The Case for Self-Funding Your Company's Health Care Benefits
Andrew L. Wilson
Every year… every budget cycle… employers throughout the country, regardless of industry, whether large or small, simple or complex, go through the same hand-wringing about how to reduce costs and improve their bottom line. And every year, every budget cycle the same questions are asked by employers, “How do we control rising healthcare costs while keeping employees relatively happy with the outcome?”
Often this yearly and dreaded task falls on the Human Resources executive (sometimes with a “nudge” from the CFO) or the senior partner in the firm or perhaps the husband and wife that started the company. All of whom are equally perplexed about how to accomplish the task, knowing that any change to the current employee offering will not only bring significant consternation by employees, but also a significant amount of work for the HR department (no matter with whom those tasks may lie) to change carriers, complete enrollment paperwork, answer questions, issue new cards, etc.
Often the HR executive turns to their broker or consultant to “shop” the current employee offering and plan design to like carriers in the hopes of slowing the rising tide of costs, typically going with the cheapest one, thus completing the requisite due diligence of the task as required from above. As is often the case, the results of this exercise manifest themselves with skyrocketing rates the following year, thus starting this yearly “cycle of dread” all over again.
Unfortunately, many employers participate in this yearly ritual without considering perhaps the most practical and beneficial option for them regarding cost control and the health and wellness of their employees, and that is self-funding their health benefit plan.
Most employers know that in a self-funded plan, the employer provides health benefits to employees with their own funds. They hear that it is typically a cheaper option, which initially sounds great, but then comes with the caveat of assuming the risk of paying all of the claims of their employees. This is where interest usually wanes however…the idea of assuming this uncertain risk, versus the traditionally “fully insured” model in which the insurance carrier bears all the risk.
This uncertain cost exposure along with the perceived administrative burden often seems too daunting for further consideration. No employer wants to expose themselves to claims that could negatively impact their bottom lines or even perhaps the viability of their companies. These are the common concerns and the most often misconceptions of the self-funded plan.
Not only is self-funding a sensible and practical option for employers…big and small… there are a number of advantages to it that not only can benefit a company’s cost curve but the health and wellness of its employees as well. While cost control is undoubtedly the most obvious benefit employers are typically looking for, self-funding is also a way for employers to offer valuable health and wellness benefits that keep employees engaged and productive thus limiting turnover.
Probably the most known advantages to employers of self-funded plans is that under the Employee Retirement and Income Security Act (ERISA), plans are exempt from state insurance laws covering reserve requirements, as well as state mandated benefits and premium taxes. Each of these is significant in their own right and all of which can result in considerable cost savings to the employer.
However, a major additional benefit of self-funded plans is that there is greater flexibility to design a plan that meets the needs of employees while still being affordable. Benefit companies like Crescent Health Solutions, have the ability to access claims data to help employers identify areas of focus regarding potential health issues that are driving a company’s claims costs. Data such as this, in addition to information gathered from simple employee health-risk assessments, can help employers make decisions to allocate their resources that not only will help keep costs and turnover low but will also be in the best interests of their employee’s health.
Managing claims through targeted wellness and disease management programs can be important aspects of a self-funded program. With self-funded plans, employers can establish wellness and health education programs targeted to their employee’s specific needs such as high blood pressure, diabetes, etc., to help them lead healthier lifestyles. These programs have evolved over time to offer nutritional guidance, exercise programs, smoking cessation, and mental health counseling to name a few. The end result is that self-funding and its ability to target the specific needs regarding the health of a company’s employees, can have a significant impact on employee engagement and wellness as well as positive bottom line impact. This type of specific plan steering and flexibility is a hallmark and benefit of self-funding.
While all of this sounds well and good, most often the main concern employers have regarding the idea of self-funding is the risk associated with being directly responsible for paying all of its medical claims. Claims can often be higher than anticipated or there can be unexpected claims, all of which can have a significant impact on an employer’s financial performance.
A well thought out plan however, can mitigate this risk through a stop-loss insurance policy. How does a stop-loss policy work within a self-funded plan? Employees still pay premiums and deductibles, and the employer covers all claims incurred up to a certain “dollar level” called the “aggregate attachment point.” This “attachment point” essentially sets the employers maximum exposure to costs…whether an individual high end claim or when all claims exceed a certain threshold amount. Stop-loss insurance then reimburses the employer for costs associated with the catastrophic claim or simply the higher than anticipated over-all claims activity, thus mitigating the risk to the employer.
Crescent Health Solutions can provide for all of your self-funding needs, from walking you through the initial analysis to designing your health benefit plan. Crescent offers a comprehensive provider network, can provide detailed claims review and analysis, tailor wellness and disease management programs for your employees' needs, as well as identifying the attachment point and coordination of protective stop-loss insurance.
Call Crescent today at 800-707-7726 to see if self-funding makes sense for your company.
Andrew L. Wilson is Chief Executive Officer for Crescent Health Solutions, in Asheville, NC.