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It's Time To Reconsider Aggregate Stop-loss Insurance

David Rook

A growing number of employers are currently experiencing a rise in catastrophic health claims, largely due to medical and pharmaceutical advances (e.g., specialty drugs and cell and gene therapies).

In the past, employers have expanded cost-sharing methods to reign in rising health expenses, such as offering high deductible health plans, but today’s employers are hesitant to shift costs onto employees amid the tight labor market.

As a result, many employers with self-funded health plans are actively looking for impactful mitigation strategies. One of the most common strategies is purchasing aggregate stop-loss insurance to help cover catastrophic health claims.

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Topics: self-funding, Funding

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Why Mid-Sized Employers Should Look at Employee Benefits Captives

David Rook

As companies continue to rebound from the pandemic, ongoing challenges — including staffing shortages, unpredictable demand, and rising supply costs — have businesses on the hunt for any advantage. Evaluating funding strategies for medical benefits programs may be a good place to start.

With employers offering richer benefits to employees as a recruitment and retention incentive, organizations are taking a hard look at the options available. Captive insurance can be an ideal solution for medical benefits, offering mid-sized companies across most industries the opportunity to control medical and pharmaceutical costs and design a more customized health plan.

Compared to companies offering traditional, fully insured plans, companies retain more control and transparency through participation in a medical captive. Employers may also save as much as 30% to 50% in total prescription costs through an actively managed pharmacy program. Overall healthcare expenses may also trend lower over time, creating a cost advantage over competitors and a benefit to the bottom line. However, participating in a benefits captive involves more work and oversight in exchange for plan flexibility and the chance to create healthcare savings.

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Topics: self-funding, Funding

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The Financial Impact of COVID-19 On Self-Funded Employer-Sponsored Group Health Plans

Jeff Griffin

Employers are understandably confused when it comes to trying to predict how the coronavirus epidemic will impact their group health plans. Utilization is way down for preventive, elective, and non-emergent services, while expenses directly relating to the testing and treatment of COVID-19 are way up.

Employers aren't the only ones who are perplexed; many employee benefits experts are also in disagreement as to how all this will play out. Willis Towers Watson estimates that employer health care costs might increase by 4 to 7 percent for calendar year 2020, while Gallagher is predicting just the opposite, suggesting that a 15% decrease in medical expenses is possible. Others, as you'll read about later, are suggesting the potential for a staggering 40 percent increase in premiums next year. 

Employers, most notably those with self-funded group health plans, must be mindful of these wide swings in predictions. Regardless of which way things play out, they need to take careful steps to ensure the financial viability of their health plans during this crisis.

So how can employers forecast and prepare for these shifts in cost? It's especially difficult because the impacts of this pandemic are highly dependent on the geographic, demographic, and economic risks which impact every employer quite differently.

Here are some steps self-funded employers should take, along with some predictions on what might happen to various cost-drivers of medical plans.

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Topics: Cost Containment, Legislation, self-funding, COVID-19

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Self-Funding For Small Business; A Way to Manage Healthcare Costs and Expand Options

Jeff Griffin

The popularity of self-funded group healthcare plans continues to rise. Already immensely popular with large employers, small businesses continue to embrace self-funding as a remarkably effective way to manage costs, navigate changing regulations, and expand medical plan options.

The genesis of self-funding’s popularity amongst smaller employers can be traced back to the Affordable Care Act. When the ACA was enacted back in March of 2010, its requirements prompted many small to mid-size companies to re-examine how they were offering - and funding - employee benefits.

Self-funding used to be considered an alternative funding method that was ONLY feasible for large companies who could take on greater risks and handle cash flow fluctuations in exchange for upside savings potential. Self-funding, after all, is a mechanism by which companies are essentially insuring themselves.

With the advent of the ACA, the benefits of self-funding expanded beyond just those of potential financial upside. The benefits of the transition are now far more reaching, and now benefit employers and employees alike.

Because of this, small and mid-size employers have been taking the plunge into self-funded group medical plans in large numbers. And as the industry has continued to evolve, self-funding among small groups has become quite common.

Here’s why:

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Topics: self-funding, healthcare costs, small businesses, stop-loss insurance

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4 Best Small Business Health Insurance Options

Jeff Griffin

As much as we hear about large companies and their impact on the economy, small businesses employ nearly half the workforce. According to data from the Small Business Administration, small businesses employed 58.9 million people (or 47.5 percent of the workforce) in 2015, creating 1.9 million net jobs in 2015 alone.

Small businesses have a major impact on the economy and on the welfare of their employees’ lives, but they don’t typically have the resources (cash or otherwise) that larger employers do, limiting their options when it comes to providing health insurance (which is still the most important employee benefit).

Of course, small businesses with fewer than 50 full-time employees aren’t held to the employer mandate — it’s up to each employer to decide if they want to offer health insurance to their employees. However, many small business owners view health insurance as one of the most effective ways to attract and retain the best employees and improve productivity (by keeping everyone healthy).

But when the numbers game counts against them, what options are available to small employers?

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Topics: Employee Benefits, self-funding, CFO, CHRO, cost management, Association Health Plans, MEWA, QSEHRA

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Why Level Funded Health Plans are Increasingly Popular Among Small Businesses

Jeff Griffin

As if there weren’t enough questions surrounding the type of health insurance plans you offer your employees, there’s also the question of how to best fund the program. Fully funded, self-funded, and level funded health plans can be found throughout every industry, but small businesses tend to face more funding challenges with health insurance than their larger counterparts.

While they aren’t required by law to offer healthcare to their employees, many small businesses (as defined by the ACA) nevertheless feel inclined to do so. Some choose to do it simply because they want to take care of their employees, while others do it to strengthen their recruitment and retention strategies. Of course, many employers do it for all three reasons.

Regardless of their intentions, small employers who offer healthcare to their workforce know the cold, hard facts: health insurance is still ranked among the most important factors for potential employees in a compensation package. Job-seekers see how volatile the individual marketplace is and understand that the most reliable and cost-efficient way to obtain healthcare is still through an employer.

Because fully funded health insurance plans tend to be expensive for small businesses, many are turning to level funded health plans, which blend the economic advantages of self-funding with the financial predictability of fully funded plans. That said, level funded plans aren’t without their detractors.

What is a Level Funded Health Plan?

A level funded health plan (also known as a partially self-funded plan) is a type of health insurance plan that combines the cost savings and customization of self-funding with the financial safety and predictability of fully funded plans. Employers still contract with insurance companies, but agree to take on more of the financial risk. 

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Topics: Cost Containment, self-funding, CFO, Funding

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What Is Self-Funded Insurance And Is It Right For My Small Business?

Jeff Griffin

Everyone is looking for ways to save money on their healthcare costs — especially employers, who are shouldering a large portion of the burden when it comes to insurance premiums. If you’re looking into self-funded insurance options, you’re certainly not alone. Self-funding is surging in popularity among companies of all sizes, including those with as few as 50 employees.

Employers are drawn to self-funding because of the promise it holds to curtail costs, the freedom it provides to customize plans, and the desire to be unburdened by strict regulation. Regardless of whether or not you choose to move to a self-funded insurance option, it’s worth exploring this funding alternative so you can make the right decision for your business.

What is Self-Funded Insurance?

Self-funded health insurance is a form of employer-sponsored healthcare that doesn’t use traditional insurance carriers as a conduit for medical care. Instead, premiums are paid to the employer, which the company uses to pay for medical claims. Self-funding has traditionally been found in larger businessestypically 1,000 employees or more, because they’re more likely to have larger reserves and cash flow to absorb a bad claim year than a small business.

The financial upside of self-funding is that employers get to keep any premiums which aren’t spent on claims. In a fully-funded environment, those savings are retained by the insurance company as profit.

The downside is that you’re opening yourself up to greater degrees of expense variability. In a low claims year, you’ll save money — but in a high claims year, you'll have to be prepared to absorb any overruns in healthcare expenses. Regardless, in our opinion, employee benefit expenditures should always be looked at over a multi-year time horizon. 

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Topics: Employee Benefits, Cost Containment, Administration, self-funding, CFO, Funding

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What is Stop Loss Insurance?

Jeff Griffin

More and more companies are choosing to forego the traditional method of funding health insurance and are instead opting for a self-funded insurance program. 

For many companies, this is a great way to reduce expenses because the employer gets to drop any collected but unspent premiums to the bottom line. (In a fully-funded scenario that profit would go straight to the insurance company.) That said, self-funding is also a gamble, since an employer can also experience a plan year in which medical claims are higher than collected premiums.

This is where stop loss insurance comes into play.

What is Stop Loss Insurance?

Stop loss insurance is essentially insurance for an employer’s self-funded insurance plan (the technical term is Reinsurance or Excess Insurance). It caps the amount an employer would be responsible for paying in the event of a catastrophic claim, or series of catastrophic claims.

Stop loss caps come in many shapes and sizes and are typically driven by the risk tolerance of the company putting them in place. Stop loss insurance can prevent you from ending up in a number of financially dangerous situations because of employee illness or injury, including:

  • Decimating your budget (or your emergency reserves) for the year out of a need to cover employee healthcare costs.
  • Being unable to pay employee healthcare costs, then finding yourself being sued as a result.
  • Losing great employees due to the fact that you're no longer providing the coverage they expected (and used to receive) from their employer.
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Topics: Employee Benefits, Plan Design, self-funding, CHRO, Strategy, Risk Management

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Primary Funding Options for Employee Benefits Programs

David Rook

In survey after survey, employee benefit costs remain the top concern for HR professionals. Providing a competitive benefits package that is within an organization's budget sometimes seems like an impossible task. Affordable Care Act (ACA) requirements have added further strain, forcing employers to get creative, most especially when it comes to funding options.

For example, a self-funded benefits strategy used to be reserved for only the largest corporations, yet the Kaiser Family Foundation has tracked dramatic growth in this funding mechanism in companies with 200 or more employees over the past 15 years (from 67% in 2000 to 83% in 2015).

What other funding options for employee benefits are working for U.S. companies? Here are two of the most common strategies being used today, along with a plan design which is exploding in popularity.

1. Fully-Insured Health Plans

These are often thought of as "traditional plans" which used to be very prevalent with employers of all shapes and sizes. They include Preferred Provider Option Plans (PPO), Point of Service Plans (POS), and Health Maintenance Organizations (HMO). Simply put, fully-insured health plans work as follows; employers pay an agreed upon annual premium to a carrier, coupled with employee premium contributions per paycheck. In return, the insurance carrier pays all covered benefits.

One of the most significant advantages to fully-insured plans, in additional to ease of administration, is risk reduction: the risk of claims out-sizing premium collection is removed entirely from the employer. No matter how many eligible claims are made, regardless of scope and size, premiums remain the same for the one-year negotiated period.

The downside to fully-insured plans is that companies may pay more in premiums than they really have to. This often occurs with employers who have young, healthy workforces, but it also happens quite often with companies who know how to effectively manage claims and those who foster positive wellness and preventative care programs.  Furthermore, fully-insured plans only reduce in-year risk. Carriers who get burned on claims will inevitably exact their proverbial pound of flesh the next year in the form of exponential increases in premium.  Lastly, access to carrier claims data is a real challenge for smaller companies on fully-insured plans. This lack of transparency impacts an employer's ability to more successfully manage workforce health and wellness.

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Topics: Employee Benefits, self-funding, Funding

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