By now, it’s common knowledge that the Patient Protection and Affordable Care Act will have a significant impact on the ability of employers to provide health insurance for employees. Employers are already bracing for a spike in healthcare costs. Total U.S. health spending is projected to rise 9.2% in 2014. That’s up from the 6.6% projected by economists at Centers for Medicare and Medicaid Services before the law took effect.
The increase in healthcare costs is attributed to the number of mandates brought on by healthcare reform, which are forcing insurance carriers, providers, and pharmaceutical companies to increase premiums to cover their margin of risk and the added cost of doing business.
The landscape has changed since the healthcare reform law passed in 2010. Lifetime maximums are prohibited and annual maximums are restricted on essential benefits. Pre-existing conditions for enrollees under 19 have been eliminated. Plans that offer dependent coverage for children must extend eligibility to age 26 with no student status requirement. By 2014, employers must offer minimum essential coverage of health benefits or potentially pay monetary penalties regardless of whether they are self-funded or fully insured. To compound the problem, minimum essential coverage has yet to be defined, but will likely be comprised of a robust combination of the essential benefits described under healthcare reform.
Employers with more than 50 fulltime employees or full time equivalents will be required to provide minimum essential coverage or face non-deductible penalties of $2,000 per employee, per year (calculated monthly). However, the penalty is only imposed if at least one full-time employee seeks healthcare insurance through a state health insurance exchange and receives a low income tax credit for that coverage. It is the receipt of the tax credit that triggers the employer penalty. The penalty is softened somewhat because the first 30 employees are removed from the penalty calculation.
With regulators still crafting new rules to implement the law, there’s no question that healthcare reform is having a significant effect on the insurance world. So, where does a broker send a client for refuge? Self-funding allows employers to offer a competitive health insurance plan at a fraction of the cost of a traditional, fully insured plan. A self-funding arrangement allows the employer control health plan expenditures, even when caught in the crosshairs of healthcare reform.
The primary benefit of self-funding is that employers only take on the fiscal responsibility for paying claims as they arise rather than paying a premium to an insurance carrier for benefits that an employee may or may not utilize. Self-funded employers have access to their employee’s health data, which allows them to implement cost containment, disease management, or health management programs and modify the plan to address the needs of their population.
Administrative and network fees are likely to increase as a result healthcare reform in the conventional and the self-funded environment. It is important to remember that any dollar that an employer saves on claims costs immediately benefits their bottom line; this is not the case if the employer is fully insured. With conventional insurance, the employer’s money is spent on a fixed, monthly premium that encompasses administrative fees and risk margins. Yet, the employer is unable to prevent exorbitant renewals due to the limited data available on the plan’s claims experience. If an employer does have a good year relative to risk, it is unlikely that the insurance carrier will give a refund or any rate relief at the plan’s renewal.
Self-funded employers have an advantage. They can evaluate their claims data and utilization. They can also customize all components of their benefit plan to provide targeted programs to mitigate risk and create savings. Self-funded employers have control. Fully insured plans cannot offer this advantage. So, how does this work?
Ask yourself, “What can my self-funded client do to save money?” First and foremost, the client should evaluate employees’ health data. Reviewing key metrics will help assess whether the client is saving money or if there are changes that need to be made to lower costs. Data indicators include the biometrics of high-risk employees(for example, blood pressure, cholesterol, glucose levels, stress, body mass index). Are these numbers improving? Is there an increase or decrease in productivity and worker absenteeism? What is driving high utilization and claims costs? For example, there is a direct correlation between wellness and sick time. Wellness programs encourage behavioral and lifestyle changes that increase productivity and time on the job. If your client’s wellness programs are effective, sick time should be reduced and the employer should benefit from more productivity onsite.
As the broker, it is your responsibility to provide employers with valuable insight and the guidance that will steer them towards savings and reduced costs whenever possible. Provide solutions that help curb spending. The employer can reduce claims expense and see measurable long-term gains with simple plan design changes and wellness and disease management programs that provide incentives to encourage the utilization of preventative care benefits. You or they need to be reviewing claims data on a monthly basis to identify where and why the claims occur. Are there preventable high-dollar claims? What incentives or outreach initiatives does the employer provide to encourage proper utilization? Does the employer offer the most innovative wellness tools and programs? If so, are they using programs that address the specific needs of their population, and most importantly, how are they measuring success? All of these questions help the client determine if they are seeing a return on their investment.
In this era of healthcare reform, self-funding allows the employer the ability to control the plan and prepare a cost-effective strategy for reigning in health benefit costs while providing a competitive healthcare benefit package for employees. Employers that have access to claims, utilization, and eligibility data can tailor their plan offerings to best match their unique employee base. Even with the threat of healthcare reform looming on the horizon, the self-funded employer can offer initiatives that encourage productivity, health, and reduced absenteeism, which directly affects their bottom line.
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