A properly implemented and managed partially self-funded plan can serve as a mechanism to manage and fund health plan expenses and potentially reduce cost by 7% to 12%.

1. In today’s economy where every dollar
counts, most businesses would jump
at the chance to implement a strategy
that provides a 7% to 12% reduction in
costs for the same product or service.
But when that strategy is a partially
self-funded medical plan design,
many employers hesitate as they are
concerned about their maximum claims
liability. Understanding the outer limits
of the risk is important but businesses
often get so focused on the maximum
claims liability that they fail to realize
that the probability of approaching that
maximum is low in any one year, and
very low when spread over several years.
In addition to the various modeling
reports that show the savings between a
fully insured and a partially self-insured
plan, a bell curve chart is a great visual
tool to understand the risk as it illustrates
the probability of reaching the maximum
claims liability. The chart below
demonstrates a 250 employee client and
their probability of hitting certain claim
thresholds. These claims assumptions
would be the same under a fully insured
or a partially self-funded plan.
When employers focus on the outside
number of 125% of expected claims,
many immediately dismiss partially self-
funding arrangements as too risky. But in
so doing, they fail to see the guaranteed
savings in taxes and fees that reduce
the total cost of risk and the long-term
probability of reduced overall costs.
Once a business understands that the
probability of approaching maximum
claims liability is low, they become more
comfortable with discussing partially
self-funded options. This opens up a
wide array of choices that don’t exist in
the fully insured world. Stop loss carriers,
third party administrators, and medical
management firms are on the leading
edge of innovation and doing more to
control costs than most bundled fully
insured programs.
While many businesses are
understandably hesitant to move to
a partially self-funded arrangement,
those that do are often rewarded with
significant savings in the first year.
Recently, a USI Insurance Services
manufacturing client with 480 employees
was spending $6.4 million annually
on their fully insured health plan. The
client was facing a 30% increase from
their existing carrier. The client hadn’t
implemented plan design changes in over
20 years due to a collective bargaining
agreement that also limited the plan
design and contribution changes that
they could make for the upcoming year.
USI evaluated the client’s current plan
design and financials so that they could
demonstrate the savings of moving to a
partially self-funded plan design. Since
the client had limited ability to reduce
cost through contribution and plan
design changes, they decided to move to
the recommended partially self-funded
arrangement. USI moved the client to a
third party administrator with identical
plan designs and worked with the client
to communicate the changes to the
employees. As a result of moving to a
partially self-funded plan, the first year
savings were $600,000 through lower
taxes and reduced carrier profit. The
client also saved an additional $500,000
due to their favorable claims experience.
To learn more about the solutions discussed here and
the USI ONE Advantage contact a USI consultant.
Understanding Probability of Maximum Claims Liability
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TrialObservations
% of Expected Plan Cost
Likelihood of Plan Cost Outcome as a Percent of Expected by Scenario
Scenario
w/o SL
Benchmark
Likelihood of Plan Cost Outcome as a Percent of Expected by Scenario
Scenario
w/o SL
Benchmark