Ed Probst

Self-Insurance- What are the REAL risks?

With the cost of health insurance continuing to skyrocket, non-profit employers are searching for answers when it comes to providing benefits to their employees. More organizations than ever before are turning to self-insurance in attempt to gain more transparency, drive down costs, and offer more attractive benefits to their employees. For non-profits with over 100 employees in NY, and even smaller  in other states this may be the solution.  So why is there still some resistance?  Risk is always a concern especially for non-profit organizations.  Factoring the high cost of healthcare especially in metropolitan markets, self-insurance can be scary words.  However, this begs the question, are they really getting a true depiction of what their risks are?  Probably not.  We find that most organizations do not have good understanding of what self-funding means and fear of the unknown always creates anxiety.  In addition, Boards may be resistant to anything that smells like fiduciary liability.   Insurance carriers that market fully insured plans and large brokers have profitable stakes in those plans so there may not be enough motivation to educate non-profits of what risks really exist.  Of course, self-funding is not for every organization, but in an environment where benefits are paramount to recruiting and retention, employers should be exploring all options to reduce cost and increase benefits including alternative funding options like self-insurance.

The real question is, what’s riskier, a fully insured contract through an insurance carrier which almost certainly guarantees renewal increases year over year, or a long term self-funded strategy focused on reducing healthcare costs?   With fully insured plans you are offered rates upon renewal based on your previous claims experience.  Those rates are locked in for a year in most cases, however if claims improve you cannot recoup those funds.  When employers pay their own claims, they save hard dollars in real time if claims improve.  This motivates them to take cost reduction, and wellness initiatives.  Self -funded plans put the employer in control of their healthcare and pharmacy spend allowing them to make financial decisions based on more accurate data that comes in real time which does not exist with fully insured plans.  Most often we hear that non-profit employers are concerned a major claim could wipe them out.  However, a properly designed self- funded strategy with appropriate stoploss contracts can eliminate those financial risks making it easier to forecast costs into the future.   Recently direct hospital relationships with large healthcare systems like Northwell Health have created opportunities for employers to offer incentives to employees who access care within the system.  With deeper discounts embedded within the direct relationships, employers can realize significant cost savings within their self-funded plans. 

Non-Profit employers should not dispel self-funded plans without a full exploration of their benefits and risks.  Brokers who work with experienced Third-Party Administrators can easily provide proposals which will clearly outline what their maximum liability would be.  Employers that qualify should consider getting customized proposals to help them better understand how self-funding works before determining whether it is too risky for them.  With the rise in healthcare costs not slowing down, what do they have to lose?

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