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Understanding Self-Insured Group Health Plans

January 15, 2020

A common, creative and cost-effective approach to funding employer health benefits.

Manage your health plan as you would manage your business. An introduction to self-insuring.

“Become part of the health care solution!”

If there were a proven method to managing your health plan costs that an increasing majority of employers in the U.S. were utilizing today, would you be interested? Well there is a proven method, and it is called self-insuring.

Plan sponsors and employers have been able to self-insure their medical plan for more than 30 years, made possible by the passage of the Employee Retirement Income Security Act (ERISA) of 1974 by the U.S. Congress.

The interest in self-insuring has never been higher. Sixty-one percent of all employer health plans in the U.S. are self-insured according to the 2013 Employer Health Benefits Survey of the Kaiser Family Foundation. That’s up from 44% in 1999, an increase of 36% in 14 years. With so many employers turning to self-insurance, this is a strategy that should at least be considered for companies interested in taking control of their group health care costs.

Control:

What is in your plan? Are you engaged in the design of your plan, or passive…?

To run a successful business, employers must have full control over all aspects of their operation. Being in control of your business might include basic strategies such as access to analytical data to improve results and foresee opportunities, management expertise to impact productivity, and investing assets for long term financial stability.

A business leader would never consider relinquishing jurisdiction over these areas of their operation. And yet, with commercial fully-insured health plans, employers surrender all control of one of the highest single expenditures to the carrier. In addition, most fully-insured programs offer canned programs (i.e. plan designs, managed care services, and analytical expertise), limiting a plan’s ability to access “best in class” services from multiple vendors.

With a self-insured health plan, an employer assumes control over:

  • the tactical lessons to be learned from their own historical data
  • the specialized care needs of their current employee population
  • the future actions necessary to achieve their unique financial objectives

Investment:

Are you managing your assets, or simply paying premiums?

Sponsoring a health plan for your employees is important to the success of your business. It nurtures your company culture, attracts the highest level of talent, and reinforces loyalty from your best employees. As well, it is likely one of the most expensive components of your entire operation. Your employees are a major investment, and making and keeping them healthy is a smart way to manage that investment.

With a self-insured arrangement, employers reap the benefits of their investment through direct financial returns. A self-insured plan not only enjoys a higher level of data to illustrate its return on investment, it participates directly and immediately when plan results beat expectations.

Credible and affordable financial products such as medical stop loss insurance for self- insured employer plans provide protection for the assets set aside for these investments and cap the risk to the plan.

Further, the ability to create a benefit plan that caters to the specific health needs of an employer’s unique population will directly increase employee productivity. Plans don’t waste time, funds and resources on programs and benefits that aren’t a match for their employees.

Opportunity:

Who is the self-insurance expert in your market?

Every business in every industry strives to separate itself from its competitors, and from commoditization. No two businesses are alike so no two employer health plans should be alike.

Brokers and advisors for employer health plans help battle the commodity mentality. They continue to demonstrate innovation in the void of data that is unavailable from commercial carriers. As total costs of health care continue to rise, forward-thinking businesses cannot afford to wait for a one-size-fits-all solution to the cost issue.

The opportunity exists within a self-insured environment for employers to take charge of their health plan destiny. The opportunity exists for self-insured employers to implement creative plan strategies with guidance from their broker and advisors that require long-term

commitments. The opportunity exists for self-insured employer groups to set a clear vision of their specific health plan goals and the actions needed to accomplish those goals.

Summary

This publication summarizes the critical areas impacting employer sponsored plans, and expand on the many benefits that a self-insured plan realizes. You will be presented with results that speak to the success of self-insuring, both statistically and through first-hand accounts from real employer groups of all sizes that have met or exceeded their plan objectives. Self- insuring is not for every employer group, so this document also exists to provide those considering this alternative with a definitive guide during that decision process.

Self-Insurance Overview

Health care costs rank among the top concerns of U.S. Employers. How to design and finance the plans are questions that inordinately occupy benefits professionals and corporate executives. Below are a number of factors to consider when looking at self-insuring as a possible alternate approach to a more traditional fully-insured arrangement.

  • Control of Plan Design/ERISA — Federally mandated benefits apply, State mandated benefits do not apply as a result of legislation enacted in 1974 (ERISA). This allows employers to offer uniform, targeted benefits to all employees, regardless of the state in which the employer is located.
  • Improved Cash Flow — Plans can maximize cash flow. Groups can manage the cash flow in a self- insured plan and the related interest income because claims are funded as they are paid. Fully-insured premiums constitute a form of pre-payment.
  • Elimination of Most Premium Taxes — State taxes on most self-funded plan costs are eliminated amounting to a 1.5%-3% immediate savings from a fully-insured arrangement.
  • Carrier Profit Margins and Risk Charges are Eliminated — This amounts to a plan savings of 3%-5%

Making the Decision to Self-Insure

Self-insuring is an arrangement in which an employer funds medical expenses and contracts with a third party administrator (TPA) to provide administrative services and process claims

for the group’s medical and dental benefit plan. Many factors affect an employer’s decision to self-insure, particularly the ability to assume the risk involved. An employer can save 10-25% of costs by moving to a self-insured benefit plan.

Health benefits are an integral and significant part of a compensation package.

In a competitive environment, self-insuring can give an employer greater flexibility in the types and amounts of benefits it offers, aiding employer efforts to attract employees with certain skills and talents. Self-insured plans have many advantages over plans that are fully insured:

Risk Management – Charges, Commissions and Retention

One advantage is the flexibility in controlling risk. Business objectives of self-insuring revolve around the best use of money devoted to benefits; controlling claims, managing, and benefiting from investments. A self-insured health plan can allocate more of each dollar toward the payment of medical claims, eliminating insurance commissions, risk charges, insurer profit and other costs involved in obtaining coverage from an insurer. Costs also decrease thanks to the sponsor’s ability to exert greater control over administrative expenses and costs.

Improved Cash Flow

Self-insuring allows claims to be funded as they are paid. Fully insured premiums constitute a form of pre-payment. With self-insuring, a plan can delay payment of recurring health plan costs until the services have been rendered. Insurers set health insurance premiums at levels that anticipate projected increases in healthcare costs – usually well in excess of the actual rise in costs.

Innovative Plan Document Design and Control

Since the employer is the plan fiduciary, decisions surrounding plan design belong to the employer and not an insurance company. Flexibility in plan design derives from a self-

insured plan’s freedom from state mandated benefit laws. The employer can design its plan without the restrictions, delays and costs involved in obtaining the approval of an insurer or regulatory agency. Employers thus make the overall compensation package more attractive, and plan design options can be tailored to the working population and company preferences. Language can be modified to fit individual plan needs, and accurately reflect the true intentions of the plan.

ERISA Preemption of State Regulation

ERISA provides uniform regulatory stability to employers that operate in several states, so those companies do not have to adopt a patchwork of design variations to comply with various states’ requirements.

Relief from State Premium Taxes

Most states impose taxes on premiums received by insurers. Insurers shift the burden of state premium taxes onto employers. A self-insured plan enjoys savings, as they are not subject to state premium taxes.

Plan Sponsor’s Experience

The plan sponsor has the ability to limit its liability to the claims experience of its own employees or members. In a self-insured plan, an employer is responsible only for the risks presented by members covered under the plan, and is not responsible for the risks presented by members of any other company. Limiting exposure to its own members is an advantage to that of other organizations where all insureds are pooled.

Risk Control

For an employer that is averse to risk, partial insurance is an important factor in self-insuring. Stop-loss coverage can limit the employer’s risk while allowing it to retain control over claims and benefits.

Value-Based Benefits and Wellness Programs

As medical costs have skyrocketed, sponsors have been taking steps to reduce medical costs by emphasizing prevention and maintenance care for chronic diagnoses. Employees have the flexibility to design and integrate into overall strategies, health risk assessments, prevention and wellness programs tailored to the employer’s specific employee demographics and needs.

Improved Claims Data History

Analysis of claims using software and investigative techniques can help find areas where plan spending may be curtailed. By self-insuring, plans will identify the categories constituting the majority of health care spending, and are better equipped to make future decisions.

Savings Opportunities

A self-insured plan’s ability to utilize cost containment features will increase savings opportunities. The ability to have effective cost containment options will help ease rising health care costs as money recovered goes back into the plan’s general fund and is once again available to pay future medical claims. Additionally, employers can monitor the conduct of its own employees to reduce costs attributable to unnecessary or fraudulent health care claims.

Contact Consociate Health today to learn more.

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New Bill Repeals ACA Cadillac Tax, Among Others

January 14, 2020

Late last month, President Trump signed into law a spending bill that repeals the ACA’s Cadillac tax, medical device excise tax and health insurance providers fee. It is important for employers to understand how these changes will affect their business.
Contact Consociate Health to learn more

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2020 Benefit Plan Limits Announced

January 13, 2020

Many employee benefits are subject to annual dollar limits that are periodically increased for inflation. The IRS recently announced cost-of-living adjustments to the annual dollar limits for various welfare and retirement plan limits for 2020.

Although some of the limits will remain the same, many of the limits will increase for 2020.

Employers should update their benefit plan designs for the new limits, and communicate the new benefit plan limits to employees.

HDHPs and HSAs

The health savings account (HSA) contribution limits will increase to $3,550 for individuals and $7,100 for families, effective Jan. 1, 2020. However, the catch-up contribution for HSA-eligible individuals who are age 55 and older will remain at $1,000.

For plan years beginning on or after Jan. 1, 2020, the high deductible health plan (HDHP) minimum deductible will increase to $1,400 for individuals and $2,800 for families. The HDHP maximum out-of-pocket limit will increase to $6,900 for individuals and $13,800 for families.

Health FSAs

The health flexible spending account (FSA) dollar limit on employee salary reduction contributions is $2,750 for taxable years beginning in 2020. There is no change for dependent care FSA contributions.

401(k) Plan Contributions

The employee elective deferrals for 401(k) contributions and catch-up contributions will both increase $500 for 2020. The pre-tax contribution limit will increase to $19,500. The limit on catch- up contributions will increase to $6,500.

Transportation Fringe Benefits

The monthly limits on transit pass and vanpooling (combined), and parking will increase $5 each for 2020, bringing the monthly limits for each to $270.

Adoption Assistance Benefits

The annual tax exclusion for adoption assistance benefits will also increase from $14,080 to $14,300 for 2020.

For More Information

Contact us today to learn more about the updated limits, or for copies of employee communications that detail these changes.

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FSA & Other Employee Benefit Limits Rise for 2020

December 20, 2019

The IRS announced an increase to flexible spending account (FSA) contribution limits for the 2020 plan year. Individuals can contribute $2,750 in 2020, up $50 from the previous year.

Since this announcement came so late in the year, some employers may not use the updated figures in their benefits limits—as doing so would require an addendum. In fact, some employers have been known to use limits from the previous year because they cannot wait until this far into the enrollment season to release benefits materials.

With that in mind, it wouldn’t be surprising if employers use the 2019 limits for their FSA plans in 2020. In addition to the FSA contribution limits, the IRS announced increases for transportation benefits and adoption services.

Qualified transportation benefit limits (for parking or transit passes) increased to $270 for 2020. Maximum employer subsidies for qualified adoption expenses rose to $14,300, up $220. Other adoption-related limits increased as well.

For more information on these or other benefits plan limits, contact Consociate Health today.

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