Managing the employee benefits program your organization offers is no small task. C-suite and HR professionals struggle to offer attractive, competitive benefits while managing costs in the face of the seemingly uncontrollable rise in health insurance rates. If your business is dealing with employee healthcare costs that are escalating, you’re not alone.
Employers of all sizes are grappling with what to do in the face of unsustainable health insurance cost increases. Seriously, how can you predict and budget for annual premium rate hikes that can range anywhere from 7% on the “low” side, to 12% and upwards? The impact cannot be overlooked when the cost of employee benefits is a often a top-three line item expense. For some organizations, a 10% renewal increase could represent a six-digit rise in overall premiums. Yes, you have to offer benefits to remain a viable employer, but let’s face it – his simply is not sustainable.
The undeniable reality is that healthcare costs will continue to rise for employers. You can try short-term fixes such as increased deductibles, copays, coinsurance, etc., but those are all reactive approaches. In contrast, there are proven ways to revamp the approach taken to fund your employee benefits program. In looking at alternative funding arrangements for employee benefits, a knowledgeable and strategic insurance broker can guide employers to achieve more control over the cost of their health care program. Several alternative funding options have increasingly gained in popularity over the past decade.
Fully-insured vs. Self-funding
Basically, self-funding your employee benefits health plan, as the name suggests, involves paying the medical claims of the employees as they occur. A self-funded plan gives the employer more insight and control when it comes to the health benefits they provide to their employees and dependents. The employer is the owner of the plan and pays a fixed cost for plan administration, access to a network of doctors, and “stop loss” insurance that helps cover any unexpected high claims. The employer simply pays any claims as they’re incurred. If an employer doesn’t have any claims (its employees and their families are healthy all year), a self-insured employer doesn’t pay anything, potentially a huge savings in employee benefits expenses.
With a fully-insured health plan, the employer pays a monthly premium to the health insurance carrier. In return, the insurance provider covers the employees’ healthcare expenses. With a fully-insured plan, there is no additional risk to the employer. The employer knows exactly what their plan is going to cost each year. The downside is if the employees are healthy and don’t use much health care, the employer has spent a significant sum and doesn’t get any of the money back. Employers also have little control over annual premium increases. There are no refunds in a fully-insured plan, even if there are very low claims. In contrast, there is no extra cost incurred if your employee group has large-scale claims. However, don’t be fooled. You will likely pay for those high claims in the form of an annual rate increase the following year.
While cost is a driving factor in employee benefits decision making, alternative funding avenues for employee benefits also offer an increased level of transparency for your employees. The group can take some control over this significant investment. This provides more flexibility and control from both the perspective of the employer and employee/dependents with an increase of data provided to both. This information isn’t normally available to both parties under the fully insured model.
Self-funding Advantages
Self-funding gives you an almost infinite number of creative possibilities for managing the plan’s health care costs, which are not available in a fully-insured, bundled arrangement. Typically, employers who choose to self-insure do so not only to escape the rising cost of healthcare premiums, but also to gain transparency. A few examples of advantages to self-funding include:
- Access to detailed healthcare claims data. Claims information is typically not available to employers in a fully-insured model. However, with a self-funded model, this data is at the employers’ fingertips. This enables them to analyze patterns of claims among workers. Once an employer understands the source of claims, they often build custom-tailored wellness and cost containment programs to address their group’s unique issues.
- More control and flexibility. For example, a self-funding model allows the employer to decide what their company’s plan will encompass. They can customize covered benefits (and exclusions) and employee cost-sharing. Additionally, the employer is free to contract with the providers or provider network best suited to meet the needs of its employees, instead of being locked into a specific provider or provider network.
Self-funding gives a group as small as 25 covered employees the opportunity to see and understand where their health dollars are going.
Common Misconceptions
Small and mid-size employers often believe they are not large enough to consider alternative options for funding their benefits. While it’s true that most self-funded health plans have over 200 employees, that doesn’t mean there aren’t interesting and valuable self-funded options for other employers. Another misconception about self-funded plans is that they cannot coexist alongside fully funded plans. The fear was that having self-funded and fully-funded plans side by side would ruin the risk pool — that more of the healthy population of employees would end up with the fully funded plan, leaving the employer to pay more claims out of pocket.
Many employers are concerned with additional perceived risk. With the right advisor, you can eliminate excessive exposure just like the insurance companies currently do. Employers in a traditional insurer-built plan are paying the max risk every year. Forward thinking businesses have found they want the flexibility and transparency that comes from an employer-built plan.
How We Can Help
Imagine if your employees loved their healthcare experience.
What if they had a guide to navigate the complex system in place?
What if they felt they had choices that included data around the best quality on their specific condition along with clear pricing?
What if your employees helped you find your next hire because your health plan was employees centric?
Imagine if you had all of these qualities and found out they cost less than the current plan you have in place?
This is what we do every day.
At Hartin Dynamics, we understand the importance of offering competitive employee benefits while managing costs. Every day we are helping employers evaluate and adopt a different approach and positively impacts their bottom-line results.
Let’s talk to explore your options and help you decide on the funding strategy that’s right for your business.
