Is Self-Funding Right for Your Small to Mid-Size Group?
The pandemic has taken a harsh economic toll on small to mid-size businesses. As the economy recovers, proactive cost savings suggestions through cuts and cost containment are key as you advise your groups on not only how to survive but prosper.
In an effort to mitigate costs, health benefit plans will be scrutinized. More and more small to mid-size businesses (SMBs), those with 50 to 500 employees, are looking at self-funding to see if it is a viable benefits option and savings opportunity.
What is Self-Funded Insurance? Are Your Groups Too Small?
As you probably know, self-funded health insurance is more common among larger businesses but should also be a consideration to discuss with your groups even if they are not the size of a Fortune 500 company. Organizations under 500 employees are often afraid that switching to self-funding insurance would expose them to excessive risk.
However, many are not aware that stop-loss insurance, or insurance for insurance, is available to cover any sort of catastrophic or unexpected health care cost that involves one or more employees.
What are the Benefits of Self-Funding?
Visibility into Claims Data: Self-funding gives employers visibility into their health plan’s actual utilization. Understanding a plan‘s use and needs leads to creating a better plan design, saving money and nurturing healthier employees over time. This is especially true when it comes to pharmacy benefit plans. Pharmacy benefit costs now represent over 20% of overall health care costs, with much of this rising cost being driven by specialty medications.
When electing to go self-funded, employers should also consider a pharmacy benefit plan “carve-out.” Carve-outs, managed by pharmacy benefit managers (PBMs), will give employers full visibility into their groups’ Rx utilization. Transparency into claims data is key for a PBM to design a pharmacy drug plan customized to meet the needs of any group.
Flexibility for Your Needs: Customization is key, especially when it comes to the health and prescription needs of employees. Self-funding visibility gives insight needed to design a plan that specifically fits the employer and the needs of employees. Self-funding gives brokers and employers the opportunity to work directly with their TPA or PBM to design a benefit package and customized pharmacy drug formulary that meets the company’s changing requirements.
Fully insured plans and often, even bundled self-insured programs, make employers fit into their rigid health and pharmacy plans. Every company is unique when it comes to their health and pharmacy benefit needs. At Pharmacy Benefit Dimensions (PBD), we recommend not only exploring self-funded insurance, but also a pharmacy benefit carve-out with a self-insured plan.
Freed Up Cash Flow: Traditional fully funded health insurance plans require employers to pre-pay for potential claims through a monthly premium. On a self-funded health insurance plan, employers are only required to pay claims as services are rendered, allowing the employer better control of their cash flow. Freeing up cash flow is a solution all CFOs are actively seeking.
Potential Reduction to Premiums: Fully insured plans are charged state taxes on collected premiums. Self-funded plans are only responsible for premium taxes on excess loss coverage. When you do the math, those taxes add up to between 2-3% of a group’s monthly premium costs. Additional savings can be obtained by avoiding other fully insured fees like risk and retention charges not applicable with a self-funded plan.
How to Introduce Self-Funding to Your Groups
Self-funding may be the best option for both small and big businesses. Greater cost saving, visibility into claims data and plan design flexibility are all advantages worth exploring for companies of all sizes.
Moving from fully funded to self-funded can seem like a barrier, especially without claims data history available to benchmark against. However, we have been able to start with evaluating the top 25 utilized drugs from a plan to assess if self-funded is right for each group.
To learn more about self-funded health plans and how PBD can optimize and achieve the right health care plan for your groups, talk with one of our pharmacy plan consultants.