Health care isn’t cheap. Neither is health insurance. In fact, this year in Texas, rumor has it that health insurers are asking to raise rates by more than 30 percent across the state and beyond. According to the Houston Chronicle, big names in the individual insurance market have been proposing double-digit hikes to some of their 2016 plans based on rising drug prices and the unanticipated costs associated with insuring tens of millions of new customers.
What’s an employer to do?
Self-insure, perhaps. Many employers find themselves between a rock and a hard place, trying to balance ballooning costs against the coverage standards they’re required to meet. For some, self-insurance has provided an out. In fact, it’s proven a major trend.
Until recently, self-funded health plans weren’t generally an option for small and mid-size companies. They were, rather, the domain of large enterprises, which possess the resources to assume the risks and costs that come with paying the health insurance claims that their workers may file.
Yet according to a recent report by PwC, large numbers of small and mid-size companies are joining the self-insurance trend in droves. In 2015, 66 percent of businesses with 500 to 1,000 employees opted to design and fund their own plans.
How does self-insurance work?
Businesses that self-insure gain the latitude to design their own plans based on their particular business goals. They selectively create a benefits package tailored to their employees' needs, while opting out of other benefits that are less relevant.
The opportunity to opt out is much larger for self-insuring businesses than for those that go with a conventional plan. While the ACA requires insurers to offer 10 essential benefits in every policy, self-funded plans don’t have to meet that requirement. They do have to offer minimum essential coverage (MEC).
As a result, those that self-insure get to choose for themselves, holding themselves accountable to meet their employees’ needs for health coverage in a fair and thorough way, while also exercising the freedom to tailor a package that works for corporate goals and budgets.
Of course, they don’t do so in a vacuum. Usually, self-insuring businesses partner with a broker and third-party administrator who help them design a viable plan, research the lowest available rates and fight to get the best possible deals. There are significant cost savings to be gained where it comes to medical fees especially, as retail rates run dramatically higher than do negotiated rates.
As for liability, businesses that self-insure aren’t responsible to pay catastrophic claims beyond a certain limit. Rather, they rely on reinsurance to cover the costs beyond the total and individual limits that they set.
Is self-insurance right for every business? Probably not. Most employers under 250 to 300 employees have traditionally shied away from self-funding. However, many of the major insurance carriers now offer a type of “level-funded” product to companies as small as 25 employees. “This type of insurance looks and walks and talks just like a traditionally fully-insured product though they are technically self-funded,” said Higginbotham’s Director of Compliance, Ross Carmichael, “These types of plans make it much easier for smaller employers to ‘dip their toes’ in the waters of self-funding without the fear of one or two large claims wiping out their reserves.”
Could self-insurance be right for you? Maybe. To explore the options available, contact us. We would be happy to answer your questions and guide you to a plan that can help you achieve your business goals.