A hallmark of self-funding health insurance benefits is the “pay as you go” approach for funding claims within the self-insured retention (SIR). The SIR is the employer deductible above the covered member deductible and the liability for medical claims below the employer’s stop-loss limit or Individual Specific Limit (ISL). The SIR is the employer’s pay as you go portion, for a covered members actual medical claim costs. Employers only pay medical and pharmacy claims as incurred, not prefunded.  An important distinction in the economic environment facing employers in the 2nd half of 2020.
 
In contrast, the fully insured health insurance market is 100% fixed cost premium.  Requiring its customers to pay monthly premium, regardless of actual claims cost or claim volume. The carrier exerts absolute control over plan offerings, changing available plans annually.  Determining the actual annual increase for employer or employee is more difficult because of this behavior.
 
Blue United Cigna Aetna and Humana (BUCAH) retain underwriting profit from fixed cost premiums. BUCAH profit margins are clearly outlined, the 15% Medical Loss Ratio (MLR). Expressed in employer paid dollars, the MLR increases with each extra dollar charged by the insurance carrier and paid by the employer.
 
Raising or lowering the employee deductible from $1,000 to $2,000 impacts pricing for fully insured employers more significantly than self-funded employers. A 50-500 life employer will see a 2-5% price change for incremental increase or decrease in employee deductible.  The self-funded employer utilizing a $50,000 ISL making this change, experiences little to no impact on its SIR or fixed cost.  The partially self-funded employer pays claims when presented, not in advance as part of fully insured, fixed monthly premium. The employers who understand and manage all the opportunities available from the self-funded health insurance model are rewarded financially.
 
Self-funded employer can implement Direct Primary Care (DPC), stand-alone pharmacy benefit management and other widely available mitigation tools. Self-funding health insurance allows employer to mitigate costs and exert control over the plan offering, network and pharmacy solutions provided to their members.
 
Uncertainty regarding COVID-19 continues, self-funding allows employers to retain cash as hiring ramps up and exert control as solutions or opportunities develop. Employers can provide a meaningful risk management service, ongoing employee testing, while exerting control over the costs.  
 
PROOF self-funding health insurance works for middle market employers.  ClearCaptive returned 13.5% of 2019 each employer paid premiums this week, keeping the 5 year average above 10%.  Over the last 10 years 99% of our employers spent less than Expected.
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater
​

Chargemasters place a value on a hospital’s goods and services. Chargemasters are opaque and hide the “cost” before Blue, United, Humana, Aetna or CIGNA (collectively “BUCA”) apply their unique network discount.  The familiar comment about chargemasters and discounts; “Discount off What?”. Hospitals say chargemasters are proprietary, BUCA claims the same privilege on their contracts with hospitals.
 
Declining hospital revenues from COVID-19 is real, evidenced by 29 hospital bankruptcies in 2020. Milliman indicates healthcare spend in 2020 will be $75 to $575 billion lower than 2019.
 
60 of the largest hospital operators received approximately $15 billion in bailout dollars in the federal CARES Act.  The hospital systems retain billions in cash reserves, yet 36 of the hospital systems laid off employees.
 
Individual Employers cannot negotiate price with hospitals for goods or services.  Employer health insurance expense is a large part of hospital revenue. When hospitalizations go down, self-insured employers benefit directly from lower medical use.  Fully insured employers pay monthly premiums transferring all risk to the insurance carrier, i.e. 100% fixed cost.  Insurance company profits increase if hospital use declines or medical loss ratio provisions kick in.
 
Traditional annual increases to the hospital chargemaster are limited.  For 2020 annual incremental rate increases will be insufficient to replace the revenue lost during the pandemic.  Hospitals and BUCA’s are now tearing up their current network contracts, changing the ‘Discount off What” to replace lost hospital revenue.  The movements in the chargemaster could lead to 20% to 30% increase for the same goods and services before the pandemic. Health insurance costs will go up by this industry action. 
 
Self-funding in a medical group captive benefits the Employer. Reducing monthly medical spend due to a lower percentage of fixed costs.  Medical group captive renewal cost is transparent with data supporting the increase or decrease. If covered member’s use of medical procedures is down, self-funded Employer cost reduces. Employer’s retain control over plan(s) and gain cost mitigation tools: reduce cost MRI/x-ray by removing from a hospital setting, avoid an unnecessary surgery or obtain a better priced outcome or use of direct primary care. Self-funding is more important during economic downturns for employers seeking new solutions to old problems  A medical group captive using stop-loss is a safe and effective method to access self-funding, law of large numbers.
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater
​

$575 Billion! That is one forecasted reduction in 2020 healthcare spending due to COVID-19 as folks avoid seeking ordinary medical treatment. Will this temporary reduction in medical use at hospitals and other settings reduce ongoing medical inflation? It may take years to determine the cost of COVID-19, nationally or regionally.  Health insurance actuaries must create models using their own estimates or predictions for COVID-19 as well as a dramatic, albeit temporary, drop in healthcare spending.  It is a good bet that most traditional, fully insured cost projections will not lead to lower health insurance premiums for employers.  Fully insured insurance carriers will pass along medical inflation increases, which reduce employee paychecks and employer profits.

Is there a method to avoid increases? Fully insured premium payments are advance funding for future expense of medical costs. Whether any medical treatment occurs or not, fully insured premiums are collected.  Less medical usage, higher profit for fully funded health insurance carriers. 

In November of 2018, consulting and actuarial firm, Milliman published a whitepaper indicating that fully insured costs are 5-10% higher than self-funding.  The higher costs are due to state premium tax and Affordable Care Act “excise taxes”, carrier overhead and insurance company profit margins.  Self-funding allows employers to fund claims costs as they occur (pay as you go), control plan design offerings, and not pay any excise or state premium taxes on employer paid medical claims (pay as you go portion). Covered members impact claims frequency and severity, not the plans offered, or the taxes charged.  

Self-funding requires administrative expenses like fully insured.  Itemizing these costs highlights potentially dramatic savings (up to 45%). Below identifies just some of the potential overhead expense savings, expressed as a Per Employee Per Month(PEPM).
                                                                         Fully Insured                   Self-funded
Claims Administration Margin                           $100.00                              $0.00
Pooling Charge                                                      $80.00                               $0.00
Premium Tax                                                          $20.00                               $0.00
Insurer Fee                                                              $40.00                               $0.00
Claims Administration -Network                         $35.00                             $45.00
Consulting Fees*                                                    $15.00                             $35.00
Total                                                                        $290.00                            $80.00

*fully insured carriers pay $20 PEPM or more in most states

Benefits of self-funding include:  Net medical cost expense reduction; access to data that includes transparency on pharmacy and medical use; flexible and controllable plan design; and providing return on investment for tailored health and welfare programs. $575 Billion!  Acknowledging that fully insured carriers pass through medical claims costs plus the administrative burden and consistently report an underwriting profit, it makes sense to look for alternatives now!

Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater.

​Ferris Bueller skipped school without incurring any emotional or financial toll. Ferris is beloved by all, like many other fictional movie characters.
 
Employer’s making decisions in the current economic environment face emotional and financial consequences, no matter their industry, if their decision making is not sound.  Employers cannot just take a day off.
 
Paying fully insured employee health insurance is 100% fixed cost for each employee on the plan. This applies to full time or furloughed employees when employers choose to continue coverage. Fully insured or level funded marketplace, 100% fixed cost.
 
Employee health insurance costs are reduced 60-70% using a truly self-funded platform during a furlough period. This assumes no covered member claims are incurred. In today’s environment most incurred claims occurring today are pharmacy, childbirth, cancer or CV-19.
 
 In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the… Anyone? Anyone?… the Great Depression, passed the… Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or lowered?… raised tariffs, in an effort to collect more revenue for the federal government.
Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. “Voodoo” economics.
The above words in italics taken directly from:  Ferris Bueller’s Day Off
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater
 

A hallmark of self-funding benefits is the “pay as you go” approach for funding claims within the self-insured retention (SIR). The SIR is the employer deductible above the covered member deductible and the liability for claims below the stop-loss Individual Specific Limit (ISL). The SIR is the employer’s pay as you go portion, for actual member medical incurred claims.
 
In contrast, the fully insured health insurance market sets its premium and requires its customers to pay their premium, regardless of actual claims cost or volume. The carrier exerts absolute control over employer fixed cost premiums and plans offered. Blue United Cigna Aetna and Humana (BUCAH) retain underwriting profit from fixed cost premiums. BUCAH profit margins are in black and white for everyone to see, the 15% Medical Loss Ratio (MLR). The MLR expressed in dollars, increases with each extra dollar charged and paid by an employer plan sponsor.
 
Raising or lowering the employee deductible from $1,000 to $2,000 impacts pricing for fully insured employers more significantly than self-funded employers. A 50-500 life employer will see a 2-5% price change based upon the above employee deductible change.  The self-funded employer utilizing a $50,000 ISL making this change, experiences little to no impact on its SIR or fixed cost in the pay as you go model. The employers who understand and manage all the benefits available from the self-funded model are rewarded financially.
 
Let’s assume there is an affordable, widely distributed test that can determine COVID-19 infection in 4 hours. The fully insured market could dictate the number of tests allowed for COVID-19 testing in the plan offerings and change testing frequency in future years. The cost of the test can impact the member deductible and out of pocket maximum, or the cost can be passed through to the employer’s overall cost and called free. If an employer wants to test more frequently than mandated or allowed, BUCAH will pass costs to employer or member.
 
A self-insured plan can work with providers to develop a comprehensive testing strategy. Exerting control over cost and frequency of testing. Employer testing costs are established at a fixed price without MLR added. Employer pays only for testing used at the agreed upon price.
 
Self-funded employer retains flexibility and control over testing cost and frequency for employees. Direct provider contracting and other tools are available for the employer to A) test when necessary based on actual need B) establish specific metrics for when tests are needed and 3) exert control over testing price and frequency using the free market.
 
The strength of self-funding is controlling health care costs in an employer sponsored health plan. COVID-19 holds many uncertainties, self-funding allows employers to exert control as solutions develop. Employers provide a meaningful service, ongoing employee testing, while ensuring the cost are manageable.  
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with 50 employees enrolled or greater
​

Our economy has faced significant challenges in the past and this economic environment, like others, shall pass. This challenging time is a perfect opportunity for employers to review and adopt self-funding for health insurance. Employers are reviewing their sales pipeline and supply chain.
 
Economic headwinds encourage employers to focus on cash flow and managing controllable expenses. Fully insured health insurance is a 100% fixed cost.  Partial self-funding is a “pay as you go” approach.  Backstops are provided to eliminate volatility through a risk sharing vehicle. Employers can focus on managing their business and lower fixed payments for health insurance. 
 
This COVID-19 pandemic is causing the Medical Captive Underwriters’ team, our clients and partners to practice CDC-directed steps to control its spread.  The goal is controlling and eradicating it. Let’s keep COVID-19 from spreading further.
 
We focus on keeping our team healthy.  We recognize the significant negative financial impact on all businesses this pandemic is having.  The economic headwinds will impact businesses for years to come. Encourage employers to explore self-funding their health insurance.  Transparent medical group captive program smooth renewals and lower medical spend.
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus  is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled
​

Our economy has faced significant challenges in the past like the one we are in now. This challenging time is a perfect opportunity for employers to adopt alternative funding for health insurance and receive positive cash flow benefits.
 
These economic headwinds encourage employers to focus on cash flow and managing controllable expenses. Fully insured health insurance is a 100% fixed cost.  Partial self-funding is a “pay as you go” approach.  Backstops are provided to eliminate volatility through a risk sharing vehicle. Employers can focus on managing their business while enjoying lower fixed monthly payments for health insurance. 
 
This COVID-19 pandemic is causing the Medical Captive Underwriters’ team, our clients and partners to practice CDC-directed steps to control its spread.  The goal is controlling and eradicating it. Let’s keep COVID-19 from spreading further.
 
We continually focus on keeping our team healthy and we recognize the significant negative financial impact on all businesses that this pandemic is having.  The economic headwinds will impact businesses for years to come. Encourage employers to explore the self-funding of their health insurance. 
 
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus  is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50-state open access medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled
​

Employee paychecks are diluted by catastrophic medical and RX claims
Approximately 20% of the Gross Domestic Product (GDP) spending in the United States is devoted to healthcare; and increasing catastrophic claims costs, specifically over $1 million are a prime reason.  Instances of multi-million dollar individual claims have grown at a 30% annual rate since the passage of the Affordable Care Act (ACA) and its mandate for unlimited lifetime benefit limits in health plans.  Hospitals and pharmaceutical companies are reaping generous rewards that result from this “unlimited mandate”. The pricing authority now vested in hospitals and pharmaceutical companies is untenable and made worse by their unwillingness to provide any cost transparency to plan sponsors before or after medical events.  Prior to the ACA, plan sponsors would cap their annual or lifetime limit; a $1 million per member limit was considered the industry standard. 
Industry data reveals that claims over $1 million are primarily comprised of three conditions: Perinatal/Neonatal claims represent 20.7% of all claims and 22.2% of claims spend; Malignant Neoplasms/Cancers represent 20.7% of claims and 20.1% of the claims spend, and; Injury/Poisoning/External Causes, including Burns and Trauma, represent 12.6% of the number of claims and 11.0% of the claim spend. 
Opaque provider network contracts impede plan sponsors from their objective of implementing risk reduction initiatives targeted at containing medical claims costs. Networks consider their provider contracts to be “proprietary” despite Employee Retirement Income Security Act (ERISA) provisions deeming claims data ownership to the plan sponsor.  Claims detail is restricted by the networks hiding behind unreasoned arguments that make the plan sponsor’s ability to negotiate the cost of care before or after treatment highly difficult and unlikely.
Plan sponsors purchasing stop loss coverage to secure their plan expect claims to be paid. Unbundled stop-loss carriers, those owned independently from the provider networks, have difficulty accurately predicting current or future claims costs without access to appropriate and transparent claims data.
The leveraging impact of medical inflationary trend, which typically outpaces actual Consumer Price Index (CPI) inflation in the United States, is borne by the stop-loss carriers or passed on to plan sponsors.  Plan sponsors are left with few choices to absorb increased retention of unpredictable medical costs or pass a portion of the increase to their employees in the form of higher deductibles, coinsurance or increased premium contributions.  The impact of medical cost-shifting means employee net (take-home) pay is diluted.
Self-insured plan sponsors know that retaining the predictable (and budgetable) levels of medical claim risk and buying medical stop-loss insurance to transfer unpredictable, and potentially catastrophic, claim risk is the most efficient method for controlling costs.  Self-insured employers are uniquely empowered with the ability to design plans that deliver greater transparency and increased control over medical costs. Participation in a group stop loss captive further enhances a self-insured employer’s ability by leveraging the strength of collective membership to capitalize on increased control.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com).  Focus today is lowering medical trend and spend for enrolled employers. ClearCaptive is a 50 state open access medical stop-loss group captive solution for middle market employers with at least 50 employees enrolled.
​