The tenets of a fully-insured health plan should be very familiar. Employers pay monthly premiums to a carrier for a menu of covered benefits. The carrier pays for healthcare out of those premiums, but employees also pay — sometimes so much that health insurance doesn’t feel like much of a benefit.
That’s the way employers have been providing health benefits to their workforce for decades, and they’re starting to see that it doesn’t make a lot of sense. Premiums only move in one direction — up — but what employers and their workers get for that increase stays pretty much the same.
Employers are increasingly looking at self-funding as an alternative that puts them in control. Over two-thirds of workers with insurance through their employer are in a self-funded plan, according to Kaiser Family Foundation, up from 61% in 2019.
To forge a new path, employers need innovative advisors to lead the way to a new business-as-usual with lower healthcare costs.
What is self-insurance?
With a self-insured plan, employers will pay for their employees’ health claims as they come up instead of prepaying for claims through insurance premiums. After an accounting of the fixed costs, like administrative fees, and variable costs, like the amount paid in claims, advisors can help their clients design a plan that will provide the benefits their employees are actually using.
Pros
Less regulation. The Health Care Administrators Association points out that self-funded plans don’t fall under the purview of state health insurance regulators. Instead, they’re regulated by federal laws like ERISA. They also don’t have to pay state health insurance premium taxes, which HCAA estimates are between 2% and 3% of their premiums.
More control. Employers can build a plan based on exactly what their workers need, instead of choosing a carrier’s plan that has some of what they need and a lot of what they don’t. Case in point: Insurers were still collecting premiums during the pandemic, even as consumers delayed care, leading to a 24% increase in margins for fully insured plans, KFF found.
Lower costs. The ability to customize plan coverage means employers only have to pay for what’s actually used. They’re not paying insurers’ administrative fees or padding their bottom lines with interest earned on premium investments, HCAA notes.
Cons
More risk. Since employers are covering the costs of workers’ healthcare needs, they need to keep a close eye on cash flow, and there’s always the threat looming of a catastrophic health claim. Stop-loss insurance caps the amount that employers will have to pay on those big claims.
Resistance from workers. Kicking off a successful self-insured plan means getting employees on board. Humans are creatures of habit, and even with the promise of less expensive care and better health, some workers may kick back against changes that mean they can’t pick their doctor or have to travel far to get specialized care, according to Commonwealth Fund. Advisors need to be ready with education that responds to employees’ concerns.
The odds are stacked against employers who fully insure. The power and the profit are in the hands of the carriers. Employers are ready to break free from the cycle of premium increases. Forward-thinking advisors who want to help their clients achieve better outcomes — for their businesses and for their workers — hold the key.