Understanding Benefits of Self-Insurance and Role of Hospitals in Helping Employers Lower Claims Costs

Healthcare reform has prompted more employers, including hospitals, to self-insure their health benefits. A study by the nonpartisan Employee Benefit Research Institute found about 59 percent of private sector workers with health coverage were in self-insured plans in 2011, up from 41 percent in 1998 1. Among large employers, the number is even higher, with 82 percent self-insuring at companies of more than 200 employees 2. Several major hospitals have converted to self-insurance with the realization that it is more cost effective to become self-insured than it is to pay insurance premiums 3.

The key advantages over fully insured plans become evident when business leaders examine the potential for cost and utilization control, improved cash flow, flexible plan design and access to data and benchmarking.

When self-insuring, employers pay for individual employee health claims out of cash flow rather than as a monthly fixed premium to a health insurance carrier. Instead of paying premiums to insurers, they pay claims filed by employees and healthcare providers. While self-insured employers assume the direct risk for payment of claims, costs are based on actual plan member healthcare use and catastrophic claims are covered by stop-loss coverage. This type of coverage serves as a financial buffer for the employer if, for example, an employee is found to have cancer or needs an organ transplant.

The self-insurance model is more cost-efficient and effective than the traditional, one-size-fits-all model of the fully insured plan and is particularly appealing in light of the Patient Protection and Affordable Care Act's health insurance tax, which is expected to increase the cost of healthcare coverage for employers relying on outside insurance carriers to cover their workforce. Furthermore, self-insured companies do not have to offer government-mandated "essential health benefits," allowing them to tailor benefits to the needs of the organization and the demographics of its workers.

Other key PPACA burdens set to hit health plans for companies that aren't self-insured include the following.

1.Comprehensive coverage for health benefits package

2. Jurisdiction of state ombudsmen

3. Ensuring that consumers get value for their dollars through annual rate reviews of insured products

Furthermore, the PPACA does not subject self-insured health plans to the jurisdiction of the states, while other plans must comply with the varying coverage mandates, insurance statutes and state regulations. In addition, self-insured plans continue to be exempted from state mandates and regulation by virtue of the Employee Retirement Income Security Act’s preemption of state action in connection with self-insured health and welfare benefit plans. For the most part, self-insured plans are not subject to litigation in state courts or the appeal and complaint procedures of the state insurance departments.

Other key reasons to self-insure 4

1. Flexibility. Self-insurance gives employers, including hospitals, the ability to design a benefit plan that better aligns with their organization’s strategic goals while also meeting the healthcare needs of employees. With a benefit plan aimed at promoting domestic utilization, hospitals can maximize the care and revenue that remains within the organization. With the assistance of a healthcare management firm, hospitals can administer customized domestic fee schedules, allowing the organization to set its own reimbursement and become less dependent on local health plans, as well as able to eliminate conflicts of interest.

2. Greater financial control. With a self-insured benefit strategy, employers pay for claims as they are incurred rather than paying an upfront, fixed premium to an insurance carrier. As a result, cash flow improves as funds are available to use at the organization’s discretion throughout the year, and interest income on reserves remains under the employer’s control.

3. Maximized internal resources. With the flexibility afforded by self-insuring, hospitals have even more opportunity to manage plan costs. In addition to the cost savings associated with domestic network use, self-insurance allows hospitals to leverage existing resources in the execution of health management and wellness programs. By doing so, hospitals can avoid duplication of efforts with their benefits administrator while maximizing the use of domestic clinicians, initiatives and facilities (UMR, 2013).

4. Improved decision-making. Many fully-insured carriers cannot provide detailed plan data. By taking advantage of the online tools offered by healthcare management firms, employers can allow plan sponsors to review claims and utilization data. This data enables benefit plans to be evaluated and strategies revised as needed. In addition, detailed data on domestic and international services allows hospitals to increase competitiveness by helping them identify business development opportunities to better meet demand.

Furthermore, self-insurance offers the kind of practical and economic advantages that curb costs, such as the following: 

1. Helping organizations tailor plans to the specific health needs of a workforce population, especially if guided by the right healthcare management firm

2. Generating as much as 3 percent immediate savings because state taxes are eliminated on most self-insured plans

3. Eliminating carrier profit margins and risk charges

Optimizing the self-insurance advantage via the national network
For self-insured hospitals and regional hospitals interested in partnering with a national healthcare management firm, it’s important to understand how to maximize the benefits of self-insurance can.  When employees require access to quality healthcare providers and facilities while traveling or working outside of the company’s primary location, access to regional providers at in-network rates can mean significant savings. This is a marked improvement over the typical one-size-fits-all network.

A growing number of employers seek this type of a national network. It offers the most competitive discounts through strong regional networks, as opposed to costly out-of-network charges or the one-size-fits-all approach where broad national networks may be weak in certain geographies. In this scenario, an experienced healthcare management firm can serve as the "glue," providing plan members with a 24/7, one-stop point of entry online for provider searches outside of the employer’s primary geographic area. 

The goal is to deliver the best outcomes in specific locations throughout the United States with a competitive product focused on service and care coordination. In addition, these local networks take into account the local culture and reflect care delivery models that vary from region to region.  Furthermore, a national network solution should be seamless and offer a broad range of options for members while meeting employer demand for consistent national benefit administration and deep discounts.

A single-network access fee for all network partners can be a key advantage for self-insurers, especially if it is based on a pricing strategy that capitalizes on regional pricing rather than assessing additional fees to access each network, as is common for most national networks.

In addition, it is critical that the network is transparent and easy-to-use. Participants present a membership card and primary medical ID card to providers in any of the participating networks. Plan choices should be consistent across all networks, while the locally based networks allow for regional healthcare care utilization and management patterns.

Self-insurance enables hospitals and other employers to offer quality, cost-effective healthcare at a time when many employers are forced to cut costs, often at the expense of their workforce. Furthermore, the growth in self-insurance across the country offers regional hospitals an opportunity to provide "in-network" healthcare to "out-of-network" employees. This is significant given that employers and employees alike are focused on cost and avoiding unpredictably higher out-of-pocket costs in the wake of healthcare reform.

Joseph Berardo, Jr., currently serves as CEO and president of MagnaCare. In this capacity, Mr. Berardo is responsible for the management of all of MagnaCare's day-to-day activities and the strategic initiatives of the company. Mr. Berardo originally joined the company as vice president of sales and marketing in January 2003. He took over as president in June 2005 and added the title of CEO in September 2007. Mr. Berardo started his career in healthcare with U.S. Healthcare in 1990. He subsequently held leadership positions at Mount Sinai Health System, Empire Blue Cross/Blue Shield and Multiplan. Mr. Berardo has authored numerous articles related to health plan strategies for employers and brokers. MagnaCare has experienced dramatic membership, revenue and earnings before interest, depreciation and amortization (EBITDA) growth under his leadership, positioning the organization as one of the largest regional Health Plan Services companies in the country. MagnaCare was an Apax portfolio company from 2003 through 2010 and is currently an HIG Capital Portfolio company.

Mr. Berardo currently serves on the Board of Directors of the Make-A-Wish foundation of NJ. He is also an active supporter of the academic and athletic programs of his three children.

1 Pear, Robert (2013, Feb. 17). Some employers could opt out of insurance market, raising others’ costs. The New York Times. Retrieved from http://www.nytimes.com/2013/02/18/us/allure-of-self-insurance-draws-concern-over-costs.html?_r=0

2 Thomas, Katie (2012, Feb. 15). Self-insured complicate health deal. The New York Times. Retrieved from http://www.nytimes.com/2012/02/16/business/self-insured-complicate-health-deal.html

3 Insurance Claim Consult (2013); Hospital self-insurance…what’s the difference? Insurance Claims Consult. Retrieved from http://www.insuranceclaimsconsult.com/Hospital%20Self%20Insurance.htm

4UMR (2013). Five reasons hospitals should consider self funding.  United HealthCare
Services. Retrieved from https://fhs.umr.com/print/UM0438.pdf

More Articles on Health Insurance:
AHA Expresses Concern About PPACA Reinsurance Program  
IRS Issues Final Rule on PPACA Health Insurance Provider Fee  
CMS Issues Rule on PPACA Insurance Pay Parameters, Oversight Provisions 

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars