In September 2017, the Bureau of Labor Statistics released its latest findings regarding the cost of benefits to employers as a percentage of employee pay.
At the top of the list? Health insurance.1 It’s ahead of:
- Paid leave
- Overtime and bonuses
- Retirement contributions, and
- Individual, legally required taxes.
At the same time, SHRM expects health insurance premiums to increase 4.3% in 2018, and that’s after wise employers shop carriers and shift health plan benefits to reduce costs.2 It will be the largest average increase since 2011.
It’s an Unfortunate New Year’s Tradition
As the new year approaches all employers lament the run-away costs of health insurance premiums, and the fact that we must pass those increases on to someone. We wonder how bad the increase will be going into the new year. We hate the fact that we must go to our employees and explain increases in cost-sharing. It’s maddening that we have no control.
We can’t control the actuarial increases in healthcare premiums – but we can greatly reduce the overall costs of those premiums – through partially self-funding our health insurance plan.
Here is how this works:
At present, most employers are paying a “fully insured” health insurance premium. The bill comes – you write a check. You are paying the insurance company to cover claims on your entire workforce. But in this scenario, you’re at a disadvantage: You’re paying a big insurance premium ($18,764 = the U.S. employer annual average for family coverage in 20173) for most of your employees who will rarely, if ever, use the coverage or will have very few claims.
Now contrast the irrationality of that situation with the sensibility of a “partially self-funded plan”. Under this type of coverage, employers pay a drastically reduced premium. That small premium is divided up into three basic parts or uses:
- A small administrative fee to the provider to adjudicate claims and ensure compliance with your plan.
- Specific Stop-Loss Coverage: Insurance coverage for individuals who reach a high level of claims, and over which the insurance company pays the claims. Think of it like a high, individual deductible.
- Aggregate Stop-Loss Coverage: Insurance coverage above a level of total claims for your entire group and over which the insurance company pays the claims. Think of this like a group deductible.
In partially self-funded plans employees see the usual deductible and co-insurances, for which they are responsible. The employer pays for claims that fall between employee responsibilities and the Specific or Aggregate Stop-Losses.
Employers have nothing to lose. Some employees may have high claims, but the employer is protected with the Specific coverage. In most years, employers will never reach the level of Aggregate coverage. In years that they do they are protected.
In a simplified example, you can see the benefit to partially self-funded plans. Let’s assume your new, reduced premium for Specific and Aggregate insurance coverage is 25% of your current fully-insured premium. That leaves you 75% of your current budgeted premium to pay for claims before your Specific or Aggregate coverage kicks in. Under most partially self-funded plans:
- Your reduced insurance premium, plus
- Your margin for claims,
- Should approximate your fully insured premium.
The Big Benefits?
- Money not spent for claims goes directly back to the employer! (Remember: Under a fully-insured plan, employers pay full premiums for all employees, whether coverage is used or not, and once that check is written that premium money is gone for good.)
- Employees see no difference in coverage or claims adjudication.
- Any increases in premium affects only a small portion of your costs, not 100% of it as in a fully insured plan.
And here’s an added bonus: Through MBA Administrators most employers see an immediate 25% reduction in costs. In addition, through the use of our ground-breaking management, auditing and repricing approach, most employers see reduced costs – not increases – in the second year.
Breaking a Bad Tradition
As the new year approaches, are you ready to take control of your health insurance premium cost? It is the largest employee cost second only to salaries, and it’s getting ready to rise. Click here to see if a partially self-funded plan is right for your group, union or organization!