Market fluctuations and complicated legislation make healthcare costs a constant concern for both small and large companies. The Congressional Budget Office estimates that premiums for employer-based family coverage will increase 60% by 2025, reaching a total of $24,500.
In the last three years, medical expenses have steadily grown at a rate of 6.5% per year. The average family health coverage spending (which was $18,142 in 2016) is reason enough for companies to look for cost cutting strategies while also juggling their business objectives, employees’ expectations, and state regulations.
Switching to self-insurance programs instead of the traditional insurance plan is an excellent way to reduce your costs and add value to your company and your employees’ lives. Studies have shown that self-funded plans can reduce costs by 10 to 20%.
Although the benefits are significant, a lot of small businesses think that only large companies could benefit from self-funding due to the financial risk it implies. There’s a chance the employer will have to face a large bill they can’t cover if a worker has medical issues they didn’t include in the personalized health plan. What they don’t realize is that you can minimize these risks by purchasing stop-loss or excess loss insurances from insurance carriers that reimburse the employer for claims that exceed a certain amount.
The following are just a few reasons why companies should choose this alternative over traditional insurance plans.
1. Self-Funded Employers Receive More Accurate Data
Because self-funded entities “play insurance company” and share in the risk of paying claims, they are entitled to detailed claims that are not provided to fully insured clients.
Before deciding whether to switch to a self-insurance health care policy, most organizations perform an in-depth analysis of its historic risk profile based on worker demographics, high-cost claims and any other information that is volunteered by their current insurer.
Based on the findings, their Third Party Administrators (TPA) suggests a customized plan design that aligns the financial goals of the organization with the health insurance needs of their employee group.
2. Self-Funded Employers Are Less Effected By Some State Insurance Law
Health insurance plans are subject to many state and federal laws and regulations designed to protect consumers, mandate coverages and limit employer choices. However, many of these regulations have safe harbors that afford self-funded entities protections. For example, under a fully-insured plan, companies are required to provide all ACA mandated coverage. Self-insurance programs have some flexibility in how they choose to tier coverages and in some cases may be grandfathered into pre-ACA level coverages.
Self-funded plans are subject to ERISA (Employee Retirement Income Security Act of 1974), a law that protects individuals engaging in voluntary health benefits. Under this law, self-insured companies are exempted from some state regulations that could include mandated benefits, premium taxes, and others which unnecessarily limit choices and drive up costs. Self-funding eases some regulations, but of course, all employers have to follow US tax code, anti-discrimination laws such as HIPPA, ADA, Pregnancy Discrimination Act, Age Discrimination Act, and other essential constitutional elements.
3. Cutting Edge Solutions
Because the employer plays “insurance company” they administer the plan either by themselves or more often with the assistance of a TPA. Many brokers and TPA’s help self-funded entities to administer more innovative, cost-saving plans that address the biggest drivers of health insurance costs. Specifically, lowering the costs of super-formulary and infusible drugs, value-driven options and direct contracting with value-based providers. Additionally, the majority of self-funded employers purchase stop-loss coverage that protects them from exposure to claims over a set amount (example $50,000) limiting their risk to that amount on a per-employee basis.
4. Lower Premiums for Employees
According to a 2016 report, 13% of workers in small organizations are covered under some form of self-funded plan, compared to 82% of employees in large companies.
The reason so many employees prefer self-insurance programs is because it affords them the ability to lower premiums for their employees. When a company switches from traditional insurance plans to self-funding, they reduce their costs significantly and can save up to 20% per year. Most companies usually use this money to provide better healthcare plans for their employees.
The price of health insurance is one of the top problems and priorities for small businesses. Self-funded insurance plans offer more control and awareness over where and how the resources are allocated.
Self-insurance is not a magic solution, but the benefits are well worth it. Brokers, TPAs, and benefits administrators have many plans available that will assist employers with enacting an innovative cost-saving self-funded plan. Companies like Access HealthNet are leading the way in direct contract solutions that help employers save even more.