By Mike Ferguson
Several major health insurers just announced that they expect to raise premiums by up to 40 percent next year.
These ever-increasing costs are certainly a drag on the economy. After all, most Americans get their coverage through work. The more employers have to spend on health care, the less they can devote to creating new jobs, investing in new products, or raising wages.
To fight back against rising premiums, more and more businesses are gravitating toward a more cost-effective form of providing health coverage called “self-insurance.” With this arrangement, a company covers its employees’ medical bills directly, rather than paying an insurer to do so.
Most Americans are unfamiliar with self-insurance — even those who are the beneficiaries of self-funded plans through work or through a labor union. Here are five things everyone should know about it.
Millions of Americans Are Already Self-Insured — and Don’t Even Know It
Among Americans with health insurance through a private employer, more than 60 percent have self-insured plans. Some of the country’s most prominent companies, including Whole Foods, Microsoft, Starbucks, Home Depot, and Southwest Airlines, self-insure.
Thousands of smaller and medium-sized firms self-insure, too. To protect themselves in the event that their employees’ medical expenses are too high for them to comfortably cover, they can purchase “stop-loss” insurance. These policies serve as a financial backstops by reimbursing companies for claims that exceed a certain agreed-upon threshold.
Typically, employers contract with an outside administrator — or even a traditional insurance company — to process their plan’s claims. So workers may get an insurance card with a conventional insurer’s name on it. But they may not realize that their employer is actually footing the bill.
Self-Insurance Plans Are More Customizable than Conventional Plans
Traditional insurers typically offer one-size-fits-all policies that can appeal to vastly different demographics. By contrast, when an employer pays for health care directly, it can tailor its benefits to the specific needs of its workforce.
For instance, a start-up with mostly healthy twenty-something employees can focus its resources that best fits its demographic, such as robust family-planning services. A company with an older workforce might provide broader coverage in chronic-disease management or weight-loss programs.
Self-Insurance Gives Companies an Incentive to Improve Employee Health
Firms directly bear the costs of their employees’ medical treatment. That gives them a huge incentive to improve health and stave off disease.
That’s why self-insured firms often invest in wellness program. Things like free gym memberships aren’t just perks. They can help a self-insured company save money by improving employee health.
Self-Insurance Is Well Regulated by Federal Law
Under federal law, self-insured employers must administer their plans in the best interest of their employees. If they fail to do so, they can be subject to steep civil and criminal penalties.
This rule gives workers a legal avenue to contest benefit denials or excessively high charges. They aren’t afforded the same recourse under traditional insurance plans.
Employers Typically Save Money by Self-Insuring
Self-insurers avoid many of the expenses that traditional insurers have to make. For instance, they can plow what a traditional insurer would have spent on marketing into better benefits — or other investments in the company or workforce.
Employers also face lower regulatory costs. Conventional health insurers have to comply with a vast array of rules for each state in which they operate. Self-insured firms operating in multiple states, by contrast, are governed the federal Employee Retirement Income Security Act.
At the same time, self-insurers cannot decline to cover people with pre-existing conditions or charge individuals more because of their health status.
These differences add up to big savings for businesses – and that’s money that can be plowed right back into boosting salaries, expanding operations, and hiring new workers.
Health insurance premiums are skyrocketing. Self-insurance offers companies a way to defend against those rising costs — and boost the well-being of their employees in the process.
Mike Ferguson is President and CEO of the Self-Insurance Institute of America.