Did you know that your employee health benefits probably don’t involve a health insurer? Per the 2014 Kaiser Family Foundation and HRET Employer Health Benefits Annual Survey:
- 61 percent of all covered workers are covered by a self-funded plan.1
- 81 percent of covered workers employed by a firm with 200 or more workers are covered by a self-funded plan.2
These days, outside of small group policies, it’s increasingly rare for employers to purchase group health insurance for their employees. Many employers of size, instead, “self-fund” their health benefits. This means, in short, they hire:
- an administrator to process claims;
- a network to secure discounts from physicians, hospitals and other providers; and
- an insurer to provide coverage for catastrophic claims (e.g., individual claims over $150,000 or so).
The popularity of self-funding will continue to grow as the Affordable Care Act’s (ACA) Fair Health Insurance Premium Rules fully implement in 2016 and the new ACA Premium Taxes (aka Annual Fee - Health Insurers) rise through 2018.
Meanwhile, most of us still commonly call the administrator of our health plan the “health insurer” and think about our health plan benefits as an arrangement similar to car insurance: premiums in; claims out. Why is that?
- Many health insurers in the individual and small group market (e.g., Aetna, Anthem, CIGNA, UnitedHealthcare) also offer claims administration and network services to self-funded medical plans. We tend to associate these brands and their logos with health insurance companies.
- Policymakers, the media, employers and benefit consultants often don’t distinguish between an insured health plan and a self-funded plan in their communications.
- For most of us, our consumer experience using an insured health plan and a self-funded plan is the same.
Why does any of this matter to an average worker?
- Cash Wages + Benefits = Total Compensation
- If the total compensation budget is fixed, dollars invested in benefits reduce cash wages.
- The largest benefit cost increase usually comes from the health plan.
Per page 2 of the 2014 Kaiser Family Foundation and HRET Employer Health Benefits Annual Survey’s Chartpack, since 1999:
If it turns out that most of this 191 percent increase went directly toward paying the non-catastrophic claims of your employer’s health plan and not to a health insurer, would that knowledge change your point of view?
- health plan costs have increased 191 percent; and
- cash earnings have increased 54 percent.
For example, would you be:
- more supportive of the wellness initiatives your employer is investing in?
- more likely to speak with a nurse calling from the health plan’s care management service?
- more willing to provide your employer with ideas on how to improve workplace health?
If you’re an employer sponsoring a self-funded plan, do you use the term “health insurer” or “health insurance company”? If so, have you considered:
- communicating to your employees that the plan is self-funded?
- developing an incentive plan that rewards employees if the plan’s performance runs better than expected? (Ask an ERISA Attorney and Benefits Consultant about the permitted incentives.)
It’s not a new idea that self-funded health plan costs are better controlled via strong employer/employee partnerships. Many employers have successfully used this partnership strategy to control costs and bring balance to the aforementioned total compensation equation.
Yet, this strategy is not yet commonplace. However, as more and more employers cancel their group insurance contracts and move to self-funding this year and beyond, we believe that this idea will come of age. The first step is to stop calling health plan administrators health insurers!
Zack Pace is a Senior Vice President, Benefits Consulting at CBIZ, Inc. Zack can be reached at ZPace@cbiz.com. Follow him on LinkedIn and Twitter at @zpace_benefits.
1. The Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits – 2014 Annual Survey, page 206.