Managing Rising Healthcare Costs: Why CFOs Are Turning to Self-Funding
By Jennifer Austin, Senior Director of Strategic Marketing and Employer Engagement
As healthcare costs continue to rise, the annual cost per employee for employer-sponsored health insurance is nearing $16,000. With health benefits being the second or third most expensive line item after wages it’s no surprise that healthcare costs are a top concern for many organizations. And as benefits are a major factor in employee attraction and retention, chief financial officers (CFOs) are increasingly focused on their organization’s healthcare expenses and cost mitigation strategies to offer better benefits at lower costs. In fact, 67% of respondents to Mercer’s CFO perspective survey with 500 or more employees identified healthcare expenses as a significant or very significant issue.
In an inflationary environment where healthcare costs are high, offering robust benefits that encourage employees to use high-value healthcare is essential. As self-funded plans typically cost employers less than fully insured plans over time, CFOs are increasingly turning to self-funding to manage their healthcare costs and improve their benefits.
Control Healthcare Costs and Support Employees
With a self-funded health plan, employers fund the plan rather than paying a premium to a commercial insurer. This means taking on the responsibility – including the risks and rewards of paying the medical and prescription drug claims of employees and their covered family members. Self-funding can be a better alternative to the traditional fully insured approach, driving greater transparency, control, and cost savings.
Mark Gelhaus, CFO at Walker Forge, a family-owned manufacturer of custom-engineered steel forgings, says the company began to think about self-funding when their health benefits were going up 7-8% per year with a traditional insurer. While this was below the industry average of 12%, they knew it was not sustainable without passing costs onto employees and their families. “It became a mission to make healthcare affordable for our employees because it was becoming unaffordable for them and for us,” said Gelhaus. “Previously, we let our broker manage our health benefits, but we realized that just as we manage our manufacturing plant, we can manage our health benefits. We decided to take charge of our benefits, and the first step was becoming self-insured.”
Walker Forge has seen success with self-funding. Not only have they reduced their healthcare costs, but they are also able to offer better benefits at low or even no cost. Gelhaus said, “It's so satisfying to save costs and improve the benefit plan for our employees. We haven't increased our premium in years, and we don’t plan to. Employees can even access healthcare at no cost to them if they make good choices that help lower our overall healthcare spending.”
The Fall River Group Inc., a producer of brass and aluminum sand and die castings, began self-funding over 20 years ago. Jim Beier, CFO at Fall River Group said, “Self-funding can eliminate 20-30% of health benefit costs. If you’re trying to grow your organization and do right by your employees, you can’t afford not to self-fund.”
Beier says, “Self-funding is a powerful way to retain employees by supporting their entire well-being, not just their work life. It lets us customize our benefit plan to meet the specific needs and desires of our employees, rather than focusing on what an insurance company prioritizes. This approach keeps our team happy, productive, and loyal. We believe that investing in our employees is more valuable than paying increasing premiums to an insurance company.”
Customize Your Provider Network
According to Mercer’s survey, provider network strategies attracted significant interest from CFOs. Specifically, strategies that maintain broad networks while using benefit plan design and incentives to encourage employees to use higher-value providers. These approaches preserve choice and promote the use of lower-cost, higher-quality providers without shifting costs to employees which could hinder their ability to seek necessary care.
Organizations like Walker Forge chose to have “a broad network, with options for employees to use healthcare consumerism.” They provide employees with a range of choices and options and incentives to make smart decisions about their healthcare.
The Alliance supports self-funded employers by creating custom provider networks – our Smarter NetworksSM. We partner with over 39,000 medical professionals across the Midwest, including 9,700 clinics, 150 hospitals, and 395 home health providers, covering over 91% of Wisconsin. Our extensive Comprehensive Network offers employees and their families a broad range of choices, reducing the risk of out-of-network charges and unexpected bills.
The Fall River Group Inc. has been an employer-member of The Alliance since 2004 and uses the Premier Network Ruby to encourage employers to use providers who offer good care at lower costs. Our Premier Networks are tailored to meet employees' geographic and specific healthcare needs. By including major health systems and alternative care options like independent primary care, behavioral health, imaging, and laboratory services, we ensure that individuals can access high-quality, cost-effective care in a setting that suits them best.
Access Claims Data to Make Informed Benefit Plan Decisions
More than a third of surveyed CFOs lack confidence that their long-term benefit cost management strategies are saving money. Others (19%) do not have enough data to prove initiatives like employee well-being programs, care navigation programs, and specialized provider networks are creating savings. This is also a concern for human resources and benefit managers, particularly as tighter budgets lead to closer scrutiny of investment decisions. Gelhaus says, “To manage your healthcare costs, you need to understand your costs and how they compare to industry benchmarks and your peers.”
It is essential to establish metrics for measuring performance across three levels:
- At the program level, to track overall trends in health benefit costs.
- At the segmented level, to monitor how costs are trending for individuals with chronic conditions.
- At the solution level, to evaluate the value provided by specific health solutions, like a diabetes management program.
The Alliance analyzes our employer-members' claims data to find trends and shares it with our employer-members through our Smarter HealthSM analysis. These customized analytics reports detail where employees and their covered family members are spending the most money, and more importantly where they can save. These analytics are crucial for assessing both current and future healthcare and health benefit investments.
Taking Control of Health Benefits with Self-Funding
As healthcare costs continue to increase, CFOs and C-suite executives need to get involved in health benefits. Beier says, “Self-funding is not necessarily riskier than being fully insured.” Insurance companies may offer discounts in the first year, but they typically recoup their costs later. Over time, self-funding is more cost-effective and more impactful for employees and their families. Gelhaus says, “Self-funding takes work but if you find the right partners to help you, they'll be at the table with you and work to find solutions.”
The Alliance serves as the voice for self-funded employers who want more control over their healthcare costs. Using our Smarter Networks and sophisticated data mining and analysis, we provide transparent, creative approaches to network and benefit plan design to unlock savings.
Reach out to us to learn how self-funding can benefit your organization.
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