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By: James M. Deren

Healthcare reform is causing many employers to reconsider the type of healthcare program they offer to their employees.

Many employers struggle to maintain the grandfathered status of their health plan in order to preserve some of the features the plan has to save premium dollars. Maintaining the grandfathered status is a pretty illusive prospect because virtually any changes made to a plan causes the program to lose its status.

Conversely, many other employers feel that trying to maintain this status on their plan will end up costing them more money because of the administrative burdens, and in fact, some carriers charge higher premiums due to the increase of plan management just to maintain this status.

Because of all the turmoil and changes created by so much legislation, employers are considering all types of healthcare plan options to provide benefits to their employees at the best possible price. One of the funding options that appear to be surfacing as the tool of choice for employers to save money is self-funding.

According to a Deloitte Advanced Analytical Consulting Group, a recent Department of Labor (DOL) report indicated that fully insured premiums increased by $808 while self-funding only increased by $248, a difference of 326 percent (SIIA, 2010).

Since fully insured health plans are rapidly increasing at a higher pace than self-funded plans, employers are embracing the idea of self-funding.  This funding method gives power back to the employer by providing greater plan control, and enhancing plan transparency, which appears to be yielding greater savings.

In fact, transparency alone seems to create more reserves under these programs because employers see every penny spent in the plan. With greater control and increased transparency, employers are able to hold different companies more accountable (Pharmacy Benefit Managers, Preferred Provider Organizations, Brokers and Third Party Administration Firms) for the cost and quality of the services they provide to the plan and its members.

Transparency is arguably one of the most compelling reasons many employers change to self-funding for their employee benefit plan.  Another huge reason employers are embracing this type of program is that employers book unused funds not spent on plan costs as reserves.

Employers feel more in control of their healthcare future when they hold reserves instead of the insurance company.

Self-funded health plans can further create additional reserves and savings from many of the same revenue streams as the fully insured programs. For example, a Pharmacy Benefit Manager is an organization that provides insurers and self-funded health plans prescription drug services. This sector of the health plan has long been a profit center for the fully insured carriers (referred to as box companies). Anytime a plan member fills a prescription, the insurance company or health plan receives a rebate. The rebates are much larger on a 30-day supply prescription at the pharmacy than the lower cost 90-day supply from mail order fills.  

As a result of higher rebates on a 30-day supply prescription fills, many fully insured box companies are reluctant to incentivize plan members through plan design towards lower cost mail order fills. Under the self-funded health plans, the rebates remain with the plan to offset costs and go towards building sustainable reserves. Overall, employers are indirectly paying for the rebates that go to the insurance companies. The rebates paid to insurers provide absolutely no benefit to the employers’ health plan. 

These transparency issues in the pharmacy program as mentioned above is only one of the many reasons employers of all sizes are converting to self-funding.

Another issue that is becoming more dominant in the health insurance market, are carriers consolidating which erodes competition. A recent study by the American Medical Association (AMA) indicated that only one or two health insurers dominate many health insurance markets (for fully insured box companies) in the United States. The study revealed that in 48 percent of the metropolitan areas, at least one insurer had 50 percent or more of the market shares (American Medical Association, 2011).

Further, there are far more reinsurance carriers that offer stop-loss coverage for self-funded health plans than fully insured in a given market. The increased number of stop-loss carriers provides much more competition for employers to assist them in keeping costs at bay.

At GBS, we “partner” with employers to develop health plans that meet their specific goals. Any reserves created in the plan stays with the plan.

We respectfully ask for an opportunity to provide you with a detailed proposal for a complete turn-key program that you will be proud of and will meet the growing needs of your organization.

Posted 1:50 PM  View Comments

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