With a majority of U.S workers receiving their medical benefits from self-funded healthcare plans and a significant portion of U.S. employers self-funding, groups may be wondering if self-funding is right for them.
There’s no solid yes or no answer to this question, as the answer depends on each company’s unique situation and characteristics.
Let’s look at a few considerations for groups who are wondering about the pros and cons of self-funded health insurance.
Healthcare Data: Win for Self-Funded Groups
With a fully-insured plan, an employer has very limited access to information about where their claims dollars are being spent. Where are employees accessing care? Who are employees visiting for care and are these providers the best at what they do? Are certain facilities in our network underperforming compared to others? And how are prescription drugs, outpatient procedures, and other costly areas impacting claims?
At a simple level, healthcare spending is the frequency of claims multiplied by the average cost per claim.
A self-funded group can measure the number of claims it has paid and determine the average cost per claim in various categories. Fully-insured groups don’t have this information and may at most learn of excessively large claims (say, above a certain threshold like $50,000) and utilization.
Premium Volatility: Win-ish for Fully-Insured Groups
This is kind of a split decision, as fully-insured groups win in the short term and may win long-term.
With fully-insured health insurance, a group pay a stated rate every month for medical benefits until their annual renewal. At that point, they receive a renewal rate either from the same carrier or from a new carrier if they move coverage. For a self-funded group, it pays claims as they are received with the assistance of a TPA. This can vary from month-to-month, resulting in greater volatility than fully-insured groups.
In the long-term, fully-insured groups generally see increasing premiums, from low single-digit increases to larger double-digit increase such as 15 percent. While this is fairly consistent, increasing premiums is not very desirable for groups. On a year by year basis, claims for self-funded groups can vary significantly, and they have the potential for a significantly bad year in case multiple large claims come through within a 12 month period.
Generally, fully-insured plans experience less premium volatility than self-funded groups.
Specialization: Win for Self-Funded
With self-funding, a group decides the network of providers and benefits to offer, and can tailor benefits in such ways as to emphasize primary care, steer employees to centers of excellence, and access low-cost prescription drugs.
A self-funded group can control the selectionof and coordination of plan vendors. With the help of advisors, the group can monitor which vendors are performing well and make changes when one is underperforming or the needs of the organization change. With a fully-insured plan, a plan is relatively inflexible due to what one group wants.
Customization offers great benefits, but it stands the chance of being over-valued. The truth is that fully-insured plans are off-the-shelf programs that work well for groups. Employees have access to providers and facilities, can get prescriptions filled, and generally receive the medical care they and their families need. Specialization can offer groups the ability to uncover more savings, but in some cases that it is just the allure of additional savings, nothing more.
Liability and Regulatory Risk: Win for Fully-Insured
When a group is fully-insured, they rely on the carrier to administer claims, process premiums, contract with vendors, facilities, and providers, and generally bear the responsibility of providing access to healthcare for employees.
With self-funding, there is an increased risk for errors caused by ignorance or lack of understanding that can lead to regulatory penalties and lawsuits. Also, the self-funded group manages funds and is exposed to a greater risk of in-house fraud or financial abuse.
Interested in Learning the Pros and Cons for Your Organization?
A group’s decision to self-fund medical benefits is an important decision and any interested group has many factors to weigh.
If you’d like to know the pros and cons of a self-funded plan for your group, schedule a complimentary consultation with one of our benefits consultants.