The Importance of Self-Funding

Top 3 Things You’ll Learn

  • The rising cost of specialty drugs – and the risk associated with it
  • How a self-funded plan can be a good approach to managing specialty costs
  • What an employer should do to make sure their self-funded plan is as secure and protected as possible in insecure times

Specialty drug prices are on the rise. Increasingly, five-figure specialty medications are coming to market, with drugs topping $100K per year expected to be released in 2023. Self-funded employers may be concerned about – or already feeling the pinch of – the rising costs. Fully insured employers without full visibility into the details of their pharmacy plan may have limited awareness of the risk their plan faces – but the risk is there regardless.

In either case, many employers choose to address the risk by sticking with the apparent security of a fully insured plan, or returning to one if they’ve already opted to self-fund. In an uncertain market, it can be tempting for an employer to put their trust in the hands of an insurer that can promise stability and safety, insulated from upheaval.

That safety and stability can be an illusion, however, and many employers find that self-funding really is the best choice for their plan in the face of rising specialty costs and other market uncertainties.

The False Comfort of a Fully Insured Plan

In times of upheaval, a fully insured plan can seem appealing because someone else – the insurer – is managing the plan, responding to industry changes, and diluting the risk by spreading it out over a large pool of covered members. Costs for the employer are stable – they’re paying a fixed monthly premium, with the only changes coming when they add or remove members from the plan.

With the insurer managing the plan, the employer also has fewer choices to make. Providers, networks, clinical programs, and many or most elements of the plan design are chosen by the insurer. It can be particularly attractive to smaller employers worried about the unpredictable nature of health benefits.

But remaining fully insured isn’t the best approach for every employer to address the risk of rising specialty costs. For many, a self-funded plan is the most stable, secure option in the face of market uncertainty.

The Benefits of Self-Funding

In a self-funded arrangement, the employer is responsible for the actual cost of its members’ pharmacy claims. That can be an intimidating prospect, but in fact, a properly managed self-funded plan can be significantly less expensive than a fully funded one.

A self-funded plan offers the benefit of control, flexibility, and visibility. Rather than having to rely on the insurer, a self-funded employer can see their own claims data, so they can see where healthcare dollars are being spent and make data-informed choices about any adjustments that might need to be made.

Self-funding also gives employers the ability to carve out their pharmacy benefit – managing it separately from the medical plan. This allows them to choose their own vendors, negotiate the terms of their own contracts, and monitor their own plan performance, all of which offers the potential for savings and a greater sense of security for their pharmacy benefit.

Of course, financial issues do have to be considered, and expensive specialty drugs and high-cost claims for chronic or complex conditions are barriers for some employers considering a self-funded plan. However, a properly managed, layered approach to pharmacy benefits – which includes favorable contract terms, clinical oversight, maximized rebate dollars, patient assistance solutions, and stop-loss insurance – offers many employers the best of both worlds: -improved pricing and increased transparency for their benefit plan.

Fully insured clients see a markup when it comes to the large price tag of specialty medications, which can have a big impact on overall plan cost. The Affordable Care Act’s 80/20 rule requires insurance companies to spend 80% of premiums on healthcare costs, and allows 20% to go to other costs such as administration or marketing. This means fully insured plans could pay up to 20% more than a self-funded sponsor. Those extra costs can add up with these high-dollar medications.

Making the Move

Self-funded plans are a great choice for many employers, but not all. Before making any big decisions, they should thoroughly analyze their current situation and pharmacy benefit needs. They should look at their employees’ overall health and past pharmacy utilization, if they’re able to get access to that data from their insurer. And they should have an idea of their chosen plan’s real cost – not just the given price tag, but the net cost they’ll be paying after any rebates, discounts, plan fees, and contract terms are taken into account.

For self-funded plan sponsors, a strategy of layered protection is necessary to make sure the plan truly serves the specific needs of the employer and members. The employer will need an advocate independent of the PBM to negotiate client-aligned terms, discounts, and rebates. They’ll also need clinical oversight to make sure any medications they’re paying for are appropriately prescribed and clinically necessary, and that their members’ health and safety are protected. They’ll want to ensure they and their members are receiving high-quality service. And they may also want to include alternative funding options and supplemental stop-loss coverage to mitigate the risk and cost of those unexpected, high-cost specialty claims.

Far from being overly risky, a self-funded pharmacy plan may be the safest choice for an employer facing the rising costs of specialty medications. With the help of a well-informed benefit advisor, supported by an independent partner like RxBenefits, they can find an approach that meets their unique needs and offers a sense of security in insecure times.

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