The House Always Wins: Is it time to consider self-funding your medical insurance?
You may feel safe and comfortable in your fully insured medical plan. But you certainly aren’t protected from large premium increases courtesy of fully insured carriers. Have you thought about the pricing dynamic lately? With fully insured plans, the “house” always wins. Consider these perspectives:
Carriers have no incentive to reduce costs
The ACA put some protection in place with the medical loss ratio (MLR) rules about a decade ago. Consumers supposedly receive more value for their premium dollars because the carriers are required to spend 80% (small group) or 85% (large group) on claims for every premium dollar they collect. If they don’t meet this requirement, they have to rebate the difference back to employers and employees.
If you think about it, that leaves them 15-20% to pay for all their administrative expenses and what’s left over is profit. So, why would a fully insured carrier lower its rates if it is going to squeeze profits? Just think of your past renewals. Have you received a rate decrease?
By contrast, when you’re self-insured, you have every incentive – and reward – for reducing costs, which benefits both you and your employees.
Rebates favor the house
Not many years ago, prescription drug manufacturer rebates were insignificant. But in today’s environment of high-cost brand and specialty drugs, they’re big dollars. These rebates can add thousands of dollars monthly to rebates, which the fully insured carrier retains. Have you ever seen a credit on your renewal for these rebates?
In a self-funded plan, these rebates are paid back to the plan to reduce the overall cost of the health plan.
Trend calculations put you at a disadvantage
Fully insured carriers all use medical inflation trend as part of calculating a fully insured renewal. Simply said, procedures and services next year will go up in price by a certain percentage, which is perfectly valid.
The issue occurs when carriers use a trend factor that is not representative of a group’s experience or that the group is not even creditable. Using a self-funded model allows a true evaluation of claims to assign the proper trend factor.
Pooling points are artificially high
When you’re fully insured, you have a set “pooling point” that protects your claims experience from members with large claims. Unfortunately, carriers typically set this pooling point at a high amount, exposing the group to higher claims utilization when calculating their renewal. In a self-funded plan, the employer can choose the level of protection they want to take based upon the risk in the group.
You can’t really get competitive bids
If you were buying a car, would you tell Dealer B what price Dealer A quoted before you asked for a price? Not likely! But that’s exactly what happens when you market a fully insured plan. Prospective carriers won’t provide their quote without reviewing your current carrier’s renewal rates. Based on the renewal, they may discount their rates to win the business or decline to quote. When everyone can see the renewal rates, how can you get much of a rate discount? In a self-insured plan, your cost is directly related to the performance of your plan.
Self-insurance may require an investment of time, but it may be more than worth it depending on your plan size and staffing. If you’re tired of the house always winning, talk with your broker about the advantages of self-funding your medical plan.
By Dennis Kadel, Vice President, Benefits, The Miller Group