The New Year’s Resolution You Should Keep: Managing Your Healthcare Costs

The article below was published on January 3, 2018 by DigitalDealer, written by Contributing Writer Steve Kelly.

Photo Source: DigitalDealer

We came across this article written by Steve Kelly, co-founder and CEO of ELAP Services. It discusses one common theme that all of us at Diversified Group hear more and more from not only our auto dealer clients, but from a growing number of our clients – the fact that amidst increasing healthcare costs, employers are seeking out better, less expensive ways to offer healthcare to their employees. Making the switch from a traditional health insurance plan to self-insurance creates the opportunity to achieve the savings they are looking for. We have been proud to partner with ELAP Services for many years and can attest to the results discussed in his article, which can be read below.

January is the month of new beginnings, and of course, New Year’s resolutions. But beyond setting a personal goal this year, what if you decided to use your energy to set your dealership up for success instead? What if your New Year’s resolution was to finally find a better, less expensive way to offer healthcare to your employees?

Each year auto dealers around the country feel the squeeze of rising healthcare costs. Insurance premiums for family coverage have increased by 55 percent since 2007, and while these costs are felt by the individuals and families on the plan, the employer who sponsors the health plan often carries the financial burden. Meanwhile, the total operating profit for the average dealership decreased 43.5 percent from 2016 to 2017, proving that healthcare costs and profits are out of sync, and healthcare costs have a substantial impact on dealers trying to run profitable businesses.

Becoming fed-up with the increasing costs year over year, more businesses are looking for viable, cost-saving alternatives to PPOs and are increasingly turning to self-funded or self-insured plans. Self-insurance is when an employer takes the money it would pay an insurance company and instead pays healthcare providers directly for medical claims.

According to the Employee Benefit Research Institute, the number of businesses offering self-insured health plans has increased by nearly 37 percent from 1996 to 2015. This huge increase proves that employers are trying to find the right, less expensive healthcare solution for their business. But, if you are considering self-insurance to forgo the hassles and costs of a PPO, you are missing the key component to assisting with risks of self-insurance. Self-insurers can really only maximize their health plans when paired with the reference-based pricing method.

The reference-based pricing method is the assessment and payment of medical claims based on the provider’s actual cost to deliver the service or by utilizing Medicare cost data as a benchmark. This means that rather than paying a discount off of an unknown price, an employer knows the true cost and pays a fair price for the service. Reference-based pricing helps remove the curtain of PPO “discounts,” leaving you with a fair and reasonable price to pay for a medical service.

Quite frankly, changing from a traditional healthcare plan to self-insurance with reference-based pricing could be a total game changer for your dealership. Self-insurers who use reference-based pricing benefit from significant cost savings in comparison to their PPO discounts. With the help of a partner, employers pay their healthcare bills going line by line through the expenses and with an understanding of the actual cost it takes to provide a medical service, like they would any other business cost—and in the way healthcare was meant to be paid for. On average, with the right strategic partner, you can expect to save up to 30 percent off your total healthcare spend in the first year.

So, this year, rather than throwing in the towel a few weeks in, like we often do for New Year’s resolutions, resolve to empower yourself by learning the facts and evaluating if your current healthcare plan is truly offering you the value it promises. Identifying a better, less expensive way to offer healthcare to your employees will allow you to do something novel like put the savings back into running your dealership.

About the Author

Steve Kelly is the co-founder and CEO of ELAP Services, a leading healthcare solution for self-funded employers across the U.S. He is a recognized expert and frequently called-upon speaker in the insurance, employee benefits and risk management industry, bringing more than three decades of experience solving his clients’ complex healthcare challenges.

self-funding-video

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.

Continue reading

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.

self-funding-video

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.

self-fundingCTA

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.

self-funding-video

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.

Continue reading