We think any group with more than 50 employees should at least consider a self-funded health plan at their renewal (yes, even in California!).
But once you receive a stop-loss quote, either directly from a stop-loss insurance carrier or through a medical stop-loss captive, what should you look for? What questions should you ask? How should you read it?
Let’s go over the most common questions you should ask as you consider whether to move to a self-funded health plan.
Don’t put it on a spreadsheet – ask how the proposal generator arrived at the projected spend
It is really important to resist the urge to “spreadsheet” your current renewal against a proposed self-funded health plan.
By spreadsheet, we mean to put the bottom-line numbers up against each other and pick the lowest or most attractive number to your organization. While a fully-insured renewal is a guaranteed 12-month rate, the self-funded proposal is a best guess at your claims for the next 12 months and your total costs. By design with a self-funded plan, your costs are variable because you are directly responsible for claims incurred. You may have claims of $80,000 in July, $30,000 in August, and $100,000 in September. Is this better than spending a flat $70,000 each month on fully-insured premiums? Not really, but that’s not the goal of a self-funded plan.
Self-funding seeks to eliminate the taxes, administrative costs, and more that exist in a fully-insured plan and don’t go to directly paying for your claims. If you could pay $50,000 every month for 12 months or $400,000 in variable amounts over that same period, which would you choose?
Now, do beware of a self-funding proposal that factors in lagging medical claims – you typically pay claims 30 to 90 days after they’re incurred, so your first few months on a self-funded plan will be fairly quiet. Some self-funding quotes may look very attractive just because they represent 9 to 11 months of claims. Ask if your proposal is based on mature claims, or you may be disappointed in your experience.
The better method is to project costs over a 5-year period, which we typically recommend as the minimum time frame for any self-funding discussion. While claims could be high in any given year, most groups will see an overall benefit over a five-year period (in fact, one of our captive managers actually has a savings guarantee for any 5-year period). Do this – don’t compare it to your carrier renewal with a spreadsheet.
How are lasers handled over time?
While stop-loss insurance limits the company’s liability for total claims or claims paid for a certain member over a 12-month period, the carrier very may well apply a laser to that member at renewal time.
A stop-loss insurance laser is when a stop-loss policy excludes claims of a certain member due to past experience. This can be devastating for a plan – just look at the proliferation of high-cost claims in the last few years. SunLife’s reporting on their 2020 claims was eye-opening. Some key highlights:
- Million-dollar plus claims increased 9 percent from 2019 to 2020
- The highest medical claim in 2020 was for cnacer, totaling $6.3 million
- The most frequent $3 million-dollar-plus conditions in 2020 included cancer, birth conditions, COVID-19 and pulmonary collapse
The 2018 MMA Stop-Loss Survey found that 11 percent of surveyed employers had at least one member lasered on their current policy and the average laser to be $286,000 per individual. This worked out to 2.2 times the individual specific deductible for those with lasers.
While large employers may be able to weather a laser (say a $500,000 individual laser on member undergoing cancer treatment), one large claim without a laser can blow up a small employer’s self-funded plan. Some medical stop-loss group captives are really valuable specifically for this reason. While lasers can be very difficult to absorb as a single employer, a group captive can spread the laser across the members in the risk pool and can improve the price stability for smaller employers.
For example, one group captive reported having 8 percent of groups with at least one individual lasered (compared to 11 percent) and an average laser amount of $158,000 (compared to $286,000). Furthermore, they reported that 32.5% of the potential laser amount was actually paid.
Another option to consider is if the contract can include a No New Laser (NNL) option. With this option in place, the carrier may set initial lasers but will not add lasers in subsequent years to existing insureds. This may also include a renewal rate cap which limits the rate increase of the stop-loss insurance at renewal time. Of course, the key question here is what are you paying (the load) for this benefit and does that make sense for your organization?
Does the PBM fully pass through rebates?
A self-funded plan hires an outside Pharmacy Benefit Manager (PBM) which manages and distributes prescription drugs to employees. Think of it as the wholesaler between manufacturers and your pharmacist. Each PBM has a slightly different pricing arrangement and a group needs to clearly understand how the PBM operates and how it expects to make revenue.
PBMs may receive revenue from multiple sources, such as spread pricing on fills (buying drugs at one price and selling them at a higher price), data sales, mail order fees, ancillary fees, and retaining a percentage of drug rebates. An area of growth in recent years has been the shift towards PBMs with 100 percent pass-through of drug rebates to the plan sponsor. Now, these PBMs may have a higher administrative fee, this is true. But the plan sponsor and employees are the ones paying for the drugs, so we like to see fully transparent PBMs which pass all drug rebates to the employer.
Make sure you understand how the selected PBM operates and their sources of revenue. They are a key partner for health plans where drug spending may be 20 to 50 percent or more of total claims.
What kind of claims data reporting and analytics will we receive?
One of the largest cost savings opportunities offered by a self-funded health plan is to better control claims costs. And the first way to manage claims is to of course know what they are!
The transparency of a self-funded plan can be put to its best use with claims reporting and analytics. With these capabilities, the group can identify cost savings opportunities and then execute on them. By reviewing claims data, the group and consultant may find a number of cost savings opportunities in employee behavior and utilization.
One example is very high emergency room utilization, which leads it to raise the ER copay and make urgent care and telehealth solutions more available to match low acuity employees to more cost effective care sites.
Another finding could be low primary care visitation and engagement, which we know can lower costs and improve health outcomes. So the broker could bring a virtual primary care service or bring more education and engagement to employees about the value of primary care. If the group is of the right size and geography with local health systems supporting it, an onsite or near-site clinic may increase primary care utilization.
Anything the data reveals can be acted upon to the benefit of employees in the form of better access, affordable healthcare, and quality outcomes, while the employer benefits from happier and healthier employees and lower costs. The right platform helps the employer identify and act, so be sure to understand how your claims data will be presented and available to you.
Does the platform integrate vendors such as telemedicine or mental health?
How can the proposed Third Party Administrator (TPA) integrate with telehealth and point solutions to build out the health plan and member experience? A high-functioning health plan will take advantage of the wealth of digital health vendors and tools on the market today and bring them together in some coordinated way for employees. But the employer will see low utilization and minimal impact if they don’t have a way of bringing these solutions together for employees.
How effective is a $10 PEPM solution that employees only hear about once a year? Your consultant should be doing at least quarterly utilization meetings to review the data (see above!) and find new opportunities for engagement and communication.
For example, if you contract with a telehealth and virtual primary care vendor like First Stop Health, will their reporting feed into the rest of your claims data?
Will your utilization of a mental health EAP such as Spring Health show up with the rest of your data to give you a full picture of claims and employee behavior?
Above all, work with a consultant team with experience in the self-funded space with the tools around reporting, cost containment, stop-loss procurement, and more to set yourself up for success when you are considering a self-funded health plan. While these plans offer transparency and control, a group needs to ask the right questions and bring the right people and tools to the table to get the most benefit out of their plan.