The case for self-funded health benefit plans and reference-based pricing
Small businesses are starting to explore self-funded plan designs that use reference-based pricing. Continue reading for more about self-funding and reference-based pricing.
Self-funding and reference-based pricing are hot topics with small businesses. They are so popular, in fact, that a recent survey shows an overall increase in their 2019 projection of small employer clients having a reference-based pricing health benefit plan design. Small businesses are seeing these savings, and they’re starting to explore how reference-based pricing can help them, too.
Before we get to why self-funded plan designs that use reference-based pricing are becoming more popular for small businesses, let’s review the basics.
Reference-based pricing is a methodology of calculating payment to providers for covered treatments and services using a “reasonable fee” based on a reference point. A common reference point is the Medicare fee schedule. Some self-funded health benefit plans calculate the reasonable fee as a percentage of the Medicare fee schedule to determine reimbursement for services rendered.
Bottom line: Self-funded health benefit plan designs that use reference-based pricing can allow for a great deal of flexibility with a variety of arrangements and overall cost-savings.
So, what’s behind the recent trend toward reference-based pricing for smaller employers? A few key factors.
First, a self-funded health benefit plan design that uses referenced-based pricing can mean less expensive coverage for employees and employers.
When coupling a self-funded health benefit plan with stop-loss insurance, reference-based pricing provides an affordable way to extend coverage to employees through lower employee contributions. So, employees are happy because they’re saving money.
And employers are happy, too, because they’re allowing for more coverage to more employees. There’s a refund potential for employers if claims dollars are less than funded. There’s also a premium tax savings of around 2% since self-funded claim dollars are not subject to state health insurance premium taxes.
Moreover, self-funded health benefit plan designs that utilize reference-based pricing may also include transparency reports with aggregate health claims data and demographic information, which allow employers to better manage costs. Overall, anytime you can design a plan that’s beneficial for employees and employers, it’s a win.
Second, reference-based pricing can provide employees more flexibility when it comes to choosing a provider. Typically, an important feature of any health benefit plan design for employees is the ability to choose the provider they want. Some self-funded plan designs that use reference-based pricing give employees the chance to pick the provider that’s right for them. And, when employees are happy with their health plan, employers are usually pretty happy, too.
Finally, self-funded plan designs that use reference-based pricing can help employees become smarter healthcare consumers because of all the transparency and choice involved. When employees better understand the healthcare processes and system, costs come down for both the employee and employer. In fact, just understanding their coverage better may help employees better use their health benefit plans.
For example, using telemedicine when appropriate, establishing a relationship with a primary care doctor and using client advocacy services can all help employees better utilize their health benefit plans. In the end, employees get smarter about how they manage their care, and employers win with reduced costs.
These factors are driving more small businesses to consider reference-based pricing self-funded health benefit plan designs with stop-loss insurance. And, for good reason. These plan designs can give employers the opportunity to offer their employees affordable health benefits, provide more choice in their health plans and providers, and encourage more employee engagement. While moving to reference-based pricing may be too big of a leap for some employers, self-funding continues to provide a means for employers to offer comprehensive major medical health benefits at lower costs.
SOURCE: MacLeod, D. (6 December 2018) "The case for self-funded health benefit plans and reference-based pricing" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/the-case-for-self-funded-health-benefit-plans-and-reference-based-pricing
Are you ready for self-funding? Three tools to help you decide
Are you ready for a self-funded health plan? Self-funding and other alternative funding options may seem risky to many HR professionals. Continue reading for three tools to help you decide if you’re ready to switch.
When your health plan is fully insured, it’s easy for your finance department to budget for the cost — you just pass on the health insurer’s annual renewal premium amount to them and that becomes the annual budget number. But you and your broker may have come to suspect that you are leaving money on the table by continuing on a fully insured basis, and you may want to test the self-funded waters.
By now, you may already know there are significant benefits to self-funding, but actually making the switch is a scary prospect for HR directors.
Before you can transition to a self-funded plan, you need to be financially stable and willing to take a bit of a risk. As a safeguard, you also need to familiarize yourself with the two forms of stop-loss insurance. One caps the impact on any one covered member’s claims (individual or specific stop loss), and the other caps your total annual claim liability (aggregate stop loss). Your broker can guide you on which stop loss levels and which stop-loss coverage periods are right for your population when transitioning from fully insured to self-funding.
Beyond these stop-loss safeguards, size will dictate how you pay. If you have fewer than 100 covered employees, you may be able to pay the same amount monthly, just as you do with your fully insured premium. This monthly payment equals projected claims plus an aggregate margin, a monthly administration fee and the stop loss charge. This eliminates unpredictable monthly payments for a small self-funded group.
However, for larger groups of over 100 employees, moving to self-funding will mean paying claims as they are processed (which means uneven claim payments), plus stop loss and administration.
To help you determine if you’re ready for self-funding, you may want to analyze your plan in a few different ways.
1. Look back: A look back analysis is just what it sounds like — a view of how your plan would have performed over the last couple years had you been self-funded, compared to how it did perform under a fully insured model. This should be an easy enough task for your broker to take on, especially if they have sought out self-funded quotes from claim administrators and stop-loss carriers on your behalf. In addition, they should know what your actual claims costs were. The result is that you’ll know whether you would have saved money or not.
2. Look forward: You may already know what your upcoming fully insured renewal looks like. But even if you don’t have hard numbers yet, you can work with your broker to determine a strong estimate of what your proposed premiums will be. Then, your broker should get a self-funded quote, which includes the expected and maximum claims, plus the administrative fees and stop-loss premiums. This is your expected self-funded costs for the upcoming policy period. Compare that estimate to your fully insured renewal costs. (Make sure the self-funded costs are on the same “incurred claims with runout” basis that the fully insured costs would be, for a fair apples-to-apples comparison.)
3. Probability. While the “look forward” analysis compares your fully insured costs to your expected self-funded costs, it is based on “expected” claims. The risky part of self-funding is that your actual claims will not ultimately materialize exactly as expected. There are some more sophisticated tools that combine group-specific data (such as your claims history, demographics and the proposed fixed costs) with a fairly large actuarial database to come up with thousands of possible outcomes.
By charting all of these outcomes, you can produce likelihood percentages of where your actual claims will come in at — versus the “expected” level, and versus the fully insured renewal rate. Not all brokers have this tool on hand, and as a result, there may be a cost associated with producing one. The output from this tool may appeal to your colleagues in the finance department.
Other considerations
During your analysis, you may want to set your self-funded policy year liability based on incurred claims (plus fixed costs), even though your actual paid claims within that policy year may be less due to the lag between when provider services occur and when you actually fund them. The lag is a cash-flow advantage but it does not represent a reduced claim liability.
Finally, don’t lose sight of the cost of high claimants, an important part of planning if you choose the self-funding route. Will your past high claimants continue into your renewal period? Are you aware of new high claimants on the horizon? Stop-loss carriers generally insure only “unknown risks,” not “known risks.” If a plan member has an expensive chronic condition, such as kidney failure, a stop loss carrier may “laser” that individual and set a higher individual stop-loss threshold. It’s important that you know what’s excluded and factor in any uncovered catastrophic claimants into your analysis.
In the end, it may turn out that self-funding is not a good fit, or possibly that this year is just not the year for it. But whether it is, or it isn’t, it is comforting to know that you’ve done your due diligence and have documentation supporting the decision you’ve reached.
SOURCE: DePaola, Raymond (5 October 2018) "Are you ready for self-funding? Three tools to help you decide" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/ready-for-self-funding-three-tools-to-help-you-decide
Why Self-funded Healthcare is a Great Option for 2017
Have your health care options left you at a competitive disadvantage when it comes to attracting new talent? Switching to a self-funded healthcare plan can be a great way to reduce your healthcare cost while increasing your ability to attract new employees to your workforce. Take a look at this interesting article by Paul Johnson from Employee Benefits News and find out why you should switch to a self-funded healthcare plan.
Small- and mid-sized companies using traditional major medical plans are at a competitive disadvantage: either they are paying more in loaded costs than competitors that use smarter healthcare options, or they are finding it more difficult to hire employees because their competitors offer better plans.
With the new year and a new healthcare landscape, HR executives and benefits directors are now reconsidering their options, taking a much harder look at out how they can stop struggling to offer competitive benefits, and actually use their healthcare plans to recruit and retain the best talent, which will ultimately boost employee morale and profitability.
Annual premiums for employer-sponsored family health coverage reached $18,142, with workers paying $5,277 toward their plan in 2016, according to the Kaiser Family Foundation.
While companies still shoulder the lion’s share, worker contributions increased about 80% over the last 10 years; this cost doesn’t even include the employee’s co-pay or deductible.
To balance the scales and create a competitive advantage, more companies are turning to healthcare plans based on a self-funding model that offer more flexibility, customization and cost-savings while still improving the quality of care. Self-funded plans have been almost universal among large employers for quite some time, yet only in recent years have more HR departments at small- and mid-sized companies started to realize the benefits.
Customizing a self-funded model
Federal and state laws incorporate exceptions that enable companies to self-fund healthcare. This move provides for more flexibility while limiting risk for the employer. Companies can also choose to pay their claims directly, or work with third-party administrators to handle claims and administrative responsibilities.
Benefits can include medical, dental, vision, prescription medications and workers’ compensation. Unlike more rigid traditional insurance, companies can customize their offerings to address specific needs, such as investing in injury and chiropractic care in industries that require physical labor to robust maternity benefits for those with younger workforces.
Customized plans offer a win-win scenario — the company saves money while increasing productivity, and employees get access to the most pertinent care at an affordable cost.
To further increase convenience and cost efficiencies, companies can use third-party healthcare concierge services to help employees navigate the system, access the right level of care, and steer them away from needlessly expensive services and facilities. Also, businesses have the option to purchase stop-loss insurance to increase the type of healthcare provided to employees and limit the company’s liability in case of catastrophic illnesses and accidents.
Saving money
Self-funding is generally less expensive — 10% to 25% less, according to the Self Insurance Educational Foundation — than fully funded insurance because it doesn’t include marketing costs or profit margins associated with traditional insurance. As an added benefit, companies that self-insure are exempt from state insurance regulations and premium taxes, and are not subject to many government provisions.
Managing care delivery also has a dramatic impact on costs. For example, many medical services are needlessly performed in hospitals, where costs are higher. A third-party partner can direct employees to comparable lower-cost sites of service. Similarly, while costs of prescription medications can vary widely among pharmacies, understanding cost differentials and making decisions accordingly can bring costs down.
While advantageous for all types of employers, the ability to closely manage care delivery and place of service is especially important for companies with low-wage and young workers who have previously relied on high-cost emergency rooms for basic care or are unaccustomed to navigating the system.
Lowering workers’ comp
Employees often use workers’ comp for minor injuries requiring only first aid or for injuries sustained outside the workplace because they don’t have other options. With a self-funded plan – and with the assistance of a third-party partner to help employees access care through the right channels – businesses can cut such claims.
Likewise, organizations with an Experience Modifier Rate may lower their E-Mod score through a self-funded plan.
Owning healthcare data
Before the Patient Protection and Affordable Care Act, health insurance underwriters reviewed the medical data of a specified group of employees. Now, carriers must look at an entire community — often hundreds of businesses — and calculate a community rating based only on age, zip code and smoker status.
Because the ACA requires guaranteed-issue medical insurance, does not allow denial based on preexisting conditions, and precludes annual or lifetime limits, insurers must account for added risks when setting rates that are often detriment to the company and result in higher premiums.
Companies that self-fund have access to every claim, allowing them to benchmark their utilization against industry norms and address red flags, ultimately using insights garnered to better manage benefits and control costs.
Insurance isn’t a one-size-fits-all proposition, despite what the industry leads business owners to believe. Providing quality healthcare and maintaining profitability should not be mutually exclusive. For many companies, a self-funded plan becomes the gateway to managing skyrocketing healthcare costs while offering competitive benefits.
See the original article Here.
Source:
Johnson P. (2017 January 9). Why self-funded healthcare is a great option for 2017 [Web blog post]. Retrieved from address https://www.benefitnews.com/opinion/why-self-funded-healthcare-is-a-great-option-for-2017
