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.
The bulk of a self-funded employers cost is retained in the SIR. Hence, the employers best opportunity for savings rests within the SIR. The SIR is the place employers can turn pennies into nickels and dimes into quarters.
In contrast, the fully insured health insurance market sets its premium and requires its customers to pay their all their premium upfront, 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/Harvard Pilgrim (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 the employer plan sponsor or contributed by its covered members.
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 may see a 2-5% price change based upon the above employee/member deductible adjustment. The self-funded employer utilizing a $50,000 ISL making this deductible change, experiences little to no impact on its SIR or fixed cost in the self-funded pay as you go model. The employers who understand and manage the available aspects of the self-funded model are rewarded financially.
A self-insured plan can work with providers to develop a comprehensive mitigation strategy tailored to their population and industry. Direct Provider Contracting (DPC), Integrated Musculoskeletal Care (IMC), Regenexx or another cutting edge mitigation or management approach. Exerting control over cost and frequency of medical procedure can impact outcomes. Employer paying attention to mitigation efforts can influence presenteeism, recruiting and retention efforts, lower turnover and improve the overall health of the population.
The strength of self-funding is controlling health care costs in an employer sponsored health plan. COVID-19 remains uncertain in spite of the increasing population receiving the vaccine. Self-funding allows employers to exert tailored control as the re-opening ramps up and we collectively learn more.
Don McCully runs Medical Captive Underwriters LLC, (Received first vaccine March 20, 2021 – Moderna) www.medicalcaptive.com – which sponsors ClearCaptive. ClearCaptive is a 50 state open access, stop-loss captive solution for middle market employers with at least 50 enrolled employees. We are a program management company using alternative risk transfer solutions lowering employer’s costs in both A&H and P&C insurance. Primary focus today is employee benefit advisors to lower medical spend and medical trend for employers enrolled in ClearCaptive.