Should You Go Self-Insured?

Should You Go Self-Insured??

As employee benefits continue to evolve, many organizations wonder if self-insurance is the right move.?

It’s a question we hear frequently, but the answer isn’t as simple as, “I have 100 employees, it’s time to go self-insured.” The decision to self-insure requires careful thought and consideration beyond just the size and health of the organization.?

Let’s dive into the advantages of self-insurance, the considerations for making the switch, and how smaller companies can benefit from this approach.

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The Advantages of Self-Insurance?

Transparency Knowledge is Power. One of the greatest benefits of being self-insured is gaining access to your claims data. In a fully insured plan, you may get bits and pieces of information, but with self-insurance, even smaller organizations can get a clear picture of what is driving their claims. This level of transparency allows you to better understand your healthcare costs and make informed decisions.

Control With full access to your claims data, you gain control over what drives those costs. This opens the door for implementing strategies and solutions that can lower your expenses while improving employee engagement. When you understand your claims, you can take action to prevent and steer unnecessary costs and improve health outcomes. I bet you didn’t realize you needed a PHD in what drives human behavior to run a health plan!

Customization Self-insurance allows you to tailor your benefits plan to better fit your workforce’s needs. By customizing the plan, you create a benefits package that resonates with your employees, making them more likely to engage with and appreciate their benefits as a valuable asset … instead of a dreaded paycheck deduction.

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Things to Consider Before Going Self-Insured

Size of Your Organization While size isn’t the only determining factor, it certainly plays a role. Companies with fewer than 50 employees often find it challenging to adopt a traditional self-insured model. This is usually due to higher volatility in claims, lack of dedicated staff to manage the plan or limited cash flows. However, solutions like level funding and captives are making self-insurance more accessible to smaller organizations.

Cash Flow For companies with fluctuating or seasonal cash flow, managing a self-insured plan can be difficult. If your business experiences high revenues in the first half of the year but faces tighter cash flow and liquidity in the latter part, covering unexpected claims could be a challenge. Understanding your cash flow cycles is essential when considering self-insurance.

Claims History High claims can be a double-edged sword. On one hand, moving to a self-funded model can give you control over high claim costs through strategies like direct contracting and reference-based pricing. On the other hand, if your company is not ready to implement these cost-control strategies, self-insurance can be risky. Strong employee education and a focus on cost containment are key to success.

Appetite for Risk Self-insurance inherently involves more risk. As one seasoned broker told me early in my career, “Self-funding is for those who love the five great years of savings but can also stomach the two years of loss.” Unexpected high claims can occur, and it’s essential to be prepared for these spikes. However, with the right strategies, funding arrangements (stop loss), and a knowledgeable broker, you can mitigate much of that risk.

Resources and Time Managing a self-insured plan requires a certain level of ownership and dedication. Unlike fully insured plans, which can feel like an “easy button,” self-insurance requires time, staff involvement, and oversight. Smaller organizations without dedicated resources may find it challenging to take on this responsibility. Luckily there are some quite savvy self funded and captive arrangements that are lowering this barrier for smaller organizations.

How Smaller Organizations Can Go Self-Insured

The rise in healthcare costs has led to innovative solutions that help mid-sized and even smaller organizations become self-insured. A few of these include:

Level-Funded Plans Level funded plans were rolled out by CIGNA in the early 2000’s.? However, they really didn’t start to take off for smaller employers until 2017-present. Level-funded plans are essentially self-funded but with the added benefit of premium stability. These plans bundle projected claims, stop-loss coverage, and administrative costs into one predictable monthly premium. This can significantly simplify the financial management of healthcare costs and can result in a year-end surplus given back to the employer. Level-funded plans are available for organizations with as few as 5 employees, giving small businesses access to some of the transparency and control that larger organizations enjoy.

Captive Arrangements Captives pool multiple organizations together to lower the cost of stop-loss insurance, making self-insurance more affordable. For years, high stop-loss costs drove many mid-sized businesses away from pursuing self-insurance. Today, thanks to the growing popularity of captives, these businesses are able to re-enter the self-insurance market with more favorable (and stable) financial conditions.

Reference-Based Pricing (RBP) RBP is an alternative pricing model that can reduce healthcare costs by as much as 30%. Though not suitable for every organization, RBP can be an excellent option for companies looking to drastically control costs and reduce their claims expenses while maintaining quality care for employees. This strategy does require a great broker and a great communication strategy to implement successfully.

Is Self-Insurance Right for Your Organization?

Self-insurance can be a game-changer, offering transparency, control, and customization for organizations of all sizes. While it may not be the right fit for every company, those with the right resources and a willingness to invest time and effort can greatly benefit from the shift.

If you’re considering making the transition to self-insurance, it’s crucial to work with an experienced broker who can guide you through the process, ensure proper risk management, and help you create a plan that works for your organization’s unique needs. Whether you’re a small company with 5 employees or a mid-sized organization with 500, self-insurance is more accessible than ever before—and it might be the solution that helps you take control of your healthcare costs.

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