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October Newsletter 2010


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October Newsletter 2010

  1. 1. 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. their risk. 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? analytics that: 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 their employees. 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 obstacles. 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 -Expecting mothers 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.
  2. 2. 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 medical expenses. 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.