Small- and mid-sized companies using traditional major medical plans are at a competitive disadvantage: either they are paying more in loaded costs than competitors that use smarter healthcare options, or they are finding it more difficult to hire employees because their competitors offer better plans.
With the new year and a new healthcare landscape, HR executives and benefits directors are now reconsidering their options, taking a much harder look at out how they can stop struggling to offer competitive benefits, and actually use their healthcare plans to recruit and retain the best talent, which will ultimately boost employee morale and profitability.
Annual premiums for employer-sponsored family health coverage reached $18,142, with workers paying $5,277 toward their plan in 2016, according to the Kaiser Family Foundation.
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While companies still shoulder the lion’s share, worker contributions increased about 80% over the last 10 years; this cost doesn’t even include the employee’s co-pay or deductible.
To balance the scales and create a competitive advantage, more companies are turning to healthcare plans based on a self-funding model that offer more flexibility, customization and cost-savings while still improving the quality of care. Self-funded plans have been almost universal among large employers for quite some time, yet only in recent years have more HR departments at small- and mid-sized companies started to realize the benefits.
Customizing a self-funded model
Federal and state laws incorporate exceptions that enable companies to self-fund healthcare. This move provides for more flexibility while limiting risk for the employer. Companies can also choose to pay their claims directly, or work with third-party administrators to handle claims and administrative responsibilities.
Benefits can include medical, dental, vision, prescription medications and workers’ compensation. Unlike more rigid traditional insurance, companies can customize their offerings to address specific needs, such as investing in injury and chiropractic care in industries that require physical labor to robust maternity benefits for those with younger workforces.
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Customized plans offer a win-win scenario — the company saves money while increasing productivity, and employees get access to the most pertinent care at an affordable cost.
To further increase convenience and cost efficiencies, companies can use third-party healthcare concierge services to help employees navigate the system, access the right level of care, and steer them away from needlessly expensive services and facilities. Also, businesses have the option to purchase stop-loss insurance to increase the type of healthcare provided to employees and limit the company’s liability in case of catastrophic illnesses and accidents.
Saving money
Self-funding is generally less expensive — 10% to 25% less, according to the Self Insurance Educational Foundation — than fully funded insurance because it doesn’t include marketing costs or profit margins associated with traditional insurance. As an added benefit, companies that self-insure are exempt from state insurance regulations and premium taxes, and are not subject to many government provisions.
Managing care delivery also has a dramatic impact on costs. For example, many medical services are needlessly performed in hospitals, where costs are higher. A third-party partner can direct employees to comparable lower-cost sites of service. Similarly, while costs of prescription medications can vary widely among pharmacies, understanding cost differentials and making decisions accordingly can bring costs down.
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While advantageous for all types of employers, the ability to closely manage care delivery and place of service is especially important for companies with low-wage and young workers who have previously relied on high-cost emergency rooms for basic care or are unaccustomed to navigating the system.
Lowering workers’ comp
Employees often use workers’ comp for minor injuries requiring only first aid or for injuries sustained outside the workplace because they don’t have other options. With a self-funded plan – and with the assistance of a third-party partner to help employees access care through the right channels – businesses can cut such claims.
Likewise, organizations with an Experience Modifier Rate may lower their E-Mod score through a self-funded plan.
Owning healthcare data
Before the Patient Protection and Affordable Care Act, health insurance underwriters reviewed the medical data of a specified group of employees. Now, carriers must look at an entire community — often hundreds of businesses — and calculate a community rating based only on age, zip code and smoker status.
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Because the ACA requires guaranteed-issue medical insurance, does not allow denial based on preexisting conditions, and precludes annual or lifetime limits, insurers must account for added risks when setting rates that are often detriment to the company and result in higher premiums.
Companies that self-fund have access to every claim, allowing them to benchmark their utilization against industry norms and address red flags, ultimately using insights garnered to better manage benefits and control costs.
Insurance isn’t a one-size-fits-all proposition, despite what the industry leads business owners to believe. Providing quality healthcare and maintaining profitability should not be mutually exclusive. For many companies, a self-funded plan becomes the gateway to managing skyrocketing healthcare costs while offering competitive benefits.
