Why Fully Insured Plans Might Be Costing You More Than You Think

In the world of employee benefits, transitioning from a fully insured health plan to a self-funded plan with stop-loss coverage can feel daunting.??

Even when the financial benefits are clear, fear of the unknown and limited time for decision-making often stymie change.??

Let’s address these concerns head-on to help you make more informed decisions that could lead to substantial savings and better healthcare outcomes for your employees.?

To be sure, self-insurance is not right for every employer, but it is a better fit more often than many employers are led to believe.?

The Appeal of Self-Insured Plans?

Before diving into the fears, let's highlight why self-insured plans are attractive:?

1. Cost Savings: Self-insured plans often result in lower costs compared to fully insured plans. You avoid paying the profit margins and risk charges included in fully insured premiums, choose the right vendors for you, and demonstrate fiduciary responsibility to avoid any ERISA lawsuits (like the one happening at J&J right now).?
2. Customization: Self-insured plans offer greater flexibility in plan design, allowing you to tailor benefits to meet the specific needs of your workforce. This almost always leads to reduced employee out-of-pocket costs and sometimes premium reductions. This is a prime area of concern for many employers, particularly our clients.?
3. Data Access: You’ll have direct access to your claims data, enabling better healthcare cost management and more informed decision-making. This is a second path to avoid the new ERISA penalties.?
4. Stop-Loss Coverage: To mitigate the risk of high claims, you will purchase stop-loss insurance, which provides financial protection by capping your liability on individual and aggregate claims.?

Common Fears and Misconceptions?

Despite these advantages, several fears and misconceptions might be holding you back:?

1. Fear of Catastrophic Claims: The prospect of high-cost claims can be intimidating. You might worry about the financial impact of unexpectedly large claims. Even with stop-loss insurance, the fear of the initial payout before reimbursement can be a deterrent. Remember, the initial employer responsibility is limited for each employee, and there is always an annual claims maximum you’re responsible for (the aggregate) that you know up front and before making any final decisions. Before diving in, your advisor should ensure all the numbers make sense to you!?
2. Complexity and Administrative Burden: Transitioning to a self-insured plan initially requires a more hands-on approach. You might be concerned about the perceived complexity and additional administrative burden, including compliance with various regulations and managing claims. This is where top-notch, transparent vendors and advisors step in. The administrative processes will change when you move from fully insured to self-funded, but that doesn’t mean the work is a huge burden, just a different workflow.??
3. Lack of Predictability: Fully insured plans offer the predictability of fixed monthly premiums. On the other hand, self-insured plans come with variable costs that can fluctuate based on the claims experience. To smooth the transition, no-cost risk financing can be addressed.?
4. Regulatory Concerns: You might worry about navigating the complex regulatory landscape associated with self-insured plans. Compliance with federal laws like ERISA, HIPAA, and ACA, along with state-specific regulations, can seem overwhelming. Here’s the dirty secret: Your current fully insured plan is already subject to these requirements…without the benefit of being able to choose vendors that eliminate your ERISA risks.?
5. Employee Perception: There’s a common misconception that self-insured plans provide inferior coverage compared to fully insured plans. You might fear that changing from a “brand-name” to a “store-brand” model might lead to employee dissatisfaction and concern about the stability and quality of their benefits. The “benefits” conversation with the employees will change, and satisfaction will grow as they see the benefits work better for them.?

Addressing the Fears?

To help you overcome these fears, it’s crucial to provide clear information, education, and support:?

1. Education and Transparency: Providing detailed information about how stop-loss insurance works and its financial protections can address fears of catastrophic claims. Case studies, examples, and success stories from other employers who successfully transitioned can also help in understanding the nuts and bolts of plan operation.?
2. Partnering with Experienced TPAs: Third-party administrators (TPAs) handle the administrative aspects of self-insured plans, just like your fully insured carrier does now. Choosing a reputable TPA with a track record of managing self-insured plans can make the adjustment smoother and more manageable.?
3. Financial Modeling and Forecasting: Utilizing financial modeling tools can help you understand potential cost scenarios under a self-insured plan. This predictive analysis can provide a clearer picture of expected expenses and help mitigate concerns about cost variability.?
4. Regulatory Guidance: Working with consultants experienced in self-insured plans with both independent and BUCA carriers can ensure compliance with all regulatory requirements. Compliance is simply a series of processes; confirming these processes before proceeding can allay this fear.?
5. Communication with Employees: Clear and open communication with your employees about the benefits and protections of a self-insured plan can help dispel myths and build confidence in the new model. Highlighting the advantages, such as tailored benefits and, oftentimes, less out-of-pocket costs, can enhance employee perception.?

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While the transition from fully insured to self-insured plans (with stop-loss coverage!) can seem intimidating, the financial benefits and enhanced control over healthcare spending make it worthwhile to learn a little more about how it works.??

Here are two steps you can take on your own.?

1. Conduct an Internal Audit: Start by analyzing your current healthcare costs and utilization. Look at whatever data you can find to identify trends and potential areas for savings. This will give you a basic understanding of where your money is going and help you see the potential benefits of change.?
2. Educate Your Team: Gather information and resources about self-funding, including case studies and industry reports. Share this information with your leadership team and stakeholders to build understanding and decide if a change is right for your organization.? Knowledge is power, and having a well-informed team will make the process smoother and more successful.?

By taking these initial steps, you can set your company on a path toward more efficient and effective healthcare spending.?