Year after year you move your health plan benefits from one carrier to another—only to find yourself ready to recycle the options once again.
Maybe you have had experience with fully insured and level-funded arrangements but never really thought about self-funding. Perhaps you were unsure about what it means to be self-funded and, besides, your broker never proposed it. So, you think self-funding is not for you. Maybe you’re correct, but I would challenge you to consider the following concepts about self-funding healthcare benefits and why even groups with as few as 50 participating employees successfully self-fund their health plans.
SELF-FUNDING YOUR HEALTHCARE BENEFITS
Even Fortune 500 companies do not fully self-fund their healthcare benefits. The term self-funding never means a plan is completely exposed. All employers buy some level of insurance to protect against catastrophic claims. The level of catastrophic protection that a plan purchases is based on a combination of cost and risk tolerance.
This insurance is called Stop Loss insurance coverage.
When Stop Loss insurance coverage is in place for catastrophic claims, plans pay for predictable, lower-cost claims, unlike fully insured arrangements where insurance is in place for all claims. When you remove “insurance” for your plan’s manageable claims, you save money (fees, taxes, carrier profits).
Healthcare data show that claims will be high one out of every five years. Even if your claims are unusually high during two consecutive years, the odds that your good claim years will outweigh your bad claim years is statistically in your favor. What does that mean? Financially speaking, you can position yourself to win more than you lose—and over time this matters a lot.
Insurance companies know these stats. So the longer they keep a plan, the higher the odds are that they will win. Have you ever experienced a carrier rate decrease during a good claim year? If you have, congratulations, you are an exception to the rule. My experience is that if you receive a rate hold at renewal (rare), the carrier is not only paying your claims, but is also meeting their minimum margin requirements.
Have you ever wondered if your good claims experience is subsidizing another group’s bad claims experience?
In a fully insured arrangement, the answer is always “yes.” Without getting into the concept of pooled risk, carriers do not disclose claims information to their clients because of this subsidization concept “community rating.” If every healthy group left a risk pool, premiums would skyrocket, and the pool would implode. To be fair, when claims are bad the pooled concept can help a group. But how often is a group winning versus losing? Probably a ratio of one to five, if stats are to be believed.
Claim transparency is another benefit to self-funding your healthcare benefits.
The mystery of whether claim costs represent premiums goes away because you now know your plan’s true costs. Claims information is also helpful in knowing how to target cost-drivers (the topic of a future blog).
Since we’re on the topic of claims versus premium, I cannot help but mention the obvious. Whatever happened to all the premium fully insured plans paid during the COVID shutdown? If you’re brave enough to look at stock earnings during 2020 for the largest health insurance companies, you’ll be able to answer that question right away. Profits were up substantially. Conversely, for self-funded health plans, claim costs plummeted. Not that we want to repeat 2020 or 2021 again, but it underscores how “funding” your healthcare benefits matters.
To learn more about High-Performance Health Plans and self-funding your healthcare benefits, contact Brad Forney.