The tenets of a fully-insured health plan should be very familiar. You and your employees pay monthly premiums to a carrier for a menu of covered benefits. The carrier pays for healthcare out of those premiums, but employees also pay — sometimes so much that health insurance doesn’t feel like much of a benefit.
That’s the way employers have been providing health benefits to their workforce for decades, and they’re starting to see that it doesn’t make a lot of sense. Premiums only move in one direction — up — but what employers and their workers get for that increase stays pretty much the same.
Self-funding is an alternative that puts more control in employers’ hands. It also puts more risk on their shoulders, but innovative employers who are ready to lead the way to a new business-as-usual with lower healthcare costs should take note.
What is self-insurance?
With a self-insured plan, employers will pay for their employees’ health claims as they come up instead of prepaying for claims through insurance premiums. Employers run the numbers on what they expect their workers to pay for healthcare, and after an accounting of the fixed costs, like administrative fees, and variable costs, like the amount paid in claims, employers can design a plan that will provide the benefits their employees are actually using.
Less regulation. The Health Care Administrators Association points out that self-funded plans don’t fall under the purview of state health insurance regulators. Instead, they’re regulated by federal laws like ERISA. They also don’t have to pay state health insurance premium taxes, which HCAA estimates are between 2% and 3% of their premiums.
More control. Employers can build a plan based on exactly what their workers need, instead of choosing a carrier’s plan that has most of what they need and a lot of what they don’t. Case in point: Insurers were still collecting premiums during the pandemic, even as consumers delayed care, leading to a 24% increase in margins for fully insured plans, Kaiser Family Foundation found.
Lower costs. It may seem daunting at first to take on the cost of all your workers’ health claims, but the ability to customize plan coverage means employers only have to pay for what’s actually used. They’re not paying insurers’ administrative fees or padding their bottom lines with interest earned on premium investments, HCAA notes.
More risk. Since employers are covering the costs of workers’ healthcare needs, they need to keep a close eye on cash flow, and there’s always the threat looming of a catastrophic health claim. Stop-loss insurance caps the amount that employers will have to pay on those big claims.
Resistance from workers. Kicking off a successful self-insured plan means getting employees on board. Humans are creatures of habit, and even with the promise of less expensive care and better health, some workers may kick back against changes that mean they can’t pick their doctor or have to travel far to get specialized care, according to Commonwealth Fund.
The odds are stacked against employers who fully insure. Control — and rewards — are in the hands of the carriers. Self-funding an insurance plan can level the playing field for employers who are ready to take back control of their healthcare spend.