Fully Insured and Self-Funded Plans: The Pros and Cons

In our blog published a couple of weeks ago, we delved into the three different types of group health insurance plans: fully insured, level-funded, and self-funded. As you’re researching the best kind of group health insurance plan for your business, let’s focus on the two opposite ends of the spectrum and see how they compare: fully insured group health plans and self-funded group health plans.

Defining the plans

Fully insured

As a reminder, a fully insured plan is what people typically think of when they think of employer-provided health insurance. Employers purchase the plan from an insurance company (carrier) and pay a premium to the insurance company. When employees make a claim, the insurance company writes a check to the healthcare provider. Employees pay all the deductibles and co-pays.

Self-funded

In a self-funded plan, the insurance company provides all the administrative services, with a fixed cost for administrative fees. Self-funded plans are fully funded by the employer, who pays for employee claims from a bank account or trust fund set up for that purpose.

The pros and cons of fully insured health plans

Pros

Employers looking to keep their costs consistent will have fewer cost/rate variances month to month because of fixed premium costs.

All claims are managed by the insurance provider, which keeps the employer’s involvement in the day-to-day management at a minimum (and this also makes fully insured plans faster to implement). Employers also benefit from the insurance company taking on all the costs associated with employee medical claims. Employers and employees alike can feel confident knowing their premiums during the plan period will not change even if there are many claims in any one year.

Cons

While costs are consistent from month to month, employers must either accept the community rate if they’re a small group and or negotiate their rate with insurers each year if they’re a large group. Rates are determined with the following criteria in an underwriting process:

  • Company size
  • Employees’ health conditions
  • Claims experience (number of claims filed by employees last year)
  • Loss ratio (claims cost divided by the premiums collected)

These criteria can determine whether the following year’s premiums are higher or lower. Premium taxes are also higher with fully insured plans. And if you are looking for a plan with benefit design flexibility, fully insured plans often aren’t customizable to the degree an employer would prefer.

The pros and cons of self-funded plans

Pros

If the idea of assuming all financial risk sounds…well, risky, purchasing stop-loss coverage helps with those risks. You will also get additional savings if you have a low number of claims in any given year. Self-funded plans offer the greatest amount of flexibility and oversight, as you manage employee claims and can select which benefits you offer in your plan.

Cons

Not having the insurance company take all the risk when it comes to paying claims may leave you feeling uncertain about claims costs. Also, if your business does not have a stable cash flow, cost fluctuations due to employee claims can be stressful. Especially if you choose not to have stop-loss coverage, which can leave you potentially paying a great amount of money when it comes to employee medical claims.

While a self-funded plan is more hands-on, there are specific and additional compliance requirements such as non-discrimination requirements and 5500 tax filings. Also, as self-funded plans require a more hands-on approach, employers without the time or resources may find them difficult to manage.

Look at all sides

Fully insured and self-funded plans are two different sides of the coin. Be sure and take the time to talk to a trusted advisor to help you fully iron out the differences and take the next best step for you, your business, and your employees.

 

 

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A Crash Course in Group Health Insurance Plans

When it comes to health insurance, people want the right amount of coverage. They also want coverage for what they see as high value (doctor’s visits, medical procedures, etc.). There are many insurance plans out there—the traditional fully insured plan, the level-funded plan, the self-funded plan…and you may be wondering what the difference is between them, and where to even begin.

Welcome to our crash course in group health insurance plans.

Where it all began—fully insured plans

Fully insured plans are probably what come to mind when you think of group health insurance plans. Employers get the plan from an insurance company (carrier) and pay a premium to the insurance company. The yearly premium rates depend on how many employees are enrolled in the plan. When employees make a claim, the insurance company writes a check to the healthcare provider (hospital, doctor, etc.). Employees are responsible for paying the deductibles and co-pays defined in the plan.

A fully insured plan usually includes coverage for medical procedures, prescriptions, and doctor’s visits. Employers tend to go the route of fully insured for their business if they want to give their employees predictable benefits that remain consistent over time and provide the business with a regular monthly fee to manage cash flow.

New paths and steppingstones—level-funded plans

Level-funded plans are the go-betweens, the bridge between a fully insured plan and a self-funded plan (which we will discuss in a minute).

With level-funded plans, employers pay a set amount of money each month to the insurance company that funds a reserve account for claims and manages administrative costs and fees. Rates for a level-funded plan is defined by the number of employees and the estimated cost of anticipated claims. If the employer has a surplus of claims funds at the end of the year, they will receive a refund. If the claims are higher than estimated, they will receive a premium increase for any stop-loss coverage an employer has.

Employers usually choose level-funded plans if they anticipate employees not making many insurance claims and want to offer their employees insurance at an affordable cost. It also allows ease of access to utilization trends that show where employees might be overspending and allows employers to use education and wellness programs to improve claims costs.

Rise in popularity—self-funded plans

The popularity of self-funded plans is on the rise. A report published in 2020 found that 60% of workers in companies with three or more employees were on some kind of self-funded plan. But how does it work, exactly?

With self-funded plans, or self-insured plans, an insurance company provides administrative services. Like with level-funded plans, there is a fixed cost for administrative fees. But unlike level-funded plans, employers assume all the costs and financial risks in a self-funded plan. They pay for employee health claims from a bank account or trust fund set up for that purpose.

These plans have the highest amount of risk; however, employers can have stop-loss insurance that reimburses them for claims that exceed a predetermined level. There are two types of stop-loss insurance:

  • Specific stop-loss coverage, or individual stop-loss coverage, provides protection for employers against a high claim for any one employee. For example, if employers want a maximum liability of $150,000 per person, and an employee makes $200,000 in medical claims, specific stop-loss reimburses the employer for the $50,000 in excess claims.
  • Aggregate stop-loss coverage provides a set coverage ceiling on the amount of eligible expenses employers pay during that contract period. In other words, this is the coverage for all the employees total, not just for any one specific employee.

While self-funded plans can be expensive without stop-loss coverage, many employers find self-funded plans attractive. If they don’t need to pay fixed monthly premiums and they want to proactively manage claims costs with a hands-on approach, such as steering employees to high-value, low-cost providers and taking advantage of clinical wellness programs, self-funding may be a good fit.

One size doesn’t fit all

What’s right for one company may not be right for you. There are many different health insurance plans and different plan options, and taking a route doesn’t mean you take the route alone. Many advisors are well-educated in level-funding and self-funding.

Start a conversation with your broker to find out if this is in their area of specialty. Whether it is or not, do your research so you can fully participate in the conversations to determine what is the best for you and your employees.

 

 

Content provided by Q4iNetwork and partners

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Employee Benefits: Planning Ahead

In the past year, employers have had to make significant adjustments to their benefits packages to cope with the pandemic. Most significantly, employers with less than 500 employees have had to adopt new paid leave policies to help employees combat COVID-19 and new childcare demands, with 44% planning on expanding their paid leave benefits in 2021.

But that isn’t the only thing that’s changed. As employers look ahead to upcoming open enrollment and prepare for the year ahead, there are a few things to keep in mind.

1. Virtual enrollment

Since in-person meetings are sharply declining for safety concerns, employers are shifting the yearly in-person meeting with their broker to virtual walk-throughs over the phone, or doing it themselves online. But it’s more important than ever that employers get the most help they can when it comes to their employee benefits plans.

The changing needs of the workforce, the blowback from delayed elective surgeries, and new regulations mean there’ a lot employers have to navigate if they want to see solid ROI on their benefits packages.

To best prepare your business for the upcoming virtual enrollment period, start by checking off this list:

  • Do some preliminary research and see what’s out there. Get a feel for what other employers of a similar size and industry are doing.
  • Ask your employees what they need the most. Create a tiered list of benefits they express a need for, and benefits they would appreciate, but don’t require.
  • Create a detailed list of questions.
  • Call your broker with your questions and the information you gathered and walk through what’s available to you, making sure to take note of everything.

Research preparation will help you cover all the bases and avoid any gaps or lost opportunities. Make sure you give yourself enough time to do sufficient research and get answers to your questions.

2. Shifting the basics

As you plan for the year to come, take stock of all the changes your organization has gone through in the last months. Have you gone partially or fully remote? Are you considering offering remote positions at your company moving forward? Do you have young parents on your team who are juggling new childcare challenges?

Your benefits strategy may very likely need to be updated to meet the challenges relevant to your employees today. To attract, retain, and engage talent, it’s essential you understand their needs and offer resources for them to maintain a healthy life, both physically and mentally.

And that looks different for remote employees, parents with children at home, and employees suffering from increased strain on their mental health due to the isolation and anxiety caused by the pandemic. The basics of employee benefit packages need to shift around these new and different challenges to adjust appropriately.

3. Benefits communication

With the vast majority of organizations still working remote and expecting to continue doing so into the year to come, employers must create a solid virtual communication strategy around their employee benefits.

Depending on the technical skill level and abilities of your employees, you may want to offer varying types of education and support around how to use their benefits. Especially with heightened awareness around healthcare, employees may be more anxious to learn everything they can about their benefits to help ease some of their anxiety.

4. Planning for changing costs

With so much up in the air, leaders in healthcare are warning that cost projections for next year are cloudy at best. Increased demand for mental health services, the blowback from delayed elective surgeries, and potential vaccine costs are making it difficult for employers to prepare financially for the unknowns. To help with this, talk with your employees about what services they expect to need. Work with your broker to define a strategy that works best for your business.

Stay tuned

As circumstances change, be sure to keep a finger on the pulse of the insurance industry. Keep tabs on how your employees are feeling and what their concerns are moving forward. Although this can feel overwhelming, remember that there are many resources available to you to help guide you through the confusion and change.

Work closely with your broker and expect them to provide you with objective, informative information. Your broker should be your right-hand man during the next few months, and if they aren’t preparing you with strategies, education, and support, you may need to look elsewhere. As you move through the upcoming six months, stay informed, in touch, and open to new solutions and ideas, and you will come out the other side successfully.

 

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Employers, It’s Time to Talk About Telehealth

It’s been a hard year. For businesses, families, individuals, the economy, Australia—basically everyone but our pets. The strain on our collective psyche has worried healthcare professionals who are struggling to adapt to increased demand while trying to deal with disrupted delivery of their services caused by the pandemic.

In late July, the Center for Disease Control released a report that showed 40% of adults reporting they were struggling with increased mental health difficulties and substance abuse coping due to the pandemic.

The world of healthcare has seen a massive shift towards virtual healthcare or telehealth services in recent months. A study from the NYU Grossman School of Medicine found that NYU Langone Health experienced a 683% increase in urgent virtual care visits and a staggering 4,345% increase in non-urgent virtual doctor visits.

What does this mean for employers?

While employers have slowly been integrating teleservices into their benefits packages for some time, they may not have seen much enthusiasm towards the services until now. And that increase isn’t expected to go away. It’s projected that the telehealth industry will see a compound annual growth rate of nearly 40% over the next five years.

So, what exactly does that mean for employers? That it’s well past time to ensure they are offering telehealth services to their employees, not just as a quick fix, but as a long-term solution. Because of the pandemic, most providers have successfully made the switch to offering virtual care, allowing those already with insurance to stick to what’s available to them.

But that may not be enough. Employers must make telehealth services available to their employees—not just in the form of physical wellness, but behavioral and mental health.

As the effects of the pandemic continue to wear on individuals and families, it will be increasingly less likely that organizations will avoid seeing these effects in their employees. They must take steps now to help prevent further harmful effects from manifesting in their employees by creating systems that can successfully address these issues as they arise.

Where to go, and who to ask

There’s a lot of information about different services and how they’ve made a difference for employers. To get a handle on all of it, take these steps:

  • First, do your research. Ask your broker about telehealth services you can provide and read up on them.
  • Survey your employees. Find out what they want and need.
  • Create an implementation plan. Educate your employees, not just once, or in one way. Some of your employees may not be as comfortable adapting to new technology as others, so make sure you provide ample training and assistance to use it successfully.

Going forward

Like any new system, benefit, or practice you introduce to your employees, it’s critical you don’t just set it up and forget about it. Monitor the program closely and follow up with your employees to find out what’s working and what isn’t. Identify areas that can be improved and locate issues to address.

Now is not the time to be haphazard about your process. While the pandemic may make telehealth services easier to implement in some ways, remember that it is an attempt to address a critical issue that can quite literally mean life or death depending on its success or failure.

In the end, the best thing that employers, leaders, organizers, and advocates can do is work together to provide the best quality care to the largest number of people. Make sure you’re doing your part to support your employees and set them (and your business) up for success.

 

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Healthcare predictions: What’s in Store for This Year and Beyond?

Guest blog content provided to Q4iNetwork consultants by freshbenies freshbenies-Logo-CMYK 2018

Love it or hate it, healthcare changes over time— as do the consequences for employers, employees, providers, and patients.

Each year, freshbenies attends dozens of conferences, speaks with thousands of benefits consultants, and reads hundreds of thousands of words about this industry. After all, we’re in this thing together.

Based on what we’ve learned, here are ten predictions for the coming year.

1. Costs will rise. Again.

This seems so obvious to those of us within the industry. So why even list it? Let alone as number one? Because it can’t be ignored, and it continues to rise. Last year, the annual healthcare costs for a family of four were over $28,000. Bottom line: families will continue to carry higher portions of healthcare increases, and it shouldn’t be overlooked or forgotten.

2. Low unemployment will drive creativity.

While rate increases are a constant, the biggest shift this year is to a 3.7% unemployment rate. Fear of loss is always a better motivator than the desire for gain. A tight labor market will drive employers to try innovative solutions more readily. This includes creative benefit plan designs, perk programs and programs for non-benefitted employees.

3. Innovative benefit plans will gain momentum. 

The pendulum will begin to swing toward less traditional plans, including:

  • Value-Based Insurance Design (VBID)
  • Reference-based pricing models
  • Association health plans
  • Captive medical plans 
  • Direct Primary Care (DPC) 
  • High-performance centers of excellence

When suggested in the recent past, many companies have declined to install these ideas amid complaints of complexity, employee confusion or skepticism of savings. But given the low unemployment rate and the fact that consultants are getting better at explaining these solutions and pulling them together – these types of benefit plans will increase. 

4. Perks will pop.

Perks will continue to gain interest and traction. Services like gym memberships, healthcare navigation experts, telehealth, consumerism savings networks, pet care, identity theft protection, flexible hours, remote work, student loan repayment, car wash services, free snack programs, etc. are often the things people list when they brag about their workplace culture. They’ve become differentiators even among the big expense of health insurance. An employer can lose an employee to another company from the draw of perks that scratch an itch employees didn’t even know they had.

5. “Caring” support for workers will grow.

Every employer says they care about their people. But how do they actively show it? Smart employers are getting significant PR power by touting two specific sets of services…

  • Behavioral Health – The US Department of Health & Human Services estimates that 96.5M Americans live in areas with shortages of mental health providers. Effective tools that offer video visits with counselors and psychiatrists or even text-based guidance with specialists provide employees with new methods of care.
  • Caregiver Support – It’s estimated that 1 in 5 employees care for an adult family member or friend. This significantly affects an employee’s work life by adding stress and taking 15 to 20 hours of their time each week. New solutions are capturing employer interests, such as services that pair employees with a licensed coach whose expertise best matches their specific caregiving situation, as well as secure portals for documentation and collaboration. These benefits bring much-needed help, increase productivity and build tremendous loyalty. 

6. Engagement will drive more decisions. 

Continued rate increases coupled with poorly-implemented cost containment tools will draw employers to focus on achieving employee engagement. Stats revealing low utilization will bring cancelation of past programs. A shift will take place from checking the box of offering a service to moving the needle on ROI via higher utilization. 

Employers will be driving employees to programs that:

  • reduce in-patient, urgent care or emergency room visits
  • include Remote Patient Monitoring (RPM), Centers of Excellence, and wearables
  • help employees effectively navigate the healthcare system, from selecting top-tier physicians, and providing price transparency to medical bill review and negotiation

7. AI growth will not be artificial.

Artificial Intelligence and machine learning in the healthcare app space will surpass $1.7 billion this year, while health data analytics will reach $68 billion. The strongest advancements will be with machine learning in diagnostic imaging, drug research, and risk analytics. On the benefits side, we’ll see AI functions being touted throughout websites and apps.

8. Little help will come from DC (Republicans)

With a divided Congress, we can’t expect significant changes in federal health laws over the next couple years. Rather, most changes to the “flavor” of ACA will come from the thousands of issues inside the law that were at the discretion of the various departments like Health & Human Services. 

Hopefully, we’ll see bipartisan agreement with updates to Health Savings Account (HSA) laws. What’s controversial about that, right? Right. Be hopeful, but don’t hold your breath.

9. Lots of single-payer talk will come from DC (Democrats)

Remember when Republicans had one consistent chant of “repeal and replace?” Turns out it was a great slogan, but there was no actual plan to implement it. That’s exactly what “single-payer” is among Democrats this year. 

Lawmakers have many different ideas about what these two words mean, but that won’t slow them down. Single-payer was one of the top subjects during the 2018 mid-term elections and it will gain traction throughout 2019, right into the 2020 election. But it’s unlikely that a workable plan will be developed.

10. True employee benefit consultants will be in demand.

Brokers who aren’t consistently improving their knowledge will fall by the wayside. Consolidation will continue and true consultants will be in demand more than ever before. 

What does this look like? True employee benefits consultants will stop talking about how many decades they’ve been in business and start talking about how they can deliver results to the businesses they help.

They will separate themselves from the broker crowd by coming up with new ideas and new solutions that deliver better healthcare while keeping costs in check.

And when it comes down to it, isn’t that the future we all want to see?

 

Photo credit Andriy Popov