America's health care landscape is in flux. A newadministration, “replace and repeal” (whatever that means), andskyrocketing costs are contributing to even more confusion.Benefits and HR leaders now need to seek out new and innovative solutions to better suittheir workforces. Providing comprehensive health coverage iscritical to attracting and retaining a quality workforce, butfinding the right plan can be costly and difficult.

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Over the past several years, companies of all sizes haveaddressed the challenge by passing more costs to their employees.According to the Kaiser Family Foundation/Health Research &Education Trust 2016 Employer Health Benefits Survey, annualpremiums for employer-sponsored family coverage reached$18,142,with workers paying $5,277 toward their plan. While companies stillshoulder the lion's share of the bill, worker contributions haveincreased an average of 80 percent over the last 10 years.

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Employees in small firms assume an even greater share of theirhealth care costs than workers in midsized and large firms; onaverage, they pay a higher percentage of premiums for familycoverage along with higher deductibles.

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The cost-sharing trend is likely to persist as insurance ratescontinue to rise. It's likely that employees' satisfaction withtheir health plan will decline as their own costs increase,creating a difficult conundrum for HR directors attempting tobalance employees' interests with company profitability. To add tothe issue, company owners facing higher costs are putting morepressure on their HR staff to find a tenable long-termsolution.

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The revolution in health care is being spurred by self-insurance, also referred to asself-funding. Large businesses have self-funded for decades. Thebig change today is that small and midsized companies can use thismodel to save money and increase services, with little or norisk.

Self-funding 101

Simply stated, employers who self-fund create their own benefitplan for their employees, pay health claims directly or through athird party administrator (TPA), and buy stop loss insurance tolimit their liability for catastrophic illnesses and accidents.This process allows much more creativity in designing a plan thataddresses the specific needs of the business.

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Self-funded benefits can include medical,dental, vision, prescription medications and workers' compensation,and costs vary monthly depending on workers' use of healthservices. For employees, the health plan may look and operateexactly the same.

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Administrative responsibilities such as enrollment, claimsprocessing and provider networks may be handled internally, butoften are outsourced to a TPA. Some companies also retain athird-party partner that helps employees navigate the health caresystem, directs them to the right level of care, and steers themtoward high-value, low-cost services and facilities.

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Self-funded plans are almost universal among large employers. Infact, the Kaiser Family Foundation reports that 82 percent ofcovered workers in large firms are enrolled in plans that areeither partially or completely self-funded. Today, the model isgrowing in popularity among companies of all sizes, enabling smalland midsized businesses to offer competitive benefits packages liketheir larger counterparts.

Saving money

Generally speaking, expenses for self-funded plans are lowerthan fully funded insurance because self-funding does not includemarketing costs or profit margins of traditional insurance. TheSelf Insurance Educational Foundation has estimated these costsavings at 10 percent to 25 percent in non-claims expenses.

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Self-funded plans also are exempt from state insuranceregulations and premium taxes under the Employee Retirement IncomeSecurity Act, and are not subject to many of the provisions of theACA.

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Managing care delivery, either in-house or with a third-partypartner, is also a major factor in reducing health expenses. Forexample, many medical services are needlessly performed inhospitals, where the cost of care is higher. Common procedures likeMRIs, X-rays and blood and urine tests may be completed at a lab ordoctor's office at a much lower cost. A third-party partner canserve as a health care concierge, directing employees to seektreatment at lower-cost (but equally good) sites of service. Thisis a key aspect of decreasing costs through self-funding.

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Customizing health plans

Self-funding allows HR leaders to tailor benefits packages tothe special needs of their workforce. For example, a constructionfirm or landscaping company may want more coverage for injury andchiropractic care, while a company with a young workforce maychoose to offer robust family-planning benefits. These customizedplans offer a win-win scenario—the company saves money whileincreasing productivity, and employees get access to the mostpertinent care at an affordable cost. Major medical plans simplyaren't as flexible.

Owning the data

One of the factors driving the increase in health care costs isthe adjusted community rating. Prior to the ACA's implementation,underwriters reviewed the medical data and risk profile of aspecified group of employees. Now, insurance carriers look at anentire community — spread out across hundreds of businesses—andcalculate rates based only on the age, zip code and tobacco usageof the population. Since the ACA requires guaranteed-issue medicalinsurance, does not allow denial based on preexisting conditions,and precludes annual or lifetime limits, insurers must now accountfor added risks when setting their rates.

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The community rating requirement eliminates insurers' ability tooffer preferential rates to employees with healthy workforces andoften means higher premiums year over year, even for companies withlow health care utilization.

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Self-funding changes the game. Companies with self-funded healthcare have access to every claim, from prescription medications andprimary care visits to emergency room usage and specialist care. Asthe data grows, companies can benchmark against industry norms,address red flags and gain insights into how best to managebenefits and control costs.

The case for small businesses

While the cost of health care has presented an issue forbusiness owners, it also is creating a hardship for individuals whodon't receive employer-sponsored benefits. Small businesses that dooffer coverage pass along more of the expense to their employees,requiring higher contributions for family premiums as well ashigher cost sharing than workers in large firms.

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Limited access to employer-provided health care, combined withgreater cost-sharing responsibilities for workers, impede theability of small firms to attract and retain employees. In fact,companies that don't offer health care — or offer a plan with highcosts for employees — may risk losing their best staff to biggerfirms that do offer a better benefits package.

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However, self-funding may level the playing field for businessesof all sizes — even those with just a handful of employees — andmay aid them in hiring and retaining top talent.

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