Mid-sized employers make ‘steady migration’ toward self-insurance
Adam Russo is looking at nearby hospitals for quality metrics and birthing costs. The information isn’t for him — he has four kids already — but for his employees.
The cost of giving birth in Boston can range from $8,000 to $50,000, and Russo, who is the CEO of employee benefits consultancy Phia Group, doesn’t want to foot the five-digit bill.
He will, however, pay his employees a quarter of what he saves if they choose a cheaper option. His company’s self-insurance plan will identify hospitals in the area with similar quality levels and classify those with newer facilities, all the while adding the cost of giving birth at those hospitals. Should an employee choose one of the cheaper hospitals, she will receive a check for 25% of the cost Russo would have spent if she went elsewhere.
He’ll also throw in two years’ worth of diapers and wipes, delivered monthly, as a thank you.
The premise of comparing hospitals seems simple enough, but Russo says clients are blown away by the amount of money his company has been able to save through its self-insurance model.
“The typical CFO, when they look at their revenue and expenses on the health insurance line item, that CFO looks at [healthcare] almost as a fixed cost,” he says. “Now, CFOs are realizing that there is a way for us to change that trend.”
Since offering incentives to employees for choosing cheaper hospitals with the same quality assurance as their more expensive counterparts, the company has saved hundreds of thousands of dollars, Russo says. The policy also applies to purchasing medical equipment such as a nebulizer on Amazon or choosing to get an MRI at a free-standing clinic.
His consultancy group is urging other mid-sized employers to do the same, and it seems they are following suit.
From 2013 to 2015, nearly 20% of mid-sized employers made the jump to self-insurance, according to a July report from Employee Benefit Research Institute.
Like most companies that transition from the fully-insured model to self-insurance, a major attraction to taking on the responsibility of filing claims is the availability of data and analytics.
For fully-insured employers, claims are submitted directly to the insurance carriers. Those employers don’t know the rate of employees with diabetes or if their workforce has high utilization of emergency room visits.
“You don’t see,” Russo says. “You don’t get the claims data.”
Self-insured employers, for example, can sort their claims data by diagnosis code to see where employees are spending their money and customize a medical plan that accounts for that information.
More importantly, employers can come up with a strategic approach to building a plan compared to a tactical approach, says Mike Ferguson, president and CEO of Self-Insurance Institute of America, Inc., the largest trade association representing companies involved in the self-insurance/alternative risk transfer industry.
“If you’re self-insured, you can predict what your claims are going to be,” he says.
However, Ferguson warns that the self-insured model doesn’t work for everyone.
Companies who want to make the switch need to have a strong balance sheet, pay the claims as they incur and be prepared to cut that check, he says.
“In most cases companies have to retain stop-loss insurance,” Ferguson says. “Those claims are uncertain [but] it helps if you have a stable workforce.”
A transitionary employee workforce makes those forecasts more difficult, he says.
If those are feasible tasks for a company, they could be well-positioned to tackle health insurance costs, which are typically the third biggest figure on a balance sheet, Ferguson says.
Ferguson says the tipping point that brought more than 30% of mid-sized employers to a self-insured model is the cost increases to healthcare.
Insurers such as Wellmark Blue Cross & Blue Shield and Humana sent letters to their customers, saying companies should expect 38% premium hikes for 2017; premiums, along with pharmacy costs, are just some of the healthcare-related expenses reaching unprecedented highs and squeezing employers to cut or shift costs.
For companies that want switch, it also means giving employees some skin in the game.
“Transparency means nothing if the people buying the product don’t care about it,” Russo says.