Historically, employers ranging in size from 100 to 1,000 employees have been unwilling to look at self-insurance as an option. Many things have contributed to the reluctance: lack of knowledge on the functionality of a self-insured program, cash flow, or a bad claims experience in the past.
How Self-Insured Programs Work
Being self-insured does not mean there’s no protection and that the company takes all the risk. Rather, businesses buy re-insurance (sometimes referred to as “stop loss”) both on an individual claimant, and on an aggregate basis (the group as a whole). The amount of re-insurance purchased is based on risk tolerance. For example, the company is responsible for claims up to $200,000, and over that amount the “stop loss” kicks in, and the re-insurer picks up the remaining cost of the claim.
Another element of a self-insured program is a Third Party Administrator (TPA). A TPA pays the medical claims submitted by the providers – doctors, hospitals, and clinics. TPA’s should be invested in technology and have access to good PPO (Preferred Provider Organization) networks. In working with TPA’s request client references. The references should have the same number of employees, and be based in the same geographic area.
The Benefits of Being Self-Insured
The benefits of self-insured health programs are many – the first is avoiding state mandates that are driving up premium costs.
The second is, self-insured plans are governed by the Employment Retirement Income Security Act of 1974 (or ERISA), where the employer is no longer taxed on the premiums paid to health insurers.
Third is eliminating the health insurance company’s profit margins.
Next, there continues to be a consolidation of competition in the Texas marketplace. Depending on the region of the state, there may be as few as four fully insured options to choose from and limited flexibility within those options. The Patient Protection and Affordable Care Act will continue to reduce the number of employer health insurance options as more vendors sell out to the competition rather than increasing their risks and lowering profitability.
Lastly, the cost to insure can go down significantly.
The Risks of Being Self-Insured
There are additional employer liabilities to being self-insured, such as cash flow. Solid cash flow is necessary for fluctuations in monthly medical claims, and there is a need to save for a rainy day because there will be months where claims are high. In a perfect world, pre-fund any expected monthly claims to avoid cash flow issues.
At renewal, some re-insurance carriers will try to attach “lasers” on known individual risks, like an employee on kidney dialysis, for example. Terms with re-insurers are negotiable.
If there have been bad claims experiences in the past, review legislative updates to see if self-insurance now makes sense. For example, the Texas Legislature passed House Bill 2015, where health insurance companies are required to provide reports to employers and their brokers detailing what’s been paid in premiums versus what the health insurer has paid out in claims. If there has been a low payout in claims versus the premiums paid, becoming self-insured makes sense. House Bill 2015 also requires the carrier to provide information about individual large claimants paid by the insurer (over a certain dollar amount), along with diagnosis information. This information provides the background on any long term exposures.
Employee wellness is also a key component of employers who are self-insured. Many employers are now investing money in keeping employees healthy, and the return on investment is reducing catastrophic claims. Wellness programs include incentive based programs where employees earn gift cards or reduced premiums for compliance for things like annual check up’s, preventative screenings, and exercising. Each employer program is different, and can be tailored to a specific population.
Stay educated on the options available – health insurance has come to the top of the list on many balance sheets, and many employers don’t realize the potential money savings available.
Lance Pendley is Senior Vice President at McGriff, Seibels & Williams in Dallas. Lance is a graduate of Texas Tech and can be reached at email@example.com
What will 2020 bring for your business? Join #TexasCEO Magazine on 2/20 for a lunch with internationally recognized geopolitical forecaster and strategist Dr. George Friedman. Tickets available now! eventbrite.com/e/global-forec…
Are you interested in being a #CEO? Join us for a two-day seminar in February on how to achieve—and excel in—the #CEO role. Early bird pricing is in effect, so register today! eventbrite.com/e/aspiring-ceo…