How to Save Money and Offer Employees Better Coverage with Self-Insurance

When faced with the annual challenge of ever-increasing health insurance premiums, many employers succumb to what they feel is their only option: raising already-high employee deductibles to offset costs.

Employers can’t keep doing this, especially in light of a survey by the Association of International Certified Professional Accountants that says 80% of workers would choose a lesser-paying job with good benefits over the same job with no benefits but 30% more salary. Providing better benefits is something employers simply have to do to stay competitive — but it isn’t always easy due to the high cost of status quo coverage options.

What Is Self-Insurance?

Here’s my take. The status quo isn’t the only way to go — there are other ways to provide high-quality health benefits, and they start with employers telling their benefits broker they no longer want old-line, traditional coverage where they and usually their employees pay 5% to 20% more each year despite underlying health care costs remaining unchanged for the past 5-10 years. These employers can switch from fully insured plans where they have little control over cost, benefits and outcomes to a self-insured plan where they pay for their employees’ medical expenses with their own money.

In the absence of a typical insurance provider, self-insured employers have the freedom to choose what kind of health care services they cover, and from whom. In my experience, many companies that are self-insured don’t make the most of this freedom. Status quo insurance plans typically cover care that utilizes a fee-for-service payment model that incentivizes physicians to order potentially unnecessary tests/scans/procedures because their employer (typically a hospital chain) gets paid for each one. This volume-centric, money-oriented approach often results in poor patient outcomes that require follow-up or referral appointments because their condition wasn’t cured the first time. This is why, despite spending 50% to 100% more than other developed countries, the U.S. ranks near the bottom in health care quality.

To prevent this from happening — and therefore save money on fewer appointments — self-insured employers can elect to cover care in value-based settings where physicians are incentivized to produce better results. Usually the highest-value clinical settings are where physicians aren’t beholden to hospital executives pushing for volume. Employers can offer low-co-pay or free visits to approved physicians — and also provide limited coverage for low-value health systems whose outcomes are less than desirable. Put simply, well-designed health plans make wise decisions free and poor decisions expensive.

Also, an added bonus of going self-insured is that employers will have access to all of their claims data. This can help in making well-informed decisions about future benefits to improve employees’ health and well-being.

How to Avoid Concerns About Self-Insurance

Nevertheless, many employers shy away from self-insurance because they fear an employee will experience an extremely expensive medical emergency that will deplete the money set aside for all employees. This concern is readily addressed with stop-loss insurance, which protects employers from large claims like complex cancer cases or organ transplant surgeries.

In addition to stop-loss coverage, it’s imperative to work with a claims processor that’s independent of traditional insurance carriers. Many carriers own so-called third-party administrators (TPAs) that lack the freedom of independent TPAs, so be careful who you choose. By contracting with an independent TPA, employers don’t have to worry about processing claims and performing related administrative tasks.

All this can seem daunting, but fortunately there are benefits advisers all across the country that have deep experience in constructing low-cost, high-quality health plans. It’s never been easier to become unshackled from the old-line insurance offerings that have led to 20 years of wage stagnation for the middle class, and some employers are taking advantage of these advisers’ expertise.

U.S. employers haven’t been getting what they’re paying for through most fully insured health plans, and it’s costing them a pretty penny in more ways than one. If employers want to spend less and still cover top-notch care — keeping current employees happy and healthy and helping to attract new talent — they can definitely do that.

Employees are an organization’s most important asset” and there’s never been a better time to truly act on that old adage. By gaining a competitive advantage through high-performance benefits plans, chief people officers and HR leaders are delighted to finally be able to deliver good news to their CEOs.