As you think about your current clients and what may happen with their premium costs when they renew this year, keep in mind self insurance may be a viable option that will be advantageous for their company and for their employees. In the past, very few options existed for smaller companies who wanted to move to self insurance. Today there are many options to consider. Self insurance is not right for every company, certainly not every company between 50 and 99. So you may be asking yourself which are the companies between 50 and 99 that are the right fit for self insurance? If self insurance is a viable option, how do you determine which of the structures and programs available make the most sense for the specific group?
Let’s start with the critical factors that should be considered in determining if self insurance makes sense for a company:
- You can have a conversation with the owner/CEO/CFO/controller and they are open to learning about self insurance.
- The employer contribution is favorable and as a result the company has good participation.
- The employer’s last 3 years of rate increases have been at or below trend.
- The employer knows about employees on leave or on workers’ compensation to determine if they may be a potential large claim. They may even know about family members with ongoing or costly health conditions.
- The employer has employees in California and outside of California and wishes to provide the same plans to all employees.
- The employer wishes to provide health care insurance to their employees.
It is important to look at each of these aspects very carefully. If as an example, the employer is looking for a silver bullet, self insurance may not be a fit for them. As we all know individuals will go to the doctor, needs tests, have surgery and be hospitalized. If the employer wishes for the lowest possible cost and has low participation due to the plan(s) they offer and the contributions they make, they may not be a good candidate for self insurance. Self insurance is not a silver bullet but has saved many companies a lot of money over time.
When talking with an employer about self insurance, they must believe the increased cost transparency, ability to see how their dollars are being spent and the increased control over plan design will be advantageous. If they only focus on the worst case scenario of the plan maximum liability, they are focusing on the wrong thing. There are great opportunities for many companies. Having a senior person within the company strategically believe self insurance makes sense once you have outlined the pluses and minuses and why they are a good fit, it is important to move forward.
When you have determined if an employer is a good fit for self insurance, it is important to figure out which structure and program will work best for them. Structures include those that are bundled and those that are unbundled. Bundled plans have all plan components, claims payment, medical management, stop loss, and pharmacy all with one company. Unbundled plans allow for different companies to provide the needed services for the self insured plan. These models are different and each have their pluses and minuses.
Programs available to companies between 50 and 99 are either level funded or traditionally funded. Level funded programs work well for some employers as they almost look like a fully insured plan since the employer pays the same dollars each month regardless of the claims that have been incurred. The variation is only in the number of members covered each month. Depending on the carrier you use for the level funded plan, if there are any dollars under what was expected left after year end, the employer will either share that savings 50%/50% with the insurance company or get back 100% of the excess. With some level funded plans, each employee will be required to answer medical questions. If the carrier/stop loss underwriter requires this process, they will not finalize their rates until after all the employees go through this process. There are underwriters that will accept the employer’s signature for final disclosure, not requiring the employee underwriting.
When reviewing the numbers, you may find the level funded plans requiring medical underwriting to be competitively priced. It is important to remember the numbers may not be the final numbers.
For some employers a traditional structured plan will make sense. In a traditional structure, the plan is built using a Third Party Administrator/Medical Manager, a Stop Loss Underwriter, Network and Pharmacy Benefit Manager. When building a traditional structure plan, if one of the carriers/vendors are not a right fit in the future, it is much easier to make a change. As with the level funded plan, the stop loss is the most difficult since no claims information is available. There are stop loss underwriters that will accept the risk with the employer signing off on the final claims disclosure. The carrier doing this will require historical information on rates, plans, any large claims, contribution and participation. They need to be confident the group has been properly vetted and is a good candidate for self insurance such that they will not incur undisclosed large claims.
How do you compare the projected costs of self insurance to the fully insured numbers? If you compare the fully insured plan costs to the maximum liability, it will be rare that the self insured plan seems to make sense financially. With most self insured plans, the aggregate coverage is set at 125% of the expected claims. The fully insured plan includes an assumption for expected claims plus a risk factor. The risk factor imbedded in fully insured plans is much less than 25%.
The timing of when you talk with your clients and prospects about self insurance is critical. If you start the conversation when you are meeting with them to discuss their renewal, it is way too late. There is a process you need to go through to educate them on the pluses and minuses of self insurance. In addition, you may need to gather additional information that you don’t need for your fully insured quotes. If you determine the level funded structure makes the most sense, you will want to go through the employee medical underwriting process way in advance of open enrollment when you must communicate the new plan to employees.
If you moved your 50 to 99 group to a December renewal, now is the time to start the process in considering self insurance. Set up a timeline that includes enough time to educate your client, try to figure out if employee medical underwriting will be required, plan out the timing of when you can finalize the numbers and be sure there is enough time to build the plan. All of this needs to happen before open enrollment. The process of moving a group from fully insured to self insured can be accomplished for the right employer when you have a thorough strategy and a realistic timeline.