Industry Updates November, 2010
The Gardner Group is pleased to present our eighth newsletter. We look forward to continue sharing our experience and timely industry updates.
Data Analytics – A Powerful Tool Self Funding Employee Health Benefits
For Self Funded Employers
Roughly two-thirds of American employers of all sizes self fund their
health and welfare employee benefits. With rising health care costs, more
For many years, a self funded benefit plan was an
and more employers are looking to gain control of their benefit dollars.
option that only made sense for large employers.
Most self funded plans are subject to Federal ERISA and the comprehensive
Today, in the wake of the Patient Protection and
bundle of regulations associated with this statute. ERISA, however,
Affordable Care Act and market changes, self funding
preempts state insurance laws including reserve requirements, mandated
becomes an attractive option for companies of all sizes.
benefits, premium taxes and consumer protection regulations. Historically,
In general, companies should employ at least 100
the ability to avoid state mandated benefits has provided an important
individuals and take proper precautions to mitigate
impetus to motivate employers to self fund.
What is Self Funding?
A powerful tool that helps support employer decisions
is date Analytics. Data analytics can be used to An employer who operates a self funded health plan assumes the financial
streamline inefficiencies within plans both overall and risk for providing health care benefits for its employees. Self funded
on a personal level. The right administrative partner employers do not pay monthly premiums for health care that employees
can provide health plan management including access might use, rather they pay only those claims associated with care
to comprehensive data, a complete analysis of the data employees actually receive. Typically, stop loss insurance is purchased to
and potential individual and organization wide reimburse employers for unexpected shock claimants and for higher than
solutions. expected overall claims.
Health plan management partners should offer data What Are the Benefits of Self Funding?
Typically, employers automatically save money in the first 12 months due
-Evaluate health data securely to the lag in claims processing. Employers also experience savings on
-Analyze medical, pharmacy and lab data for an entire direct fully insured costs such as insurance carrier overhead costs,
population insurance company profits, capitation fees and even commissions. Self
-Identify key health issues for the company and funded employers save the 2-3% premium tax added to fully insured
categorize at-risk members premiums. While hard to specifically quantify, the removal of state
-Compare previous health care costs to future projected mandated benefits removes added costs. Finally, the flexibility to
costs determine health plan design allows employers to deliver a targeted plan to
A strong data analytics program can provide a platform
What Are the Risks of Self Funding?
for developing a wellness strategy for at-risk members
to help members improve their health and reduce cost. Despite important benefits, self funded plans do present several risks. The
Cost is not only claim costs: when health is potential financial exposure of catastrophic events and high utilization by
compromised, employees become less productive both employees can lead to exorbitant costs. This can be easily mitigated by
personally and professionally. purchasing stop loss insurance. Self funded plans remain ultimately liable
for claim decisions. The contracting of a qualified, competent Plan
Data Analytics allows employers to take action and Administrator/TPA is absolutely essential. Legal complexities presented
personalize medical care. by ERISA and IRS tax code must also be considered. Again, a quality Plan
Administrator/TPA and broker/consultant can help avoid potential
For employers who have the size and available cash-flow, a self funded
plan can result in substantial medical claims savings. A self funded plan
offers the flexibility to design customized benefit plans and provides much
more control over plan benefits. Implementing a self funded plan should
not be undertaken lightly, but failing to do so may mean wasting
thousands of dollars every year on fully insured premiums. Performing a
risk analysis provides a good idea whether a company is ready to self
fund. Designing and implementing a self funded plan can not only meet
the needs of employees but also bolster a company’s bottom line.
It’s that time again…Flu Season!
P & C Corner
The flu is a respiratory virus. The best means of prevention is to get a shot
Are You Doing Enough to Catch Safety Hazards? each year. The best time to get vaccinated is in October or November
before flu season officially begins. The flu season can last through May!
One of the most basic components of workplace safety is
recognizing hazards. From a blocked fire extinguisher to Who should get the flu vaccine:
a head bump hazard to systemic hazards such as
-Children aged 6 months until their 5th birthday
inadequate training, recognizing conditions that pose or
could pose hazards must all be a part of a sound safety
-Individuals 50 years and older
system. For more information, let us connect you with
-Any individuals with chronic medical conditions
our Risk Management partners.
-Individuals who reside in nursing homes and other long
term care facilities
-Individuals who come in contact with high risk individuals
We are now on Facebook! -Healthcare providers
-Individuals who come in contact with children 6 months and under
(these children are too young to receive the vaccine)
As another means of communicating and keeping our
clients informed we created a Facebook page. We will be If you get the flu, be sure to get plenty of rest. Over doing it can cause the
posting our Industry Update Newsletter, Health Tips, virus to be more intense. Drink plenty of liquids and avoid alcohol and
Healthcare Reform Newsletter and much more. Come tobacco.
visit us by clicking anywhere on this newsletter.
Industry Updates November, 2010
Consumer Directed Health Care as a Form of Self Insurance
Many of our clients have adopted a Consumer Directed Health (CDH) structure for their fully insured health plan. For example, a CDH
plan might have a comparatively high deductible (e.g. $2,000 for single coverage and $4,000 if dependents are covered), with an
employer funded Health Reimbursement Account (HRA) to help members meet their annual deductibles. The HRA might provide
funding equal to 50% of the annual deductible so that members are financially responsible for only 50% of the deductible. In effect, the
actual out of pocket deductible exposure to members in this example is $1,000 for single coverage and $2,000 if dependents are covered.
An obvious question is why not simply provide a plan that has a $1,000/$2,000 annual deductible and not bother with the
complications of an HRA? This question gets to the heart of both the CDH strategy and some basic benefits of self insurance. The CDH
strategy is enforced by the use of an HRA because the member is encouraged to manage the HRA by participating more actively in
treatment and spending decisions. If HRA funds are not managed carefully, the time is reached sooner when HRA funds are spent and
the member must begin paying out of pocket. Most CDH plans also provide that if HRA funds are not fully spent in a plan year, the
unspent balance can roll over and be added to the next year’s funding, giving the member a growing financial cushion for future
The insured member is given convenient access to important online tools to assist in the careful management of HRA expenditures.
These tools include information on the costs of treatment, provider quality measures to ensure that the best treatment is being received,
and up to date information on health conditions and treatment options. Ideally, the result is increasing engagement of the member in
the process of understanding and intelligently participating in the treatment of health conditions.
A secondary financial benefit to the employer arises from the fact that a high deductible CDH plan with employer funded HRAs is
really a form of modified self insurance. By choosing a high deductible plan, with a corresponding lower premium, and committing to
funding part of the deductible with HRAs, the employer is self insuring a portion (50% in the above example) of the deductible.
Invariably it will be less expensive for the employer to self insure this portion of the deductible than to pay the insurance carrier a
higher premium to insure that portion of the deductible.
Typically, only 50% - 70% of the HRA funds are actually spent by members during the year. If the portion of the deductible covered by
HRAs were instead covered by the insurance carrier in the form of lower annual deductible, the cost to the employer would always be
higher. This is because the carrier ‘s estimate of the amount of claims it would have to pay by insuring that portion of the deductible is
always conservative, meaning higher than the amount of claims that will actually be paid, and there are always substantial
administrative costs added by insurance carriers to claims estimates in fully insured premiums.
In the CDH strategy with HRAs, the employer is only paying actual claims and not paying an administrative load the carrier would
charge to pay these claims. This avoids funding a margin to protect the carrier in it’s conservative estimate of claims.
Another advantage to the employer is that there is little financial risk. If claims are higher than expected, the employer’s liability is
limited strictly to the amount of HRA funding the employer committed to for the year. If a surge of large, high cost claims occur, the
major liability is still borne by the insurance carrier.