Health Plan Funding – It’s more about strategy than company size…
We recently received a question from one of our clients on an article about health insurance options for small businesses:
The focus of the article centers around the availability of large company tools for small company health plans. It talks in detail about programs that are traditionally only available to groups with over 100 employees but are now available in the small employer market. It also explains the programs in layman’s terms and gives a well-articulated overview of why self-insurance is more relevant than ever.
The only consideration not addressed in the write-up is the organization’s overall benefits strategy, and how self-funding, or really any alternative funding method, fits into that. This is a critical piece of information that must be factored into the equation. Regardless of the size of the group, when it comes to self-funding, level funding, captives or consortiums, it’s more about strategic approach then company size.
Although companies are limited to specific products based on size, there are alternative funding opportunities available in most market segments. The real question is whether or not the alternative funding options available actually fit into the organizational benefits strategy and budgeting philosophy.
A few key questions to consider when thinking about self-funding or alternative funding:
- What are the organization’s goals?
Immediate cost savings, turnkey administration, long term cost control?
- What is the strategy behind the approach being considered?
Independence, cooperative purchasing power, risk sharing?
- What are the intricacies involved with the funding solution?
Variability in monthly payments, protection for catastrophic claims, fiduciary responsibilities, applicable state mandates?
Evaluating the above questions and answers in advance will help an organization determine if alternate funding could actually be a fit.
Typically speaking, self-funding or any type of alternative funding arrangement is about buying into a concept and creating a long term strategy. In fact, second year costs in a self-funded program are usually higher than average because of the first year discount for “immature” claims. If this is not understood or properly planned for at inception, the perception of the program will not be as favorable as it should be. However, if created appropriately, self-funding can be hugely successful for any size group. It removes the element of the unknown and transitions cost control opportunities from the insurance carrier to the companies themselves. It also saves on the year over year carrier changes and resulting employee disruption.