How businesses can save on health insurance costs

Health insurance costs have risen dramatically over the last decade and this trend shows no sign of abating. While many large employers have solved this problem by moving from traditional insurance policies to self-funded plans, smaller companies had been reluctant to take on the risks of self-insurance.

Reduced Risk

Now, a new type of self-insurance called level funding is allowing many mid-size and small businesses to take advantage of the flexibility, transparency, and potential savings enjoyed by larger companies with minimal risk. This is because level funded plans allow employers to pay fixed (“level”) monthly fees and to purchase stop loss insurance, which serves as a safety net in case an employer’s claims are higher than expected.

Cost Savings

Level funded plans can save employers money in several ways. For example, these plans’ monthly fees are often lower than traditional insurance premiums, since they do not include marketing expenses or high administrative costs and are exempt from both premium taxes and state insurance regulations.

In addition, if a company’s claims turn out to be below expectations, the employer may be rewarded with a full or partial refund.

Claims Data and Customization

Another feature of level funded plans is that they offer employers a great deal of transparency. While businesses using traditional insurance may get some cumulative data at the end of the year, those with level funded plans receive claims activity reports with detailed information about employees’ health care usage patterns throughout the year.

This allows them to take advantage of another cost-saving feature of level funded plans – the customization of benefits. For example, if employers’ claims data indicate over-usage of hospitals by employees, they can tailor their benefit plans so that workers are incentivized to get common medical tests at labs or doctors’ offices instead of hospitals. They can also adjust their plans so that employees are encouraged to use urgent care centers, rather than emergency rooms, for health problems that are not life threatening.

In addition, level funded plans allow employers to customize the benefits they offer according to their particular industries. For example, businesses such as mining and construction companies might choose to invest more in chiropractic and injury coverage than would banks or law firms. Thus, level funding helps employers provide their workers with the most appropriate benefits, while simultaneously saving money.

Special Services

Most level-funded plans offer employees a number of add-on services, which are designed to maximize an employer’s cost savings and help workers navigate the health care system.

For example, prescription benefit management programs help employees select generic and mail order drugs rather than more expensive brand name products, and medical advocacy programs give workers one-on-one support in finding the right specialists and facilities.

Many employers also value these plans’ wellness programs, which incorporate incentives designed to motivate workers to pursue a healthy lifestyle. These programs often include professional coaching and on-site risk assessments.

Physician-based telemedicine, which allows workers to get treatment for certain conditions using digital based alternatives such as FaceTime or Skype, is also becoming popular (especially among young employees) and can be another big cost saver.

The Bottom Line

Employers who choose self-insurance over traditional health insurance save approximately 10 to 25 percent in non-claims expenses, according to the Self Insurance Educational Foundation. But despite their advantages, not every company would benefit from using level funded or other self funded plans. So, if you are considering self-insurance for your firm, consult with an experienced health insurance broker, who can advise you about which options would be the best fit for your business.

Jerry Calistri is President and chief executive officer of Swift Kennedy & Associates, a health insurance brokerage firm with offices in Williamsport, DuBois, State College, and Wilkes-Barre. Jerry may be reached at jerry@swiftkennedy.com.

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