More and more companies are looking for answers to the spiraling cost of health insurance for their employees, with little success. But small to mid-sized companies have overlooked an important alternative to the fully insured traditional approach: self-funding.
In Rhode Island, most brokers unfortunately know little, if anything, about self-funding for smaller companies. Many health insurance brokers in Rhode Island are life insurance or property casualty agents and have no experience in self-funding. This is hurting many smaller companies financially.
Self-funding works for many companies because under fully insured plans, you are generally paying more to cover the claims of the 20 percent of companies that incur most of the claims. It is the Pareto Principle for health insurance – 80 percent of claims come from 20 percent of the companies.
Why should you be paying for the high claims of others? Self-funding allows you to escape the “community rate trap,” and with a little more risk on your part, reap the benefits of your good claims experience. That experience can be worth savings of 25 to 30 percent, a significant amount of money. That is real insurance “freedom.”
Most small to mid-size businesses don’t realize there are alternatives to both UnitedHealthcare and Blue Cross for self-funded purposes. There are third-party administrators with great networks who can provide self-funded health insurance coverage for companies with as few as 25 employees.
Let’s review some important aspects of self-funding and how it may benefit your company.
Your company may win with self-funding if your employees are relatively young and healthy. There is little risk to self-insurance, because reinsurance is purchased to protect your company from high claims.
Self funding will work even if you have employees out of state. You can custom-design your health benefits under self insurance. Self insurance is not more complicated – just get a good broker!
Cash flow is important – you need to maintain adequate reserves.
As for the actual health care, there are doctor and hospital networks to meet all of your needs.
Before you dismiss the idea, take a closer look. Self-funding is just different, not complicated, scary or reckless. The savings can be significant. The opportunity is real. Find a good broker who knows self-insurance. Whether you have 30 or 300 employees, it’s worth the investment of time to study it. And even if you try it and it doesn’t work, you can go back to a fully insured contract. •
Rick Singleton is a broker with Group Benefit Advisors Inc. and a Republican state representative for District 54 in Cumberland.
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Mr. Singleton is correct that some young, healthy smaller groups might save by self-funding–but what does that do to the remaining pool of insureds? As the “pool” becomes ever older and sicker, health insurance becomes less and less affordable to those who really need it. Our employment based, insurance funded healthcare system is very nearly a dead horse. Mr. Singleton and the other brokers are just kicking it a few last times.
On the other hand, if you have employees who value their health, and practice good self-care, wouldn’t this be a (temporary) alternative — until the horse “dies” (to continue Ted’s analogy).