By Michael Jordan, President of Labor & Strategic Accounts, MagnaCare

Self-insurance has become an essential cost-control strategy for a number of large plan sponsors. Today, a growing number of small and midsize plan sponsors also recognize the opportunity to rein in staggering health coverage costs by switching from a fully funded plan to a self-insured plan.

A self-insured plan can provide significant cost savings and maximum control over the plan design. The key is to access utilization data to gain a comprehensive picture of a workforce’s health behavior. Combined with population health programs that encourage healthy behaviors, this strategy benefits both plan sponsors and members.

HR representatives can communicate the many advantages of self-insurance and play a role in helping the employer tailor benefits around the unique needs of its workforce, improve employee health and wellness, and ensure long-term sustainability.

The go-to cost-saving strategy

Self-insurance has grown in popularity because it can be customized to the needs of plan sponsors, and offers transparency to ensure the plan is managed in an efficient and effective way. Just as important, self-insurance gives plan sponsors greater control over their health coverage dollar, leaving more resources to be used at the employer’s discretion.

The addition of stop-loss insurance provides an added level of financial security, which is especially important for smaller businesses. There are two types of stop-loss insurance: specific and aggregate.

Specific stop-loss protects against a catastrophic loss incurred by any individual covered by the plan, with the deductible set at a level appropriate for the size and financial strength of the company. Under this form of stop-loss insurance, a plan sponsor pays a fixed premium each month and is liable for the claim payments of an individual up to a chosen deductible, with amounts in excess of that covered by the stop-loss carrier.

Some specific stop-loss contracts don't require the plan sponsor to fund the claim and wait for reimbursement; instead, the administrator pays the claim directly from the carrier's account.

Aggregate stop-loss protects against an excessive amount of claim expenditures for the entire plan. Through actuarial studies, stop-loss underwriters can estimate smaller, predictable claims; these projections are based on large, industry-wide samples, however, and are therefore subject to variations and fluctuations.

With either type of stop-loss insurance, it is important to remember that risk mitigation is most effective when coordinated by an experienced health plan management firm.

Self-insurance: Key advantages

With self-insurance, plan sponsors pay for individual health claims out of cash flow rather than as a monthly fixed premium to a health insurance carrier. Self-insurance also offers greater flexibility than commercial insurance, while providing the means to curb costs, such as: 

• Helping plan sponsors tailor plans to the specific health needs of a workforce population, especially if guided by the right healthcare services company
• Generating as much as three percent immediate savings because state premium taxes are eliminated on most self-insured plans
• Eliminating carrier profit margins and risk charges

Keep in mind that self-insured plans fall under federal ERISA law, so they are not subject to state health insurance regulations and costly benefit mandates. While many healthcare reform provisions apply to both fully insured and self-insured plans, self-insured are exempt from a significant number of these provisions, including the health insurance providers fee, or Health Insurance Tax (HIT tax), which some industry experts have estimated to add two to seven percent to the cost.

Plan sponsors seeking strategies to increase efficiency and improve clinical effectiveness can optimize self-insured plans using innovative strategies, such as high-performance networks, also known as narrow networks.

High-performance networks are comprised of carefully chosen healthcare providers and health professional organizations recruited to serve a defined patient population. These networks are designed to raise the level of care and make healthcare more affordable.

The concept of “narrow” should not be perceived as one that limits choice to those members accessing these networks. Rather, it is a model that relies upon a careful review of provider information and data, selecting for the high-performance network only those providers who deliver quality care while keeping down costs. Any “limiting” is deliberate and designed as an overall improvement to the network.

Getting started

Plan sponsors who opt to self-insure can enlist a healthcare services company to manage the self-insured plan and assume responsibility for:

• Maintaining eligibility
• Customer service
• Adjudicating and paying claims
• Preparing claim reports
• Negotiating, obtaining, and renewing stop-loss placement
• Conducting enrollment information meetings
• Arranging managed care services, such as access to preferred provider networks, coverage for alternative treatment programs including acupuncture and chiropractic services, prescription drug card programs that offer cost-saving opportunities, and utilization review

Look for a healthcare services company that offers secure data analytics for both remote and real-time care, and provides an inexpensive way to coordinate online tools that identify at-risk members, their patterns and treatments for various ailments—from diabetes to heart conditions.

Robust data analytics enable self-insured plan sponsors to evaluate member information, including age, chronic illness, risk factors, and gaps in care—and update medical conditions—compare previous costs to projected expenditures, and intervene with optimal prevention and programs to help members better manage costly chronic health conditions.

Furthermore, self-insured plans can be designed exclusively around chronic health conditions 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.

With this model, healthcare data analytics plays an important role, providing information relevant to population health management, such as determining the chances of a relapse, the likelihood of noncompliance, and the progression of chronic disease.

In a self-insured plan, costs are based on actual plan member healthcare use, making this a cost-efficient and more effective choice than commercial plans, especially when combined with stop-loss coverage. In terms of its many advantages over commercial insurance plans, HR representatives should take a good look at self-insurance as a viable option in today’s increasingly complex healthcare environment.