Empower Your Workforce: The Path to Self-Insurance in Health Coverage

In today’s competitive job market, attracting and retaining top talent is more challenging than ever. One critical factor that job seekers consider is the quality of health insurance benefits offered by potential employers. But what can companies do to enrich this benefit when traditional health insurance plans have limited transparency, flexibility, and choice? To make matters worse, the trend of increased health premiums shows no signs of slowing down and threatens to put many companies out of business. Is there a better way to analyze their population's health needs and make the changes and investments that promote better health outcomes at more affordable prices? Is it possible to win the game of medical insurance? As a lifelong student of healthcare and business, I've seen firsthand how companies can stand out by offering innovative solutions to healthcare and wellness benefits beyond traditional fully insured plans that improve health outcomes and affordability. But first, it's important to understand the most popular insurance funding arrangements.

Understanding Fully Insured Companies:

Fully insured companies purchase health insurance coverage from a third-party insurer. They pay a fixed premium to the insurer, who assumes the financial risk associated with providing healthcare benefits to employees. While this arrangement offers simplicity and predictability in budgeting, it often lacks flexibility and control over plan design and costs. Each year, similar to renting a house/apartment, renters hope for the best renewal terms but costs typically go up. In fully insured health insurance, double-digit increases are widely the norm. Because costs are fixed, there is less incentive to invest in strategies that improve health and lower medical claim costs because those savings will drive greater profits for the insurance carrier.

Exploring Self-Insurance:

Self-insurance, on the other hand, involves the employer assuming the financial risk (and reward) for providing healthcare benefits to employees. Instead of paying premiums to an insurer, the employer and their employees set aside funds to cover medical claims directly. Most self-insured plans set loss limits by leveraging stop loss at the individual and or the aggregate level, to protect themselves from catastrophic claims. If claim costs come in lower than expected, the employer saves that difference, and as we know, a dollar saved is better than a dollar earned. Self-insurance offers greater customization of benefit plans, potential cost savings, and access to claims data for better decision-making.

Alternative Funding Arrangements:

1. Captives: Captive insurance companies are wholly owned subsidiaries established by employers to finance their own risks. Leveraging a pooled risk strategy to negotiate better stop loss rates and act as a shock absorber for large claims, captives offer the essential stability and desired flexibility middle market companies need to provide a richer, more clinically and cost-effective benefit to their employees. In other words, they provide an alternative to traditional insurance and offer greater control over risk management and costs. Perhaps one of the best benefits that isn't talked about enough is that when joining a captive, you are joining a group of high-performance companies that are incentivized to share best/worst practices related to all parts of the business, not just medical insurance. A rising tide raises all boats.
2. Level-Funded Plans: Level-funded plans combine elements of both fully insured and self-funded arrangements. Employers pay a fixed monthly premium to a third-party administrator, which includes a claims fund and stop-loss insurance. This option provides budget predictability with the potential for cost savings (shared with the carrier) if claims are lower than expected. In this arrangement, you also benefit from unlocking more access to your claims data than compared with a fully insured arrangement.
3. Individual Coverage Health Reimbursement Arrangements (ICHRA): ICHRA allows employers to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses. It provides flexibility for employees to choose their own coverage while offering cost control for employers. For employers who want to exit stage left when it comes to medical insurance while remaining compliant, this can be a great option.

Pros and Cons:

• Fully Insured: Pros include simplicity and predictability in budgeting. Cons include limited customization and the potential for higher costs over time.
• Self-Insurance: Pros include flexibility, cost savings potential, and access to claims data. Cons include financial risk and administrative complexity.
• Captives: Pros include essential stability, desired flexibility in risk management control, the potential for cost savings, and the benefits of joining a group of high-performance companies incentivized to help each other win. Cons include setup/ownership costs and regulatory requirements.
• Level-Funded Plans: Pros include budget predictability and potential for cost savings (shared). The biggest con of this arrangement is that if your population is healthy and responsible, resulting in lower claims than expected, the carrier will keep the majority of the savings.
• ICHRA: Pros include flexibility for employees and cost control for employers. Cons include more complex employee education, the potential for negative employee satisfaction if plans aren't rich enough, administrative burden, and compliance requirements.

Who Benefits:

• Large Employers: Self-insurance and alternative funding arrangements such as medical captives offer greater control and cost savings for large employers with stable claim experience.
• Small and Medium-Sized Businesses: Level-funded plans and ICHRA provide cost-effective alternatives to fully insured plans for SMBs looking to offer competitive benefits. For companies (typically over 50 employees or 100 employees in NY and CA) willing to bet on themselves, Captives provide the best risk/reward scenario with the added benefit of joining in ownership with other like-minded, high-performance organizations.
• Companies with Healthy Workforces: Organizations with low claims experience can benefit from all self-funding strategies to capture cost savings. Determining the best fit comes down to accessing your goals, cash flow, and risk profile with an advisor you trust to be completely transparent.

In conclusion, embracing self-insurance and alternative funding arrangements empowers employers to take control of their healthcare costs while providing valuable benefits to employees. By understanding these options and their implications, companies can differentiate themselves in the talent market and build a healthier, more engaged workforce.

For more information, please message me on LinkedIn to request a free consultation and to learn more about which option may be the best fit for you!