Health Care Savings Takes Planning
It’s no secret that companies choosing to self-fund their employees’ healthcare plans stand to save a lot of money. However, realizing substantial financial savings, and gaining a competitive advantage over the competition, as a result, takes forethought and planning. After all, a vision without a strategy can never be truly realized. Many CEOs, executives, and business owners recognize the potential benefits of taking a self-funded approach to their employee healthcare plans but are not sure how to do it.
Following are five strategies for maximizing your company’s savings and minimizing potential risks with a self-funded healthcare approach.
5 Cost Saving Strategies for Self-Funded Health Care Plans
One of the most significant advantages of a self-funded approach to healthcare is the total and complete transparency. You know exactly what you spend on healthcare and, more importantly, where that money goes.
With a traditional, fully-funded healthcare strategy where companies pay a monthly premium to a third-party health insurance provider, there is no accountability. Even when traditional TPAs provide a date, it is frequently incomplete, disorganized, and misleading. In that setting, companies don’t know where their dollars are going.
When a business self-funds their healthcare, it knows for sure that 100 percent of dollars are going towards the health of their employees (and not into an insurance conglomerate's revenue stream).
With knowledge comes power. Knowing where healthcare dollars are going gives businesses an opportunity to pinpoint costly areas, such as prescription medication, or treatments for chronic diseases. This allows companies to focus on reducing costs in those key areas.
Analytics tools like Pratter help employers to identify major cost drivers and target those. The top 10 cost drivers may account for up to 40% of overall health care spending. Pratter can also provide tools to redirect care to lower cost high-quality providers.
2. Holding down the cost of stop-loss protection
Self-funding strategies are great when employees are healthy, and no money is being spent. Obviously, during good times companies can realize dramatic healthcare savings. However, when times are difficult, and employees make claims, costs can rapidly balloon. That’s why stop-loss insurance is a crucial component of a successful self-funded strategy. It helps employers protect themselves from potential downsides, and prevents catastrophic financial burdens in the event of runaway healthcare claims.
Stop-loss insurance will reimburse companies if claims exceed a certain predetermined cost threshold. Without stop-loss insurance, a company’s finances could be completely wiped out by a single bad year of unexpected health care claims.
Self-funded companies not only retain the cash reserves held for health care claims, but they also keep interest on those reserves. As long as claims in any given year are less than what would have been paid to insurers that year, a self-funded company is coming out ahead.
Innovative stop-loss carriers are beginning to recognize the benefit of cost containment strategies that target catastrophic events like dialysis and major cancer care and underwrite the coverage to reflect those savings.
3. Customize everything
Product bundling is a tried and true strategy to upsell consumers on everything from cars to TV packages. Do you want leather seats in your brand new vehicle? You will have to spring for the moonroof too since they’re bundled together. Want to watch Sunday Night Football? You’re going to will have to pay for a bevy of other channels you don’t care about and will never watch. This strategy of offering several products or services as a single combined product or service isn’t new in the healthcare industry either. Health insurers often pursue a deliberate product bundling strategy to get customers to over-insure relative to minimizing out-of-pocket costs.
However, when companies self-fund, a good cost-saving strategy is for self-funding employers to customize their healthcare plans to the exact needs of their employees. A company that, for example, employs mostly young and healthy employees, may not require extensive health care plans that are geared towards older adults. A business that employs both young and older workers may need a more balanced approach and offer a variety of plans. In any case, customizing the healthcare plans, you provide to employees to best fit their needs is the best way to reduce healthcare costs and avoid over-insuring.
4. Avoid costly ACA compliance
The ACA allows self-funding companies to skip many of the costlier compliance hurdles that fully insured companies cannot. Two of the most important pieces of regulation are the so-called “community rating” rules fully-insured plans must adhere to and the “10 essential health benefits” that must be included in any fully-insured plan. The ability to avoid these regulations give companies pursuing a self-insurance strategy more flexibility to maneuver and customize their plans to their needs.
Self-funding is a particularly good cost-saving strategy in Texas and in other states where employers are exempt from state insurance regulations and premiums aren’t taxed under the federal Employee Retirement and Income Security Act (ERISA).
5. Address healthfulness and prevention, not just treatment
An ounce of prevention is worth a pound of cure. Healthcare is more than just about treating illness and injury after they occur. Addressing health issues after the fact is perhaps the least cost-effective way to pay for health care.
When companies switch to a self-insurance model, they must also change the way they view healthcare. No longer can they pay a premium and let insurance companies deal with healthcare claims.
Combining the old, reactionary mindset with a self-insurance model is sure to lead to disaster and unnecessary risks. Instead, self-insuring employers can turn the old paradigm on its head. Companies can be proactive, not reactive to realize real and substantial health care savings with a self-funding approach.
Here’s something to think about: would a company rather pay for yearly cancer screenings for each of their employees, or pay for cancer treatment over a period of several years for a single employee? The vast majority of business owners, executives, and health plan administrators would choose the former over the latter in this scenario. Paying $100 for each employee for a series of preventative screenings is much more cost effective than paying for costly cancer treatments, including chemotherapy, surgery, and hospitalization, which can quickly run into the hundreds of thousands of dollars.
More importantly, when employers invest in healthfulness and preventative care, employees may avoid developing cancer altogether. The old mindset of pushing responsibility off to third-party payers, such as insurance companies and the federal government remains and can be challenging to overcome. That’s why the first and most important step a self-funding business can take is to retake responsibility for the health of their employees. To realize real cost savings, self-funding companies must invest in healthfulness and prevention as much as they invest in treatment.
Looking for Savings? Consider Self-funding
Every CEO, executive, and business owner should take a long hard look at self-funding their healthcare. Jeff Bezos, Warren Buffett, and Jamie Dimon have all done the math and decided that self-funding is the better way to go. Each company is different, and strategies that work for some may not work for others. What does work is paying directly for non-emergency medical services, like diagnostic imaging?
If we’re all paying for healthcare anyway at the end of the day, why not exert agency and control over how we spend that money outside of medical emergencies?
Don’t give away control to a health insurance company. Instead, skip the middleman when possible. Shop around for medical services and pay healthcare providers, like independent doctors and medical facilities, directly. Often, the direct price or the cash price is, in fact, the best price. You could save your business a lot of money and help support local healthcare providers without greedy intermediaries skimming a healthy profit off the top.