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Reduce employee benefit costs with self-insurance

by on February 08, 2019 10:19 AM

Are you a business owner who is frustrated with your company’s rising health insurance costs? Do you feel blind-sided every year by big premium increases that are largely unexplained? Would you like advanced notice about employees’ healthcare usage and have the opportunity to adjust your benefit plans accordingly?

If you answered yes to any of these questions, you should consider joining the large number of employers who have switched from traditional health insurance to self-insurance.

TRANSPARENCY & FLEXIBILITY

One attractive aspect of self-insurance is the transparency of employee claims data. Most self-funded benefit plans provide business owners with periodic claims activity reports, which show them detailed information about how their workers are utilizing healthcare.
Business owners can then use this data to better manage their employees’ healthcare, thus cutting costs. For example, if employers learn that their workers are overusing hospital emergency rooms, they can adjust their benefit plans to incentivize the use of urgent care centers, which are less expensive.  

Self-funded benefit plans also allow employers to customize their plans so that they better match the needs of their particular workforce. Thus, a roofing contractor could offer workers more coverage for injuries, while a company with many young female employees might offer stronger maternity benefits. As a result, workers are happier with their coverage, which aids in employee retention, and employers still save money.

EMPLOYEE MOTIVATION

Although all employers want healthy workers and realize that an active lifestyle promotes good health, many jobs demand that workers spend long hours sitting at computer monitors or standing at counters. To help rectify this, many self-funded plans offer wellness programs, which often include professional coaching, on-site risk assessments and other services designed to motivate employees to adopt a healthy lifestyle. 

Many self-funded benefit plans also offer telemedicine programs, which let workers have online medical appointments, as well as prescription benefit programs that offer drug rebates and encourage the use of generic drugs.

LEVEL FUNDING LOWERS RISK

Until recently, employers enjoying the advantages of self-insurance have also had to deal with substantial risks, which occurred whenever employees’ claims were exceptionally high. This explains why most companies that have switched from traditional policies to self-funded ones have been large companies that can withstand risk.

But level funding, a less risky type of self-insurance that is suitable for companies of almost any size, has recently emerged to change the playing field.

A level-funded plan reduces risk by letting a business owner pay a fixed (“level”) monthly premium that is independent of employees’ benefit claims. If claims are higher than expected, the employer’s stop loss insurance kicks in. If claims are lower, the business owner is rewarded with a full or partial refund.

COST SAVINGS

Two more reasons that level-funded and other self-funded benefit plans save employers money is that they do not include marketing costs and that they have lower administrative costs. In addition, they are exempt from premium taxes and state insurance regulations.

Overall, employers who choose self-insurance over traditional insurance save approximately 10 to 25 percent in non-claims expenses, according to the Self Insurance Educational Foundation.

Because of its cost savings and other advantages, more and more companies are switching to self-insurance. But self-insurance would not benefit every company, so if you are considering it, consult with an experienced broker to help you evaluate the pros and cons of such a move for your business.

Jerry Calistri is president and chief executive officer of Swift Kennedy & Associates, a health insurance brokerage firm with offices in Williamsport, DuBois, State College and Wilkes-Barre. 

 

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