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