The vast majority of employers with between 100 and 500 employees are in fully-insured health insurance programs. While the risk associated with a fully-insured funding arrangement is minimal, the cost is anything but. As health care costs continue to rise and employers weigh options on how to provide an affordable, quality health plan, they’ll often turn to alternative funding methods to try and achieve cost savings. However, many employers believe that they are too small to pay their own claims.
We’re here to challenge that belief.
Two options to consider are captive insurance arrangements and post deductible health reimbursement arrangements (HRAs). These funding arrangements allow both large (100+ employees) and small (2 to 99 employees) companies, respectively, the ability to achieve savings normally associated with self-funding, while mitigating a portion of the risk.
A captive health plan allows large employers to pool their risk with other companies of similar size and industry to create a health care program that reduces employer costs, develops a multi-year strategy, and breaks the cycle of simply reacting to insurance renewals. Insurance captives are exempt from many state mandates and have greater control over what services are covered and at what cost. The idea is not to limit the care for participants, but to provide a healthcare model that focuses on wellness, pricing transparency, and managing a strategy backed by data that allows employers to drive healthcare costs down.
Captives can best be explained by breaking them down into three layers:
- The first is self-funding claims of your employees. A specific deductible is chosen and the employer is responsible for their employees’ claims up to that amount.
- The second layer is the shared captive layer. All participating employers pay into this layer at a fixed monthly cost based on their company’s individual demographic and risk profile. Unspent money can be returned to the member companies.
- The third layer is the “stop-loss” insurance that provides protection by paying for claims above the shared captive layer. The stop-loss protection allows participating companies the peace of mind of never having to fund claims above the maximum agreed upon by the captive.
A captive health insurance arrangement encourages organizations to change the way they look at health care. A company paying $2 million per year for a fully-insured health plan will pay over $30 million in health care premiums over 10 years at a 9% average annual increase. To truly impact the cost of your organization’s health care, you may need to start looking at the 10-year number instead of the one-year number. The question is often, “What can I do to lower my cost over the next 12 months?” However, it should really be, “What can I do now and going forward to decrease the $30 million?”
While a captive funding arrangement may not always be the best solution for a company’s health plan, it is absolutely a model that should be discussed when exploring alternative funding options and strategizing with your consultant.
So, what can companies with under 100 full-time equivalent employees do to help control costs by taking on more risk?
The post-deductible HRA is a model that relies on the built-in stop-loss of fully-insured health plans called the out-of-pocket maximum, and couples it with an employer-funded HRA to help contribute toward employee costs. This model can save both employers and employees money on premiums and re-direct it toward claims for participating members.
Based on insurance company data, we know that nearly 60% of members spend between $0 and $1,000 annually on medical and prescription services, yet employers and employees pay premiums that far exceed those amounts. Decreasing the amount of guaranteed money (premiums) that are paid to the insurance company and layering employee and employer responsibility lowers overall spending. This allows employers to continue to offer competitive and cost-effective options to employees and retain any unspent money for future plan years. Furthermore, the built-in out-of-pocket maximums allow for transparency on “worst-case scenarios,” while carrier data allows us to make calculated predictions for what utilization may look like. Alternative funding methods can sometimes be difficult to grasp, conceptually. However, as costs continue to increase year over year, it is important to have a benefits consultant that can help you to understand ‒ and if appropriate, implement ‒ these alternative funding methods. They can save your organization significant money while providing a quality health care solution that is valued by your employees.
Please reach out to me to learn more about how Bond Benefits Consulting can assist your organization in strategizing on the future of your health care. Justin@bondbenefits.com; 585-248-5870, ext. 130