As Healthcare costs continue to outpace inflation, insurance premium increases have become a major concern for all businesses. If you are a mid to large employer though, you are most likely eligible for some of the top cost-containment strategies available in employee benefits. Different forms of self-funded insurance plans have become the biggest talking point for companies looking to save on premiums while implementing a long-term cost management strategy. In today’s blog post from The Medical Link, we will discuss self-insurance and a couple of trends that are expected to dominate in years to come.
What is Self Funding and why should a company consider it?
A self-funded medical insurance plan is when a company funds / pays its own claims instead of paying an insurance carrier to do so. An employer delegates the administrative burdens that come with running a medical plan (paying providers, ID cards, etc.) to a Third Party Administrator (TPA) or the administrative side of an insurance carrier. This is in contrast to the sully insured model where an insurance carrier handles all of this. Major risk exposure is then managed by the purchasing of stop-loss insurance – a way to reinsure your business.
So why self insure? By choosing this model instead of being fully insured, employers cut out the profit and other taxes that insurance companies build into the premium they charge you. What you’re left with is now just the claims, administrative costs, and stop-loss insurance – costs that the fully insured carrier was already charging you! You also get more transparency for your claims which can help you manage plan designs as well as implement targeted wellness programs to improve employee health.
Captive Insurance
One of the most popular self-insurance trends for businesses is Captive Insurance. Captive insurance is a type of self-insurance in which a business joins a pool with other self-insured groups in order to gain access to better rates and contract terms for stop-loss insurance, as well as be in a less volatile environment for future renewals.
Reference-Based Pricing
Reference-based pricing is another popular self-insurance trend for businesses. Reference-based pricing focuses more on how much providers get paid to enable cost-saving opportunities for a self-insured group. The TPA (Third Party Administrator) will pay providers based on a reference point (normally a % of Medicare) instead of the usual “discounted” network rates. This can result in major savings in the group’s claim costs!
