Looking at self-funding health insurance for small businesses

Are the rising costs of employee health insurance impacting your bottom line?  Of course they are!  Unfortunately, there’s no end in sight to accelerating medical costs and COVID-19 has only complicated matters. So what are you doing about it? Read on to learn about a solution that small and medium-sized businesses are adopting in greater numbers. 

But first, a quick look at the current state of healthcare costs. According to PWc’s Health Research Institute, costs are expected to rise 6.5% in 2022. That’s slightly less than the 7% of 2021 but more than each of the previous five years. Major cost drivers include recouping vaccine, patient treatment and survivor recovery expenses. Healthcare providers are also investing in new technology, reconsidering supply chains and addressing the massive mental health problems created by COVID-19.

If you think the carriers will eventually have to stop raising rates, think again. Perhaps the government is going to step in and get costs under control, right?  That’s unlikely. 

Most likely, your benefits advisor will find a different plan with higher deductibles and copays to keep your cost the same. That’s okay right?  Not for your employees. Neither is raising your employees’ contribution. 

With a tight labor market and healthcare coverage top of employees’ wish lists, offering them less is likely to lead to a revolving door.  

So, what should you do?

Many believe that self-funding your insurance is risky. That’s not the case anymore. 

The old school thought was that you must be a large employer (over 500 employees) to self-fund.  As stop loss carriers developed programs to take the risk out of self-funding, many brokers believed you could self-fund if you had say, 100 employees. Times have changed as many smaller employers have embraced self-funding including those with as few as 5 employees.

A well-designed self-funded plan will not just mitigate risk it will eliminate it with mechanisms like specific deductible advance, aggregate accommodation, and no laser contracts.

Advantages for employers

The International Association of Employee Benefit Plans writes about the many advantages of self-funded health plans for employers:  

  • More flexibility in customizing the plan to the employer’s goals and the employee population.
  • The employer retains funds when health claims are lower than expected.
  • Lower costs because there are no profit or risk margins to pay to an insurer and no state-levied premium taxes.
  • The plan does not need to satisfy certain ACA mandates and is not subject to state insurance laws and mandates.
  • It is easier to access data on health care usage to identify trends and opportunities for cost savings.

If you are serious about managing you cost and providing your employees with quality benefits without reducing their paychecks, then you MUSTself-fund.

Flexibility in plan design, transparent reporting, proper stop loss placement, referenced based pricing, and true claims management are the ONLY way to get your costs under control.  If you are not familiar with these, or your benefits advisor has not spoken to you about the benefits of self-funding, you really should have that discussion, or seek out a new advisor.

I’ll finish with two thoughts:

  • The carriers (Blue Cross, United Health Care, Cigna, and Aetna) are not your friends.  They seek profit with no real interest in controlling your costs.  In fact, ACA discourages them from controlling costs.
  • Seek out an advisor who will show you the way to a well designed self-funded plan.  It is the ONLY way to manage your program and control costs.

Quote of the week

 “A penny saved is two pence clear”

Benjamin Franklin