Legislators forsake $60M in savings by rejecting self-insurance

The article below was published on August 19, 2017 by Green Bay Press-Gazette, written by Mike Ferguson.

Wisconsin lawmakers are at an impasse over the state budget. Senate leaders can’t agree with their Assembly counterparts on how to fund road repairs, schools, and various agencies.

Resolving this dispute would be easier if lawmakers hadn’t rejected a reform of the state’s costly health insurance program. Switching state employees and their families to a “self-insured” plan could have freed up tens of millions of dollars.

Under such a plan, the state would have covered employees’ medical expenses directly, instead of paying a traditional health insurer and hoping premiums don’t increase. Cutting out the insurance company middleman could have saved millions and enabled Wisconsin to offer higher quality benefits to government workers. It’s a missed opportunity — one that lawmakers should reconsider next year.

The purpose of health insurance is to minimize financial risk. Individuals’ health spending can fluctuate from one year to the next. That’s why people pay premiums to insurers to protect themselves against costly, unpredictable events.

Organizations with hundreds of thousands of employees like the state of Wisconsin don’t experience such fluctuations. They have a steady mix of young and old workers, and healthy and sick ones, making expenses for the entire organization predictable.

The risk of a spike in expenses is virtually nonexistent. So it makes sense for employers like Wisconsin — which offers health coverage to 250,000 government workers and family members — to pay for care directly rather than fork over premiums to traditional insurers.

Budget analysts predicted that self-insuring would save Wisconsin at least $60 million over two years, according to the Wisconsin Group Insurance Board. Private research firm Segal Consulting found that switching to a self-insured plan would save the government $42 million annually.

Despite these projections, Wisconsin’s politicians rejected self-insurance. Instead, the state will continue buying traditional premiums from 17 local insurance carriers.

Some legislators worried that shifting state employees onto a self-insurance plan would deprive traditional insurers of business and force them to raise premiums on other large organizations.

That’s akin to arguing that taxpayers should continue wasting millions of dollars on inflated premiums to subsidize coverage for other large organizations.

Others argued that a switch to a self-insured plan is risky, given the uncertainty surrounding Congress’s attempts to repeal the Affordable Care Act.

But this uncertainty is actually an excellent reason to switch. Self-insured organizations don’t have to worry about premiums swinging wildly or facing a raft of new compliance burdens. Self-insurance is governed by a 40-year-old federal law that will be largely unaffected no matter what happens in Washington.

Instead of addressing the rising health care costs that drive up premiums, Wisconsin lawmakers have decided to shift those costs onto workers in the form of higher deductibles. They’re also raiding the state’s rainy day fund to help pay the coming year’s premiums. This isn’t a strategy for cutting costs.

Twenty-nine states already self-insure their employees’ coverage. Nineteen others self-insure at least some of their health plans. In fact, Wisconsin has been self-insuring its employees’ dental and pharmaceutical benefits for years with excellent results.

Private companies further prove the model’s effectiveness. Fifty-eight percent of all private sector employees are enrolled in self-funded plans. Businesses that self-insure save up to 12 percent on health expenses.

It’s unclear why state lawmakers left tens of millions of dollars on the table by rejecting self-insurance this budget session. But they’ll have the chance to correct their mistake during next year’s inevitable budget crunch.

For the sake of taxpayers and state employees, let’s hope they take it.

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More Smaller Companies Are Self-Insuring Health Benefits

The article below was published on August 7, 2017 by Bloomberg BNA, written by Sara Hansard.

Small and midsized companies are increasingly providing their own health coverage for employees instead of buying fully insured plans since Obamacare was enacted in 2010.

As the Affordable Care Act drives up premiums because of more requirements and taxes, self-insurance has become a more attractive option because it is often less expensive than purchasing fully insured plans, people with knowledge of health insurance markets say. But some policy analysts argue the companies that are self-insuring generally have healthy employees and that leaving the fully insured risk pool results in higher costs for fully insured companies with older, less healthy employees.

Workers in Self-Insured Plans Rising
Percent of Private-Sector Enrollees in Self-Insured Plan

Photo source: BNA

Between 2013 and 2015, as a result of an increase in self-insured plans among small and midsized employers, the percentage of covered workers enrolled in self-insured plans increased from 58.2 percent to 60 percent, according to data from about 40,000 employers interviewed by the U.S. Department of Health and Human Services and compiled by the Employee Benefit Research Institute (EBRI).

Under self-insurance, expenses are paid directly by companies as they are incurred. Under fully insured policies, employers pay premiums to insurance companies that take the risk of covering employees. Sponsors of self-insured plans often purchase stop-loss policies that reimburse for catastrophic claims and/or aggregate claim totals that exceed pre-determined limits. Most large companies use self-insurance administered by insurers or third-party administrators.

The largest increases in self-insured coverage occurred in establishments with 100-999 employees, rising 21 percent from 33.6 percent of employees in 2013 to 40.5 percent in 2015, and among establishments with 25-99 employees, where the practice increased from 13.2 percent to 15.2 percent, a 15 percent increase.

For the midsized companies, “That is a sizable jump,” Paul Fronstin, director of health research and education at the Washington-based EBRI, told Bloomberg BNA. “You don’t see that kind of change too often.”

More Small Companies Capable

Data for 2016, which EBRI plans to publish shortly, show that self-insurance among small companies has continued to rise to 17 percent, Fronstin said. Many health-care policy observers predicted that increased regulations under the ACA would drive more small employers to self-insure, Fronstin said. “This is confirming the anecdotes.”

Self-insured plans generally have to follow the same regulations that govern fully insured plans under the ACA, Fronstin said. But “the ACA piled on. A lot of things added up,” such as covering part-time employees who work 30 hours a week and having to cover dependent children up to the age of 26, he said.

Healthier Risk Pool

Employers have found they can counteract some of the increased cost by self-insuring, “especially if you have a decent risk pool” of healthier employees, Fronstin said.

Mercer Health & Benefits LLC, which provides health-care consulting and brokerage services, has also found increases in the use of self-funding among the employers it surveys annually, principal James Bernstein told Bloomberg BNA. Bernstein is based in Mercer’s Cincinnati office.

The largest movement Mercer found was among midsized companies with 500 to 1,000 employees. Fifty-one percent of those companies self-insured in 2014, while 66 percent did so in 2016, Bernstein said. There are geographical differences as well, he said. Employers in the Midwest led the pack with about 74 percent self-insuring, while fewer employers in the Northeast and West Coast self-insured because health maintenance organizations such as Kaiser Permanente are more prevalent there, he said.

Self-insurance is gaining more traction among midsized companies because they can take advantages of discount programs with pharmacy benefit managers, national stop-loss carriers, and health management programs, Bernstein said. Those programs aren’t generally available to smaller companies, he said.

Companies Using Self-Insurance

Over the past five years that Hardwood Products Co. has been self-insured, health-care spending has decreased by about $900,000 even as the number of employees increased by 50 to about 470, Chief Financial Officer Scott Wellman told Bloomberg BNA. The company, based in Guilford, Maine, manufactures tongue depressors and other medical and nonmedical woodenware.

“The biggest reason we self-insure is the cost savings,” Wellman said. “It’s a misnomer to say you’re fully insured versus self-insured because you pay the claims anyway. I’d rather pay my claims as they happen, not a year after the fact.”

About 90 percent of Hardwood Products’ employees are in high-deductible plans with companion health savings accounts. For the past three years, premiums have stayed the same and deductibles have been lowered, Wellman said. “Our costs have stayed steady so we’ve given back to the employees.”

More Ability to Cut Costs

One of the main reasons employers self-insure is it gives them more power to lower medical expenses. Hardwood Products has about 30 diabetics, and the company partners with Tufts Health Plan in Boston on disease management practices, Wellman said. Costs for treating those patients average under $1,800 annually, far below national average costs between $4,500-$5,000 for claims, he said. “And they’re getting better care,” he said.

Hardwood Products has a stop-loss policy with Pareto Captive Services LLC to cover annual claims above $80,000. The average employee size of the 400 companies served by Pareto is about 120 employees, Andrew Cavenagh, founder and managing director of the Philadelphia-based company, told Bloomberg BNA.

The smallest employer covered by Pareto is 50 employees, Pareto said. The company, which started in 2011, has been growing at a rate of 30 percent to 40 percent per year, and the average stop-loss threshold level is $35,000 a year, he said. Pareto has contracts with employers that cover a total of about 50,000 employees,

Over the past year premium increases for long-term members “were effectively zero,” Cavenagh said. Typical stop-loss policies only cover excess claims for one year. Pareto’s stop-loss policies provide more protection from multiyear claims that exceed the threshold by pooling assets from its members, he said.

Service Uniform, a Denver-based company that rents work uniforms, decided to self-insure in 2014 as a result of the ACA, corporate general manager Dennis Tschida told Bloomberg BNA. “It scared us to death because there’s a lot of unknowns,” such as ensuring that plans met the law’s requirements for affordability and taking action to prevent being subject to the Cadillac tax on high-cost plans, he said. The Cadillac tax has been delayed until 2020.

Service Uniform, which has about 180 employees, still has to meet ACA requirements, but being self-insured “gives us a heck of a lot more control over everything,” Tschida said. “We can design the plans for the needs of the people.”

The company was able to modify its plan to provide employees better access to physical therapy treatments; improve the design of its pharmaceutical plan; and add telemedicine and concierge medicine services, Tschida said. The company, which had experienced 15 percent to 18 percent premium increases in prior years, was able to save about $200,000 in the first two years, he said.

AEgis Technologies Group Inc., a Huntsville, Ala.-based defense contractor, has had modest health-care cost increases from $8,355 in 2013 to $9,657 in 2016 after it began self-insuring, an increase of about 16 percent, Chief Financial Officer Rodney Kreps told Bloomberg BNA. During this period, he said, fully insured rates have climbed at annual rates of 15 percent to 20 percent. The company has about 325 employees.

AEgis also uses high-deductible plans coupled with health savings accounts, which the company helps fund. That gives employees incentives to be cost-conscious, and some employees have been able to build up HSA accounts to $1 million, which can be carried over from year to year, Kreps said.

“Every time the world has made a major shift to get costs under control it’s because you put decision power back in the hands of the consumer,” Kreps said. “That’s what self-insurance does.”

Stop-Loss Plans Offered to Healthy Groups

But some health-care policy analysts argue there is a downside to the trend of self-insurance. More insurers are offering self-funding and stop-loss plans to attract healthy employer groups, according to a study recently published by the Robert Wood Johnson Foundation (RWJF).

Self-insurance plans are “marketed almost exclusively to healthy groups, groups that have very, very good claims experience,” Sabrina Corlette, a research professor with Georgetown University’s Center on Health Insurance Reforms and an author of the study, told Bloomberg BNA.

“Once they self-fund they are no longer part of the risk pool for the ACA fully insured market,” Corlette said. “If you have a critical mass of healthy employers leaving the market, that can lead to premium hikes in the traditional, fully insured market,” she said. “You can have ever-increasing premiums for the employers that can’t qualify for the self-funded plans because they can’t pass underwriting.” In the past some states have acted to limit the use of stop-loss policy sales to small groups, Corlette said. But more recently, states such as New Mexico, Vermont and Minnesota have made it easier to sell stop-loss policies to small groups, she said. “Insurers and brokers are encouraging them to do that,” she said of the states moving in that direction.

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Bill headed to Senate would provide ‘safety blanket’ for benefit plans

The article below was published on May 1, 2017 by the Employee Benefit Adviser, written by Brian Kalish.

Nearly half of all employees are covered by a self-insured group health plan. Many companies that offer these plans have separate stop-loss insurance policies to protect them against the risk of catastrophically high claims. Some states and the Obama administration have attempted to regulate stop-loss insurance; a move the Self-Insurance Institute of America says would render it unaffordable.

To provide more certainty in the marketplace, the SIIA — a Simpsonville, S.C.-based member-based association — worked to introduce the Self-Insurance Protection Act.

The bill on April 5 passed the House of Representatives in a 400 to 16 vote and is now expected to be introduced in the Senate in the next few weeks. EBA spoke with SIIA’s CEO, Mike Ferguson, to understand more about the legislation. What follows is an edited version of the conversation.

EBA: What is the background on this bill?

Mike Ferguson: Shortly after the passage of the Affordable Care Act, there were policymakers within the Obama administration that became concerned that the growth of the self-funded market was coming at the expense of the public exchanges. The analysis was that the self-funding market is growing and the employers in the self-funding market are scooping up the good risks — their employees — and leaving the bad risks to go into the exchanges, which would create structural problems for the exchanges.

They further believed that the self-funded market was growing artificially, characterizing their analysis, facilitated by stop-loss insurance with relatively low attachment points. They believed that many of these self-funding plans were trying to look for an escape hatch out of the ACA requirements.

Really, these were fully-insured arrangements and they should be treated and defined as such for purposes of the ACA. There was discussion within the administration and a formal request for information was issued by HHS and DOL, which asked very pointed questions about self-funded insurance and stop-loss insurance. It was clear from the line of questioning that regulators were looking to try to show that employers were moving in this direction as a way to game the system and get out of the ACA mandates.

Subsequent to that, we learned there was discussion within the Obama administration on, ‘What do we do about this and how [do we] get our arms around these self-funded plans,’ because theACA did not provide any particular recourse.

EBA: How did the talk on Capitol Hill progress?

Ferguson: The discussion that we become aware of was, ‘What if we just take an aggressive definition of what insurance is and bring those employers back in as regulated entities as fully-insured employers or health insurance issuers?’

That was the internal discussions that were going on within agencies. A couple of years ago, in recognition of this, we said how do we address this because once you have a regulatory process commence, it is very difficult to push back on that. What we did, we worked with friends on the Hill to get legislation introduced, which would head off a regulatory interpretation of the definition of health insurance and health insurance coverage to specifically exclude self-insured plans with stop-loss insurance. This was in anticipation of potential regulatory action.

The previous version of that bill, like most pieces of legislation, ultimately did not move. This year, it has. And to put it in context, given the changes in the presidential administration, that threat is not at our doorstep anymore. But, our view is administrations can change in as early as four years. We don’t know who will be in the White House in three years and 10 months, so let’s go ahead and make sure that we get this done so that a future administration that might be unfriendly to self-insurance, does not have that avenue to disrupt the marketplace.

EBA: What does the legislation mean for employee benefit brokers?

Ferguson: It provides more certainty in the marketplace that stop-loss insurance will be available to self-funded plans. It does not change the current landscape of the self-funded marketplace. It is a safety blanket.

For employers that go to self-insurance, it is designed to be a long-term risk management strategy. Self-insurance is not designed for when an employer received a high quote on their health renewal premium and says, ‘OK, I’m going to pop over and be self-insured this year, but then switch to fully-insured two years down the road.’ That is not what employers should be looking at.

They should be looking at if they want to take a proactive long-term strategic risk to managing their healthcare risks, self-insurance can provide that option. But, it is most effective when it is an option that is deployed over multiple years. This legislation is a safety blanket for those advisers working with employers, because it takes one variable out of the regulatory environment going forward. It makes it almost impossible for anything at the federal level to disrupt their ability to self-insure to the extent that they have to access stop-loss insurance.

EBA: What is the bill’s future?

Ferguson: As a general matter, it is always tough to get anything through the Senate. That being said, since we had such a large vote margin out of the House, the Senate does, in many cases, look at that as a consideration on how it wants to move things.

Given that, we are cautiously optimistic. Cleary, we have full expectations that President Trump would sign the legislation to the extent that it is voted out of the Senate. The Senate is tricky to get anything done, even small rifle shot bills, like ours.

We have a lot of friends in the Senate. We expect the companion bill will have several prominent co-sponsors when it is announced and given that there was minimal Democratic opposition in the House, we hope that will translate to a similar dynamic in the Senate.

How to Get Employees to Use Their Preventive Care

The article below was published on July 21, 2016 by the International Foundation of Employee Benefit Plans, written by Brenda Hofmann.

Preventive care is vital to keep your employees healthy. The more employees take advantage of available preventive care, the more cost-effective their care becomes. They stay healthy, you save on health care costs—It’s a win-win for employees and employers.

You know that the Affordable Care Act (ACA) requires that health plans cover recommended preventive services at no cost to the individual, but do your employees? If you’re not already doing so, consider communicating to your workforce the free preventive care benefits that are available to them.

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You may want to adjust the language to best fit your plan or workforce, but here are some samples of communication to get you started:

Take Advantage of Free Preventive Care

Who: You! Men, women and children are all covered.

What: Depending on your age, you may have access to—at no cost to you—preventive services such as:

  • Blood pressure, diabetes and cholesterol tests
  • Many cancer screenings, including mammograms and colonoscopies
  • Counseling on topics such as quitting smoking, losing weight, eating healthfully, treating depression and reducing alcohol use
  • Regular well-baby and well-child visits, from birth to age 21
  • Routine vaccinations against diseases such as measles, polio and meningitis
  • Counseling, screening and vaccines to ensure healthy pregnancies

See the full list at Healthcare.gov.

When: Now. These preventive services are already covered under our plan.

Where: Preventive services are free when delivered by an in-network doctor.

Why: Preventive care screening can detect disease in the early stages when it is most treatable. Following preventive care guidelines, along with the advice of your doctor, can help you stay healthy.

How: Know what’s considered preventive care and review the guidelines. For example, although a colonoscopy is a preventive care screening, it’s only covered for people aged 50 or older. Additionally, colonoscopies that are done to evaluate specific problems are usually classified as diagnostic procedures (not screenings) and are not covered.

Avoid unexpected costs by clearly stating when you make your appointment that your visit is for a covered preventive care service. For example, if you’re making your well-woman visit on the phone, say “I’m making an appointment for my free preventive care well-woman visit.”

Also, medical complaints aren’t preventive. If you discuss other issues with your doctor, the visit is no longer preventive and you’ll be charged a fee. For example, if during your well-woman visit, your doctor does blood work for thyroid problems you are having, these additional services won’t be covered under free preventive care. Don’t hesitate to ask your doctor whether screenings he or she recommends will cost you.

More Move to Self-Funding

self-fundingThe Employee Benefit Research Institute reports that nearly 20% of mid-sized employers made the jump to self-insurance from 2013 to 2015. A major attraction is the availability of data and analytics, enabling the employer to learn how healthcare dollars are being spent. A growing number of employers are using this data to incentivize employees who lower claim costs by choosing more efficient hospitals or freestanding imaging centers when tests such as an MRI are needed.

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House Education & Workforce Considers Self-Insurance Protection Act

The article below is from SIIA eBlast on March 1, 2017

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Photo from SIIA eBlast

March 1, 2017- The U.S. House Committee on Education & the Workforce has concluded a hearing today where it heard testimony from SIIA Chairman Jay Ritchie on the Self-Insurance Protection Act (SIPA). The hearing, entitled “Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families,” also considered legislative proposals to implement association health plans, long supported by SIIA, in addition to wellness programs, often a key component of self-insured plans.

During his testimony, Ritchie told committee members, “Self-insurance offers employers across the country a platform to effectively and efficiently manage their healthcare expenditures.  The self-insured market is focused on creating cost-effective and beneficial outcomes for employee populations.”

The Self-Insurance Protection Act seeks to preclude potential federal regulatory action that could limit access to stop-loss insurance, which would compromise the ability of many employers to sponsor self-insured group health plans. This high profile committee hearing participation is the latest example of SIIA’s growing influence and visibility on Capitol Hill.

A copy of Mr. Ritchie’s full testimony can be found here. In addition, a recording of the hearing is available on the Committee’s website here.

If you have questions on the hearing or would like more information on SIIA’s advocacy activities, please contact Ryan Work, SIIA vice president of government relations, at rwork@siia.org.

For a more complete understanding of public policy developments that may affect the self-insurance marketplace, make plans to attend SIIA’s Legislative/Regulatory Conference, scheduled for May 2-4, 2017 in Washington, DC.  Sign up before this Friday and take advantage of discounted early bird registration fees. Event details can be accessed on-line at www.siia.org, or by calling 800/851-7789.

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A change for small biz could cost some employers their custom health plans

The article below is from Crain’s New York Business, written by Caroline Lewis

Park Slope Food Coop is among the employers that could be forced to join the small-group health insurance market

Faced with rising premiums in the group health insurance market, the Park Slope Food Coop opted five years ago to create a custom plan for its 74 full-time employees and their family members and pay for the costs directly.

“I’m convinced we would have had to raise prices if we weren’t self-insured,” said Joseph Holtz, general manager, who estimates self-insurance saves the co-op $300,000 to $500,000 a year.

The co-op is one of several hundred New York employers that will be forced to stop self-insuring next year, thanks to a change in the state’s definition of a small business. Small businesses, until recently defined as having between one and 50 employees, are not eligible to purchase so-called stop-loss insurance, which kicks in when health care costs exceed a certain threshold. Without it, self-insurance is too risky. Now the state’s definition includes companies with 51 to 100 employees. The law had largely gone unnoticed before the change, said Michael Ferguson, chief operating officer of the Self-Insurance Institute of America. “In the under-50 market, not a lot of companies are self-insuring,” he said.

The deadline for employers of 51 to 100 people to give up their self-insured coverage was extended from 2016 to 2018, but legislation that would permanently grandfather them in has so far stalled in Albany.

The state Department of Financial Services declined to comment on the rationale for denying small businesses the ability to self-insure. According to The Commonwealth Fund, if employers with 51 to 100 employees self-insure in large numbers, they could undermine the risk pool of the small-group market, leaving it with older, sicker beneficiaries.

The Coalition for the Homeless, a nonprofit with 65 full-time employees, is among those hoping to continue to self-insure. If no solution is found, the organization said it will have to join the small-group market when its plan expires in November 2018.

“We could probably get a plan that provides similar coverage for a similar amount of money,” said Dave Giffen, the coalition’s executive director. However, he added, the organization wouldn’t be able to “share in the upside” if employees use less health care than anticipated.

Self-insuring has also allowed the organization more flexibility in designing its plan and has resulted in fewer burdens on employees, said Giffen. For instance, he said, the plan allows employees to bypass step therapy, or the process of trying less costly drugs first, when accessing medication. It also aims to keep down the cost of visiting out-of-network providers.

“At an organization like this, where we’re perpetually understaffed and asking people to work long hours in a very difficult job, we want to make sure they have not just adequate health coverage but generous health coverage,” said Giffen.

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