The Kaiser Foundation estimates that, the average annual health premium for family coverage this year is more than $20,576. While that number alone is staggering, what is truly appalling is that annual health premiums having risen 255% in the past 20 years.
Many organizations look to changing their contribution structure or changing their benefit plan to lower their costs – until their next renewal comes around. Contrary to popular belief, cost isn’t necessarily about your plan – funding methods have a large impact on cost, and there are pros and cons to every approach. While not every funding method makes sense for every organization – it’s worth the examination of pros and cons to make sure your funding method, is the one that meets your organization’s needs, and benefits your bottom line.
Fully-Insured Health Plans
Fully-insured health plans provide a fixed amount for an employer throughout the term of the health plan year. Small and mid-size businesses are typically fully-insured.
- Fixed monthly premium amount; only variance is typically by a change in census population
- All claims are managed by provider
- Low volatility in risk and claims expenses
- Responsible for INBR claims at termination
- Ease of carrier or merger/acquisition transition
- Premiums costs can be high
- Highest potential for renewal increases
- Lower claims savings stay with the carrier
- Limited reporting transparency and control of factors affecting costs
- Burdensome regulatory environment
- Tax burdens can be higher
Self-Insured Health Plans
Self-funded health plans give an employer control of their costs through transparency in claims data, which help identify cost savings opportunities. According to the Kaiser Foundation, 61% of employers with 1,000 or more employees self-fund.
- Greater plan design flexibility
- Employer pays only for actual claims
- Stop-loss insurance mitigates financial risk
- Claims and usage data analysis can improve control of risks and costs
- Removal of insurer profit from spend
- Lower state regulatory burden
- Potential for lower fixed costs
- Variable monthly cash flow, based on claims
- Employer responsible for all claims and services
- Higher compliance requirements for HIPAA/other applicable federal laws
- Savings are not always immediate
- Reserves needed for INBR if plan is terminated
Medical Captives are comprised of a number of separate companies and organization who maintain their own individual health plan based on their specific needs, while mitigating risk through the large number of participants.
- High plan design flexibility
- Avoidance of unanticipated rate increases
- Data, cost and communications transparency
- Pooling of claims to control volatility and cash flow
- Potential for underwriting profit and investment income
- Access to reinsurance and coverage for typically uninsurable activities
- Capital must be raised and is at risk
- Some tax advantages have been reduced
- Quality of service issues with third-party administration
- Potential barriers to entering and exiting the insurance pool
- Primary expertise resides with a captive manager, who must be chosen carefully.