Rising health care costs and increasingly competitive benefits offerings are some of the biggest challenges facing government contractors today. Consequently, employers are constantly searching for new ways to maximize flexibility through customized benefits plans that fit the needs of their employees in order to remain competitive and attract talent in a tight labor market.
One solution that government contractors have found are self-funded insurance plans, which can more effectively manage the impact of escalating health care costs and engender employee loyalty through customized benefits offerings. While self-funded plans are common with large employers, government contractors find these plans attractive given their tolerance for risk, understanding of business fluctuations, and ability to withstand an economic downturn. Self-funded plans empower contractors with a variety of levers to pull to address health care costs and design the right plan to match their employees' needs.
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Leverage claims to save money
Too often, employers, especially small, midsize enterprises and government contractors, are overly beholden to insurance carrier rate renewals. Even if employee health care claims are running at or below the target amount, surprise renewal increases are often sprung on insureds to balance the carrier's overall book of business. Even with significant renewal increases, employers are often hesitant to switch carriers due to the hassle it creates — especially if their program is popular among employees.
One option to offset costs centers on an organization moving to a self-funded plan, where the employer pays for the claims of their employees rather than paying a monthly premium to insurance companies. A self-funded plan allows employers to customize their health and benefits offerings to best meet the needs of their workers.
Compared with traditional insurance plans, where the monthly cost is a set premium, self-funded plans reflect the cost of employee claims plus an administrative fee. If employee claims exceed the set amount in a given month, then stop-loss insurance, purchased through a collaborative or captive, provides financial protection for employers. However, if employee claims are below the set amount, employers spend less on employee health care. This cost saving can be repurposed for other employee benefits offerings. Additional cost-saving strategies, such as pharmacy carve-outs, can offer employees access to better care at a lower cost for employers.
Align benefits packages with employee needs
Self-funded plans have risen in popularity among government contractors due, in part, to the rapid change in employees' expectations of their benefits plans. Employee needs have shifted, with younger workers expecting more flexibility and customization from their benefits. Faced with staffing shortages and the increasing frequency of "badge swapping" among government contractors, employers are more eager to create elevated benefits offerings to retain current employees and attract talent.
Self-funded plans give employers added flexibility to design plans that align with their employees' priorities, such as fertility treatments, naturopathic medicine and nutrition support. Other solutions that address wellbeing, chronic conditions and mental health can be included as add-ons in self-funded plans. These benefits are key for government contractors to retain talent long-term.
Consistent benefits offerings encourage employee loyalty
Perhaps the most apparent benefit of self-funded plans is they eliminate having to change carriers, boosting stability in benefits offerings. Compared with traditional insurance programs, self-funded plans appoint a third-party administrator to adjudicate the claims and provide employees with a customized network of providers, so employees can continue to see their preferred care providers.
From an employer perspective, while stop loss or reinsurance costs may change from year to year, the increase is often less costly than comparable rate increases in traditional plans. In the event of cost increases, employers can pull many levers to reduce the overall cost of their self-funded plan. Ultimately, self-funded plans allow employees to focus less on the distractions created by changes in benefits and focus on what matters.
Particularly for smaller employers and government contractors facing the challenge of rising health care costs, self-funded insurance programs empower employers with options to save time and money in the long term while assuming limited risk financially. Created in careful consultation with a third-party broker or benefits consultant, self-funded insurance plans can help employers retain talent while offering innovative benefits solutions that meet the needs of a diverse workforce.
Beth Robertson is head of benefits consulting, Atlantic Region at NFP.
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