Should you Explore a Self-Insured or Level-Funded option instead of Fully-Insured?
The simple answer is yes. You owe it to yourself and your company to make sure that you explore all options. What you may find surprising is that this may actually be a really good idea, too.
It is just a flavor of how you fund the health plan
The vast majority of companies under 300 employees (and really a majority overall) purchase a traditional “Fully-Insured” product, where the insurance company provides a health plan and they set a fixed price per employee and dependents. Every year, that plan will offer a renewal at either the same price, a higher price or in the rare occurrence, a lower price.
In 2021, 64% of covered workers were covered by a self-insured insurance. And “Self-Insured” can come in many different flavors.
Self-Insured health plans still contract with an outside administrator (most often a Brand Name like Aetna, Blue Cross, Cigna, etc…..) that handles the member service functions as well as processing claims and payments. Where Self-Insured plans start to differ is the amount of an employee’s claims the employer becomes directly responsible to pay and how much engagement is required of the employer in the claims payment transactions.
In this version of Self-Insured coverage, the claims administrator just simply provides for Network Access, Claims payments and Cost Containment strategy. The employer pays 100% of all allowable claims. This is not typical for companies under 10,000 employees.
Self-Insured with Reinsurance:
This is the most common scenario when your read of Self-Insurance. In this setup, in addition to the employer company paying claims, there is a reinsurance company that will provide for claims incurred at a specified threshold. The larger the employer, the larger this number is set. We typically see employers at the 200 employee size choosing a coverage range between $75,000 and $150,000 per employee; meanwhile, we see employers in the 50 to 150 employee size between the $50,000 to $100,000 range per employee.
In this version of Self-Insured coverage, the complexity and risk to the employer of self-insurance is extremely limited. In essence, this is turn-key insurance that is designed to operate and feel just like fully-insured options. In this arrangement, all of the administrative charges, reinsurance policy costs and the worst-case scenario claims costs are all bundled together. The risk here is mainly to the insurance company and provides an upside potential for the employer to get a refund if the health plan spends less on claims than the insurance company stated would be your worst case scenario.
Level-Funded options have grown rapidly over the last five years in the Small Group Health Insurance market segment. These plans allow the insurance companies to ask health questions and avoid their pain from ACA regulations. Many younger, healthier groups as well as groups with proactive communication can be the “winners” here.
How to assess the potential or risk?
Reviewing your current plan’s data is key here.
We do offer Self-Funded Feasibility studies through an outside firm — which is especially important when you need to show your board of directors that you’ve invested in an independent, third party actuarial firm’s study.
But, there are baby steps to take when evaluating these options.
Most plans will share basic data with you that can make for a simple evaluation like your Claims Paid vs Premium Paid data as well as some data regarding your large claims that have incurred a total of $15,000 in expenses.
To do a thorough evaluation, you will want to focus on gathering information on Emergency Room utilization, Office Visit vs. Outpatient claims, Inpatient vs. Outpatient surgical claims and knowing your company’s Rx usage. Focusing on high dollar and specialty prescription data is extremely important.
There are also ways to price Self-Funded and/or Level-Funded plans even if you don’t have this kind of data on hand, but you do need to expect to take a few extra steps through either providing detailed employee and dependent information or take the necessary steps to gathering employee health questionnaires in these scenarios.
If not this year, remember to build your baseline for the years to come.
Bret started Generous Benefits in 2019 after 20 years of working inside the Employee Benefits industry with the goal to create a company that focused on improving communities through benefits. And the term Generous was no mistake, as Bret thinks in terms of broad scope ideas, processes, and technologies that can improve a person's life or the community as a whole. With this idea that Generous Benefits weren't just your typical checklist of commonplace insurance or wealth savings plans, but that a benefits package has room to be stretched, tailored, and curated to make a desirable long-term impact.
Bret also spends time coaching other insurance agencies with Q4Intelligence and participates with thought-provoking communities like Health Rosetta and the Free Market Medical Association to help expand his understanding and learn from others.