Is self-insurance right for your company?
September 19, 2008 by Bill MeltzerPosted in: Healthcare costs, In this week's e-newsletter, Latest News & Views
In recent years, it’s become increasingly common for employers with as few as 200 employees to explore self-insurance. But beware of hidden traps.
If your organization is weighing self-insurance – or has already taken it – here are three pitfalls that can create unexpected costs.
1. Unfavorable employee mix
It’s impossible to completely eliminate the risk of unexpected, high-dollar health claims. But here’s a guideline to lower your risk. Health claim stats suggest the “ideal” employee population for a self-insured plan is predominately young, non-smoking and male.
Be aware that stop-loss insurance carriers often “laser” those employees considered higher risk. Lasering means that your company would have to pay out much more in claims for these employees before the stop-loss coverage kicks in.
2. Loss of network discounts
Some firms learned after the fact that going the self-insurance route caused them to lose providers’ network discounts they previously received under fully insured plans. When evaluating plan vendors’ administration-only options, ask:
- Will the vendor’s network alliances work in your best interests, cost-wise?
- Will the vendor only oversee claim payments or negotiate to build the best provider network, quality-wise, for your employees.
Bottom line: You should get the same kinds of plan designs, networks and discounts as a fully insured plan.
3. Wasteful reinsurance contracts
If the language of your reinsurance contract doesn’t match your health plan’s summary plan description, you may be paying for coverage you don’t need and can never use.
It’s also key to make sure your firm has enough money in reserve to cover run-out claims and other costs that may occur before reinsurance will cover payments. Best practice: annual audits of your financial reserves.
September 19th, 2008 at 7:27 am
I am very concerned with the following from this article:
1. Unfavorable employee mix
It’s impossible to completely eliminate the risk of unexpected, high-dollar health claims. But here’s a guideline to lower your risk. Health claim stats suggest the “ideal” employee population for a self-insured plan is predominately young, non-smoking and male.
It sounds like it is being suggested that only young, non-smoking males be hired?
September 19th, 2008 at 8:30 am
No, organizations should not go as far as only hiring young, non-smoking males, just to better their employee census for health insurance quotes. This, of course, will leave you with worrying about much more than an unfavorable renewal increase!
However, they should be conscious in structuring their health plans in ways that do not deter these individuals from taking coverage.
One way to do this is to only offer medical insurance through only ONE carrier, so the younger AND older employees are included in the same carrier’s quote.
Another important point is to remember that if you continue to “pass the buck” each year on to employees, and the monthly contribution amount becomes exorbitant, you’ll eventually see the “ideal” healthier employees find lower-cost coverage elsewhere, likely through an individual plan, leaving the majority of the “sick” employees on the plan.
And a third note is simply good education to your new employees (who are often younger) about the health plan offerings. Get them informed to get them on the plan.
September 25th, 2008 at 2:33 pm
We’re facing the same situation as last year. Our premiums skyrocketed because of THREE employees whose claims amounted to over 200,000 dollars. Now that we are not self funded, (we were last year) we can’t tell who the “sick” employees are. One employee racked up 45,000 dollars in prescriptions alone!!!! Our only out is to raise the weekly contributions and raise the deductibles. Or do we have another choice? Responses are welcomed.
September 25th, 2008 at 4:35 pm
We are a self-funded plan and through the introduction of co-pays for specific plan items, i.e. ambulance, out-patient-surgery, CT/MRI, etc. we have been able to hold our weekly contributions at a level that has not been raised in five years. I would suggest taking a look at your plan design and determine those services that are being used the heaviest and look at putting co-pays on these services beyond the typical $15 office visit. This strategy allows you to pass the cost to those employees that are using the plan and may offer some relief in raising your weekly contributions.
September 26th, 2008 at 11:33 am
Thanks Circle V HR, I’m going to contact our broker on Monday morning to see what we need to do to add these co-pays. Great idea!!!!!!!
November 3rd, 2008 at 12:49 pm
As a way to be safe from high dollar claims, you should look at getting stop-loss insurance. Just a couple claims could make this quite cost efficient.