Is Self-Funding Really Controversial?

I recently read an article in the Los Angeles Times, “Health Plans Draw Scrutiny of Regulators”, referring to self-funded plans as a “controversial form of health coverage”. Really? Self-funded plans have been around for decades, but until lately they have mostly been implemented by large companies. Controversial? I don’t believe so, just much more efficient and transparent to the companies that employ them. For years these large employers with self-funded plans have been able to see and monitor their actual claims dollars being spent and they pay accordingly. And now this opportunity of transparency is being offered to smaller businesses, those with fewer than 300 employees. What is so controversial about that?

 

Every client of BeaconPath asks at each renewal, “can we see claims information that justifies the insurance carrier’s double digit rate increase?” Unless you are a large company the answer is NO. Due to capitation and company size the carrier says they do not capture this information. Business owners are no longer accepting the answers of the past: medical trending is still running very high; Medicare and MediCal reimbursement levels continue to be far below the true cost of medical costs which continues to create more cost shifting between doctors and hospitals and continues to drive higher costs to commercial insurance companies and ultimately to you and me. I don’t know about you but I am tired of preaching these calculated reasons to my clients! Business owners no longer want to hear our brilliant reasons for their high increases; they want a SOLUTION to their high costs. At last a viable program has come to the smaller market that will allow us to help our clients see their actual costs, measure these costs against national and regional norms and take proactive action to control their health care outlay. Who but the government would call this controversial?

 

Mike Ferguson, chief operating officer at the Self-Insurance Industrial Institute of America states in the article, “We are concerned about regulators’ actions because self-insurance is arguably one segment of the health care market that is working well. These companies are generally able to control costs better and offer more customized benefits.” Isn’t this the goal we have for business owners and the millions of employees they offer group insurance to; a well working health care program that controls costs and serves the health care needs of their diverse employee work force?

 

As Chad Terhune, the author of this article states, “Self-Insurance is attractive for many reasons, particularly the prospect of lower costs. It’s exempt from state insurance regulations such as mandated benefits, granting employers the flexibility to design their own benefit package and the opportunity to reap some of the savings from an employee wellness program.” Wow, lower costs, possible financial rewards for being proactive and implementing an employee wellness program. I’m sorry, I don’t get it, isn’t this what our goal is for “Health Care Reform?” A Self-Funded plan along with an efficient Wellness Program can help us reduce costs, allow more people to afford the health care they need and make it flexible enough so it can fit the needs of a person’s ever changing lifestyle.

 

So why are regulators trying to prevent self-funding from coming to smaller companies? “Sensing a fresh threat to state and federal healthcare reforms, California insurance officials are seeking new limits on a controversial form of health coverage insurers are selling to small employers.” I repeat, what is so controversial about self-funded plans for small businesses? According to critics, the fear is that the health insurers are trying to cherry-pick the healthy groups and get them all on self-funded plans which would leave only the unhealthy groups in fully-insured plans. “That prospect has federal health officials weighing action against this practice as well.” The problem here is that insurance companies have always wanted to insure the healthy groups, there is nothing new here. So what’s the problem? And based on underwriting guidelines, the insurance carriers don’t really know who the healthy and unhealthy groups are because they don’t collect information on each individual small group as they are in “pooled” segments where thousands of small business are pooled together to spread the risk. So how exactly are the insurers going to cherry-pick the healthy groups?

 

So I repeat, what is so controversial about self-funding when it comes to small business? Good brokers know that self-funding is not a fit for every group, but it is a viable option to look at for every group. We now review some form of self-funding for every client and company we design plans for and it has not been the right fit for all. But the prospect of getting information, the ability to see a company’s actual dollar out lay so we can measure and manage these costs, along with a well designed Wellness Plan, is absolutely vital for our ability to manage our future health care costs.

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