What You Should Know About Self-Funded Health Insurance Plans

It’s likely that your health insurance premiums increased in 2017 and will continue to do so in the coming years. Health care expenditures are expected to rise by an average of 5.8 percent annually through 2025, according to a 2015 report by Centers for Medicare and Medicaid Services. As such, health care coverage and expenditure costs may be top of mind not only for you but for your employees as well.

Many organizations offer fully-insured health insurance coverage for employees, which can be a significant line item in any budget. But there are more cost-effective options, such as switching to self-funded insurance and utilizing a Reference Based Pricing (RBP) model to handle employee health care costs.

If your organization is considering lower-cost health insurance options, here’s what you should know about self-funded plans and RBP models.

Self-funded Insurance Plans

In a self-funded health insurance plan, an organization doesn’t take out third-party health insurance and instead sets up a fund out of which claims are paid. Essentially, the employer becomes the plan sponsor and designates an administrator to oversee the plan. In a traditional health insurance plan, the insurer bears the responsibility to handle and pay out claims and assumes the associated risks, such as paying claims for high-cost treatments or procedures. In a self-funded insurance plan, the employer, or plan sponsor, assumes all responsibilities and risks. However, there are ways to hedge against risk. Stop loss insurance is a form of reinsurance that can be purchased to guard against catastrophic losses that could deplete an insurance fund. Additionally, administrative responsibilities are outsourced to a third party.

Reference Based Pricing

This pricing model is beneficial to self-funded plans. Some procedures or diagnostic tests can vary dramatically in price, depending on the state, doctor’s practice, and facility. For example, an MRI in Northern California can vary from $400 to more than $6,000. The RBP model sets a cap on medical pricing and is based on a standardized pricing formula, such as Medicaid reimbursement + 125 %. This allows a standardized pricing structure across all physician practices and medical service provided. With RBP, costs are set at a specific rate and your plan administrators will know how much to expect to pay for claims and your employees won’t have to comparison shop facilities to determine a reasonable price for a procedure. 

What to Ask Your Insurance Broker

It’s likely that your insurance broker hasn’t told you about self-insurance options or RBP models (as it is less advantageous from a commission standpoint). But this doesn’t mean brokers wouldn’t be receptive to a discussion.

One of the ways that you can approach the conversation with your broker is by explaining that your organization is looking to reduce health insurance costs and that you are considering self-insurance on a RPB model.

Some of the questions you should ask your broker would be:

  • How does the cost of self-insurance compare to the cost of a fully insured plan? 
  • Would self-insurance apply to me and my company? Of importance is the stability of your workforce.  With a workforce that is always changing, predicting costs can be harder. 
  • We know of a few ongoing large losses.  How would those affect my costs if I decide to use the self-insured model?
  • How does reference-based pricing affect my costs as a self-insured company?

Pushing your broker to research the options available to your organization and giving you the details necessary to make an informative decision could help you determine viable alternatives that can help reduce your organization’s health insurance costs. 

  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client
  • client