Self-insurance is on the rise
Once strictly the strategy of large companies, many medium and small businesses are now switching to self-insured health plans that offer some exemptions from Affordable Care Act requirements and give them more flexibility and control over plan costs.
Under the self-insured model, employers keep the plan premiums and pay the cost of the claims themselves, rerouting the monies that would normally be paid for premiums into a special fund for payment of incurred losses. These plans are designed and administered by a contracted insurance company or third-party administrator (TPA).
According to the Employee Benefit Research Institute, the percentage of U.S. private-sector employers offering a self-insured health plan increased from 28.5 percent to 39 percent between 1996 and 2015. Among employers with fewer than 100 employees, 14.2 percent were self-insured in 2015; 30.1 percent of midsize employers — those with 100 to 499 employees — were self-insured.
What are the risks of self-insurance?
Self-insured plans don’t come without financial risks to employers. If a claim exceeds the amount set aside, the company has to pull money from elsewhere to cover it. The risk can be particularly high for smaller business, which often lack the cash flow to cover unexpected costs.
Stop-loss insurance can limit the amount of claims expenses an employer would be liable for in a catastrophic event. Brokers can be important in helping employers control costs, too. Broker David Contorno, president and CEO of Lake Norman Benefits, says the self-insured option can have serious impacts on rates because of its increased emphasis on transparency, pressure to hold down costs and freedom from some ACA requirements. “It brings a lot more opportunity to the broker to have a positive impact on a client’s financial situation,” he says.
Here are some best-practices for brokers to help reduce the risks of self-insurance
How specifically can brokers help? Below are six broker best-practices for helping self-insured clients control costs and mitigate risk.
- Get a solid understanding of the organization’s objectives
- With this knowledge, you can know how aggressively the plan should be managed and what options you can offer to minimize costs and avoid catastrophe. Consider carving out pharmacy benefits, an increasingly popular approach for self-insured employers.
- Make sure those who adminster the plan understand the employer’s goals and help match the employer with the right administrator. Execute audits to ensure that the plan is operating as planned.
- Closely monitor and analyze your client’s claim experience every month.
- Review regular TPA reports for large-claims trends.
- While most plans only allow audits once per contract, other elements of plan oversight can be used to monitor the plan administrator and ensure they’re doing what they’re supposed to do. Some technology platforms offer real-time adjudication for the plan sponsor.
- Carefully track the progress of the adjudication processes and adherence to policy and plan document provisions.
- Facilitate the gathering of any supplemental information the claims examiner might need.
- If you don’t have the time or resources to perform these services, work with a specialized intermediary that can pick up the work.
- Gather information to prepare yourself and your clients if a poorly performing case is up for renewal
- Keep your client informed about trends. If claims are running higher than expected at mid-policy year, meet with your client to review results.
- If there could be a substantial rate increase, discuss it with the client and examine ways to address the increase.
- Utilize products and services that might affect costs in the most common causes of catastrophic claims (e.g., organ transplant, specialty drug therapies, cancer treatments, renal disease).
- Speak with stop-loss carriers, trusted intermediaries and case management companies to develop a strategy in the event of a singular claim event or chronic condition.
- Ensure that the contract stays up-to-date
- Continually track the market and focus on obtaining well-priced plans — and if the employer carves out pharmacy benefits.
Brokers are an important advocate for helping clients keep down costs within the self-insured model — and the first step to keeping costs down is helping them understand their options. One of the best ways for self-insured organizations to contain health care costs is to carve out pharmacy benefits and let PBMs compete for their pharmacy business.