Turning to self-funding as a means to contain costs
Healthcare in America still remains a central, and seemingly endless issue with no respectable resolution in sight. But while the increasingly contentious health care debate may make for good politics and boost cable television ratings, the controversy certainly does not benefit the vast majority of American businesses wondering if and when premiums will rise, and whether or not the insurance landscape will settle into some semblance of stability in the near future. Given these tumultuous times, companies of varying sizes and who are engaged in a wide variety of market sectors are turning to self-funding as a means to contain costs, while simultaneously improving access to quality healthcare for their workers and dependents. In fact, over 100 million Americans today already receive their benefits through self-funded initiatives.
"A wide variety of market sectors are turning to self-funding as a means to contain costs, while simultaneously improving access to quality healthcare for their workers and dependents."
--- DR. CRISTIN DICKERSON, MD
Here's how it works:
Self-funded health plans versus fully-insured traditional health plans
The primary differentiating factor between a self-funded plan and a fully-insured healthcare plan is who assumes the risks for health claims - the employer or the insurance company.
With a self-insured model, employers operate their own health plan instead of purchasing a plan from a traditional insurance provider. While commonly called “self-funded” healthcare plans, a self-insurance solution does not mean that the company or business in question takes on 100 percent of the risk.
Typically, firms that opt for self-funding options pair them with stop-loss or excess loss insurance. Purchasing stop-loss is critical for self-funding companies to manage the risk of extremely costly, catastrophic claims effectively. Stop-loss insurance reimburses employers when a catastrophic claim exceeds a predetermined level of cost and prevents unlikely but extremely costly claims, such as critical illnesses or other major health events, that could fiscally sink an under-prepared firm.
At the end of the day, it’s all about weighing the risks and benefits, being prepared, and determining which path is the best for you and your company.
Insurance Breakdown: Fully-Funded Traditional Insurance
- Companies pay an insurance premium to an insurance provider.
- Premium costs are fixed for a specified time period (a year) and are calculated based on the number of employees enrolled and their historic utilization of health care.
- Premiums paid to the insurance provider are either paid out in claims or kept as profit. Whether there are claims or not, client companies participating in a fully-funded plan must still make premium payments.
- Employees, dependents, and everyone covered by the fully-funded plan must still pay co-pays, deductions, and any other fees specified in the agreement.
Insurance Breakdown: Self-Funded Insurance
- Companies administer a health insurance plan themselves. Costs for plan administration and overhead are fixed costs.
- Instead of paying a premium, and the profit markup of the insurance provider, the company utilizing a self-funded model only pays for employee health care claims when they arise. This is a variable cost and is the biggest opportunity for businesses participating in self-funded plans to realize significant savings. Under a fully-funded system, companies pay a fixed premium for an entire year, even if no claims are made. A self-funded health plan only costs a business money when a claim is made. If no claims are made, no money is spent. Historically, over five years, companies that switch to a self-insurance model have saved up to 10 percent. With the addition of new more creative cost containing plans that incentivize employees to make better health care decisions, that savings can be in the 40% range.
- Fixed costs in a self-funded health plan include administrative fees, the cost of stop-loss insurance if necessary, and other carrier or third-party administrator (TPA) fees.
Is self-insurance right for my business?
A self-insurance model can offer many advantages to businesses looking to contain costs while still providing competitive health benefits for their employees. However, like any significant business decision that may affect both an employer and the employees, a rigorous investigation and analysis are necessary to determine the benefits, risks, and other important considerations of opting for a self-funded solution.
Under a self-funding plan, the company takes on the role of the provider, which includes all the associated risks and responsibilities. For example, a large start-up that employs many relatively young and healthy millennials can opt for a self-funded plan and realistically expect reasonable savings. Even when the majority of a business’s workforce is low risk, but with some at-risk workers, they can self-fund and still come out ahead by selectively purchasing catastrophic stop-loss protection policies for those at-risk employees.
Flexibility, as well as potential variable cost savings, is one of the biggest strengths of a self-funded plan. For example, let’s say a company has a large percentage of employees who smoke, which is without a doubt a huge health risk. Since the company has full control over data collection and how to use that data, they can analyze the information and design a highly-targeted and granular solution to address specific health risks. They could dedicate some of their health plan resources to a smoking cessation program that would not only be better for their employees but would also aim to prevent more expensive smoking-related health claims down the line.
Of course, the tradeoff is that self-funding firms need to be continuously engaged with their workforce and be knowledgeable about the health of their employees. Historically, self-funding was an ideal solution for companies with 100 or more employees, and who are willing to be engaged in promoting wellness and preventative health. In the emerging cost containing market which can eliminate many of the middlemen, that number may be in the 5-10 employee range.
5 reasons to self-fund your company's health insurance plan
- Cost savings and cost containment
- Improved cash flow
- Flexibility and customizability
- Improved responsiveness
- Ownership and control of claims data
Diagnostic testing and imaging costs: a case study on the advantages of self-funding
Diagnostic tests and traditional imaging procedures, such as MRI’s, CAT scans, and X-rays, are some of the most commonly ordered procedures in the United States. They are a critical component of the healthcare system providing accurate, timely, and potentially life-saving information to doctors and patients. Yet costs for even a simple MRI scan can range wildly from a few hundred dollars to a few thousand or more. Companies who are tied to a fully-funded, or traditional, insurance plan where an insurance carrier makes all the decisions, have no control over where their employees can get a critical diagnostic test. Carriers often operate their own networks of imaging facilities which charge a negotiated, and opaque, rate that consumers and their employers never see. That means higher premiums for employers and less choice for employees covered under the plan.
Companies with self-funded health plans, however, are free to shop around as they please and adjust their plans to meet their company needs. A company can encourage and even financially incentivize its employees, for example, to go to an imaging clinic, such as Green Imaging, that provides the same or better service for a fraction of the cost.
Some websites and services are emerging to which an employer can subscribe that provide alternatives to testing and care with transparent pricing and ease scheduling: Healthcare Bluebook, Medibookr, PriceMD, SaveMD, Pratter.us, to name a few.
Employers can also offer bundled surgical pricing for some procedures, saving about 60% in their out of pocket cost, and incentivize employees to use the service by covering 100% of the cost rather than the employee being subject to a deductible, copay, and coinsurance that may total thousands of dollars.
Instead of paying an inflated premium to an insurance company, self-funding firms can simply choose a TPA with plans that offer transparency and tremendous cost savings for the same or similar services.
That is the free market at work.
The Green Imaging Difference
As the founding partner of Green Imaging, we provide compassionate care as well as affordable high-quality imaging services that can save you between 50 to 80 percent of your out-of-pocket costs for MRIs, CT, ultrasounds, and other imaging services. Check out our rates at Green Imaging.