Why Fully Insured Medical Plans Might Still Be Your Best Option
By: Kyle Von Ruden, Employee Benefits Consultant
Disclaimer: This blog primarily pertains to employers with between 50 and 500 employees who are medically underwritten.
Just because you are fully insured doesn’t mean you are missing big savings by not moving into self-funded captives, standalone self-funding, reference-based pricing, ICHRAs or other alternative medical models. Some sales folks might tell you otherwise, but do you - or they - have the appropriate data to support change? Understand at a minimum the following four points as they play a large role in determining the costs of your medical program.
- How many employees do you have? As employee count increases, the cost curve flattens from the impact of high-cost claimants (HCCs). A million-dollar condition impacts a smaller group more heavily than a larger group when comparing it to the premiums the employer is paying into the carrier. An employer (depending on size) is likely more exposed to these HCC’s when self-funding and less exposed when fully insured. The reason is that fully insured insurance carriers have pooling points and credibility factors built into their underwriting equation that dilute the total claim spend.
- Where are your employees located? Medical markets vary in different parts of the country and may even differ within each state. For instance, the south-central half of Wisconsin is known for its HMO (Health Maintenance Organization) carrier options. The provider-owned insurance companies control and discount costs by revenue sharing within themselves and have geographically smaller areas where coverage is provided In-network but not Out-of-network, aka a narrow network. National carriers, captives, and self-funding networks can be great options but frequently come short of competing with these HMO type networks depending on employer size and health.
- What is your company capable of internally? When you are fully insured, the insurance carrier handles nearly all the various reporting required by the Affordable Care Act. The insurance company pays all the claims after the employee's out-of-pocket expenses on behalf of the employer. When self-funded, much of the numerous ACA reporting is up to the employer and/or a hired third-party administrator. Also, the employer pays a large portion of the claims after the employee's out-of-pocket costs, subject to self-funding contracts/amounts.
- What is the health of your group? Costs of medical premiums vary based on numerous factors, not just claim costs versus premiums. Medical and Rx trend, demographics, health conditions, and anticipated claims play a significant role. When fully insured, you agree to a bundled premium package locked for 12 months via a two-party system. If you are not running well and anticipate higher cost claims, you might be better insulated under a fully insured program.
At the end of the day, you may be better off fully insured versus under alternative funding options, depending on, but not limited to, the above variables. Either way, be sure to ask for as much information about your group as possible before switching how you manage your employer-sponsored medical program.
