Smaller firms will go self-insured

As employers face the major decision of whether to bail or not on health care for employees, those deciding to stay the course are increasingly looking to self-insure.

The rule of thumb for self-insurance used to be a minimum of 500 employees for a pool large enough to spread the risks of a big medical hit. Today, some employers with as few as 35 employees are going the self-insured route.

The big health plans are responding with more “ASO” plans – Administered Services Only, under which they provide the network of health care providers, their negotiated discounts and the administration of billing.  Blue Cross Nevada, for example, is offered as ASO plan for groups as low as 50.

Part of the self-insurance deal is what’s called stop loss coverage, a form of insurance that puts a cap on any one episode of care. In the case of Serigraph, for example, we carry a stop-loss limit of $200,000 per case. As a mid-size company with 440 U.S. employees and a $4 million total health care bill, we can afford to take one or two hits at that level per year.

Our annual premium for that stop-loss policy runs about $240,000.

Smaller companies may want to buy a cap as low as $50,000.

The advantage of self-insurance is that good management practices can produce dramatic cost savings and health improvements, and those savings then flow to the company and its employees, instead of to an insurance pool of multiple companies.

For instance, on-site medical clinics and serious chronic disease management have shown costs one-third below the national average and sharply reduced hospital admissions. There is a stampede in that direction by large corporations.

Another example is the installation of consumer-drive health plans (CDHP), under which employees see incentives and disincentives to improve behaviors in utilization, intelligent purchasing, life-styles and in following disease control regimens.

Such CDHP plans, which deploy high deductibles with offsetting personal health accounts (HSAs or HRAs), reduce costs by 20% to 30%, according to four national studies.

A recently released survey by AON/Hewitt of 1000 employers showed that 51% will have in stalled CDHP plans by the end of this year.

Those plans grew by 11 percentage points in 2010 alone – to 41% of the surveyed companies. It’s another stampede.

Why wouldn’t private sector employers want to garner those savings for themselves by going self-insured and keeping their people out of expensive and dangerous hospitals?

The AON/Hewitt survey high-lighted the continuing financial pain from rising health costs. They predicted hyper-inflationary increases of 8% to 10% over the next three to five years and a doubling of costs over the next five. Ouch!

That completely unacceptable trend, coupled with the complexity and uncertainty delivered by the president’s health plan, is forcing employers into fight or flight decisions. Rand recently projected that 30% of employers with health plans will flee by 2014 when the new law kicks off in full. That’s the highest projection to date.

The $2000 fine per employee under ObamaCare for dropping coverage will prove to be a pittance compared to costs that double in five years. Many companies will take the fine and offer a defined contribution to their employees for purchase of individual policies.

They will say: “Here’s $5000 for you and your family; go to the exchange and buy your own policy; and use whatever subsidies the government has to offer as well. We’re done with managing health care. We can’t stand it any more”

Democratic politicians will quickly jack that penalty once it proves to be an inadequate hurdle for dropping coverage.

So the uncertainty for employers will continue as the rules of the game keep changing.

For those employers who stay and fight, because they want to retain talented employees, the self-insurance avenue will look more and more appealing, even for smaller firms.

 

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  • susan

    Good article. Here’s a question? Are self-insured companies bound to the same pre-existing condition rules? Specifically, are they allowed to “carve out” certain conditions to avoid paying the expenses associated with those conditions?

    • JohnTorinus

      I never checked that rule application, because we cover everyone in our company who wants coverage. Anybody else know?