Should Your Company Self-Insure Your Benefits?

It seems like every week someone asks me – “should we self-insure our benefits”, or “How can our organization save money so we can find dollars to meet the new demands of our workforce?”  For our purposes in this editorial—the two are related. Self-insured employers do have an advantage in the levers they can pull from a cost containment perspective. However, self-insured employers have to be comfortable with the risk—and every company has a different risk appetite. When you compare the premium elements of a fully insured group versus a self-insured group, the difference is anywhere between 5% and 7%. So, is that compelling enough to make the change? Perhaps, but is it enough?

There are a variety of levers a group can consider when they are self-funded including: Rx carve-out, direct contracting, referenced based pricing, plan design freedom, Stop Loss Captives, among others. As a result, when a company evaluates some or all of these options, the total potential dollars can be very compelling.

Here are some additional factors worth your consideration:

• Group Size. In the past, companies only considered self-funding if they were 500 employees or more. Today, I see groups of 50-100 employees self-funding. It is not what I consider to be the ‘norm’, but I do see it.
• Stop Loss insurance. If the group is smaller, say 50-200 employees, the Stop Loss market is hard (meaning that premiums are increasing, and underwriters have more restrictions on the risk they desire within their book of business) and many carriers will decline to quote for a company of this size. You can find ones that will, but it will be more challenging.
• Volatility of claims. Do you have the cash flow to pay claims weekly–especially as a large claimant arises?
• IBNR. Unlike the fully insured world where you can leave at the end of the plan year, in a self-funded plan you need reserves in the case you terminate the plan. It’s important to factor this into the equation.
• Increased specialty drug usage. This can impact large claims, and again goes back to cash flow.
• Increased administrative support. Is your HR department/leader savvy enough and familiar with the components of self-funding?

There is no hard and fast absolute in this scenario, it’s really a consideration of risk analysis and tolerance. My thoughts for you in either case:

If you are fully-insured:  I believe it is worth the discussion and effort to go through the process of seeing how the dollars would pan out to make the change. It will be educational and if the analysis comes back and is attractive, you can always use the information gained as leverage in a fully insured environment.

If you are currently self-funded:  Take the time to explore the levers I shared above. For example, prescription drug costs represent nearly 30% of your organization’s total healthcare benefits spend, and the Centers for Medicare & Medicaid Services (CMS) estimates pharmacy spend will rise 6.3% annually through 2026. So if you have a $2 million dollar spend, there is a good chance $600K of that is on the pharmacy. What if you could save 15% of those dollars, by carving out Rx? It’s worth your time to do the exercise and learn how you could take your self-funded plan to another level.

As always, each employer scenario is unique and I am happy to help. Please give me a call at 856-220-8458 if you would like to discuss your current situation.