The end of the health insurance carrier

This article was published on September 27, 2018 on Employee Benefit News, written by Nelson Griswold.

More than six years ago, Aetna CEO Mark Bertolini proclaimed that “the end of insurance companies, the way we’ve run the business in the past, is here.”

At the very least, it’s the beginning of the end for these dinosaurs. The health insurance carriers face slow but steady disintermediation by innovative next generation employers and benefits professionals who are using alternative funding to take control of employer health plans and reduce costs.

Merriam-Webster defines “disintermediation” as “the elimination of an intermediary in a transaction between two parties.” In general, the purpose of disintermediation is the removal of an unnecessary middleman that adds more cost than value to a process.

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In our dysfunctional benefits/healthcare model, the employer delegates to the carrier middleman responsibility for controlling costs by managing the healthcare supply chain, which is all the medical and health-related products and services purchased by employees. The most costly are prescription drugs, hospitalization, outpatient surgery, and physician visits.

The employer wants lower healthcare costs and with a fully insured plan depends on the carrier to control the cost of healthcare by managing this complex supply chain. The carriers, however, consistently have failed to perform this most basic task. Healthcare costs have risen every year since 1960, according to the Centers for Medicare and Medicaid Services. And healthcare costs haven’t just risen but have soared, growing 261% between 1999 and 2016.

The carriers’ spectacular failure is the logical result of grossly misaligned incentives: Carriers financially benefit from rising healthcare costs. From 1999 to 2016, rising healthcare costs drove up health insurance premiums — also known as carrier revenue — by 213%, according to the Kaiser Family Foundation.

As of July, BUCAH stock values had grown an average of more than 255% in the previous five years. We can’t expect carriers to work to reduce healthcare costs and healthcare spending; businesses never work long-term for their customers’ interests against their own financial interests.

The employer that wants to take control of its health plan to reduce costs must disintermediate the carrier and implement some form of self-funding. No, self-funding isn’t new and it isn’t the solution by itself. I’ve written previously that the value in self-funding is control, not cost savings. Self-funding is a means to an end.

With control of the health plan thanks to self-funding, the employer can work with a NextGen benefits professional who knows how to manage the supply chain to both improve the quality and lower the cost of healthcare for the employer and employees.

This does not mean that every employer should disintermediate the carrier and jettison their fully insured plan. Not every employee population is a good fit for a self-funded health plan; some are too sick and need to stay fully insured. But for employers that are a good candidate for self-funding, responsible brokers and advisers have a fiduciary responsibility to their clients to disintermediate the carrier, if possible.

Sounds crazy … extreme? So did today’s $2,000, even $5,000 deductibles, just five years ago.

Benefits professionals and employers today have the power to reduce year-over-year healthcare cost while enhancing benefits and improving medical outcomes. But you can’t do it with a carrier running the show. If the employer can move to self-funding, it’s sheer malpractice not to disintermediate the carrier.

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Want to tackle rising health costs? Consider self-funding ancillary lines

This article was published on February 05, 2018 on Employee Benefit News, written by Liisa Granfors-Hunt.

If your medical plan is fully insured, switching to self-funding (and covering catastrophic claims) can be downright intimidating, even with stop-loss insurance. That’s why many employers are sticking a toe in the financial risk pool by self-funding one or two ancillary lines of coverage.

The most commonly self-funded ancillary benefits are dental and short-term disability, followed by vision. These benefits are relatively low risk: Chances are, your employees don’t typically use dental services much beyond bi-annual checkups and a filling here and there. Short-term disability is a popular benefit for employees needing maternity leave. However, if you plan accordingly, these claims won’t drastically affect the benefit spend.

Self-funding can save money and provide a greater level of transparency into how a benefits plan is performing. Here’s where you can save money: When insurance companies price products, they determine the premium by reviewing actuarial data, setting aside a portion to pay current claims, reserves to pay future claims, plus a profit. Why let the insurance company hold your reserves? By self-funding, employers hold that money.

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If you’re interested in trying self-funding for dental or short-term disability coverages, you’ll need some claims data to work with. When you self-fund a benefit such as dental care, an underwriter will review your claims history, taking into account the number of people covered under the plan, and determine what your expected claims will be based on past data and future trends. You’ll set a budget that includes your fee for plan administration, based and your expected claims. We don’t recommend self-funding the benefit the first year you offer it.

What to consider

When self-funding short term disability, depending on your comfort level, there are varying levels of help to administer the plan. Third-party administrators can handle the full range of managing a self-funded plan, such as adjudicating the claim, calculating the amount to pay and actually paying the claim. This takes some of the pressure off of plan sponsors who are completely new to self-funding, but, as with anything that conveys value, TPAs come at a cost. Therefore, you may choose to handle most of this responsibility yourself, including calculating the benefit and drawing the check. But before you make that decision, assess the availability and knowledge of your internal resources.

For both dental and short term disability, compliance is key. Depending on how your plan is structured, you may be responsible for complying with state and federal regulations that your carrier handled previously. When setting up your plan, it’s vital to ensure that you understand where responsibilities lie so you can remain compliant.

Risk should be your primary concern. Sure, this may seem obvious — for ancillary benefits such as dental and short-term disability, the risk is relatively low. Self-funding an insurance benefit means you should watch how the plan is performing more closely than you would if it were fully insured.

One example of potential savings

For companies who weigh the risk and begin self-funding dental, the savings can be very real. One company offered an employer paid dental plan to its 420 eligible employees. The plan averaged 394 enrolled members over 18 months. During that same 18-month period, the employer paid $567,474 in premiums. The insurance company paid $481,617 in dental claims, equaling a difference of $85,857. Even after adding a $4.50 per employee per month administration fee to the claims cost, the employer would have saved nearly $54,000, or 9.5% of the total cost.

Medical costs continue to rise steeply; self-funding some of your ancillary cove rages can give you greater insight into how your program is performing and help you save money.

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Congress Must Preserve CT Employers’ Right to Self-Insure

Self-Insurance in CT

This article appeared on HartfordBusiness.com on December 18, 2017 from Brooks Goodison, President of Diversified Group.

Connecticut health insurers recently announced their 2018 premiums. Employers won’t like them. Rates for some small business plans will rise more than 25 percent. That follows an average increase of 5 percent last year.

Many Connecticut firms are understandably looking for ways to avoid these premium hikes. Some are opting to “self-insure,” or pay their workers’ health claims directly instead of turning to traditional insurers for coverage.

Unfortunately, officials in some states want to effectively ban self-insurance. The U.S. House of Representatives has passed legislation that would counteract those efforts. But it’s stalled in the Senate.

The upper chamber must stall no longer. Scores of Connecticut businesses, nonprofits, and municipalities — not to mention their workers — are counting on Congress to safeguard their self-insured health benefits.

When employers buy health plans from traditional insurers, they typically pay far more than their employees’ care actually costs. Their premiums cover insurers’ overhead, administrative costs and profits.

Insurers also have to protect themselves against a potential worst-case scenario, where multiple employees face huge medical bills. That pushes premiums even higher.

But if an employer has a good year, with low medical costs, his insurer doesn’t send him a rebate. That insurer keeps the excess, perhaps to cover another employer in its risk pool that wasn’t so lucky.

Self-insured organizations, by contrast, pay only for the care their employees consume. According to one study, employers can cut their health expenses by about 10 percent over the first five years following a switch to self-insurance.

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Amid Uncertainty in Health Care, the Forecast for Self-Funding with an Independent TPA Remains Very Positive

The 2018 Forecast for TPAs & Self-Funding, recently released by the Society of Professional Benefit Administrators (SPBA), expects factors to fuel continued growth and expansion by TPAs and self-funded health benefit plans in the coming year. The most significant of these factors is a growing demand by today’s workforce for more personalized benefit offerings that help enhance the well-being of younger workers. Fred Hunt, past President of SPBA, describes independent TPAs as creative, flexible and well positioned to respond to rapidly changing needs of plan sponsors and their employees.

A Trusted Authority on Self-Funding

“As an independent TPA with 40 years of experience, Diversified Group has helped thousands of companies enjoy the flexibility and financial control that a partially self-funded health plan can provide,” stated Brooks Goodison, President of Diversified Group. “Our firm is a long-standing member of SPBA because of Fred Hunt’s experience and the unique vantage point the organization provides to the self-funded marketplace.”

As the need for customization and relevant plan data continues to grow, the Diversified Group of companies are uniquely qualified to help employer groups avoid the limitations and rising costs common to off-the-shelf, fully-insured plans. Let our experience in self-funding provide your solution to health benefits.

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Healthcare Hiring Slows

healthcare-hiringThe Altarum Center for Sustainable Health Spending reports a significant drop in health hiring, pricing and spending during the first five months of this year. On average, 22,000 jobs per month were added by hospitals and ambulatory care facilities, compared to 32,000 per month during the same period in 2016. While the healthcare sector continues to be the biggest contributor to overall U.S. job growth, Founding Director Dr. Charles Roehrig expects the 3-year run of greater than 5% growth in overall health spending to end, mostly due to uncertainty over efforts to repeal and replace ACA and a smaller increase in overall spending by consumers.

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Saving Private Health Insurance

The article below is from The Wall Street Journal, published on March 20, 2017.

The House ‘stability fund’ would help states help high-risk patients.

image001The biggest gamble in the House health-care bill is whether it includes enough reform to arrest the current death spiral in the individual insurance market. No one knows for sure, but critics are overlooking important provisions that will help people who are now exposed to ObamaCare’s rapidly rising premiums.

Notably, the bill includes a new 10-year $100 billion “stability fund” that allows states to start to repair their individual insurance markets. Before ObamaCare, it wasn’t inevitable that costs would increase by 25% on average this year, or that nearly a third of U.S. counties would become single-insurer monopolies. With better policy choices, states can make coverage cheaper and more attractive for consumers and coax insurers back into the market, and the stability fund is a powerful tool.

Governors could draw on the stability fund, for instance, to reestablish the high-risk pools that prevailed in 35 states before ObamaCare. The Affordable Care Act uses regulatory mispricing to force the young to make a transfer to the old, and the healthy to the sick. The result has been insurance that the young and healthy don’t want to buy or can’t afford.

Risk pools can mitigate this cycle by removing the people with the highest costs. Over time, they can generate a compounding effect with stable or even falling premiums, which begets growing enrollment, which begets more insurer participation.

We know risk pools work in practice.

In 1993 Maine adopted community rating (the same rule in ObamaCare) that limits how much premiums can vary based on age. Enrollment had plunged by 65% by 2011 and premiums were skyrocketing. So in 2011 Maine relaxed the age rules and created an “invisible” high-risk pool. People with pre-existing conditions like cancer or congestive heart failure enrolled in regular insurance—about 14% of the insured population. Behind the scenes, the pool picked up the total cost of claims above $10,000.

Rates plunged by as much as 70% for everyone. In a recent Health Affairs study, Joel Allumbaugh, Tarren Bragdon and Josh Archambault of the Foundation for Government Accountability found that people in their early 20s saved about $5,000 a year while those in their 60s got a bonus of more than $7,000. Enrollment with Maine’s largest insurer jumped by 13% in 18 months.

States could also decide to use the stability fund to supplement premiums and out-of-pocket costs to help people with lower incomes or chronic conditions. Or they could target the heroin and fentanyl crisis. Death rates from opiod overdoses now exceed those from HIV/AIDS at the height of the epidemic in the 1990s.

The larger goal is to start to restore the traditional state regulatory authority over heath insurance that ObamaCare supplanted for federal control. Local governments understand local needs best. With more flexibility, autonomy and accountability, the GOP hope is that reform Governors can pry open markets and help promote a larger and more dynamic business.

To accelerate progress, last week Health and Human Services Secretary Tom Price invited Governors to apply for expedited 1332 innovation waivers, which suspend ObamaCare regulations when states test new insurance models. The ObamaHHS mostly used these for liberal states like Vermont that tried to take a flyer on single payer, but Mr. Price is repurposing 1332.

Republicans are talking about repeal-and-replace as “three pronged”—pass the current House bill, deregulation through Mr. Price’s executive action, and then measures that can later be attached to must-pass bills. Mr. Price’s letter is the beginning of prong two.

Republicans have an obligation to try to revitalize insurance markets, and not only because Americans depend on coverage. Repealing and replacing ObamaCare is also an opportunity to show that conservative ideas can work in health care. The reason the opposition is so furious is that liberals fear they might succeed.

Appeared in the Mar. 21, 2017, print edition.

Study Shows a 36.8% Increase for Self-Insured Plans In Private-Sector Establishments & More…

A recent Notes article from Employee Benefit Research Institute (ebri.org) examines 1996-2015 trends in self-insured health plans among private-sector establishments offering health plans and among their covered workers, with a particular focus on 2013 to 2015, so as to assess whether the Affordable Care Act (ACA) might have affected these trends. The data comes from the Medical Expenditure Panel Survey Insurance Component (MEPS-IC).

Self-Insured Health Plans: Recent Trends by Firm Size, 1996-2015

by Paul Fronstin, Ph.D., Employee Benefit Research Institute

Here are the key findings from the Employee Benefit Research Institute (EBRI):

  • The percentage of private-sector establishments offering health plans at least one of which is self-insured has increased from 28.5% in 1996 to 39% in 2015 (36.8% increase).
  • Between 2013 and 2015, the percentages of establishments offering health plans with at least one self-insured plan has increased for midsized establishments from 25.3% to 30.1% (a 19% increase); for small establishments from 13.3% to 14.2% (a 7% increase); and has decreased from 83.9% to 80.4% for large establishments (a 4% decrease).
  • Similarly, the percentage of health-plan-covered workers enrolled in self-insured health plans has increased from 58.2% to 60% (a 3% increase) from 2013 to 2015. The largest increases in self-insured plan coverage among covered workers have occurred in establishments with 25-99 employees and with 100-999 employees.

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