With the howling, incessant winds of reform swirling around us, many employers are doing their best to keep it in perspective. Most have prevented their screaming inner child from surfacing.
The inner chaos, however, is an entirely different story. Employers are worried. Many are asking: What will I have to do to comply with the evolving government reporting requirements? Should I just allow my employees to utilize the exchanges, since I may be better off in terms of both expense and reporting? Is it better to wait and see what comes of the mandates, or jump on board sooner? How will this affect my overall benefit cost structure?
The rising tide of this unsettling environment, as we all know, will continue for quite some time. We also recognize the health care reform mantra as being a moniker for insurance reform, and some aspects have been long overdue.
Yes, there are specific mandates identified for September that increasingly have become workplace chatter, such as the cost to fund the programs, taxation of large employers, and coverage for dependent children through age 26.
When asked about opinions on the matter of reform, however, the responses are not succinct sound bites. There is much to understand, much to consider and much to explain. While the 2010 mandates are probably some of the easier to understand and manage, there are much larger issues to face in subsequent years.
We can't begin to understand, cost, or assess the ramifications at this stage. There is a burgeoning hope that possible administration changes, might not eliminate, but certainly mitigate, some of the planned initiatives. Like it or not, 2010 is here, and with it comes 11 mandates slated for implementation on Sept. 23.
"In the midst of chaos, there is opportunity," as the expression goes. Yes, we've heard that before, but it's difficult to find sufficient traction in the stormy seas of reform. What's an employer to do? Status quo will not be successful.
If you want to continue as you have, offering the same standardized insurance products, sticking with the tried-and-true, and not exploring innovative and safe funding options, you could be costing your plan in the short and long run. Now, more than ever, is the time to review a broader health insurance product set in order to continue to provide a compelling benefit package to employees, as well as to save your plan money.
Here's a quick synopsis of the emerging new employer arsenal of tools. Be prepared for new options. Status quo is out the window. Make sure your broker not only provides you with a variety of funding arrangements, but also clearly explains the benefits and disadvantages of each, based on specific knowledge of your employee population's unique dynamics.
Learn the merits of different funding arrangements. We're not just talking about the myriad of words that start with "H" either: high deductible health plans, health reimbursement accounts, health savings accounts.
Yes, you need to know the ABCs of these consumer-driven options; however, you also need to know the overall merits of different funding arrangements. Fully insured products are the simplest product for brokers to offer: very hands off, no real reporting, and clients generally don't know how their plan is performing from a claims perspective.
Partially self-funded plans require an employer to remain actively engaged in the monthly plan performance and have quarterly meetings with their broker and administrator. This allows the employer to better understand claims patterns and trends and develop mitigation strategies sooner rather than later. Clients don't like surprises and don't want to hear about a 30 percent rate increase one month before they are renewing. A partially self-funded employer is privy to the plan claims performance each month.
Self-funded and partially self-funded plans provide employers with greater controls, and also hold far less restrictive government mandates than fully insured employers. And pricing differentials between a fully insured and a partially self-funded plan can be dramatically different, with the savings accruing to the employer.
Here are actual results from a 200-life employer group that moved from a fully insured product to a partially self-funded arrangement. These results are fairly typical for most groups, although there are good claim years and bad claim years. The challenging years are effectively addressed through sound claims reserving practices. The most critical aspect to focus on is the stabilization of plan expense with a partially self-funded plan vs. a fully insured plan.
Greater cost controls
Under a self-funded plan, the employer assumes some of the financial risk of funding their health plan in exchange for significant control over the administration and funding of the plan. With self-funding, employers have control over which benefit options are provided and at what cost, as well as complete insight into the plan administration. A self-funded benefit plan provides employers with a service and benefit package specifically designed for their needs, due to the ability to unbundle package options to get the best coverage at a lower overall cost.
Reduce operating costs
A self-funded plan can be more cost-effective than a fully insured plan, as many of the expenses associated with a fully insured plan are eliminated, and gains from better-than-expected claims experience belong to the employer. By funding claims directly, an employer avoids the costs of claim reserves, retention to cover the insurance company's administrative costs, profit margin, risk charges, premium taxes, and a contingency margin, which are included in an insured premium in addition to the cost of expected claims.
With a self-funded plan, the money the employer invests in the plan stays with the company from year to year, allowing the company to cover incurred insurance losses or protect itself against increases in the next year's claims. This establishes a cycle of savings that compounds while maintaining robust coverage.
Learn the ABCs of health and wellness
Health and wellness initiatives are beginning to gain more of a foothold in the health care spectrum. We see increasing discussion and focus, especially in The Patient Protection and Affordability Act of 2010. These programs continue to require an investment from employers, and simply inserting a "toe in the water" won't result in the payoff a CFO wishes to see. It all boils down to changing long-established behavior and choice patterns for people.
Health and wellness programs need to be designed to improve employees' short- and long-term health, while also encouraging personal health ownership and accountability. Employers can motivate employee participation in the program by incorporating incentives and disincentives into the plan design. By identifying health issues before they become chronic, and by helping employees better manage their lifestyle choices, the employer can realize reduced claims expenses.
Read your reports
You might be bombarded with claims reporting information, or you could receive virtually no reporting. Demand you receive summary data that focuses on the key performance indicators so you know what is driving your benefit plan expense.
By reviewing this information each month, and in more detail each quarter, you'll know if you need to consider a medical or pharmacy benefit plan change, if you need to issue employee educational communications, etc. Don't wait until you're renewing to determine how you've performed.
Ask your broker to show their value by having client action plans related specifically to reform activities Employers are concerned about compliance and reporting ramifications. Fortunately, it's not difficult to stay in tune with what's going on in terms of employer impact, as several of the larger brokerage firms have issued documents related to timelines and mandates that are informative. Self-funded ERISA benefit plans continue to fall below the reform radar screen to a great extent, and less than 20 percent of the identified mandates impact these plans.
What to look for
Employers must increasingly be counseled by their broker regarding self-funding, most notably that 1) an investment is required 2) payback, on average, takes 18 to 36 months, which is difficult considering shifting eligibility 3) incentives and premium/co-pay increases are applicable for individuals choosing not to participate in offered programs, and 4) consistent, ongoing messaging and education to employees is required, which takes time and effort.
"Insanity is doing the same thing over and over again, expecting different results," as the expression goes. So, when looking for other options to managing costs, consider self-funding. It might not be for everyone, but when combined with greater cost controls, reduced operating costs, increased employee accountability and involvement - and reporting to see key performance indicators - then self-funding could be an option for employers of all sizes.
Employers should not wait for mandated changes to go into effect - there's a great opportunity to not only meet mandated timelines, but also reap savings and a higher level of service from a knowledgeable benefits provider.
Kathy Major is president/general manager of HealthTrans' medical TPA strategic business unit, Innovanté Benefit Administrators. She has 20 years of experience in the health care and pharmacy industry and is an expert in client implementations and process development.
