In PwC’s new Health and Well-being Survey, employers reported that medical plan costs increased by more than 6 percent in 2015. Survey participants also anticipate medical cost increases of up to 9 percent this year (before plan changes). To control—if not reduce—their health care spend, companies are taking matters into their own hands by moving to ASO and self-funded insurance options.
Of those companies surveyed by PwC, 66 percent of employers with 500–1000 employees are self-insured. That number jumps to nearly 90 percent when the workforce is more than one thousand. Conversely, only 30 percent of companies with populations under 500 employees self-insure.
3 Ways to Take Full Advantage of Self-Funding
Since there’s a certain amount of risk to self-insuring an employee health plan, companies need to do everything they can to be well positioned for such action. If you’ve taken this approach—or are planning to—there are three areas to consider in order to take full advantage of self-funding.
1. Know Your Risk Tolerance—and Your Employee Population
Funding options are all about how much risk you want to assume for health care costs. By self-funding your own health plan, you accept more financial and legal responsibilities in exchange for the chance to retain any savings if medical expenses are lower than expected.
In effect, risk tolerance requires budgeting and financial management based on your plan’s utilization and expenses. In any given year your workers may be healthy enough overall to avoid multiple or costly claims for care. However, risk-tolerance planning also includes setting aside reserves for any higher-than-anticipated claims expenses that could occur.
A larger—and healthier—covered population can reduce the odds of those medical events. So, the better you know the health of your employee population, the better you’ll be able to evaluate whether self-funding is for you.
2. Share Costs With Your Employees
Even before you pay an employee one cent of salary, as an employer you’ve spent more than $17,500. That’s the cost of the average annual employer-sponsored family health plan per employee according to the Kaiser Family Foundation. To help reduce those costs, employers have traditionally asked employees to share those costs. Even then, a company’s portion adds up on average to more than $12,500 per worker.
Companies are taking matters into their own hands. This time in the form of high-deductible health plans (HDHP) in conjunction with a health savings account (HSA). HDHPs require employees to pay a significant amount of their health care costs (the high deductible) before their insurance kicks in.
By having to pay more upfront, the thinking goes, employees will be encouraged to take better care of themselves and seek less expensive forms of care. This approach is catching on. Last year, PwC reported that the percentage of companies offering such a combination rose from 56 percent in 2015 to 63 percent. For organizations with more than 1,000 workers, that number rises to 69 percent.
Another viable approach is to pair defined contributions with private exchanges. Here, companies set a limit as to what they contribute to an employee’s health plan. Workers then select the health coverage they want from a menu of services on private exchanges. Employees pay any difference in plan costs over and above the company contribution.
3. Improve the Health of Your Employees
Employee health takes on added importance when you’re responsible for paying the direct cost of each employee’s health care claims. That’s why selecting the right plans to offer your workforce is so important. Kaiser Permanente (formerly Group Health) emphasizes preventive medicine to keep your workers from getting sick in the first place. And when treatment is needed, we rely on proven treatment to help get your employees back on the job as soon as possible.
Employee education also can affect your cost of care. Let your employees know that they don’t always have to go to the doctor’s office or the emergency room for care. Urgent care costs less that emergency care. Virtual care like Kaiser Permanente’s online visits—which offer diagnoses of common medical issues—costs less than a visit to the doctor’s office. Similarly, generic drugs are just as effective as their brand-name counterparts—and cost up to 85 percent less.
To recap: Determine your risk tolerance. Evaluate your covered population. Share costs with your employees. Educate your workforce. Then take full advantage of the health and financial benefits of self-funding health care for your employees.
For more information about funding options for your employee health benefits plan, download the Self-Funded Solutions brochure from Kaiser Permanente.