Many employers turn to self-insurance to reduce the cost of providing health insurance to their employees—as self-insurance may exempt employers from state mandates and some federal requirements and save them 4 to 6 percent on taxes and assessments. Yet, all these incentives come with some risk. There are no guarantees a catastrophic claim won’t hit. In today’s evolving healthcare landscape, new drugs and high-cost treatments are increasingly common. Life-saving interventions could result in costs that companies can’t absorb, and that’s why looking at self-insurance from a holistic perspective is so important.
Read on for more insights!
SELF-INSURANCE AT A GLANCE
When employers go self-insured, they are assuming the financial risk of offering health care benefits to their employees. As a self-insured employer, you will become responsible for medical and pharmacy claims, and some regulatory and administrative duties. This can include high claims and unexpected costs.
To protect against excessive claims, employers often purchase “stop-loss” coverage. Specific stop-loss provides protection for the employer against a high claim on any one individual. Aggregate stop loss provides a ceiling to the amount that an employer would pay in expenses on the entire plan during a contract period.
When considering whether to move to self-insurance, it’s important to compare whether the self-insured quote that includes administrative fees and stop-loss will be better than a quote you receive for fully-insured plans that include premiums.
IS IT RIGHT FOR ME?
An ideal self-insured customer has a stable employee population with relatively low turnover in good health. This includes having a strong financial status and a human resource department that can handle the additional responsibilities that accompany self-insurance.
Let’s explore some scenarios to see how self-insurance might play out.
In the best-case scenario, expected claims come in well below what is anticipated for many years. Depending on the size of the employer group, this along with the tax savings mentioned above, can result in thousands of dollars in savings. This is because they’re only paying for claims actually incurred by their population.
The question ultimately becomes, “how many years of better than average claims can continue before the claims regress back to the mean or become worse than average? Also, will the self-insured group make the right decision to set aside any savings as reserves so that they have it to fall back on in an unfavorable year?
While specific stop loss coverage offers the employer some protection, it is not without its own risks. In the worst-case scenario, a group has a catastrophic claim emerge – for example, a high cost specialty gene therapy medication that exceeds $1,000,000 per year.
In this situation, the carrier has a known risk of $1,000,000 each year in addition to the unknown risk that may exist in the group. Not only would this claim exceed the specific reinsurance, which will likely cause a much higher than average renewal increase, it is also ongoing, and the carrier has no choice but to price the entire claim amount (i.e., $1,000,000) into the risk or “laser” the claimant out (i.e., there would be no stop loss coverage on that individual.) This leaves the employer at financial risk for the entire claim, which may be ongoing for years, and most small and mid-size employers are just not in a position to absorb that kind of expense.
WHY IT CAN PAY TO STAY FULLY-INSURED
The impact of an ongoing catastrophic claim becomes less impactful when the entire claim is not priced into the risk of one employer but across an entire fully-insured pool. It provides some additional protection that self-insured contracts do not have.
WHAT ARE MY OPTIONS?
Ask your insurance provider what self-insured options you have and carefully evaluate whether your group is a good fit for self-insurance.
HealthPartners offers a wide variety of self-insured products and various value-added programs, including: frequent fitness, cancer management, healthy pregnancy and virtual coaching.
The self-insured solution is different for each employer. It’s important to know how much risk you can tolerate. A group that appears the most ideal for self-funding today, may not be tomorrow.
If you have more questions about self-insurance, get in touch! Please contact your HealthPartners sales representative at: 800-298-4235.