Top 3 Things You’ll Learn
- Comparison of fully funded and self-funded benefits
- The optimal time to explore self-funding as an option
- Why it makes sense to go all-or-nothing with self-funded benefits
Insurance is always about hedging financial risks, whether it’s your house, your car, or your health plan. You are trying to manage those incredible risks that you could come across in life. For an employer, especially those of a smaller size, there is a need to pool employees’ experience, diseases, and care they need with that of many other employers. Most employers pay a health plan to assume that risk, in the form of a premium, as part of a fully-funded benefits program. In doing that, employers are part of a one-size-fits-all approach to managing benefits. They may find themselves limited as to what kind of plan design they can offer their members, what kinds of coverage they have, and who is in their provider network.
As the number of employees grows, it begins to make sense for the employer to consider taking on that financial risk themselves in a self-insured benefits model. There comes a point when those employers can stop paying the premium to have the health plan do everything and design a benefit plan that is focused on what really matters to their employees. With a self-funded arrangement, they can benefit from a more tailored approach to managing employee health.
When your clients reach the point of around 25 employees, most brokers agree that it makes sense to explore self-funded medical and pharmacy benefits as an option.
When Is the Optimal Time to Consider Self-Funding?
When the employer reaches as few as 25 employees, most brokers agree that it makes sense to explore the options to self-fund benefits, whether the organization decides to make the leap or not. If everything is running smoothly and renewals are coming in as expected with reasonable increases from the health plan, the group is stable enough to explore self-funding. If the group has catastrophic claims on the plan now, such as a member or dependent known to be taking a very high-cost specialty medication for a long-term condition, it would not be advantageous to go self-funded because they would be walking into a big financial risk.
What Data is Needed to Evaluate the Market?
By leaving the carrier, the group is unbundling the employee benefit products and would need to find those partners to contract with for each component – medical benefits, pharmacy benefits, and stop-loss vendor for catastrophic claims protection. Each of those carriers will want to see information about what the plan is currently spending. Employers looking to self-fund will not be able to get a pharmacy claims file, but they can evaluate their premiums and aggregate spend, and look at the top drugs utilized by members. This data is necessary for employers to explore the market and find the opportunities to save money on premiums and care management programs offered by the health plan.
Can A Group Be Self-Funded on Pharmacy & Fully Funded on Medical?
For a stable, sustainable relationship, an employer should self-fund on both benefits – not one or the other. If the medical insurance company is on the hook for the claims in a fully-insured arrangement, while the employer is on the hook for the pharmacy claims in a self-funded arrangement, there is a question of what happens when there is cross-over. Some prescription drug claims could go either way, which creates a push-and-pull of liability. The medical insurance vendor may try to push those to the pharmacy side, and that leaves the employer responsible for paying when the employer may want the medical carrier to pay. With the increase of expensive specialty drugs on the market, there is bound to be tension among the different entities around who is responsible for the risk.
Whether your clients decide to make the leap to self-funded or stay fully funded, the goal is to ensure they have the best deal and incentives are aligned with their benefit objectives. If you aren’t sure that your clients are in the best deal today, then they probably aren’t – and it’s worth your time to explore the options in the market.