPA) access to a network of doctors and hospitals (PPO) and specialist like Access HealthNet can help you find a select panel of health providers that will increase options and value.
Self-insurance is not without risks, but the rewards can be tremendous. Employers of all sizes are considering self-insurance, choosing the right partners, Broker, TPA, PPO and others are essential to realizing maximum savings and reducing risk.