Volume 18

 

For example, paying annual premiums to a carrier to rent your professional and public liability insurance (commonly known as being fully-insured) continues to be standard operating procedure for most. Perhaps the main reason most people do not explore alternative funding strategies, as a replacement for liability insurance, is its ready availability and relative affordability. (Relative at least to the dramatic rate increases seen in health insurance.)

Since it’s affordable and easy to acquire, why would anyone wish to seek an alternative? Well, in this case, a little independent-mindedness could go a long way.

Anyone who is committed to leaving no stone unturned in their search for new ways to control costs recognizes that premiums paid for liability insurance are a material expense. It’s money you’ve spent and there is no opportunity of ever getting your money back.

While there are several alternative ways to self-insure liability risk, if well managed, each method can result in significant long-term savings for your organization. Simply said, if you don’t incur claims, you get to keep the money you’ve set aside for potential losses.

Reducing your dependence on insurance gives you more control over the disposition and the use of money available to pay claims. Think of buying commercial insurance as renting it year-to-year. Think of self-insurance as an opportunity to build equity over the long term.

When choosing between investing in an insurance company (by renting their insurance) and investing in your own organization, there are more benefits than money to consider. Self-insurance strategies can have a substantive, positive influence on the actions and roles of employees and other stakeholders.

It’s a matter of human nature; when it is your money, not the insurance company’s, when you have skin in the game, you tend to pay closer attention to what happens. For instance, how you treat patients and ensure service quality, and how you manage other factors influencing the amount of risk your organization is exposed to, come into sharper relief.

Replacing the “remedy” of insurance with a this-is-our-money preventative attitude, causes you to take asset protection to a new, higher level. This attitude creates a powerful context for additional conversations with care givers about taking more responsibility and eliminating even the smallest potential of someone thinking, “Oh it doesn’t matter… we’ve got insurance.” Having to answer “Are we ready to manage a claim?” automatically drives the maturity of your organization to a new level.

The skin-in-the-game concept extends beyond your organization when you implement a self-insurance strategy. Instead of leaving the claims settlement process up to the insurance company and its lawyers, and instead of hoping they do their best to prevent an increase in your premiums, you have more control of the claims process and a role in deciding whether to fight or settle.

When your community knows your organization is self-insured, there is a tendency for complaints and incidents to simply go away. (This is particularly true for non-profit community hospitals.) When an attorney knows there is no big insurance company backing you, they are less likely to invest as much time and effort in a claim. Patients who are aware of your self-funded strategy may be more likely to think, “This is the community’s money… if I sue the hospital, it is coming out of my community not the big bad insurance company I could care less about.”

You may be wondering why someone who is in the business of selling insurance would be so keen on self-insurance strategies. While it is true the commissions we receive from insurance carriers are greater than fees we collect from our self-insured clients, our only motivation is finding and implementing solutions that help our clients prosper over the long run.

Consider our tag line “Prevent. Protect. Prosper.” Our first priority is to prevent surprises in your boardroom, on your balance sheet and throughout your organization. Anything and everything we can bring to bear to reduce or eliminate the risk you are exposed to is fair game in our books. So be it if short-term income from our self-insured clients is lower, as long as we’ve helped implement the right preventative strategies, we’ve fulfilled our mission.

Protection is our second priority. Simply said, we must help our clients protect themselves from risks that cannot be prevented. In doing so, we look at renting insurance from carriers as just one option. All other options are on the table and it is our job to have an intimate understanding of how they work and when and where to apply them. This deep knowledge coupled with our unmatched focus on the healthcare industry is the formula behind how we make it simple for you to choose the best possible strategies for your healthcare organization.

If you suspect renting insurance may not be the primary solution to your needs, gaining a clear understanding of all the relevant options is a simple next step.

Competing with fully insured programs are other innovative solutions such as risk retention, risk transfer, loss control, risk purchasing groups, owner-controlled insurance programs (wrap-ups), joint insurance funds and self-insured programs.

It is reasonable to expect your board would want to know what options are available to control cost, improve value and enhance benefits in everything your organization does. I recommend you fully explore your options so that you can lead an informed, due diligence approach to achieving long-term prosperity.

Some carriers and larger brokerage firms are sending messages that could give their clients a false sense of security about compliance. Because these brokers and carriers are pounding their chests saying, “We’ve got you covered,” clients are simply sticking their heads in the sand. Both are bad ideas.

And, even though upstarts like Zenefits say that through technology they can handle everything for you, the truth of the matter is everyone involved has to take the compliance bull by the horns. While Zenefits and others do a lot, they do not do it all. The Affordable Care Act has created an environment in which responsibility for compliance must be shared between clients, carriers and brokers.

In this situation, a normal bull just doesn’t have enough horns to go around… which is why a three-horned compliance bull is necessary!

Bull horns aside, shared responsibility has long been a powerful HealthSure theme. Our Shared Responsibility Process™ was created in 2010 to help healthcare organizations design, implement and manage benefit programs that create and sustain a culture in which all employees share responsibility for delivering high quality patient care, controlling costs and protecting profit.

Because the rapidly changing regulatory environment is significantly increasing compliance risk, shared responsibility has found a new, additional role to play in ensuring ACA compliance is achieved and sustained.

More than ever, leaders in healthcare organizations have to be independent minded. With independence comes the responsibility to take the lead in ensuring their organization is in compliance. The best way to do this is to grab the compliance bull by the horns. Start by making sure your broker has a firm grip on their shared responsibility. Do not assume everything is covered; ask for the information and advice you need.

The promise of lower healthcare premiums has yet to materialize. Instead, they continue to rise. According to a study by the Henry J. Kaiser Family foundation, the average annual premium in 2014 for employer-sponsored coverage was $16,834 for families and $6,025 for single coverage.

Add in the new taxes, fees and restrictions introduced by the ACA on fully insured medical plans, and it is little wonder more employers are seeking new ways to stretch their healthcare budgets.

While self-funding or self-insuring has always been an option, with more and more options becoming available, employers of all sizes are moving toward self-insurance. Consulting firm Mark Farrah Associates reports that traditional, fully insured membership dropped more than 10% from September 2013 to September 2014.

One of the most significant trends is that traditional carriers like United Health Care, Humana and Aetna are developing products and solutions that are more self-funded in nature. These are usually described as hybrids or level funded plans. Another term to be aware of is integrated stop loss.

While it’s not practical for groups under 25 lives to go this route, self-insuring and hiring a third-party administrator under an ASO (administrative services only) contract can save larger employers 10% to 25% on healthcare costs. These savings come largely from eliminating the profit margins carriers build into fully insured products to cover the actuarial risk they take for unexpectedly high healthcare costs.

It is important to remember that the ACA is holding employers with 50 or more employees accountable for all its new compliance rules. If your group falls into the 50 – 100 employee range, and because self-funded plans are not subject to many ACA provisions, it may be a good time for you to exercise your independence. (The exemptions for self-funded groups are part of the reason why the big carriers have stepped up their hybrid offerings.)

In addition to cost savings, another good reason to consider your options is self-funded plans are exempt from state insurance regulations and premium taxes under the federal Employee Retirement and Income Security Act (ERISA).

Here is a quick summary of some of the benefits of self-funding or partially self-funding your employee benefit plan:

Generally speaking, fully insured carriers for groups over 50 lives are doing very little to help their customers with compliance. Whereas when you are self-funded, through a traditional method, your TPA (third-party administrator) is usually much more hands on and doing much more for compliance (with a small fee attached).

The best way to explore your self-funding options is to start with your broker. Keep in mind that it is important to work with a broker who does not shy way from self-funding because of the short-term loss of revenue it represents to them. Even though they make more money on the commissions associated with fully-insured premiums, a far-sighted broker knows the best way to ensure their own long-term success is to protect their clients’ ability to prosper.

At HealthSure we take an objective approach and can help you explore all your options including self-funding. The important considerations we assess include:

No one said finding the perfect solution for offering a sustainable and effective employee benefit plan would be easy. But, at HealthSure, we hold ourselves responsible for making it as simple for you as possible.