America’s health care landscape is in flux. A new administration, “replace and repeal” (whatever that means) and skyrocketing costs are contributing to even more confusion. Benefits and HR leaders now need to seek out new and innovative solutions to better suit their workforces. Providing comprehensive health coverage is critical to attracting and retaining a quality workforce, but finding the right plan can be costly and difficult.
Over the past several years, companies of all sizes have addressed the challenge by passing more costs to their employees. According to the Kaiser Family Foundation/Health Research & Education Trust 2016 Employer Health Benefits Survey, annual premiums for employer-sponsored family coverage reached $18,142 with workers paying $5,277 toward their plan. While companies still shoulder the lion’s share of the bill, worker contributions have increased an average of 80 percent over the last 10 years.
Employees in small firms assume an even greater share of their health care costs than workers in midsized and large firms; on average, they pay a higher percentage of premiums for family coverage along with higher deductibles.
The cost-sharing trend is likely to persist as insurance rates continue to rise. It’s likely that employees’ satisfaction with their health plan will decline as their own costs increase, creating a difficult conundrum for HR directors attempting to balance employees’ interests with company profitability. To add to the issue, company owners facing higher costs are putting more pressure on their HR staff to find a tenable long-term solution.
The revolution in health care is being spurred by self-insurance, also referred to as self-funding. Large businesses have self-funded for decades. The big change today is that small and midsized companies can use this model to save money and increase services, with little or no risk.
Simply stated, employers who self-fund create their own benefit plan for their employees, pay health claims directly or through a third party administrator (TPA), and buy stop loss insurance to limit their liability for catastrophic illnesses and accidents. This process allows much more creativity in designing a plan that addresses the specific needs of the business.
Self-funded benefits can include medical, dental, vision, prescription medications and workers' compensation, and costs vary monthly depending on workers’ use of health services. For employees, the health plan may look and operate exactly the same.
Administrative responsibilities such as enrollment, claims processing and provider networks may be handled internally, but often are outsourced to a TPA. Some companies also retain a third-party partner that helps employees navigate the health care system, directs them to the right level of care, and steers them toward high-value, low-cost services and facilities.
Self-funded plans are almost universal among large employers. In fact, the Kaiser Family Foundation reports that 82 percent of covered workers in large firms are enrolled in plans that are either partially or completely self-funded. Today, the model is growing in popularity among companies of all sizes, enabling small and midsized businesses to offer competitive benefits packages like their larger counterparts.
Generally speaking, expenses for self-funded plans are lower than fully funded insurance because self-funding does not include marketing costs or profit margins of traditional insurance. The Self Insurance Educational Foundation has estimated these cost savings at 10 percent to 25 percent in non-claims expenses.
Self-funded plans also are exempt from state insurance regulations and premium taxes under the Employee Retirement Income Security Act, and are not subject to many of the provisions of the ACA.
Managing care delivery, either in-house or with a third-party partner, also is a major factor in reducing health expenses. For example, many medical services are needlessly performed in hospitals, where the cost of care is higher. Common procedures like MRIs, X-rays and blood and urine tests may be completed at a lab or doctor’s office at a much lower cost. A third-party partner can serve as a health care concierge, directing employees to seek treatment at lower-cost (but equally good) sites of service. This is a key aspect of decreasing costs through self-funding.
Customizing health plans
Self-funding allows HR leaders to tailor benefits packages to the special needs of their workforce. For example, a construction firm or landscaping company may want more coverage for injury and chiropractic care, while a company with a young workforce may choose to offer robust family-planning benefits. These customized plans offer a win-win scenario – the company saves money while increasing productivity, and employees get access to the most pertinent care at an affordable cost. Major medical plans simply aren’t as flexible.
Owning the data
One of the factors driving the increase in health care costs is the adjusted community rating. Prior to the ACA’s implementation, underwriters reviewed the medical data and risk profile of a specified group of employees. Now, insurance carriers look at an entire community – spread out across hundreds of businesses – and calculate rates based only on the age, zip code and tobacco usage of the population. Since the ACA requires guaranteed-issue medical insurance, does not allow denial based on preexisting conditions, and precludes annual or lifetime limits, insurers must now account for added risks when setting their rates.
The community rating requirement eliminates insurers’ ability to offer preferential rates to employees with healthy workforces and often means higher premiums year over year, even for companies with low health care utilization.
Self-funding changes the game. Companies with self-funded health care have access to every claim, from prescription medications and primary care visits to emergency room usage and specialist care. As the data grows, companies can benchmark against industry norms, address red flags and gain insights into how best to manage benefits and control costs.
The case for small businesses
While the cost of health care has presented an issue for business owners, it also is creating a hardship for individuals who don’t receive employer-sponsored benefits. Small businesses that do offer coverage pass along more of the expense to their employees, requiring higher contributions for family premiums as well as higher cost sharing than workers in large firms.
Limited access to employer-provided health care, combined with greater cost-sharing responsibilities for workers, impede the ability of small firms to attract and retain employees. In fact, companies that don’t offer health care – or offer a plan with high costs for employees – may risk losing their best staff to bigger firms that do offer a better benefits package.
However, self-funding may level the playing field for businesses of all sizes – even those with just a handful of employees – and may aid them in hiring and retaining top talent.