Self-insurance may be the answer to avoiding the costly impact of healthcare reform.
By Joseph Berardo Jr .
Making decisions about employee benefits is demanding even during the best of times, but now that Affordable Care Act (ACA) implementation is upon us, the task has become that much more challenging. The ACA has significantly complicated the question of how to offer health benefits due to cost and complexity, prompting HR professionals to seek alternative solutions.
Self-insurance has emerged as another approach to traditional insurance plans. With a self-insured health plan, employers pay for individual employee health claims out of cash flow rather than as a monthly fixed premium to a health insurance carrier. While employers assume the direct risk for payment of claims, costs are based on actual plan member healthcare use, and catastrophic claims are covered by stop-loss coverage. Stop-loss insurance provides protection against unpredictable losses. It is purchased by employers who have decided to self-insure, but do not want to assume 100 percent of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits.
Self-Insuring in the Age of Reform
The ACA health insurance tax of 2014 is expected to increase the cost of healthcare coverage for employers relyingon insured products to cover their workforce. The tax will be particularly onerous for the fully-insured market, exceeding $100 billion over the next 10 years, which will be largely passed through to consumers in the form of higher premiums, reports AHIP.
The ACA tax leaves traditional self-insured plans exempt from the fee on health insurance carriers. (One exception: a multiple employer welfare arrangement [MEWA] receiving greater than $25 million in premium is subject to the fee since the MEWA is viewed as taking risk.)
As the majority of large businesses, labor unions, and governments self-insure, the new health insurance tax will result in smaller increases in average health insurance premiums. Self-insured companies are not required to offer the government-mandated “essential health benefits,” allowing them to tailor benefits to the needs of a company and the demographics of its workers.
Self-insurance offers an employer greater flexibility than commercial insurance, while providing the kind of practical and economic advantages that curb costs, including:
- Helping employers tailor plans to the specific health needs of a workforce population, especially if guided by the right healthcare management firm;
- Maximizing cash flow because claims are funded as they are paid, rather than functioning based on prepayment;
- Generating as much as 3 percent immediate savings because state taxes are eliminated on most self-insured plans; and
- Eliminating carrier profit margins and risk charges.
The ACA does not subject self-insured health plans to the jurisdiction of the states, while insurance-based plans must comply with the varying coverage mandates, insurance statutes, and regulations of the 50 states. In addition, self- insured plans continue to be exempted from state mandates and regulation by virtue of ERISA’s preemption of state action in connection with self-insured health and welfare benefit plans. For the most part, self-insured plans are not subject to litigation in state courts or the appeal and complaint procedures of the insurance departments of each of the states.
Self-insurance also offers the opportunity for employers to streamline access to care with customizable plans based on an individual’s risk profile and needs. Targeting health issues, rather than simply implementing a general health and wellness program, is critical for long-term sustainability.
Toward that end, a growing number of employers are partnering with healthcare service companies and provider groups to take advantage of deep discounts. Provider groups/health systems create a tiered network, which provides deeper discounts to employees who visit providers in their system and lesser discounts for visiting providers outside of their system and give employees greater access to coordinated care. Within this model, all providers are in the same system/provider group, making it easier for providers to follow a patient’s health. Healthcare data analytics are accessible and play an important role. Employers have more insight into the health of their organization, which allows for proactive efforts in providing programs that will address the health needs of their employees. For example, a program can be put into place to proactively reach out
to employees with chronic conditions to help them better understand and manage their illness. Companies can deliver information relevant to population health management, such as determining the chances of a relapse, the likelihood of noncompliance, and the progression of chronic disease.
Some plans are designed exclusively around chronic disease and include educational materials, one-on-one counseling, transportation to a hospital or doctor’s office, and assistance in coordinating care among providers/physicians. Health claims and other medical data are used to identify members with chronic conditions and provide them with the tools and support they need to better manage their health.
Given its effectiveness, cost-efficiency, and advantages over fully-insured plans in the face of ACA mandates, self- insurance represents a new health insurance paradigm for employers struggling to remain viable while generating health and wellness for employees.
Joseph Berardo Jr. is president and CEO of MagnaCare.
ACA Burdens on Insurance-Based Plans
- ￼￼￼￼￼Essential health benefits requirements
- Comprehensive coverage for health benefits package
- Jurisdiction of state ombudsmen
- Ensuring that consumers get value for their dollars requiring annual rate reviews of insured products
- Premium Taxes
- Medical loss ratio taxes requirements (how
- much of each dollar must be spent on medical care versus administration)