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