Is Your Company a Good Fit for a Self Funded Health Insurance Plan?

The world is swirling around. Your business is moving fast. And let’s face it… figuring out which health plan is the best fit for your company could be a full time job. Savvy employers who take the time to explore options for healthcare cost savings are seeing the term self-funded. Self-insuring is not the answer for everyone, but some businesses (even small businesses) are seeing significant savings using self funded health insurance plans.

The Bureau of Labor Statistics reported this month that benefits (of which healthcare is a significant portion) account for 31.8% of costs for employers. Make no mistake, putting some energy into this aspect of your business is crucial.

The good news is that it’s relatively easy and definitely worth your time to see if your company would be a good fit for a self funded plan. I’ll quickly explain what a self funded health plan is and the two ways we use to find out if it is right for your company.

What is a self funded health plan?

A self funded health plan is one in which a company decides not to purchase insurance through a traditional carrier and instead uses a TPA (third party administrator) to manage a health plan on it’s own. The main advantage is that a business owns its own claims fund and is able to keep any dollars at the end of the year that were not used. At the same time, the company is not exposed to any more risk vs a fully insured plan through the use of stop-loss coverage which acts as a reinsurance program for claims that go above a predetermined limit.

It may sound new, but this is actually what is happening behind the scenes at large insurance carriers and large employers. It is the way the insurance industry at large operates behind the scenes to the eliminate risk of exceedingly large claims.

So what’s the catch? Pros and Cons?

The catch is that not every business is fit to be self-insured. If you have an unhealthy population or a group of employees that are poor consumers of the healthcare system with consistent high claims, you are not a good fit.

Whether or not self insuring is right for you, it’s worth doing some digging to find out. Now let’s look at two ways we use to see if your company is a good fit.

Two ways to determine if self-insuring is a good fit

1. Take stock of your current claims data

If your current carrier has claims data that they will release to you, we can use it to see how much your company is spending and where claims costs are coming from. There are two key data items to analyze:

Aggregate claims

For this data, no specific information is required with regard to who is spending on claims or what the claims are for. It’s simply to get an overview of how much you’re paying and spending in a year. Two years of data is ideal to best determine your total spend per month.

Specific claims

For claims greater than $25K, you’ll want specific information as to what it was spent on and for who.

This is important. Take these two scenarios, for example:

1. During February of 2016, there were $33K in claims because coincidentally a majority of your staff decided to get their bi-annual check-ups that month (or a flu was going around the office).
2. During March of 2016, there were $28K in claims, the majority of which came from one individual who had recently been diagnosed with cancer.

In the first scenario, the months following are likely to cost much less in claims compared to this outlier. And therefore the option of a self-insured health plan should remain on the table as a consideration. In the second scenario, the individual with cancer likely indicates that high claims costs will continue month to month, and therefore it would not be a good time to start self-insuring.

The caveat for option 1 is that, in most states, carriers will not share claims data with companies who have less than 100-200 employees. This is part of a broader issue that is the lack of transparency in the health insurance industry as a whole, especially with big carriers.

But not to worry. If your insurance carrier will not release your claims data, there is a second option to determine if self-insuring is right for you.

2. Personal Health Questionnaires

By having your employees fill out a simple personal health questionnaire, you can gather the information you need to perform your own company health audit. You can then use the audit to build an accurate picture of your company’s health as a group. This process falls under HIPPA compliance so employee data and information they provide is protected and confidential.

The process works like this:

• HR sends a link to the questionnaire to each employee
• The questionnaire takes 5-15 minutes to fill out, depending on the health of the employee
• Voila! You now have the information you need to understand the current health of your group

You’ve collected the information, now what?

The beauty of building up an accurate picture of the health of your company is that now you can use this information to see if it is likely that a self funded health plan will save your company money.

Every situation is different, but here are some general guidelines:

If your aggregate claims are less than 85% of your premium dollars, it is a great time to look at self-insuring. You can move on to the next step with your benefits advisor to determine your exact numbers and potential savings. If your aggregate claims are more than 85% of your premium dollars its probably not going to be worth moving to a self funded plan. This is also called your medical loss ratio (aggregate claims / premium dollars)

If your specific claims or health questionnaires indicate that there are employees with health conditions that have high expected claims in the upcoming year, it is probably not a good time to explore self funded plans. If there are not conditions with high expected claims, it would be worth moving forward with the next steps of implementing a self funded plan.

There are fewer companies with the answer to these questions than you’d think, and for good reason. The big carriers are often less than transparent and don’t make it easy to shop around and explore different options.

Researching this medical data and healthcare options for your company can be overwhelming and time consuming. A experienced benefits advisor can help you gather the information and make good decisions on if a self funded plan is a good fit for your company.