Companies move toward self-insurance as healthcare rates increase
The rising cost of healthcare — and the pressures associated with pushing more of the cost onto employees — is causing a shift to self-insurance among employers.
According to a new survey out by Arthur J. Gallagher & Co., an Itasca, Illinois-based insurance brokerage firm, 54% of 3,000 U.S. employers polled are paying at least 5% more for employee medical insurance this year, with nearly a quarter of companies paying at least 10%.
“For employers, one of the highest increases they’re facing is their pharmacy spend,” says John Neumaier, Gallagher’s executive vice president, South Central region. “That’s where you see the movement to self-insurance. They can control how their dollars are being spent.”
Self-insurance gives employers the ability to curb costs through personalizing pharmacy and medical plans to their workforce, Neumaier says.
The trend of switching from fully insured to self-insured is expected to grow by 35% in the next two years, from 28% to 38%, according to the “Benefits Strategy & Benchmarking Survey.”
The fast turnover rate can be attributed to the “explosion in healthcare costs,” with inflation rates for insurance carriers hovering around 8% and prescription drug costs running closer to 12% to 15%, says Jim O’Connor, CEO of CBIZ Employee Services Organization.
As specialty drugs continue to rise, employers are looking to carve out a standalone pharmacy program that meets their needs, Neumaier adds.
Gallagher estimates 54% of companies will soon have a standalone program, up from 36%. Other options for reining in costs, such as defined contribution arrangements and access to a private exchange, will triple by 2018; currently, fewer than 5% of employers are adopting these methods.
“We’re constantly pushing the boundaries to control costs,” Neumaier says. “Other than the recruiting and retaining of employees, controlling costs is one of the main problems for employers.”
The move to self-insurance, and subsequent planning and implementation, requires data to determine the best course of action. While fully-insured employers might get data reports annually, self-insurance allows employers to get data monthly and look at individual aspects of the benefit plan.
For example, employers can use analytics to dive into their plan and see if pharmacy spending or emergency room utilization is trending up or down, Neumaier says.
“It gives the information that’s needed to make decisions going forward,” he says.
Monthly access to data can help HR professionals map out employee benefits more efficiently, a problem reported in the Gallagher survey.
“You can lay out a multi-year strategic plan, but when 12 months from now your health insurance carrier gives you a significant increase in cost, that at times can disrupt your longer term plans,” O’Connor says.
Only 8% of employers surveyed use a multi-planning process with multiple data inputs for compensation and benefits planning, compared to 76% of employers that plan their benefits year-to-year.
He recommends mid-sized employers should look to self-insurance to combat those unexpected costs, as long as they have the “right demographics, the right financial strengths and the right access to plan administrators;” this can be done by tweaking or modifying variables based on the industry, workforce geography or age group.
The continued advances in medical technology, even beyond data and analytics, can help employers enhance their healthcare benefits.
Employers and employees are increasingly seeing telemedicine as an added benefit, with nearly a quarter of employers offering the option. Gallagher predicts access to telemedicine will reach 42% by 2018.
“Employees love it,” Neumaier says. “Employers love it because it helps from a productivity standpoint.”
Some employers are able to set the co-pay much lower as an incentive to see a primary care physician via telemedicine; others are able to eliminate the co-pay entirely, he says.
O’Connor adds that employees don’t have to incur an actual office visit and it comes at a lower cost.
“Telemedicine is a valuable component of the healthcare equation,” he says.