Health Care Cost – Savings

Although the cost of health care seems to be stabilizing a bit, it is still important to take advantage of as many cost saving mechanisms as possible. Many employers have looked to Consumer Driven Health Plans as a means to reduce health care costs by shifting some responsibility to the employee.

It is important to educate employees on the tax benefits of various health savings tools that can supplement these High Deductible Health Plans. It is also important for the employer to understand the tax benefits with offering these plans and the advantages of funding them.

We have provided a chart that compares the technical implications of Health Saving Accounts, Health Reimbursement Accounts, and Healthcare FSA Accounts. See chart below:

Key Issues to Consider When Looking at Self-Insuring your Health Plan

New government data supports that large employers are increasingly self-insuring their health coverage. In fact, 89% of firms with more than 5000 employees do so, which is up from 62% in 1999. Approximately 50 million workers and their dependents receive benefits through employer sponsored self-insured health plans. This represents only 33% of the 150 million total participants in private employment based plans nationwide. Thus, self-insurance or partial self-insurance has become a more realistic option for smaller employers. In fact, because pressure to lower health rates is so high, many stop loss insurers are more willing to look at smaller groups. Consider these key benefits and risks as your organization evaluates this option.

1. The employer can customize the plan to meet the specific health care needs of its workforce, as opposed to purchasing a one-size-fits-all insurance policy.
2. The employer is not subject to state health insurance premium taxes or carrier margin which are generally 4% to 6% of premium
3.  The employer only pays for administration cost and actual claims, thereby providing for improved cash flow.
4. The employer maintains control over the health plan reserves, enabling maximization of interest income – income that would otherwise be generated by an insurance carrier through the investment of premium dollars.
5. The employer is not subject to conflicting state health insurance regulations and benefit mandates, as self-insured health plans are regulated under federal law.
6. The employer will have access to more information, such as claims data, that is relevant to managing the plan. This is key for employers as wellness programs continue to become more prevalent.

Also, consider these potential risks when looking at this funding option.

1. Depending on company size, there may be limited markets of carriers for administration and stop loss coverage.
2. Self-insured plans have a greater degree of HIPAA compliance requirements than those of fully insured plans.
3. The employer assumes the risk between the expected claim level and the Stop Loss coverage. However, there are ways to minimize potential volatility from month to month.
4. Claim fluctuation. Monthly claim costs can vary, verses fixed monthly premiums on a fully insured case.
If you are considering making a funding change, I suggest learning more from your benefits consultant to see what makes most sense for your organization. I urge the smaller employers to explore this option carefully because you may be surprised at the results.