Employers: Fully or Partially Self-Funded Plans – Are They Right For Your Company?
During a continuing education meeting last year, an international consulting firm to the Fortune 500 market segment presented their findings on how industry leaders take a proactive approach to their employees’ health benefits. The way in which these top performing companies in their respective industries approached and managed their employee benefits & wellness program were similar and played a significant role in their overall success. Supporting the urgency to take action with a health program where results can be measured, the speaker discussed a national survey of 609 Fortune 500 & 100 companies, representing 13.3 million people covered and 65 billion dollars in annual health care spending, that this market segment could expect to see a 9% over-all increase in 2010. This is an important number to know especially if your company falls somewhere in the small to mid market segment. History has demonstrated that 9% in your major market segment generally translates to double digit increases for small to mid sized companies.
After the first two months of 2010, that number looks to be fairly accurate. So, if you are not a Fortune 500 company and do not have the money or resources to design, implement and manage a high tech, data driven health and wellness program, don’t fret, you still have options. There is much that can be learned from how these giant, top performing companies reduce health care costs and improve the performance of their organization. There are affordable solutions and that is what will be the focus of this article.
The Timing Could Not Be Better
Whether you are in the small business market segment (2-50 employees) or somewhere in the mid market segment (51- 1000 employees), there are some very good solutions out there, but you must be willing to make some changes. Now, however, is an excellent time to begin such a change. With the state of our economy, job security concerns and the attention around health care reform, there may never be a better time. Another reason this makes sense now, is that it will begin to move your company in a direction that is being echoed in all areas of health care (private and public) – wellness care and consumer education. We have the tools to compare, track and shop, the only thing that has been missing is enough accurate data for consumers to be comfortable treating medicine like any other purchasing decision, but now that’s changing too.
So perhaps this is worth more investigation. What is the next step? Just like any other project your company embarks on, you need to do the research and consider what such a plan would look like. This type of program requires that we take a longer term approach with a plan and strategy in place to achieve these goals. Before we go any further, you must ask the question, is it worth it? Whether you are a small business or mid-sized company, the answer is yes. With a small business, you can save as much as 30%- 40% just in monthly premium alone. For larger companies,, the percentage is less, but the monthly savings can also be substantial. Understand too, if it is done correctly, it will get better once you’re beyond the three or four year mark; the health of your company improves along with its performance. For all of this to make sense, there are some basic concepts and facts you need to understand.
Getting the Facts
Without getting into the bigger issue of health care reform (which we all should be following and taking an active role in with our public representatives), there are some facts, products and approaches we can take into consideration. Whether it is as simple as an HSA (Health Savings Account)/HRA (Health Reimbursement Account) compatible health care strategy with supplemental insurance to fill the gaps in the early years or something a bit more sophisticated such as a self-funded program of some kind, we will first need to consider our employee population. What do I mean? 70% to 75% of all health care costs are related to lifestyle and behavioral choices CDC CHART (might to Enlarge Doc once open). With fully insured plans (which is what nearly all companies with less than 1000 employees have), premium dollars are used for the medical expenses incurred by members (which I will discuss in more detail in a moment). Does it all go to pay for member utilization? No, there is around 13-15% that goes to things like administrative costs, marketing, premium taxes, compliance and profit EACH DOLLAR. And lastly, the part that is not seen is the float; incurred but not reported claims. It is important to note, that with self insurance, there are parts of these premium components that will not be there which can add up to big savings. Additionally and most importantly, you will now have access to all the data (claims information) that you were not privy to before in a fully insured plan. This opens the door to a whole new set of statistics and data (information) that can be used to help reduce spending and improve employee health. All this I am able to review with my clients (quarterly reports of utilization and total spending) on a regular basis to ensure we are on track and making adjustments as needed (we know where to focus attention). To better understand how powerful these factors can be and your potential savings that can be realized by making some small changes, we will need to break it down.
Two Truths about Fully Insured Health Plans
The first truth is that on average, 85% of your premium dollars will be spent on claims by your carrier. That leaves approximately 15% which goes to administration, taxes and profit as we just discussed. That does not mean that the underlying claims that represent the 85% cannot be reduced, it can; that is where health care reform comes in. If done correctly, where the focus is on the href=”http://instantequote.com/jriley/zapdocs/CostDrivers.pdf”>REAL COST DRIVERS and not on politics and ego, this number can be reduced significantly and our health system will produce better results. That would mean that our public service representatives actually address the true drivers behind skyrocketing health care costs (important to note that is the bigger issue), but I digress. My point is that 85% of each premium dollar you pay each month to the insurance company is paid out to your physicians, facilities, labs, for medications and so on (claims). This percentage most likely won’t change much, but if done correctly, the amount of money that percentage represents (lower health costs) will go down. To be clear, this 85% represents .85 cents of each $1.00 in premium you pay to your health insurance company each month. The other 15% is the rest of that dollar (.15 cents) which goes to the cost centers listed above.
On a side note, you can see how our Federal Government handles each dollar paid to them by you and me through our taxes to cover OUR Medicare/Medicaid programs (as you know, we pay for these programs to help us when we retire or are in need-poverty level) which they (the federal government) are to pay out in the same way for claims to physicians, hospitals, medical equipments manufacturers, drug companies and so on (just like private insurance companies). Please take a look and see who does better with your money, the private insurer or our federal government CBO REPORT and CHART- Gov Vs Private. Back on point; the two truths.
For the mid market employer, let’s consider the 85% for a moment. We know where it goes, it goes to claims. But did you know that in a fully insured plan, insurance companies set aside for future claims (incurred but not reported claims – IBNR). IBNR is equal to 2 – 3 months of claims. For a self insured plan, employers retain the IBNR which can be quite a chunk of money and interest can be earned. Also keep in mind that with a well-run program, even the IBNR can be reduced. There are many things including state taxes and mandates that self insured plans do not have to deal with which accounts for another 3% in monthly savings and a lot of state mandates that your employees may or may not need or use; design to fit. There are many cost saving truths about self-insured plans that you should know about, especially if you have a couple hundred employees or more. So, the two truths to be aware of, the first one as we discussed is the 85%/15% rule which can be affected with a self insured plan. The second truth pertains to your employee population. Understanding how your population utilizes their health care benefits will have a dramatic affect on how you design your plan. This is another area where you can significantly reduce premium costs for small and mid sized employers alike.
Your Employee Population
Your employee population plays a significant role in your ability as an employer to reduce health care costs. We know that the larger the employee population (number of employees), the better potential we have to negotiate lower rates with insurance carriers; this is especially true if you have a healthy group. If you have over 50 employees, this starts to mean something, (but really does not mean much until) with even greater impact when you get over the 200 employee mark. Now, what is the one condition concerning our employee population that is true with all size groups? Answer: The health condition of the employees and the number of claims that group generates. Health and utilization (claims) run hand in hand. So if you were self insuring, you would not voluntarily pay for more benefits than your employees use (three, four or even seven times) each month, that would be crazy, right? However, for a small to mid-sized employer group, generally speaking, that is what you may be doing. For a small group with over 5 employees, an insurance company can only adjust your rates 10% above or 10% below state approved rates based on the health of your employee population (good to know). Insurance companies are regulated by the state. My first point concerning your population is this, the more you know about how your employees use their plan and how often (claims) the easier it would be to design a plan that met their unique utilization (claims) needs. It really is all about claims. You can only know and get this information (data) if you are on a fully or partially self-insured program. And don’t let the term self insured scare you; they do have a stop-loss plan just like any other insurance plan.
It’s All in the Numbers
For example, let’s say your group has 10 participating employees in your fully insured health plan. It does not matter whether it is Anthem Blue Cross, United Health Care or Kaiser, it can be any carrier. Let’s also say that you are offering a middle of the road $20 copay plan (PPO and HMO). Of these 10 employees on your company health plan, say you have one employee that has health conditions and thus must use the plan regularly (they will generate high claims and hit the out-of-pocket max. each year). A couple of employees spend between $500 & $800 per year in out of pocket expenses, and the rest of the employee population does not even use the plan that you know of, they are healthy and maybe (hopefully) are getting their annual physicals. Basically you are paying for a few employees to use the plan and the other 60% or 70% that might need it someday if they have an accident or something. We hope they don’t have an accident obviously, but this is the reality. So, wouldn’t it be nice if, as an employer, you could pay only for those that use the plan or pay as you go, as it is needed? Welcome to the world of partially & fully self insured plans. So now, both small and mid-sized employers have a smart alternative to the fully insured, off the shelf plan. But don’t misunderstand, it is still about taking care of ones health and minimizing major claims that can be affected (lifestyles and behaviors – CDC chart above). If our creative efforts on the surface don’t begin to reduce unnecessary claims in the future, this will only be a short term fix and that is why we need to get this last component I will be discussing right.
So let’s consider the second variable which can be manipulated as it pertains to varying employee populations. This last segment will discuss wellness and how you can use self insured and partially self insured plans to fund, quantify and improve your results.
Wellness – Affecting the Numbers, Improving Performance
It works for the big guys, but can it work for you? Yes, of course wellness can work to reduce health care costs; we have always known that. Change our unhealthy eating habits, eat the right foods, exercise, get enough sleep and so on. Getting your group to participate in some sort of wellness program is not easy no matter your group size. This is especially true for small groups, as employees tend to follow their leader. If your leader is a workaholic, surviving on a pure fast food diet, it’s likely a portion of your population will tend to ride that same wave. So if you’re the boss and you are complaining about costs and yet you are not willing to lead the charge in wellness and invest in your employees, then you will find this section of no help. You can’t ask your employees to embrace and believe in something that you do not. There are many things you can do to get your employees involved and participating in a wellness program. Did you know that with self insured groups, you can offer one plan with two different rates; one for those who will and one for those who choose not to work with a health coach and participate in some form of personalized wellness care program? There are many different options for each size employer group. Regardless of what you offer, you need to know the numbers to be effective and be able to quantify your efforts. You can only do that in self insured or partially self insured plans because they are the ones that provide you the numbers. I mean, if taking brand named medications is your highest area of claims annually, don’t you think it makes sense to know this? How about implementing an education program that focuses on medications and how your employees can become smarter consumers. I have seen it. It benefits the employer and the employee and it’s powerful. I have asked employees, “have you checked to see if that is now available in generic? “ Or, if it is a maintenance drug (something you take every month), “have you asked your physician or pharmacy if you can get a three month supply delivered to your home for the price of two?” Most often I get a blank stare or they will say I did not know I could do that. They will say, I just give them my card and pay the $35 copay. Do you mean I can get it in generic, with a three month supply delivered to my home for only $10? Ok, this is only one example, but the employee is excited now because you just saved them $80 and added the convenience of having it delivered to their home.
I can tell you first hand that it is rewarding at a time when there is not much to get excited about in health care. There are many areas where you can do things like this, but only self insured and partially self insured plans give you the numbers and data to know where to spend your wellness dollars, education opportunities and what is and is not working. At the end of the year, you can look at your report and you know whether you have made an impact on peoples’ lives and on your bottom line. Remember, like anything you want to affect, you need a plan, you need a STRATEGY and it is going to be an investment in time, but the results are well worth it for those who address it from a “can do” perspective.
If you would like more information on any of these subjects or have comments, please e-mail me at [email protected] or you can call me direct at 310-414-9524.
